FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Annual Report on Form 10-K, including statements regarding our strategy, future operations, future product research or development, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “goals,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” "contemplate," “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
The forward-looking statements in this Annual Report on Form 10-K include, among other things, statements about:
•our plans and ability to resolve the issues identified in the complete response letter (“CRL”) we received from the US Food and Drug Administration (“FDA”) regarding our Biologics License Application (“BLA”) for Vicineum™ for the treatment of bacillus Calmette-Guérin (“BCG”)-unresponsive non-muscle invasive bladder cancer (“NMIBC”);
•our plans and ability to resolve the concerns identified in the European Medicines Agency’s (“EMA”) Withdrawal Assessment Report related to our marketing authorization application (“MAA”) for Vysyneum™ (the “EMA Withdrawal Report”);
•our belief that we have a clear understanding of what additional information regarding chemistry, manufacturing and controls ("CMC") is required for potential resubmission of a BLA for Vicineum;
•our ability to utilize Vicineum manufactured during process validation for any future clinical trials needed to address issues raised in the CRL, including an additional Phase 3 clinical trial, and that any such future clinical trials can proceed while addressing CMC issues raised in the CRL;
•our expectation to discuss the study protocol for an additional Phase 3 clinical trial for Vicineum for the treatment of non-muscle invasive carcinoma in situ (“CIS”) of the bladder in patients previously treated with adequate or less than adequate BCG in a Type C Meeting with the FDA scheduled for March 28, 2022 (“Type C Meeting”);
•our expectations regarding 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 to address questions related to clinical matters raised in the CRL;
•our intentions to use the information from the Type A Meetings following the CRL we received regarding our BLA for Vicineum to determine the appropriate path forward with regulators;
•our plans and ability to resubmit 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 to the FDA following the issuance of the CRL by the FDA, and if approved by the FDA, our ability 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;
•our plans and ability to resume pursuing regulatory approval of Vysyneum™ (the proprietary brand name that was conditionally approved by the EMA for oportuzumab monatox in the European Union) of BCG-unresponsive NMIBC in the European Union when there is more clarity from the FDA on next steps for Vicineum in the US;
•our intentions to work closely with the FDA to understand next steps for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG in the US;
•our intentions to work closely with the EMA to understand next steps for Vysyneum™ for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG in the European Union;
•the potential impact of the COVID-19 pandemic on our business;
•our expected future loss and accumulated deficit levels;
•the difficulties and expenses associated with obtaining and maintaining regulatory approval of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG in the United States, the European Union and other non-US jurisdictions, and the labeling under any approval we may obtain;
•our projected financial position and estimated cash burn rate;
•our belief that we will have sufficient future cash flows from additional geographic regions outside the US to support the value of our goodwill and EU indefinite-lived, acquired in-process research and development ("IPR&D");
•our plans to 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;
•our estimations regarding any remeasurement of contingent consideration liability in the future;
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•our estimations regarding any potential impairment to our goodwill and indefinite-lived intangible asset in the future;
•our estimates regarding expenses, future revenues, capital requirements and needs for, and ability to obtain, additional
financing;
•our need to raise substantial additional capital to fund our operations;
•the success, cost and timing of our pre-clinical studies and clinical trials in the United States Canada and in other foreign non-US
jurisdictions;
•our dependence on third parties, including contract research organizations or CROs,(“CROs”) in the conduct of our pre-clinical studies and clinical trials;trials, 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 difficultiestiming and expensescosts associated with obtainingour manufacturing process and maintaining regulatory approvaltechnology transfer to Qilu Pharmaceutical Co., Ltd. (“Qilu”) for the production of Vicineum drug substance and drug product, and our product candidates and companion diagnostics, if any, in the United States, Canada and in other foreign jurisdictions, and the labeling under any approval we may obtain;
•market acceptance 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;
•the size and growth of the potential markets for our product candidates, and our ability to serve those markets;
•our strategic operating plan to sublicense Vicineum for the successfultreatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG to business development partners in all regions outside the US, including the European Union, to earn a potential combination of upfront, milestone, and royalty payments, and the business development partner to bear the majority of regulatory and commercialization costs;
•our belief that the probability of success of future approval in the European Union for Vysyneum increases if FDA approval for Vicineum has already been obtained;
•our beliefs regarding key advantages of our targeted fusion protein therapeutics (“TFPT”) platform;
•our expectation that Vicineum may work via a dual mechanism of action to directly kill cancer cells and activate a local inflammatory process that stimulates T-cells, which then proliferate and destroy the cancer cells;
•our expectation that there may be potential for a synergistic effect when Vicineum is given in combination with checkpoint inhibitors;
•our expectations regarding the amount and timing of milestone and royalty payments pursuant to our out-license agreements and OUS business development partnership agreements, including our license agreement with F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc. (collectively, “Roche”), (the “Roche License Agreement”) and our exclusive license agreement with Qilu for the development, manufacture and commercialization capabilities, including salesof Vicineum in China, Hong Kong, Macau and marketing capabilities;Taiwan ("Greater China");
•our ability to regain compliance with Nasdaq’s minimum bid price requirement;
•our plans to seek additional OUS business development partnerships; and
•the success of competing therapies and products that are or become available.
The forward-looking statements in this Annual Report on Form 10-K are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Annual Report on Form 10-K and involve known and unknown risks, uncertainties, assumptions and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, among others, the following:
•we may not be able to resolve the issues raised in the CRL we received from the FDA regarding our BLA for Vicineum for the treatment of BCG-unresponsive NMIBC;
•we may not be able to resolve the concerns identified in the EMA Withdrawal Assessment Report;
•we may not determine a viable path forward for continued clinical development of Vicineum, which would prevent us from resubmitting a BLA for Vicineum;
•we may not achieve profitable operations or access needed capital;
•we may experience delays or difficulties related to the continued 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, including delays in clinical trial sites receiving the supplies and materials needed to conduct clinical trials, difficulties
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in recruiting clinical site investigators and clinical site staff and difficulties in enrolling patients or treating patients in active trials due to COVID-19 or otherwise;
•clinical trials of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, including an additional Phase 3 clinical trial for Vicineum, or any of our other product candidates, may not demonstrate safety and efficacy to the satisfaction of the FDA, EMA or other non-US regulatory authorities or otherwise produce favorable results;
•we may not obtain marketing approval of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG in the United States, the European Union or other non-US jurisdictions;
•Vicineum may not gain market acceptance for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG in the United States, the European Union or other non-US jurisdictions;
•the market opportunity for Vicineum may be limited to those patients who are ineligible for established therapies or for
whom prior therapies have failed;
•we may experience issues or delays with third-party disposition, labelling and packaging of clinical supply of Vicineum;
•our competitors may discover, develop or commercialize products before, or more successfully than, we do;
•we may be unable to obtain, maintain, defend and enforce patent claims and other intellectual property rights;
•we may be unable to defend against pending or threatened litigation, which may be costly and time-consuming;
•we may fail to comply with all regulatory requirements or experience unanticipated problems with our products;
•we may recognize impairment of our goodwill and indefinite-lived intangible asset;
•we may not meet the Nasdaq minimum bid price requirement during any compliance period or in the future;
•we may not be granted relief from delisting from Nasdaq if necessary; and
•such other factors described in “Item 1A. Risk Factors” and “Item 5. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.
Our product candidates are investigational biologics undergoing clinical development and have not been approved by the U.S. Food and Drug Administration,FDA, EMA or other comparable non-US regulatory authorities. On August 13, 2021, we received a CRL from the FDA Health Canada, orindicating that the FDA had determined that it could not approve the BLA for Vicineum in its present form. 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 Commission, or submitted toUnion until there is more clarity from the FDA Health Canada oron next steps for Vicineum in the European Medicines Agency, or EMA, as partUnited States. 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 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 approval process. Our product candidates have notrequirements for potential resubmission of a BLA. A Type C Meeting has been nor may they ever be, approved by any regulatory agencyscheduled 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 a BLA for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or competent authorities nor marketed anywhere in the world.less than adequate BCG.
statements. You should read this Annual Report on Form 10-K and the documents that we have filed as exhibits to this Annual Report on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for us to predict all risks and uncertainties. The forward-looking statements contained in this Annual Report on Form 10-K are made as of the date of this Annual Report on Form 10-K, and10-K. Except as required by applicable law, we do not assume any obligationplan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Unless the context otherwise exceptrequires, all references in this Annual Report on Form 10-K to the “Company,” “Sesen,” “we,” “us,” and “our” include Sesen Bio, Inc. and its subsidiaries.
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Risk Factors Summary
The following summarizes the principal factors that make an investment in us speculative or risky, all of which are more fully described in “Item 1A. Risk Factors” below. This summary should be read in conjunction with “Item 1A. Risk Factors” and should not be relied upon as required by applicable law.an exhaustive summary of the material risks facing our business.
Risks Related to Our Financial Position and Need for Additional Capital
•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 out-licensing and OUS business development partnership agreements, we currently have no source of 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.
Risks Related to Clinical Development and Regulatory Approval of Vicineum
•We are dependent on our lead 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. If we are unable to obtain marketing approval for or successfully commercialize our lead product candidate, either alone or through an out-license or an OUS business development partnership, or experience significant delays in doing so, our business could be materially harmed.
•If additional clinical trials of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG fail to demonstrate safety and efficacy to the satisfaction of the FDA, the EMA or other non-US regulatory authorities or do not otherwise produce favorable results, we will be unable to complete the development and potential commercialization of 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 develop a more sensitive bioanalytical assay which is needed for 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.
•If we experience any of a number of possible unforeseen events in connection with our clinical trials, potential marketing approval or commercialization of 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 or prevented.
•If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
•Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG may cause undesirable side effects, serious adverse events or have other properties that could delay or halt clinical trials, delay or prevent its regulatory approval, limit the commercial profile of its labeling, if approved, or result in significant negative consequences following any marketing approval.
•We will need to obtain regulatory authority approval of any proposed names 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 any failure or delay associated with such naming approval may adversely impact our business.
•The marketing approval process is expensive, time-consuming and uncertain. As a result, we cannot predict when or if we, or any licensees or partners, will obtain marketing approval 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 or any other product candidate.
•Failure to obtain marketing approval in non-US 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 non-US jurisdictions.
•Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization 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.
•We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
Risks Related to Our Dependence on Third Parties
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•We will depend on Qilu for the development and commercialization of Vicineum in Greater China.
•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 are dependent on third parties to formulate and manufacture Vicineum, which exposes us to a number of risks that may delay development, regulatory approval and commercialization of our products or result in higher product costs.
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.
•We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
•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.
Risks Related to Regulatory Compliance
•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.
•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.
Risks Related to Our Business and Operations
•The COVID-19 coronavirus could adversely impact our business.
•Our future success depends on our ability to attract, retain and motivate qualified personnel.
•We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cyber security incidents, could materially adversely affect our business.
•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.
•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.
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.
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PART I
Item 1. Business.
Overview
We are a biologics oncologylate-stage clinical company focused primarily on designing, engineering and developingadvancing targeted fusion protein therapeutics or TPTs. Our TPTs are single protein therapeutics composed("TFPTs") for the treatment of patients with cancer. We genetically fuse the targeting moieties genetically fused via linker domains toantibody fragment and the 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 ViciniumTM, 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 Bio Inc., or Viventia, commenced in the United States and Canadaan anti-epithelial cell adhesion molecule ("EpCAM") antibody fragment tethered to a Phase 3 clinical trialtruncated form of ViciniumPseudomonas exotoxin A for the treatment of subjects with high-grade non-muscle invasive CIS of the bladder cancer,in patients previously treated with adequate or NMIBC. We anticipate complete enrollment in this clinical trial in the second half of 2017 with topline data in 2018. Our second most advanced product candidate is ProxiniumTM, a locally-administered TPT intendedless than adequate BCG.
In December 2020, we submitted our completed BLA for Vicineum for the treatment of squamous cell carcinoma of the head and neck, or SCCHN. We intend to commence a Phase 1/2a clinical trial that will explore the potential of Proxinium with a checkpoint inhibitor for the treatment of SCCHN in the second half of 2017. We may explore additional therapeutic indications for Vicinium and Proxinium.
On October 29, 2021, we participated in a Type A Meeting with the FDA to discuss questions related to CMC raised in the 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.
•A randomized clinical trial assessing the safety and allergic conjunctivitis,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 request for a Type C Meeting to discuss the study protocol for an additional Phase 3 clinical trial that we do not plan to pursue further developmentconduct for potential resubmission of isunakinra.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.
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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 papillary disease of the bladder. This change would lead to a smaller 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 BCG 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 NMIBC only included patients who had previously been treated with adequate BCG.
Potential changes related to the additional Phase 3 clinical trial for Vicineum will be discussed at the upcoming Type C Meeting with the FDA scheduled for March 28, 2022.
Our TPTTFPT Platform
Our current product candidates are based on our proprietary TPTTFPT platform and are focused on addressing areas of unmet medical need in cancer. Our novel TPTsTFPTs have been designed to overcome the efficacy and safety challenges of existing ADCs and are being developed for both local and systemic administration.systemic-administration. Our TPTsTFPTs are single protein therapeutics composed of targeting moietiesdomains genetically fused via linker domainspeptide linkers to cytotoxic protein payloads that are produced through our proprietary recombinant one-step, microbial manufacturing process. Our TPTTFPT platform uses protein binding antibody fragments, which include fragment antigen binding domains, or Fabs, single chain variable domains or scFvs,("ScFvs"), and non-covalent scFv dimers or diabodies,("diabodies"), derived from the domains of antibodies that confer antigen recognition. We select antibody fragments for our product candidates depending upon the target therapeutic indication. We target tumor cell surface antigens that allow for rapid internalization into the targeted cancer cell and that also have limited expression in normal cells. For local administrations, we utilize an immunogenic cytotoxic protein payload designed to both target cancer cells and promote a heightened local immune response against the tumor. For systemic administrations,systemic-administrations, we use deBouganin, a deBouganinplant-derived, protein payload of reduced immunogenic potential that we believe can be repeatedly administered via infusion without the generation of an efficacy-limiting immune response against the payload.
Locally-administered TPTsTFPTs
We utilize our TPTsTFPTs with immunogenic cytotoxic protein payloads for tumors that can be targeted locally rather than systemically. Local administration allows for the TPTTFPT to reach the tumor without being cleared by the immune system, which enables us to maximize the concentration of TPTsTFPTs directly to tumors. Our locally-administered TPTs, includingTFPT Vicineum, which is our lead product candidates Vicinium and Proxinium, containcandidate in development for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, contains a targeting moietyantibody binding domain that is designed to bind to EpCAM, which is a protein over-expressed in many cancers. This targeting moietybinding domain is genetically fused to a truncated form of exotoxin A or ETA,("ETA"), which is an immunogenic cytotoxic protein payload that is produced by the bacterial species Pseudomonas. ThesePseudomonas. This product candidates arecandidate is designed to bind to EpCAM on the surface of cancer cells. The TPT-EpCAMTFPT-EpCAM complex is subsequently internalized into the cell and, once inside the cell, the TPTTFPT is cleaved by a cellular enzyme to release the cytotoxic protein payload, thus enabling cancer cell-killing.cell killing.
We also believe that our TPTsTFPTs designed for local administration may not only directly kill cancer cells through a targeted delivery of a cytotoxic protein payload, but also potentiate an anti-cancer therapeutic immune response in cancer cells near the site of administration.response. This immune response is believed to be triggered by both the immunogenic cell death of the cancer cells due to our payloads’payload's mechanism of action and the subsequent release of tumor antigens and the immunologically active setting created by the nature of the cytotoxic protein payloads. We believe that this immune response may also enhance the action of checkpoint inhibitors, whichthat require a pre-existing immune response for maximum efficacy.
Our most advanced locally-administered TFPT product candidates are Vicinium and Proxinium,candidate is Vicineum, in development for the treatment of high-grade NMIBCnon-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG and recurrent, locally advanced or metastatic EpCAM-expressing SCCHN, respectively. These TPTs aresquamous cell carcinoma of the head and neck ("SCCHN"). This TFPT is not, however, suitable for systemic administrationsystemic-administration over multiple doses because the body’s immune system would recognize and eliminate foreign proteins, such as ETA, prior to their reaching targeted cancer cells.
Systemically-administered TPTsTFPTs
We also utilize our TPTsTFPTs with a de-immunized payload where systemic administrationsystemic-administration is required. Our systemically-administered TPTs currently in developmentTFPTs are built around deBouganin. Since the body’s immune system naturally recognizes and attempts to
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eliminate foreign proteins, we designed our systemically administered TPTssystemically-administered TFPTs with a deBouganin payload to avoid inducing an immunogenic response. DeBouganin is constructed by mutating the immunogenic T-cell epitopes from bouganin so that they are not recognized as foreign by the immune system. However, we also believe that deBouganin may enhance the action of checkpoint inhibitors as a result of the promotion of a local tumor immune response following the death of cancer cells. Our systemically-administered product candidate is VB6-845d for the treatment of multiple types of EpCAM-positive solid tumors.
Our Differentiated Approach to Targeted Therapies
We believe that our TPT constructTFPT platform will address many challenges experienced with existing ADCs. The basic construct for our TPTsTFPTs and existing ADCs is similar as each is comprised of a targeting moietydomain that specifically binds to cancer cells and delivers a cytotoxic payload. However, existing ADCs have been associated with limitations that we believe are addressed by our TPTs.
TFPTs.
Limitations of existingExisting ADC approachesApproaches to treating tumorsTreating Tumors
We believe existing ADCs have the following fundamental efficacy and safety challenges:
•Deliver insufficient drug to tumors. Existing ADCs utilize full-length antibodies, which, due to their large size, have a reduced ability to penetrate tumors, thereby potentially reducing their efficacy.
•Inability to kill a broad array of cancer cells within a tumor. Subsets of cancer cells within tumors may have mechanisms to resist and not be responsive to the cytotoxic payloads, or small molecule chemotherapies, used in existing ADCs.
•Off-target toxicities due to unstable chemical linkage between targeting antibody and cytotoxic payload. Existing ADCs utilize chemical linkage strategies to join antibodies to small molecule cytotoxic payloads. While in the circulatory system, these chemical linkages can break and release free cytotoxic payloads in the circulation. These free small molecule cytotoxic payloads are not targeted and cannot discriminate between dividing cancer cells and non-cancerous cells, thus resulting in increased off-target toxicities.
•Limited combination therapy potential. The release of free cytotoxic payloads in the tumor region can result in toxicity to immune cells that attack tumors. This effect on anti-tumor immune cellsAdverse events may limit the potential utility of existing ADCs in combination therapies including those employingwith immune checkpoint inhibitors.
inhibitors which have their own adverse events, including immune-related adverse events.•Complex and challenging manufacturing process. The multi-step manufacturing process of existing ADCs creates a non-homogeneous product that limits efficacy and drives greater costs than those estimated for our manufacturing process.
Advantages of our TPT platformTFPT Platform
We believe TPTsour TFPTs offer the following key advantages:
•Deliver a greater amount of drug to tumors. Our TPTsTFPTs are designed using smaller targeting proteins that have an increased ability to exit the circulatory system and have binding properties designed to enable deeper penetration into targeted tumors, and we believe this will increase efficacy.
•Ability to kill a broader array of cancer cells within a tumor. Our novel cytotoxic payloads consist of proteins rather than small molecule cytotoxic payloads. We believe the larger size of our cytotoxic protein payloads helps circumvent multi-drug resistance mechanisms that can make certain cancer cells resistant to small molecule cytotoxic payloads. By contrast to existing ADCs, which employ cytotoxic payloads that inhibit cellular replication and are effective at killing rapidly proliferating cancer cells, our cytotoxic protein payloads inhibit protein synthesis and are designed to kill not only rapidly proliferating, but also slowly growing cancer cells includeincluding tumor progenitor cells/cancer stem-like cells.
•Increase safety due to a more stable linkage between targeting protein and cytotoxic payload. Our single protein molecules are designed to remain intact until they reach the inside of the cancer cell and to not release free cytotoxins into the circulatory system, thereby minimizing off-target toxicity.
•Promote a therapeutic immune response. We believe that the potent TPTTFPT toxin-mediated killing of cancer cells in this immunologically active setting leads to the efficient presentation of cancer antigens to the immune system, thereby promoting an anti-tumor cellular immune response. Our locally-administered TPTsTFPTs utilize an immunogenic cytotoxic payload that we believe promotes a heightened immune response in the local tumor environment.
•Potential combination with checkpoint inhibitors. We believe that the potential effect of checkpoint inhibitors, which are antibodies that promote the action of anti-tumor T-cells by blocking inhibitory ligand/receptor interactions that include PD-1 and PD-L1, may be enhanced when used in combination with other agents. We believe that, by mediating specific killing of tumor cells and promoting anti-tumor immune responses, our TPTs,TFPTs, while potentially effective on their own, may complement checkpoint inhibitors. In particular, we believe that our the
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use of our cytotoxin payload ETA, which promotes an immune response in the local tumor environment,induces immunogenic cell death, may facilitate the presentation of tumor cell surface antigens following the death of cancer cells, thereby providing a tumor immune response to enhance the action of checkpoint inhibitor therapies.
•Utilize a simpler and more efficient manufacturing process. Our proprietary recombinant one-step manufacturing process creates a homogeneous product that we believe will improve efficacy and result in lower manufacturing costs.
Our Strategy
We are committed to designing, engineering, developing and commercializing TPTsTFPTs to identify and address oncology indications that suffer from a high unmet medical need. The key elements of our strategy are as follows:
•Maximize the commercial potential Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG. We own exclusive, worldwide rights to Vicineum and we have out-licensed the rights to Vicineum in Greater China, the Middle East and North Africa region (“MENA”) and Turkey. If Vicineum receives marketing approval from the FDA for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, we plan to pursue commercialization strategies that maximize the value of Vicineum in the United States by partnering with a contract sales organization. Based on our manufacturingmarket research, we believe Vicineum has an innovative profile with a high possibility that patients, healthcare professionals and nonclinical planspayors will be advocates for VB6-845d. Based on this guidance,its use for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, which we are performing additional studies and an updated IND submission is planned for in the first quarter of 2018.believe represents a significant commercial opportunity. We believe that we will be able to effectively communicate differentiating characteristics and key attributes of Vicineum to patients, physicians and payors, with the deBouganin payload in VB6-845d may enhance the actiongoal of checkpoint inhibitorsestablishing favorable reimbursement as well as a resultfavorable formulary status in targeted urology practices. Additionally, we believe that our plans to partner with a contract sales organization should allow us to address the urologists-initiated treatment market for non-muscle invasive CIS of the promotion of a local tumor immune response followingbladder in patients previously treated with adequate or less than adequate BCG in the death of cancer cells.
United States in an efficient and effective way.•Expand on the value of selected product candidatesVicineum through strategic partnerships. We may decideIf we obtain regulatory approval 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 intend to build a North American specialty urology sales force to market the product in the United States. Outside the United States, we will continue to seek additional business development partners with urology expertise by selectively partnerpartnering with pharmaceutical and biopharmaceutical companies when we believe that a partner could bring additional resources and expertise to maximize the value of oneVicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or more of our product candidates.
•Explore opportunities in combination therapies. We plan to continue discussions with potential partners that utilize technologies whose mechanism of action could be complementary to our TFPT platform. These technologies include, but are not limited to, checkpoint inhibitors, immune modulators and other immuno-oncology agents. In June 2017, we entered into a Cooperative Research and Development Agreement (“CRADA") with Roche.the National Cancer Institute ("NCI") for the development of Vicineum in combination with AstraZeneca’s immune checkpoint inhibitor durvalumab for the treatment of NMIBC. Vicineum is believed to work via a dual
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mechanism of action to directly kill cancer cells and activate a local inflammatory process that stimulates T-cells, which then proliferate and destroy the cancer cells. Because of this second mechanism, there may be potential for a synergistic effect when given in combination with checkpoint inhibitors. Under the License Agreement, we granted Roche an exclusive, worldwide license to develop and commercialize, at its cost, our monoclonal antibody EBI-031 and all other IL-6 antagonist antibody technology owned by us. Pursuant to the terms of the License Agreement, RocheCRADA, this hypothesis is requiredbeing tested by the NCI in Phase 1 clinical trial in patients with BCG-unresponsive NMIBC to evaluate the safety, efficacy and biological correlates of Vicineum in combination with durvalumab (“NCI Trial”). On September 10, 2021, preliminary results from an interim analysis of 12 patients in the NCI Trial (“Interim Analysis”) were presented at a conference hosted by the American Urological Association. Enrollment in the Phase 1 clinical trial is ongoing. Based on the Interim Analysis, the combination of Vicineum and durvalumab has been generally well-tolerated with no new safety signals emerging (no Grade 4 or 5 treatment-related adverse events) and has a similar safety profile compared to both agents used individually. The Interim Analysis also indicated a 3-month complete response rate of 42% (5/12) and a 12-month complete response rate of 17% (2/12).
We have deferred further development of Vicineum for the treatment of SCCHN and of VB6-845d in order to continue developing EBI-031focus our efforts and any other product made fromour resources on our ongoing development and, if approved, the other transferred IL-6 antagonist antibody technology at its cost.
Our Product Pipeline
At this time, we are focused exclusively on the 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 have deferred further development of our other product candidates. The following table sets forth our current development stage programs:
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Overview
In a completed Phase 2 clinical trial, of the 45 evaluable subjects, 40% achieved a complete response, or CR, or no evidence of disease at three months while 16% remained disease-free for at least 18 months. Median time to disease recurrence was 274 days for subjects achieving a CR following a six-week induction phase, and this was extended to 408 days for subjects achieving a CR following a longer 12-week induction phase. No statistically significant difference was observed between the two dosing strategies (p=0.17). Vicinium was generally well-tolerated with no subjects discontinuing treatment in Phase 1 and Phase 2 clinical trials due to adverse events.
Disease overviewOverview
Most cancers that form in the bladder are transitional cell carcinomas that derive from the transitional cell lining of the bladder. Transitional cell carcinoma of the bladder can be characterized as either high-grade or low-grade. Low-grade bladder cancer often recurs occursin the lining of the bladder, after treatment, but rarely invades the muscular wall of the bladder or spreads to other parts of the body and is unlikely to be fatal. High-grade bladder cancer commonly recursoccurs in the bladder, has a strong tendency to invade the muscular wall of the bladder, spreadsspread to other parts of the body and is much more likely to result in death. Bladder cancer is also divided into muscle-invasive and NMIBC,non-muscle invasive, based on invasion of the muscularis propria, which is the thick muscle deep in the bladder wall. Muscle invasiveMuscle-invasive disease is more likely to spread to other parts of the body.
There are three forms of high-grade NMIBC, which areNMIBC: Ta, a papillary tumor in the innermost layer of the bladder lining,lining; T1, a papillary tumor that has started to grow into the connective tissue beneath the bladder lining,lining; and CIS, flat lesions of the transitional cell lining of the bladder. Papillary tumors are generally low-grade with low risk of progression, although about two to nine percent are high-grade, with a moderately high risk of progression to muscle-invasive bladder cancer. Evaluable CIS tumors are always high-grade, with a worse prognosis than papillary tumors.tumors, as such CIS tumors appear irregular and abnormal under a microscope and the tumors are more aggressive, with a highhigher probability of progression to muscle-invasive disease. Furthermore, the incidence of CIS in conjunction with Ta or T1 tumors results in a higher risk of recurrence and progression. About 75% to 85% of bladder cancers are non-muscle invasive. Of these, Ta tumors account for about 70%, CIS accounts for about 10% and T1 tumors account for about 20% and CIS lesions account for about 10%.
NMIBC makes up 70%75% to 80%85% of all bladder cancers. The high recurrence rate and ongoing invasive monitoring requirement of bladder cancers are the key contributors to the economic and human toll of this disease. Bladder cancer occurs
predominantly in older patients (about nine of the 10ten people with bladder cancer are over the age of 55 years). The median age at diagnosis is approximately 73 years.years of age. Overall, the five yearfive-year survival rate for bladder cancer in the United States is 77%. While the five yearfive-year survival rates are 98% for stage zero and 88% for stage one NMIBC, once the cancer becomes invasive, the rates drop dramatically with five yearfive-year survival rates of 63%, 46% and 15% for stage two, three and four muscle invasive bladder cancers, respectively. We are targeting subjectspatients with BCG-unresponsive high-grade NMIBC. We estimate that this segmentnon-muscle invasive CIS of the U.S.bladder in patients previously treated with adequate or less than adequate BCG. Our initial target market isincludes the approximately 65,000 patients.6,000 patients in the US diagnosed annually, including those patients with non-muscle invasive CIS of the bladder previously treated with adequate or less than adequate BCG. We would expect that, if ViciniumVicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG is approved by the FDA, patients would receive treatment until the earlier of 2 years orand disease recurrence.
Current approachesApproaches to treatmentTreatment
Within high-grade NMIBC,non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, the initial treatment of Ta or T1 is transurethral resection of the bladder tumor or TURBT,("TURBT") followed by BCG treatment. For CIS, whether or not TURBT is an option, BCG is the standard of care. BCG is a live attenuated strain of Mycobacterium bovis, with
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a diminished virulence in humans. Since BCG works by utilizing an immune/inflammatory mechanism, BCG is generally initiated only two to four weeks after TURBT, allowing the urothelium to heal and lowering the risk of systemic infection. When high-grade bladder tumors have been completely resected, BCG is used as adjuvant therapy to prevent recurrence. In patients with residual disease after resection, BCG helps to eradicate residual disease and delay progression. The BCG regimen consists of an induction phase followed by a maintenance phase. The induction phase involves six consecutive once-weekly instillations of the drug into the bladder. The maintenance phase involves three consecutive once-weekly instillations repeated every three to six months for at least one year. The response rate to a single induction phase of BCG is 60% to 70% with an additional 30% to 50% of the non-responders becoming responders following a second induction phase. However, BCG’s failure rate for all responders is estimated to be as high as 50% within the first 12 months of treatment and 90% within five years.
For patients who received BCG and whose disease is now BCG-unresponsive, surgical removal of the bladder, or a radical cystectomy ishas been recommended due to the risk of progression to muscle invasive disease, which greatly reduces a patient’s prognosis. Radical cystectomy is a complex surgery associated with a high complication rate of 25% to 35% and a mortality rate of 1% to 3%, with8% within six months of surgery. The surgery also entails a number of short-term risks including bleeding and/or clots, infections, bowel obstruction, bowel perforation, peritonitis and injury to the urethra. More than 25% of radical cystectomy patients require hospital readmission for surgery-related complications within 90 days following surgery. The impact of radical cystectomy is life-altering, with major lifestyle changes, including incontinence and sexual dysfunction, and daily issues related to management of the external bag for urine collection.
Keytruda was approved by the FDA in January 2020 for the treatment of patients with Bacillus Calmette-Guerin (BCG)-unresponsive, high-risk, non-muscle invasive bladder cancer (NMIBC) with carcinoma in situ (CIS) with or without papillary tumors who are ineligible for or have elected not to undergo cystectomy and is the only approval of Keytruda in the NMIBC space. Keytruda has been on the market for the treatment of BCG-unresponsive CIS (+/- Ta/T1) patients since January 2020. In 2009, Endo Pharmaceuticals Inc.'s Valstar (valrubicin) was re-launched in the United States for the treatment of BCG-refractory CIS bladder cancer in patients for whom radical cystectomy is not an option. Valstar is administered intravesically directly into the bladder once a week for six weeks. Due to drug resistance and toxicities, Valstar has had limited clinical utility. Other than Keytruda and Valstar, there are no other approved therapies for BCG-unresponsive CIS bladder cancer. However, there are various other intravesical product candidates in development for the treatment of NMIBC, including product candidates developed by FerGene Inc. (Adstiladrin/nadofaragene firadenovec (rAd-IFN/Syn3)), AADi, LLC (ABI-009), Altor BioScience Corp. (ALT-801)ImmunityBio (Anktiva/N-803 in combination with BCG), Cold Genesys,Theralase Technologies Inc. (TLD-1433), Janssen (Erdafitinib and TAR-200) and CG Oncology (CG0070). In addition, systemically-administered checkpoint inhibitors are being evaluated for the treatment of NMIBC including products developed by Bristol-Myers Squibb (Opdivo alone or in combination with BCG +/- BMS986205), F. Hoffmann-La Roche AG (Tecentriq) andFKD Therapies Oy (Instiladrin) AstraZeneca (Imfinzi). Another route of administration for checkpoint inhibitor is currently being evaluated by Pfizer with the subcutaneous administration of Sasanlimab (PF-06801591) for the treatment of BCG-unresponsive NMIBC patients.
Regulatory Update
United States
In December 2020, we submitted our completed BLA for Vicineum for BCG-unresponsive NMIBC to the FDA, which was accepted for filing by the FDA in February 2021. The FDA granted Priority Review for the BLA and set a target PDUFA date for a decision on the BLA of 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 October 29, 2021, we participated in a CMC Type A Meeting with the FDA. 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 any of these future trials can proceed while addressing CMC issues raised in the CRL.
On December 8, 2021, we participated in a Clinical Type A Meeting with the FDA 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.The FDA encouraged us to include the Vista Trial data in a BLA resubmission.
On January 7, 2022, the FDA granted our request for a 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
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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.
Although the FDA previously conditionally accepted the name Vicineum for our product candidate, oportuzumab monatox, in the United States, this approval is subject to further and final review by FDA upon potential resubmission of a BLA. If the FDA objects to our proposed proprietary product name, we may be required to expend significant additional resources in an effort to identify a suitable proprietary product name that would qualify under applicable laws, not infringe the existing rights of third parties and be acceptable to the FDA.
European Union
On March 5, 2021, we submitted a MAA to the EMA for Vysyneum for the treatment of BCG-unresponsive NMIBC under the EMA’s centralized procedure. On March 31, 2021, we were informed that the Committee for Medicinal Products for Human Use of the EMA had conditionally accepted the proprietary brand name Vysyneum for our product candidate, oportuzumab monatox, in the European Union.
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.
On October 20, 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 Assessment Report reflects the initial assessment and corresponding questions from the EMA and identifies major objections in the areas 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.
Although the EMA previously conditionally accepted the name Vysyneum for our product candidate, oportuzumab monatox, in the European Union, this approval is subject to further and final review by the EMA upon potential resubmission of the MAA. If the EMA objects to our proposed proprietary product name, we may be required to expend significant additional resources in an effort to identify a suitable proprietary product name that would qualify under applicable laws, not infringe the existing rights of third parties and be acceptable to the EMA.
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 Qilu an exclusive, sublicensable, 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 Greater China. The Investigational New Drug application (“IND”) for Vicineum submitted by Qilu to the Center for Drug Evaluation of the China National Medical Products Administration was accepted for review in January 2021 and approved in March 2021.
On June 1, 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 July 20, 2021 we and Qilu announced the enrollment of the first patient in China in a Phase 3 clinical trial to assess the efficacy and safety of Vicineum in patients with BCG-unresponsive NMIBC. The open-label, single-arm, multi-center bridging trial will evaluate the efficacy and safety of Vicineum in approximately 53 patients with carcinoma in situ (CIS) with or without papillary disease, high-grade Ta papillary disease or T1 papillary disease of any grade. Patients will be required to have 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 partnership agreement between Sesen Bio and Qilu Pharmaceutical, the trial is being run at the sole cost of Qilu Pharmaceutical.
MENA
On November 30, 2020, we and our wholly owned subsidiary, Viventia Bio, Inc., entered into an exclusive license agreement with Hikma Pharmaceuticals LLC, to develop and commercialize Vicineum for the treatment of BCG-unresponsive NMIBC in the MENA region (20 countries in the Middle East and North Africa). No submission for registration has taken place in any of the countries as approvals are contingent on FDA or EMA approval.
Turkey
On August 5, 2021, we entered into an exclusive license agreement with EİP Eczacıbaşı İlaç Pazarlama A.Ş., to develop and commercialize Vicineum for the treatment of BCG-unresponsive NMIBC in Turkey and Northern Cyprus. No submission for registration has taken place in either region as approvals are contingent on FDA or EMA approval.
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Internal Review
In September 2021 we disclosed that our Board of Directors (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 pre-clinical studies
New Proposed Phase 3 Clinical Trial
On January 7, 2022, the FDA granted our request for a Type C Meeting to discuss the study (33protocol for an additional Phase 3 clinical trial that we plan to 51 days post-initiationconduct for potential resubmission of treatment)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.
Prior Phase 3 Clinical Trial – VISTA Trial
We, through our subsidiary Viventia, commenced our single-arm, multi-center, open-label Phase 3 clinical trial ("VISTA Trial') in patients with BCG-unresponsive NMIBC who have received adequate BCG and comparedwhose disease is now BCG-unresponsive, and for whom the then-current standard of care was a radical cystectomy in the third quarter of 2015 in the United States and Canada. Based on safety and efficacy data observed with the longer 12-week induction in our Phase 2 clinical trial, the FDA agreed to our plan to employ more frequent dosing in the VISTA Trial, in which the primary endpoints were complete response ("CR") and duration of response ("DoR") in patients with CIS whose disease is BCG-unresponsive. In November 2016, the FDA issued draft guidance regarding appropriate clinical trial design for new drugs and biologics for BCG-unresponsive NMIBC, including the use of single-arm trials. The FDA finalized this guidance in February 2018 and retained many of the recommendations from the 2016 draft guidance regarding clinical trial design, including the use of single-arm trials. We believe that our VISTA Trial design was consistent with these aspects of the FDA’s guidance.
The primary and secondary endpoints for the VISTA Trial were as follows:
| Dose | 30 mg of Vicineum (in 50 mL of saline) | |||||||
| Total enrollment | 133 patients, including 93 CIS patients whose disease is BCG-unresponsive | |||||||
| Primary endpoints | CRR at 3 months in patients with CIS (with or without papillary disease) whose disease is BCG-unresponsive; and | |||||||
| Kaplan-Meier estimate of DoR for BCG-unresponsive CIS patients who experience a CR at 3 months (post-induction). | ||||||||
Patients with CIS were considered to have a CR if at the time of any disease status evaluation (per protocol every 13 weeks or any unscheduled evaluation) there was no evidence of high-grade disease (CIS, high-grade Ta or any grade T1 disease) or disease progression (e.g., to muscle invasive disease). Low-grade disease was not considered a treatment failure in these patients, and they could remain on study treatment following TURBT.
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| Secondary endpoints | Event-free survival in all patients; | ||||||||||
| CRR at 6, 9, 12, 15, 18, 21 and 24 months in patients with CIS whose disease is BCG-unresponsive; | |||||||||||
| Time to cystectomy in all patients; | |||||||||||
| Time to disease recurrence in papillary patients; | |||||||||||
| PFS in all patients; | |||||||||||
| OS in all patients; and | |||||||||||
| Safety and tolerability of Vicineum therapy in all patients. | |||||||||||
| Exploratory endpoint | To evaluate biomarkers that may be associated with response or disease progression or treatment failure, which may include, for example, EpCAM status, tumor subtype morphology, furin levels in tumor cell endosomes, presence of a glycosaminoglycan coat and presence of receptors that could impede a host anti-tumor immune response, such as PD-L1. | ||||||||||
The VISTA Trial completed enrollment in April 2018 with a total of 133 patients across three cohorts based on histology and time to disease recurrence after adequate BCG treatment (under 2018 FDA guidance on treatment of NMIBC, adequate BCG is defined as at least one of the following (i) at least five of six doses of an untreated tumor-bearing group. Vicinium demonstrated significant tumor growth suppression. Vicinium is designedinitial 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):
•Cohort 1 (n=86): Patients with CIS with or without papillary disease that was determined to be refractory 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 DoR for BCG-unresponsive CIS patients who experience a localCR.
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.
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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 administered by intravesical instillation directly402 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 bladder. Vicinium repeatedly administered subcutaneouslyfirst 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 both ratsthe 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
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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 cynomolgus monkeys did not resultstatistical data.
Safety Results
As of the May 29, 2019 data cutoff date, in any product candidate-related systemic toxicity. Toxicities associatedpatients 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 subcutaneous administration95% of adverse events being Grade 1 or 2. The most commonly reported treatment-related adverse events were limited to localized irritationdysuria (14%), hematuria (13%) and urinary tract infection (12%), all of which are consistent with skin lesions resolvingthe profile of bladder cancer patients and the use of catheterization for treatment delivery. These adverse events were determined by the end of the pre-clinical study. Vicinium was foundclinical investigators to be immunogenicmanageable and reversible, and only four patients (3%) discontinued treatment due to an adverse event. Serious adverse events, regardless of treatment attribution, were reported in all species tested with anti-drug antibodies14% 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 after seven days of dosing.in the VISTA Trial.
Phase 1 clinical trial. and 2 Clinical Trials
Phase 1 Clinical Trial. We initiated an open-label, dose-escalating Phase 1 clinical trial of ViciniumVicineum for the treatment of BCG-unresponsive NMIBC in September 2004 at 22 sites in Canada. We enrolled 64 subjectspatients with high-grade Ta or T1 tumors with or without CIS (17 of which had CIS) and who had previously received at least one treatment of BCG. The Phase 1 clinical trial was designed to assess safety and determine the maximum tolerated dose, and the recommended Phase 2 dose. The secondary objective was to explore the anti-tumor activity of Vicinium.
Vicineum.
Eight dose levels were initially evaluated, ranging from 0.1 to 10.56 mg, doseand given once weekly for six consecutive weeks. Each dose was administered by instillation and held for two hours prior to voiding. Safety data from each dose cohort was evaluated after three weeks of treatment before proceeding to the next dose cohort. A maximum tolerated dose was not reached; therefore, additional escalations through 13.73 mg, 17.85 mg, 23.20 mg and 30.16 mg were undertaken. No dose-limiting toxicities or DLTs, were reported and no maximum tolerated dose was reached in these additional dose-escalations. ViciniumVicineum was generally well-tolerated at each of these escalated doses.
A CR was defined in this Phase 1 clinical trial as non-positive urinaryurine cytology and either normal cystoscopy or abnormal cystoscopy with negative biopsy. Of the 64 subjectspatients enrolled, only 61 were considered to be evaluable for efficacy as two subjectspatients were excluded from the analysis due to an absence of BCG treatment prior to this Phase 1 clinical trial, and there was one unrelated death for whom no final tumor assessment was obtained. Evidence of clinical efficacy, as defined by a CR, was achieved by 24 of the 61 randomized subjectspatients (39%). Only three of the 17 subjectspatients (18%) treated in the 0.1-<1mg/1 mg/dose range were CRs. In contrast, seven of the 14 subjectspatients (50%) treated in 1.0-<10mg/10 mg/dose range and 14 of the 30 subjectspatients (46.7%) treated in the ≥10mg/≥10 mg/dose range experienced CRs at the three monththree-month assessment. Of the subjectspatients with CIS, five of the 17 subjectspatients (29%) achieved a CR, while non-recurrence was observed in seven of the 16 subjectspatients with T1 (43.8%) and 12 of the 28 subjectspatients with Ta (42.8%). This Phase 1 clinical trial was completed in April 2006.
Phase 2 clinical trial. Clinical Trial. Based on our Phase 1 clinical trial conducted in Canada, we submitted the IND for ViciniumVicineum for the treatment of BCG-unresponsive NMIBC to the FDA in August 2005, and we initiated an open-label Phase 2 clinical trial of ViciniumVicineum in March 2007 at 20 sites in Canada and the United States. We enrolled 46 subjectspatients with CIS (with or without Ta or T1) who had previously received at least one treatment of BCG. Of the 46 subjectspatients enrolled, 27 subjectspatients (58.7%) had received at least two treatments of BCG. The Phase 2 clinical trial was designed to determine the tolerability and explore the potential for clinical benefit from Vicinium.Vicineum. Clinical benefit was defined in this Phase 2 clinical trial as a CR or no evidence of disease at the three monththree-month evaluation. A CR was defined in this Phase 2 clinical trial as no histological evidence of disease and negative urine cytology. Any cases with no histological evidence of disease on initial biopsy but atypical or suspicious urine cytology were also considered CRs only if they remained negative after being evaluated with repeat biopsy, directed and random. Vicinium showed evidence of clinical efficacy. A subjectpatient was considered to have a durable CR if that subjectpatient obtained a CR and remained disease-free for a period of at least 12 months from initiation of treatment.
The dosing regimen for our Phase 2 clinical trial included an induction phase followed by a maintenance phase, consisting of three weekly treatments and then nine weeks of no treatment repeated every three months for at least one year and ending with nine weeks of no treatment.year. There were two treatment groups in this Phase 2 clinical trial. Treatment Arm A consisted of 23 subjects,patients, of which 22 were ultimately evaluable as one subjectpatient violated eligibility requirements early in this Phase 2 clinical trial. Twenty-two subjectspatients in the induction phase
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received six consecutive once-weekly instillations of 30 mg of Vicinium.Vicineum. At the three-month assessment, subjectspatients with residual disease but no disease progression-where disease progression iswas defined as being muscle invasive-were eligible for either a second induction phase or a maintenance phase, which consisted of three consecutive once-weekly instillations repeated every three months for at least one year. Of the 13 subjects unable topatients who did not achieve a CR at the three-month assessment, nine subjectspatients elected additional treatment. From these nine, two became CRs after receiving maintenance dosing. Treatment Arm B was added to evaluate a longer induction cycle.cycle using the same dose. In Treatment Arm B, 23 subjectspatients in the induction phase received 12 consecutive once-weekly instillations of 30 mg Vicinium.Vicineum. At the three-month assessment, the combined CR rate for both treatment arms was 40%. At the 12-month assessment, the CR rate in Treatment Arm A was 13%, but 17% in Treatment Arm B. Of those subjectspatients who did not achieve a CR at the three-month assessment, 73% had either a reduction in tumor size or did not experience further tumor growth.
The following charts demonstrate the responses in this Phase 2 clinical trial in Treatment Arm A and Treatment Arm B. The data below shows the percentage change in surface area of cancer within the bladder, based on bladder mapping data utilizing cystoscopy in 40 subjects.patients. The following charts demonstrate the responses in this Phase 2 clinical trial in Treatment Arm A and Treatment Arm B:
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This Phase 2 clinical trial was completed in September 2009.
Near the completion of this Phase 2 clinical trial in 2009, Valstar was re-launched in the United States for the treatment of BCG-refractory CIS bladder cancer in subjectspatients for whom immediate cystectomy would be associated with unacceptable morbidity or mortality. However, because physicians were not widely prescribing Valstar to their patients and it was not an approved therapy in Europe, this disrupted our originally designed clinical path of a head-to-head pivotal Phase 3 clinical trial of ViciniumVicineum against Valstar. Due to the uncertainty of the standard of care in this space, our efforts were put on hold until a clear clinical path was established. In May 2013, the FDA co-sponsored a public workshop where it evaluated potential trial designs for the development of therapies for NMIBC and specifically provided regulatory guidance supporting the idea that a single-arm clinical trial could provide sufficient evidence of benefit if the results were robust. The panel suggested it is acceptable to include high-gradehigh-risk papillary subjectspatients without CIS in a clinical trial with CIS subjectspatients because the clinical management and outcome if left untreated is considered to be the same. Thereafter,In September 2014, we began discussionsconducted an end of Phase 2 meeting with the FDA and, consistent with our interactions with the FDA during this meeting, refocused our resources to commence an open-label, non-randomized Phase 3 clinical trial of ViciniumVicineum in subjects with high-grade NMIBC.BCG-unresponsive NMIBC, which ended up being our Phase 3 VISTA Trial.
Safety data. data
We believe that our safety data from 110 subjectspatients in our Phase 1 and Phase 2 clinical trials support further development of Vicinium.Vicineum for the treatment of NMIBC BCG failures. There were no Grade 4 or Grade 5 serious adverse events that were considered by the clinical investigators to be related to Vicinium.Vicineum during the Phase 1 and Phase 2 clinical trials of Vicineum for the treatment of NMIBC BCG failures. 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.
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 Qilu an exclusive, sublicensable, royalty-bearing license, under certain intellectual property owned or exclusively licensed by us, to develop, manufacture and commercialize Vicineum
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for the treatment of BCG-unresponsive NMIBC and other types of cancer in China, Hong Kong, Macau and Taiwan. We also granted Qilu a non-exclusive, sublicensable, royalty-bearing sublicense, under certain other intellectual property licensed by us to develop, manufacture and commercialize Vicineum in Greater China. We retain (i) development and commercialization rights in the rest of the world 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 entitled to receive up to an additional $23 million upon the achievement of certain technology transfer, development and regulatory milestones, as well as a 12% royalty based upon annual net sales of Vicineum in Greater China. The royalties are payable upon the first commercial sale of Vicineum in a region and continuing until the latest of (i) twelve years after the first commercial sale of Vicineum in such region, (ii) the expiration of the last 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, including 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.
Qilu is responsible for all costs related to developing, obtaining regulatory approval of and commercializing Vicineum for the prevention and treatment of cancers including, but not limited to, NMIBC and various sub-types of NMIBC (the “Field”) in Greater China. Qilu is required to use commercially reasonable efforts to develop, seek regulatory approval for, and commercialize Vicineum in the Field in Greater China. A joint development committee was established between us and Qilu to coordinate and review the development, manufacturing and commercialization plans with respect to Vicineum in Greater China. We and Qilu also executed the terms and conditions of a supply agreement and related quality agreement pursuant to which we will manufacture or have manufactured and supply Qilu with all quantities of Vicineum necessary for Qilu to develop and commercialize Vicineum in the Field in Greater China until we have completed manufacturing technology transfer to Qilu and approval of a Qilu manufactured product by the National Medical Products Administration in China ("NMPA") for Vicineum has been obtained.
The Qilu License Agreement will expire on a licensed product-by-licensed product and region-by-region basis on the date of the expiration of all applicable Royalty Terms. Either party may terminate the Qilu License Agreement for the other party’s material breach following a cure period or upon certain insolvency events. Qilu has the right to receive a refund of all amounts paid to us in the event the Qilu License Agreement is terminated under certain circumstances. The Qilu License Agreement includes customary representations and warranties, covenants and indemnification obligations for a transaction of this nature.
The Investigational New Drug application ("IND") for Vicineum submitted by Qilu to the Center for Drug Evaluation of 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.
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 recorded $0.9 million of revenue during the three months ended June 30, 2021 for additional purchase price resulting from Qilu's obligation to pay Sesen an amount equal to its recovery of VAT. We will not be subject to VAT on future potential milestone payments.
On July 20, 2021 we and Qilu announced the enrollment of the first patient in China in a Phase 3 clinical trial development plan
MENA
On November 30, 2020, we and our wholly owned subsidiary, Viventia Bio, Inc., entered into an exclusive license agreement with Hikma Pharmaceuticals LLC, to develop and commercialize Vicineum for the treatment of BCG-unresponsive NMIBC in the MENA region (20 countries in the Middle East and North Africa). In consideration for the rights granted by us, Hikma agreed to pay to us an upfront payment, sales related milestones payments, and royalties on net sales in the MENA region for the term of the Hikma License Agreement.
Turkey
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On August 5, 2021, we entered into an exclusive license agreement with EIP pursuant to which we granted EIP an exclusive license to register and commercialize Vicineum for the treatment of BCG-unresponsive NMIBC in Turkey and Northern Cyprus. Under the terms of the license agreement, we are entitled to receive an upfront payment of $1.5 million. We are in the process of amending the license agreement to defer payment of the 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 30% royalty on net sales in Turkey and Northern Cyprus.
Vicineum for the Treatment of SCCHN
Vicineum (formerly referred to as Proxinium in publications, focused on this clinical development of Vicinium to fulfill a significant unmet medical need in subjects with high-grade NMIBC.
In our two Phase 1 clinical trials subjectsencompassing 44 patients treated with Proxinium had demonstrated antiitumor activityVicineum, a complete resolution or reduction in 53%size of injected tumors was observed in 16 of the 30 evaluable subjectspatients (53%) with EpCAM-expressing tumors as assessed by Investigator’sthe investigators’ clinical measurements, Investigator’sthe investigators' overall assessment including qualitative changes and assessment of available radiologic data. In addition, three out of the four subjects with complete responses of injected tumors had regression or complete resolution of adjacent non injected lesions. In a Phase 2 clinical trial, we observed tumor shrinkage in 10 of the 14 evaluable subjects (71.4%). Combined results from two Phase 1 clinical trials encompassing 44 subjects have shown complete resolution or reduction in size of injected tumors in 16 of the 30 evaluable EpCAM-positive subjects (53.3%). An additional 27% of evaluable subjectspatients had stable disease and, therefore, the results indicate an overall tumor control rate of approximately 80%. ProxiniumIn addition, three out of the four patients with CRs of injected tumors had regression or complete resolution of adjacent non-injected lesions. Vicineum was generally well-tolerated during the clinical trials. Dose-limiting toxicity in the Phase I1 clinical trials was transaminase elevation in liver enzymes..enzymes.
In our clinical trials involving Proxinium,Vicineum for the treatment of SCCHN, we have also observed some stabilization, partial reduction and complete resolution of non-injected tumors. We believe that TPTTFPT mediated killing of cancer cells leads tooccurs via a selective release of cancer antigens into the local tumor environment,mechanism known as ICD, which is driven byknown to enhance the presentation of neoantigens to the immune system. We believe that this, combined with the immunogenic nature of our immunogenic cytotoxic protein payload that creates a heightened cross priming effect, wherebyimmune response, wherein naive cytotoxic T cellsT-cells are stimulated by antigen presenting cells, such as dendritic
cells, presenting tumor cell surface antigens following the death of cancer cells. We believe that this anti-tumor response may complement checkpoint inhibitor therapies.
| Number of | Complete | Stable | Response of | |
| evaluable subjects | response | Response | response | progression |
| 16................................. | 4 of the 16 | 6 of the 16 | 4 of the 16 | 2 of the 16 |
| (25.0%) | (37.5%) | (25.0%) | (12.5%) | |
VB4-845-01-IIIA was terminated early due to a corporate decision unrelated to safety or efficacy. At the time of study termination, survival data was available for 133 of 142 patients that had been randomized. A total of 66 were enrolled on the BSC arm and 67 enrolled in the Vicineum plus BSC treatment arm. Of the 66 BSC patients enrolled in the BSC arm, there were 43 documented deaths in this treatment arm; the date of death was known for 36 patients and unknown for 7. Of the patients treated with Vicineum, 41 deaths were documented with the date of death known for 37 patients and unknown for 4.
Interim safety data was available for 132 of 139 patients that had been randomized. One hundred and eleven patients reported at least 1 AE. Thirty-six patients reported 205 adverse events (AEs) that were treatment related. Most of the treatment-related AEs were mild to moderate in severity. Of the 205 treatment-related AEs reported, there were 23 Grade 3 events and 2 Grade 4 events. There were no Grade 5 related AEs reported. The 2 related Grade 4 events were 2 occurrences of tumour necrosis in 1 patient; both were considered probably related to the treatment. Most related AEs resolved on their own and did not require additional treatment. Others were treated with concomitant medications.
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Four patients in the Vicineum plus BSC group reported Grade 3 increases in both ALT and AST. One patient reported a Grade 3 increase in ALT and another patient reported a Grade 3 increase in AST. All of the Grade 3 increases in ALT/AST occurred in the Vicineum plus BSC group. No Grade 4 increases in ALT/AST were reported. In 1 patient, Vicineum was discontinued due to liver function test abnormalities, in 1 patient Vicineum was interrupted due to liver function test abnormalities and in the last patient Vicineum was discontinued due to disease progression.
We intendhave deferred further development of Vicineum for the treatment of SCCHN in order to initiate a Phase 1/2a clinical trialfocus our efforts and our resources on our ongoing development and, if approved, the commercialization of ProxiniumVicineum for the treatment of non-muscle invasive CIS of the bladder in combinationpatients previously treated with a checkpoint inhibitor inadequate or less than adequate BCG. We are also exploring collaborations for the second halfdevelopment of 2017. We anticipate that the Phase 1/2a clinical trial will explore the potential for Proxinium, due to its potential immunogenic effect, to enhance checkpoint inhibitors in combination therapyVicineum for the treatment of SCCHN.
VB6-845d
Our lead systemically-administered product candidate, VB6-845d, is being developed as a treatment for multiple types of EpCAM-positive solid tumors. VB6-845d is a TPTTFPT consisting of an EpCAM targeting Fab genetically linked to deBouganin, which is administered by intravenous infusion. DeBouganin acts by inhibiting protein synthesis and helps circumvent multi-drug resistance mechanisms. EpCAM is over-expressed on the cell surface of many solid tumors, including breast, colorectal, gastric, lung, ovarian and prostate. EpCAM overexpression has been shown to be involved in promoting malignant progression. In addition, EpCAM overexpression is associated with increased tumor grade, disease progression, increased proliferative phenotypes and diminished survival. EpCAM is also a cancer stem cell marker. A Phase 1 clinical trial conducted with VB6-845, the prior version of VB6-845d, revealed no clinically relevant immune response to the deBouganin payload, and fivepayload. Five of seven subjectspatients (71.4%) maintained stable disease (meaning no change in tumor size from baseline) after one completed cycle of treatment (four weeks) two subjects. Two patients had decreases in target tumor size, and one subject who continued treatment through a third cycle (12 weeks) maintained stable disease. SafetyInterim safety data from oneour Phase 1 clinical trial was consistent with expectations for the study population of subjectspatients with advanced solid tumors and the anticipated effects of targeted biological therapies containing immunogenic sequences.
Based upon the hypersensitivity reactionsantibody responses directed against the Fab seen in our Phase 1 clinical trial conducted in Russia and in the country of Georgia, we de-immunized the Fab portion of VB6-845 to create VB6-845d. In April 2016, we submitted an IND to the FDA in preparation of initiating a Phase 1/2 clinical trial of VB6-845d in subjectspatients with EpCAM-positive cancers in the United States. The IND was withdrawn in July 2016 after we received initial feedback from the FDA indicating that they had identified hold and non-hold deficiencies that needed to be addressed. In December 2016, we submitted a request for a pre-IND meeting to seek input on the manufacturing, nonclinical and clinical plans for VB6-845d prior to resubmitting an IND. In February 2017, the FDA provided guidance on our manufacturing and nonclinical plans for VB6-845d. Based on this guidance, we are performing additional studies and an updated IND submission is planned for in the the first quarter of 2018.
Overall, we believe that our pre-clinical data and the interim Phase 1 clinical data support further clinical investigation of VB6-845d to explore whether it may fulfill the significant unmet medical need in the treatment of subjectspatients with EpCAM-positive solid tumors. Specifically, we believe that VB6-845d has potential to be a first-in-class TPTTFPT capable of providing clinical benefit in these difficult to treat patient populations.
We are currently developing VB6-845d, a recombinant fusion protein consisting of an anti-EpCAM fragment fused to a deBouganin payload for the systemic treatment of advanced solid tumors. DeBouganin acts by inhibiting protein synthesis and helps circumvent multi-drug resistance mechanisms. Solid tumors form an abnormal and discrete tumor mass in the body that usually does not contain cysts or liquid areas.
We have deferred further development of VB6-845d in order to focus our efforts and our resources on our ongoing development and, if approved, commercialization of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG. We are also exploring collaborations for VB6-845d.
We own or exclusively license worldwide rights to our VB6-845d intellectual property portfolio that provides for an unextended patent term until at least June 2025 and, if our pending compositionmethod of matter patenttreatment patents and applications for VB6-845d are granted, until at least 2036. See ‘‘Business-IntellectualOur Intellectual Property’’ below for additional details.
On December 8, 2020, we and pre-clinical studies
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EBI-031
and all other IL-6 anti-IL 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, Licensedtechnology owned by us (collectively, the “Licensed Intellectual Property.
Financial Terms
We received from Roche paid an up-frontupfront license fee of $7.5 million in August 2016 upon the effectiveness of the license under theRoche License Agreement following approval by our stockholders, and Roche 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:indication, consisting of (i) $72.5 million in development milestones, the next of which is $30.0 million for initiation of the first Phase III study, (ii) $50.0 million in regulatory milestones and (iii) $75.0 million in commercialization milestones.
In September 2016, Roche paid us the first development milestone of $22.5 million as a result of the IND application for EBI-031 becoming effective. effective on or before September 15, 2016.
In December 2021, a $20 million milestone was achieved due to Roche initiating a Phase II clinical trial. We invoiced Roche $20 million with payment terms of 30 days following the achievement of the corresponding milestone event, pursuant to the Roche License Agreement. In January 2022 the payment of $20 million was received.
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% forof 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.Roche.
Buy-Out Options
The Roche 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 Roche License Agreement. Specifically, (i) Roche may exercise a buy-out option following the first dosing or Initiation,("Initiation") in the first Phase 2 study for a Roche Licensed Product until the day before Initiation of the first Phase 3 study for a Roche 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 Roche Licensed Product until the day before the acceptance for review by the FDA or other regulatory authority of a biologics license application, or BLA or similar application for marketing approval for a Roche Licensed Product in either the United States or in the E.U.EU, 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 Roche Licensed Product has issued in the E.U.EU.
Termination
Either we or Roche may each terminate the Roche License Agreement if the other party breaches any of its material obligations under the Roche License Agreement and does not cure such breach within a specified cure period. Roche may terminate the Roche License Agreement following effectiveness by providing advance written notice to us or by providing written notice if we are debarred, disqualified, suspended, excluded, or otherwise declared ineligible from certain federal or state agencies or programs. We may terminate the Roche License Agreement if, prior to the first filing of a BLA for a Roche Licensed Product, there is a period of 12 months where Roche is not conducting sufficient development activities with respect to the products made from the Licensed Intellectual Property.
Clinical Development
In July 2019, Roche reported that it started a multi-center, non-randomized, open-label, multiple ascending dose Phase 1 study to investigate the safety, tolerability, pharmacokinetics and pharmacodynamics of intravitreal EBI-031 monotherapy in patients with diabetic macular edema. Further, Roche reported that once determined, an extended cohort will be dosed with the optimal dose of EBI-031 while another arm of the trial will test EBI-031 in combination with Lucentis (ranibizumab) following intravitreal administration in patients with diabetic macular edema.
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In December 2021, Roche reported that it started enrollment of two Phase 2 clinical trials in patients with diabetic macular edema (“DME”). The first clinical trial, BP43445 (NCT05151731), is a multicenter, randomized, double-masked, active comparator-controlled trial to investigate the efficacy, safety, tolerability, pharmacokinetics, and pharmacodynamics of EBI-031 administered intravitreally in patients with DME. The second clinical trial, BP43464 (NCT05151744), is a combination trial to assess the efficacy, safety, tolerability, pharmacokinetics, and pharmacodynamics of EBI-031 with ranibizumab (an anti-vascular endothelial growth factor inhibitor) compared with ranibizumab alone in DME patients. For both trials, only one eye will be chosen as the trial eye and the duration of the trial will be 52 weeks.
Our Intellectual propertyProperty
We currently own or exclusively license approximately 2313 families of patents and applications, which generally relate to our TPT-basedTFPT-based product candidates and evolving our platform of targeting agents, cytotoxins (such as deBouganin) and linker technologies. As our product candidates evolve through clinical development, we continue to monitor advancements and bolster patent coverage with the goal of attaining durable patent protection for at least 15 years from product launch. In addition, we have filed and are in the process of filing a number of additional applications around our platform technology, including our various targeting agents, cytotoxins, and linkers that, if issued, would expire in 2036.
where possible.
Product Candidates-Vicinium and ProxiniumCandidate - Vicineum
We exclusively license two families (48 patents and four applications) licensed fromunder a license agreement with the University of Zurich or Zurich,("Zurich") (the "Zurich License Agreement") which, among other things, include composition of matter claims directed to EpCAM antibody chimeras, EpCAM antibody chimera-cytotoxin conjugates, and their potential use in treating bladder and head and neck cancer. These families claim all or portions of Vicinium and Proxinium,Vicineum, as well as certainmethods of their respective indications under clinical development. The first family includes composition of matter claims directed to the EpCAM antibody chimeras that are used in Vicinium and Proxinium. The first family consists of 21 patents in the United States, Canada, Europe and Japan, which expire in April 2020, subject to any applicable patent term adjustment or extension that may be available on a jurisdictional basis. The second family includes claims directed to the use of Vicinium and Proxinium in the treatment oftreating bladder and head and neck cancer respectively, and consistsconsist of 27 issued patents in the United States, Europe, Canada, China, Israel and Japan and also include pending applications in the United States, Canada, Hong Kong and Europe.States. The expiry datedates of the patents in this family isare April 2024 subject to any applicable patent term adjustment or extension that may be available on a jurisdictional basis.
In addition to the Zurich portfolio, we own two issued US patents related to Vicineum. The expiry date of these patents and applications with, among other things, use claims directed to various de-immunization methodologies, which expire in May 2018, December 2018 andis February 2022,2029, subject to any applicable patent term adjustment or extension that may be available on a jurisdictional basis.
In addition, we have filed and are in the process of filing a number of additional patent applications with, among other things, composition of matter and use claims around our various product candidatesfamilies relating to treatment regimens using Vicineum that ifinclude issued would expire in 2036 and beyond.
Additionally, we have a license agreement with Micromet AG ("Micromet") (the "Micromet License Agreement"), now part of Amgen, Inc., which grants us non-exclusive rights, with certain sublicense rights, for know-how and patents allowing exploitation of certain single chain antibody products. These patents cover some key aspects of Vicineum. See "Our Vicineum License Agreements" below for additional information.
We also have a license agreement with XOMA Ireland Limited ("XOMA") (the "XOMA License Agreement") which grants us non-exclusive rights, with certain sublicense rights, to any applicablecertain XOMA patent term adjustment or extension that may be available on a jurisdictional basis. We do not currently view theserights and know-how related to certain expression technology, including plasmids, expression strains, plasmid maps and production systems. These patents and applications as significant to the development and commercialization, if approved,related know-how cover some key aspects of our product candidates.Vicineum. See "Our Vicineum License Agreements" below for additional information.
EBI-031 and our Legacy Product Candidates
•a provisional application directed to compositions and methods for increasing the retention of therapeutic agents in the eye which, if converted and granted, is expected to expire in 2037.2038.
•a provisional application directed to compositions and methods for increasing the retention of anti-VEGF therapeutic agents in the eye which, if converted and granted, is expected to expire in 2037.2038; and
•a provisional application directed to compositions and methods for increasing the retention of RGD therapeutic agents in the eye which, if converted and granted, is expected to expire in 2037.2038.
•patents covering the IL-6 antagonistic anti-IL6 monoclonal antibodies and active fragments thereof, including IL-6 antibody EBI-029, filed in the United States, Australia, Brazil, Canada, China, Europe, Hong Kong, India, Israel, Japan, Korea, Mexico, New Zealand, Russia Singapore, and South Africa, which are licensed to Roche pursuant tothat expire in November 2033;
•patent applications covering the License Agreement,IL-6 antagonistic anti-IL6 monoclonal antibodies and active fragments thereof, including IL-6 antibody EBI-029, filed in Brazil, Canada, Europe, India, Mexico, United States and Singapore, and, if granted, are expected to expire in 2033;
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•patents covering IL-6 antagonistic anti-IL6 monoclonal antibodies and active fragments thereof, including the IL-6 antibody EBI-031, in Australia, Austria, Belgium, Bulgaria, Chile, China, Columbia, Croatia, Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, Indonesia, Ireland, Italy, Japan, Lithuania, Macau, Malaysia, Mexico, Morocco, Netherlands, Norway, Poland, Portugal, Romania, Russia, Serbia, Slovenia, Slovakia, South Africa, Spain, Sweden, Switzerland, Turkey, Ukraine, United States and United Kingdom, that expire in November 2035;
•patent applications covering IL-6 antagonistic anti-IL6 monoclonal antibodies and active fragments thereof, including the IL-6 antibody EBI-031, having a pending PCT application and applications pending or to be filed in Algeria, Australia, Bahrain, Brazil, Canada, Chile, Colombia, Costa Rica, Egypt, Europe, (to be filed),Egypt, India, Israel, Korea, Malaysia, Mexico, Morocco, New Zealand, Oman, Peru, Philippines, Qatar, Russian Federation, Saudi Arabia, Singapore, South Africa, Thailand, Ukraine, United Arab Emirates, United States and Vietnam, which are licensed to Roche pursuant to the License Agreement, and, if granted, are expected to expire in 2035; and
Our Vicineum License Agreements
Overview and exclusivity. Exclusivity
We have a license agreementLicense Agreement with the University of Zurich ("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 an 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 termsVicineum. Upon receipt of the agreement,CRL regarding our BLA for Vicineum for the treatment of BCG-unresponsive NMIBC, we may bebecame obligated to pay $750,000$0.5 million in a 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 willpayment to Zurich. We are 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 haveRoyalties owed to Zurich will be reduced if the righttotal royalty rate owed by us to reduceZurich and any other third party is 10% or greater, provided that the royalty rate to Zurich 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. AsFor the year ended December 31, 2020, we recorded an expense of $0.3 million for the achievement of the datedevelopment milestone related to the submission of this Annual Report on Form 10-K, aggregate license feesour BLA for Vicineum with the FDA. For the year ended December 31, 2021, we recorded an expense of $250,000 have been paid$0.5 million for the regulatory milestone related to Zurich by Viventia prior to our acquisitionreceipt of Viventia.the CRL from the FDA in August 2021.
Patent rights. Rights
We are responsible for the patent filing, prosecution and maintenance activities pertaining to the patent rights, at our sole expense, while Zurich is afforded reasonable opportunities to review and comment on such activities. If appropriate, we shall apply for an extension of the term of any licensed patent where available, for example, in at least the United States, Europe and Japan. In the event of any substantial infringement of the patent rights, we may request Zurich to take action to enforce the licensed patents against third parties. If the infringing activity is not abated within 90 days and Zurich has elected not to take legal action, we may take legal action (inbring suit in our own name (and in Zurich’s name, if necessary). Such action will be at our own expense and Zurich will have the opportunity to join at its own expense. Recoveries from any action shall generally belong to the party bringing the suit, but (a) in the event that we bring the action and an acceptable settlement or monetary damages are awarded, then Zurich will be reimbursed for any amount that would have been due to Zurich if the products sold by the infringer actually had been sold by us, or (b) in the event a joint legal action is brought, then the parties shall share the expense and recoveries shall be shared in proportion to the share of expense paid by the respective party. Each party is required to cooperate with the other in litigation proceedings at the expense of the party bringing the action.
Term and termination. Termination
The term of the agreementZurich License Agreement expires as of the expiration date of the last patent to expire within the Zurich patent rights. We are currently projecting an expiration date for the U.S.United States licensed patents in 2024,June 2025, subject to any applicable patent term adjustment or extension that may be available on a jurisdictional basis. Zurich has the right to terminate the agreementZurich License Agreement if we breach any obligation of the agreement and fail to cure such breach within the applicable cure periods. We have the right to terminate the agreementZurich License Agreement at any time and for any reason by giving 90 days written notice to Zurich.
In-License Agreement with Micromet
Overview
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We have a License Agreement with Merck KGaA
Patent Rights
Micromet, at its sole expense, is responsible for the world.patent filing, prosecution and maintenance activities pertaining to the patent rights. In any patent enforcement action initiated by Micromet, we may be required, upon the request of Micromet and at Micromet’s expense, to provide reasonable assistance to Micromet with respect to such enforcement action.
Term and Termination
The term of the Micromet License Agreement expires as of the expiration of any royalty obligations under the License Agreement. Either party has the right to terminate the agreement for breach of the agreement andMicromet License Agreement if the other party fails to comply with any of its material obligations under the Micromet License Agreement and fails to cure such breachnon-compliance within the applicable cure period.periods.
In-License Agreement with XOMA
Overview
We have a License Agreement with XOMA Ireland Limited ("XOMA") which grants us non-exclusive rights to certain XOMA patent rights and know-how related to certain expression technology, including plasmids, expression strains, plasmid maps and production systems. These patents and related know-how cover some key aspects of Vicineum. Under the terms of the License Agreement with XOMA, we are required to pay up to $0.25 million in milestone payments for a product candidate that incorporates know-how under the license and achieves applicable clinical development milestones. Based on current clinical status, we anticipate that these milestones may be triggered by Vicineum’s clinical development pathway. We are also required to pay a 2.5% royalty on the net sales for products incorporating XOMA’s technology, which includes Vicineum. We have the right to reduce the amount of royalties owed to XOMA on a country-by-country basis by the amount of royalties paid to other third parties, provided that the royalty rate to XOMA may not be less than 1.75% of net sales. In addition, the foregoing royalty rates are reduced by 50% with respect to products that are not covered by a valid patent claim in the country of sale. The obligation to pay royalties in a particular country expires upon the later of the expiration date of the last valid claim covering the product and the tenth anniversary of the first commercial sale of the product in such country.
Patent Rights
XOMA, at its sole expense, is responsible for the patent filing, prosecution and maintenance activities pertaining to the patent rights. In any patent enforcement action initiated by XOMA, we may be required, upon the request of XOMA and at XOMA’s expense, to provide reasonable assistance to XOMA with respect to such enforcement action.
Term and Termination
The term of the XOMA License Agreement expires as of the expiration of any royalty obligations under the XOMA License Agreement. Either party has the right to terminate the agreement by giving Merck six months prior written notice.XOMA License Agreement if the other party fails to comply with any of its material obligations under the XOMA License Agreement and fails to cure such non-compliance within the applicable cure periods.
Our Manufacturing
We maintain an approximately 31,400lease a 31,100 square foot manufacturing, laboratory, warehouse and office facility in Winnipeg, Manitoba, Canada.Manitoba. We have three 15 liter fermentors,15-liter fermenters, one 150 liter fermentor,30-liter fermenter, one 500 liter fermentor150-liter fermenter, one 500-liter fermenter and one 1,500 liter fermentor.1,500-liter fermenter. Our classified fermentation suite and post-production processing capabilities are currentlywere 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 Phase
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3 VISTA Trial and for our CRADA with the NCI. In conjunction with this achievement, we ended our manufacturing activities at our facility in Winnipeg and completed the technology transfer processto outsource future Vicineum clinical and commercial to third-party manufacturers.
Fujifilm and Baxter
In October 2018, we entered into a Master Bioprocessing Services Agreement with Fujifilm (the “Fujifilm MSA”) for the manufacturing process and technology transfer of Vicineum drug substance production.
In November 2019, we entered into a Commercial Manufacturing and Supply Agreement with Baxter (the “Baxter CSA”) 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. Our in-house expertise and capabilities in process development and manufacturing allow us to reduce product development timelines by manufacturing Fabs, scFvs, protein scaffolds and fusion proteins such as TPTs for research and pre-clinicalFor 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 our supply of Vicineum produced at our Winnipeg facility.
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 testingtrials and subsequently transferring production into our fermentation suite. In addition, our one-step manufacturing process creates a homogeneous productconfirmed that we believecan 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, including the additional Phase 3 clinical trial, and, if approved, for commercial supply.
Qilu
In June 2021, we entered into a Global Supply Agreement with Qilu pursuant to which Qilu will improve efficacy. These particular advantages also reduce costs compared to contracting third party process developmentbe part of the manufacturing network for, if approved, global commercial supply of Vicineum drug substance and manufacturing.drug product.
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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 approval from the FDA to market any of our product candidates, we will need to outsource our commercial scale manufacturing to contract manufacturing organizations, or CMOs. We are currently in process of identifying a CMO.
Competition
The pharmaceutical industry is highly competitive, subject to rapid and significant technological change and has a strong emphasis on developing proprietary products. While we believe that our next generation TPTTFPT platform, knowledge, experience and scientific resources provide us with competitive advantages, we face competition from both large and small pharmaceutical and biotechnology companies, academic institutions and other research organizations; specifically with companies, institutions and organizations that are actively researching and developing products that attach proprietary cell-killing payloads to antibodies for targeted delivery to cancer cells. Our competitors include, but are not limited to,to:
•NMIBC: Merck & Co., Inc. (Keytruda/pembrolizumab and BCG) (approved drugs), Endo Pharmaceuticals Inc. (Valstar/valrubicin) (approved drug), FerGene Inc. (Adstiladrin/nadofaragene firadenovec (rAd-IFN/Syn3)), Medical Enterprises Ltd. (Synergo RITE plus mitomycin C), Aadi, LLC (ABI-009), Altor Bioscience Corporation (ALT-801)ImmunityBio (Anktiva/N-803 in combination with BCG), Cold Genesys, Inc.CG Oncology. (CG0070), Endo PharmaceuticalsTheralase Technologies Inc. (Valstar) (approved drug)(TLD-1433 photodynamic compound), FKD Therapies Oy (Instilidrin)Bristol-Myers Squibb (Opdivo/nivolumab with or without BCG or BMS-986205), Merck and other pharmaceutical companies (BCG) (approved drug)F. Hoffmann-La Roche AG (Tecentriq/Atezolizumab), AstraZeneca (Imfinzi/durvalumab with or without BCG or External Beam Radiotherapy), Eli Lilly and Company (Gemcitabine) and Telormedix SA (Vesimune); Pfizer, Inc. (Sasanlimab);
•SCCHN: Bristol-Myers Squibb Company (nivolumab)(approved(Opdivo/nivolumab) (approved drug), Eli Lilly and Company, and Merck (Erbitux, pembrolizumab) (approved drugs);
•Multiple types of solid tumors: Amgen Inc. (Panitumumab) (approved drug), Bayer AG and Onyx Pharmaceuticals (Sorafenib) (approved drug), Bristol-Myers Squibb Company, Eli Lilly and Company, and Merck (Erbitux) (approved drug), F. Hoffmann-La Roche AG (Bevacizumab) (approved drug), Genentech, Inc. (Bevacizumab, Erlotinib and Trastuzumab) (approved drugs), Pfizer, Inc. (Sunitinib) and Trion Research GmbH (Removab); and
•In addition to competition from alternative treatments, we may also face competition from products that are biosimilar to, and possibly interchangeable with, our product candidates. Biosimilar products are expected to become available over the coming years. Even if our product candidates achieve marketing approval, they may be priced at a significant premium over competitive biosimilar products if any have been approved by then and insurers or other third partythird-party payors may encourage or even require the use of lower priced biosimilar products. Even if our treatments receive market authorization, they may not be listed on the formularies of payors (public or private insurers) or reimbursed. This may impact the uptake of the drug as a treatment option for patients and/or the price at which the drug can be sold at. Further, if the drug is reimbursed it may be at a narrower indication than the full scope of market authorization.
Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, pre-clinical studies, conducting clinical trials, obtaining regulatory approval and marketing than we do. These competitors are also active in seeking patent protection and licensing arrangements in anticipation of collecting royalties for use of technology that they have developed. Moreover, specialized biologics, biopharmaceutical and biotechnology companies may prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
Our commercial opportunity could be substantially limited in the event that our competitors develop and commercialize products that are more effective, safer, less toxic, more convenient or cheaper than our comparable products. In geographies that are critical to our commercial success, competitors may also obtain regulatory approvals before us, resulting in our competitors building a strong market position in advance of our product’s entry. We believe the factors determining the success of our programs will be the drug design, effectiveness against multi-drug resistance mechanisms, efficacy, safety, price and convenience of our product candidates.
Government Regulation
As a clinical-stage biologics company, we are subject to extensive regulation by the FDA, Health Canada and other national, supranational, state, provincial and local regulatory agencies. We are also subject to extensive regulation by similar governmental authorities in other countries in which we operate. In the United States, the Federal Food, Drug, and Cosmetic Act or the FDCA,("FDCA") and the Public Health Service Act or PHSA,("PHSA") and their implementing regulations set forth, among other things, requirements for the research, testing, development, manufacture, quality control, safety, effectiveness, approval, post-approval monitoring and reporting, labeling, storage, record keeping, distribution, import, export, advertising and promotion of our product candidates. Although the discussion below focuses on regulation in the United States, we anticipate seeking approval to market our products in other countries. Generally, our activities in other countries will be subject to regulation that is similar in nature and scope to that imposed in the United States, although there can be important differences. Additionally, some significant aspects of regulation in the E.U.EU are addressed in a centralized way through the European Commission following the opinion of the EMA, but country-specific regulation in the individual European Union Member States or the E.U.("EU Member States,States") remains essential in many respects. The process of obtaining regulatory marketing approvals and the
subsequent compliance with
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appropriate supranational, federal, state, provincial, local and foreignnon-US statutes and regulations require the expenditure of substantial time and financial resources, and we may not be successful in any given jurisdiction.
In the United States, pharmaceuticaldrug products are regulated by the FDA under the FDCA and other laws, including, in the case of biologics, the PHSA. PharmaceuticalDrug products are also subject to other federal, state and local statutes and regulations. A failure to comply with any applicable requirements during the product development, approval, or post-approval periods may lead to administrative or judicial sanctions, including, among other things, the imposition by the FDA or an institutional review board or IRB,("IRB") of a hold on clinical trials, refusal to approve pending marketing applications or supplements, withdrawal of approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, or administrative, civil and/or criminal investigation, penalties or prosecution.
In the United States, all of our product candidates are regulated by the FDA as biologics. Biologics require the submission of a BLA and approval by the FDA prior to being marketed in the United States. Manufacturers of biologics may also be subject to state and local regulation.
The steps required before a biologic may be marketed in the United States generally include:
•completion of pre-clinical studies, animal studies and formulation studies, some in compliance with the FDA’s current Good Laboratory Practices or GLP,("GLP") regulations, and the Animal Welfare Act administered and enforced by the U.S.United States Department of Agriculture;
•submission to the FDA of an IND to support human clinical testing, which must become effective before human clinical trials may commence;
•approval by an IRB before each trial may be initiated at each clinical site;
•performance of adequate and well-controlled clinical trials under protocols submitted to the FDA for review and approvalreviewed and approved by each IRB, conducted in accordance with federal regulations and with current Good Clinical Practices or GCPs,("GCP") to establish the safety, purity and potency of the biologic for each targeted indication;
•submission of a BLA to the FDA;
•satisfactory completion of an FDA Advisory Committee review, if applicable;
•satisfactory completion of an FDA inspection of the manufacturing facilities at which the biologic is produced to assess compliance with current Good Manufacturing Practices, or cGMP and to assure that the facilities, methods and controls are adequate; and
•FDA review and approval of thea BLA.
Pre-clinical studiesStudies
Pre-clinical studies include laboratory evaluation of product chemistry, formulation and toxicity, as well as animal studies to assess the characteristics and potential safety and efficacy of the product candidate. The conduct of the pre-clinical testsstudies must comply with federal regulations and requirements, including, as applicable, GLP and the Animal Welfare Act. The results of the pre-clinical studies, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND. The FDA evaluates the IND to determine whether there is an adequate basis for starting the drugproduct candidate in initial clinical studies,trials, and the IND must become effective before human clinical trials may be commenced. Additional pre-clinical testsstudies may continue after the IND is submitted. A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If during this 30-day period the FDA does not raise any concerns or issues that must be addressed prior to the commencement of clinical trials or does not impose a clinical hold, the IND becomes effective 30 days following the FDA’s receipt of the IND and the clinical trial proposed in the IND may begin.
Clinical trialsTrials
Clinical trials involve the administration of the product candidate to healthy volunteers or patients under the supervision of qualified investigators. Clinical trials are subject to extensive regulation and must be conducted in compliance with (i) federal regulations, (ii) GCP standards, which set safeguards to protect the rights and health of patients and establish standards for conducting, recording data from, and reporting results of clinical trials, and (iii) protocols detailing the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated, if any. ForeignNon-US studies conducted under an IND generally must meet the same requirements that apply to studies being conducted in the United States.
The informed written consent of each study subjectpatient must be obtained before the subjectpatient may begin participation in the clinical trial. The study protocol, study plan, and informed consent forms for each clinical trial must be reviewed and approved by an IRB for each clinical site, and the study must be conducted under the auspices of an IRB for each trial site. Investigators and IRBs must also comply with FDA regulations and guidelines, including those regarding oversight of study subjectpatient informed consent, complying with the study protocol and investigational plan, adequately monitoring the clinical trial, and timely reporting of adverse events.
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The clinical trial program for a product candidate is generally divided into three phases. Although the phases are usually conducted sequentially, they may overlap or be combined. The three phases are as follows:
•Phase 1. Phase 1 involves the initial introduction of a product candidate into humans. Phase 1 clinical trials are typically conducted in healthy human subjects, but in some situations are conducted in subjectspatients with the target disease or condition. These clinical trials are generally designed to evaluate the safety, metabolism, PKpharmacokinetic ("PK") properties and pharmacologic actions of the product candidate in humans, the side effects associated with increasing doses and, if possible, to gain early evidence onof effectiveness. During Phase 1 clinical trials, sufficient information about the product candidate’s PK properties and pharmacological effects may be obtained to inform and support the design of Phase 2 clinical trials. The total number of participants included in Phase 1 clinical trials varies, but is generally in the range of 20 to 80;
•Phase 2. Phase 2 includes the controlled clinical trials conducted to obtain initial evidence of effectiveness of the product candidate for a particular indication(s) in subjectspatients with the target disease or condition, to determine dosage tolerance and optimal dosage, and to gather additional information on possible adverse side effects and safety risks associated with the product candidate. Phase 2 clinical trials are typically well-controlled, closely monitored, and conducted in a limited subjectpatient population, usually involving no more than several hundred participants; and
•Phase 3. Phase 3 clinical trials are controlled clinical trials conducted in an expanded subjectpatient population at geographically dispersed clinical trial sites. They are performed after preliminary evidence suggesting effectiveness of the product candidate has been obtained and are intended to further evaluate dosage, clinical effectiveness and safety, to establish the overall benefit-risk relationship of the product candidate and to provide an adequate basis for regulatory approval. Phase 3 clinical trials usually involve several hundred to several thousand participants. In most cases, the FDA requires two adequate and well controlled Phase 3 clinical trials to demonstrate the efficacy of the product candidate, although a single Phase 3 clinical trial with other confirmatory evidence may be sufficient in certain instances.
The decision to suspend or terminate development of a product candidate may be made by either a health authority body, such as the FDA, by an IRB, or by a company for various reasons and during any phase of clinical trials. The FDA may order the temporary or permanent discontinuation of a clinical trial at any time or impose other sanctions if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial subjects.patients. In some cases, clinical trials are overseen by a DSMB,data safety monitoring board ("DSMB"), which is an independent group of qualified experts organized by the trial sponsor to evaluate at designated points in time whether or not a trial may move forward and/or should be modified. These decisions are based on unblinded access to data from the ongoing trial and generally involve determinations regarding the benefit/riskbenefit-risk ratio for study subjectspatients and the scientific integrity and validity of the clinical trial.
In addition, there are requirements for the registration of certain clinical trials of product candidates on public registries, such as ClinicalTrials.gov,www.clinicaltrials.gov, and the submission of certain information pertaining to these trials, including clinical trial results, after trial completion.
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, a sponsor submits extensive information about the product candidate information to the FDA in the form of a BLA to request marketing approval for the product candidate in specified indications.
Biologics License Applications
In order to obtain approval to market a biologic in the United States, a marketing application must be submitted to the FDA that provides data establishing the safety and effectiveness of the product candidate for the proposed indication. The application includes all relevant data available from pertinent pre-clinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a product candidate, or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and effectiveness of the product candidate to the satisfaction of the FDA. For example, in November 2016,
the FDA issued a draft guidance document on developing new drugs and biologics for treating BCG-unresponsive NMIBC and our BLA for Vicinium will likely have to meet the expectations set forthfinalized this guidance in that guidance document.February 2018.
Under the Prescription Drug User Fee Act, or PDUFA, as amended, the fees payable to the FDA for reviewing aan original BLA, as well as annual program fees for commercial manufacturing establishments and for approved products, can be substantial, subject to certain limited deferrals, waivers and reductions that may be available. The FDA has 60 days from receipt of a BLA to determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. The FDA may refuse to accept for filing any BLA that it deems incomplete or not properly reviewable at the time of submission, in which case the BLA will have to be updated and resubmitted. The FDA’s PDUFA review goal is to review 90% of priority BLA applications and original efficacy supplements within
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six months of filing and 90% of standard applications and original efficacy supplements within 10 months of filing, whereupon a decision is to be made, but the FDA can and frequently does extend this review timeline to consider certain later-submitted information or information intended to clarify or supplement information provided in the initial submission.
The FDA may not complete its review or approve a BLA within these established goal review times. The FDA reviews the BLA to determine, among other things, whether the proposed product is safe, pure, and potent for its intended use, and whether the product is being manufactured in compliance with cGMP. The FDA may also refer applications for novel product candidates which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
Before approving a BLA, the FDA will inspect the facilities at which the product candidate is manufactured or the facilities that are significantly involved in the product development and distribution process and will not approve the product candidate unless cGMP compliance is satisfactory. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Under the Pediatric Research Equity Act, certain BLAs must include an assessment, generally based on clinical trial data, of the safety and effectiveness of the biological product in relevant pediatric populations. The FDA may waive or defer the requirement for a pediatric assessment, either at a company’s request or by its own initiative, including waivers for certain products not likely to be used in a substantial number of pediatric patients. Products with orphan drug designation are exempt from these requirements for orphan-designated indications with no formal waiver process required.
After the FDA evaluates the BLA and the manufacturing facilities, it issues either an approval letter or a complete response letter.CRL. A complete response letterCRL generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. 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. If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of thea BLA, the FDA may issue an approval letter. The FDA’s PDUFA review goal is to review such resubmissions iswithin two or six months of receipt, depending on the type of information included. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval and deny approval of a resubmitted BLA. FDA approval of any application may include many delays or never be granted. An approval letter authorizes commercial marketing of the product candidate with specific prescribing information for specific indications. As a condition of BLA approval, the FDA may require a risk evaluation and mitigation strategy or REMS,("REMS") to help ensure that the benefits of the product candidate outweigh the potential risks. REMS can include Medication Guides, communication plans for healthcare professionals, and also may include elements to assure safe use or ETASU.("ETASU"). ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the biologic. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the biologic’s safety, purity, or potency, which can be costly.
Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new BLA or a supplemental BLA before the change can be implemented. A supplemental BLA for a new indication typically requires clinical data similar to that in the original application, and the FDA generally uses the same procedures and actions in reviewing a supplemental BLA as it does in reviewing a new BLA.
Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if safety or manufacturing problems occur following initial marketing. For example, quality control and manufacturing procedures must conform, on an ongoing basis, to cGMP requirements, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP. Accordingly, manufacturers must continue to spend time, money and effort to maintain cGMP compliance. In addition, new or modified government requirements, including from new legislation, may be established that
could delay or prevent regulatory approval of our product candidates under development or affect our ability to maintain product approvals we have obtained.
Biosimilars and market exclusivityMarket Exclusivity
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for the reference product. At this juncture, it is unclear whether any product biosimilar deemed ‘‘interchangeable’’ by the FDA, in fact, will be readily substituted by pharmacies, which are governed by state pharmacy law.
After an innovator has marketed its product for four years, a manufacturer may file an application for approval of a ‘‘biosimilar’’ version of the innovator product. However, although an application for approval of a biosimilar may be filed four years after approval of the innovator product, qualified innovative biological products receive 12 years of regulatory exclusivity, meaning that the FDA may not approve a biosimilar version until 12 years after the innovative biological product was first approved by the FDA under the PHSA. The BPCIA also provides a mechanism for innovators to enforce the patents that protect innovative biological products and for biosimilar applicants to challenge the patents. Such patent litigation may begin as early as four years after the innovative biological product is first approved by the FDA. Although the patents for the reference biologic may be challenged by the biosimilar applicant during that time period pursuant to the BPCIA statutory patent
challenge framework, no biosimilar or interchangeable product will be licensed by the FDA until the end of the exclusivity period. The first biologic product candidate submitted under the abbreviated approval pathway that is determined to be interchangeable with the reference product has exclusivity against any other determinations of interchangeability to the reference product for the lesser of (i) one year after first commercial marketing of the interchangeable biosimilar product, (ii) 18 months after approval of the interchangeable biosimilar product if there is no legal challenge, (iii) 18 months after the resolution in the interchangeable biosimilar product applicant’s favor of a lawsuit challenging the reference product’s patents, and (iv) 42 months after 42 months after approval of the interchangeable biosimilar product if a lawsuit is ongoing within the 42-month period.
The objectives of the BPCIA are conceptually similar to those of the Hatch-Waxman Act, which established abbreviated pathways for the approval of generic drugs. The FDA has published several guidance documents providing direction on developing and obtaining approval of biosimilar product candidates. The guidance documents to date explain, among other things, that the FDA will approve a biosimilar product if there are no clinically meaningful differences between the biological product and the reference product in terms of safety, purity and potency. A determination of biosimilarity may be based upon: (1) analytical studies showing that the biological product is highly similar to, with no clinically meaningful differences from, the reference product, (2) animal studies, including toxicity assessments, and/or (3) a clinical trial or trials (including assessment of immunogenicity and PKs or pharmacodynamics)PKs) that are sufficient to demonstrate safety, purity and potency.potency in one or more appropriate conditions of use for which the reference product is licensed and for which licensure is sought for the biological product. The FDA recommends that sponsors use a stepwise approach to developing the data and information needed to support biosimiliarity.biosimilarity. At each step, the sponsor should evaluate the extent of residual uncertainty of biosimilarity that remains and incorporate the FDA’s advice for additional studies to address remaining uncertainty. To meet the higher standard for interchangeability the sponsor must demonstrate, in addition to biosimilarity, that the proposed biological product can be expected to produce the same clinical result and, if administered more than once to any given patient, the safety risk and potential for diminished efficacy associated with switching between the proposed biological product and the reference product is not greater than continuing to use the reference product. A biological product that is determined to be interchangeable may be substituted for the reference product without the intervention of the prescribing healthcare provider. In March 2015, the FDA approved the first biosimilar product under the BPCIA, and it has approved other biosimilar products since then. If any of our product candidates is approved by the FDA, the approval of a biologic product biosimilar to 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.
The ‘‘Purple"Purple Book,’’" first published by the FDA in September 2014, lists biological products, including any biosimilar and interchangeable biological products licensed by the FDA under the PHSA. The lists include the date a biological product was licensed under Section 351(a) of the PHSA and whether the FDA evaluated the biological product for reference product exclusivity under Section 351(k)(7) of the PHS Act.PHSA. The Purple Book will also enable a user to see whether a biological product licensed under Section 351(k) of the PHSA has been determined by the FDA to be biosimilar to or interchangeable with a reference biological product (an already-licensed FDA biological product).product. Biosimilar and interchangeable biological products licensed under Section 351(k) of the PHSA will be listed under the reference product to which biosimilarity or interchangeability was demonstrated.
Advertising and promotionPromotion
The FDA and other federal regulatory agencies closely regulate the marketing and promotion of biologics through standards and regulations for, among other things, direct-to-consumer advertising, communications regarding unapproved uses, industry-sponsored scientific and educational activities, and promotional activities involving the internet. A biologic cannot be commercially promoted before it is approved. After approval, promotion of a biologic can include only those claims relating to safety and effectiveness that are consistent with the labeling approved by the FDA.
Healthcare providers are permitted, however, to prescribe products for unapproved uses (also known as ‘‘off-label’’ uses) -– that is, uses not approved by the FDA and therefore not described in the product’s labeling -– because the FDA does not regulate the practice of medicine. However, FDA restricts manufacturers’ communications regarding unapproved uses. Broadly speaking, a manufacturer may not promote a product for an unapproved use, but may engage in non-promotional, balanced communication regarding unapproved uses under specified conditions. Failure to comply with applicable FDA requirements and restrictions in
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this area may subject a company to adverse publicity and enforcement action by the FDA, the United States Department of Justice or the DOJ,("DOJ"), or the Office of Inspector General of the United States Department of Health and Human Services or HHS,("HHS"), as well as state authorities. Such enforcement action could subject a company to a range of penalties that could have a significant commercial impact, including civil and criminal fines and agreements that materially restrict the manner in which a company promotes or distributes products.
Post-approval regulationRegulation
After regulatory approval of a product is obtained, a company is required to comply with a number of post-approval requirements. For example, as a condition of BLA approval, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization. Regulatory approval of oncology products often requires that subjectspatients in clinical trials be followed for long periods to determine the overall survival benefit of the product. In addition, as a holder of an approved BLA, a company would be required to report adverse reactions and production problems to the FDA, to provide updated safety and efficacy information, and to comply with requirements concerning advertising and promotional labeling for any of its products.
The manufacturing of our product candidates is required to comply with applicable FDA manufacturing requirements contained in the FDA’s cGMP regulations. Our product candidates are manufactured at our production plant in Winnipeg, Manitoba, Canada. In the event we obtain approval from the FDA to market any of our product candidates, we will need to outsource our commercial scale manufacturing to CMOs. Quality control and manufacturing procedures must continue to conform to cGMP after approval to assure and preserve the long term stability of the biological product. Biologic manufacturers and other entities involved in the manufacture and distribution of approved biologics are also required to register their establishments and list any products they make with the FDA and to comply with related requirements in certain states. The FDA and certain state agencies periodically inspect manufacturing facilities to assess compliance with cGMP which imposes extensive procedural and substantive record keeping requirements, and other laws.
Discovery of problems with a product after approval may result in serious and extensive restrictions on a product or the manufacturer or holder of an approved BLA, as well as lead to potential market disruptions. These restrictions may include suspension of a product manufacturing until the FDA is assured that quality standards can be met, continuing oversight of manufacturing by the FDA under a ‘‘consent decree,’’ which frequently includes the imposition of costs and continuing inspections over a period of many years, as well as possible withdrawal of the product from the market. Other potential consequences include interruption of production, issuance of warning letters or other enforcement letters, refusal to approve pending BLAs or supplements to approved BLAs, product seizure or detention, and injunctions or imposition of civil and/or criminal penalties.
In addition, changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation, correction, and reporting of any deviations from cGMP and impose reporting and documentation requirements upon a company and any third partythird-party manufacturers that a company may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.
Newly discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures, such as additional post-market clinical trials to assess new safety risks or distribution-related or other restrictions under a REMS.
Patent Term Extension
Depending upon the timing, duration and specifics of the FDA approval of our product candidates, some of our U.S.US patents may be eligible for limited patent term extension. The provisions of the Hatch-Waxman actAct permit a patent restoration term extension of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of a BLA plus the time between the submission date of a BLA and the approval of that application. Only one patent applicable to an approved product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The United States Patent and Trademark Office ("USPTO"), in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may apply for restoration of patent term extension for one of our currently owned or licensed patents to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant BLA.
Many other countries also provide for patent term extensions or similar extensions of patent protection for biologic products. For example, in Japan, it may be possible to extend the patent term for up to five years and in Europe, it may be possible to obtain a supplementary patent certificate that would effectively extend patent protection for up to five years.
The Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act or FCPA,("FCPA") prohibits any U.S.United States individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreignnon-US official, political party or candidate
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for the purpose of influencing any act or decision of the foreignnon-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 accounting provisions requiring such companies 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.
European Union and other international government regulationInternational Government Regulation
In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our product candidates. Whether or not we obtain FDA approval for a product candidate, we must obtain the requisite approvals from regulatory authorities in foreign countries outside of the United States prior to the commencement of clinical trials or marketing of a product in those countries. Some countries outside of the United States have a similar process that requires the submission of a CTA much like the IND prior to the commencement of human clinical trials. In the E.U.,EU, for example, a CTA must be submitted to the competent authorities of the E.U.EU Member States where the clinical trial is conducted and to an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance with a country’s requirements, clinical trial development may proceed.
Marketing authorization applicationAuthorization Application for biologic medicinal products in the European Union and in other foreign countriesBiologic Medicinal Products
To obtain regulatory approval to commercialize a new drugproduct under E.U.EU regulatory systems, we must submit a marketing authorization application.
In the E.U.,EU, a marketing authorization for a medicinal product can be obtained through a centralized, mutual recognition, decentralized procedure, or national procedure (single country). The centralized procedure is mandatory for certain medicinal products, including orphan medicinal products and certain biologic products and optional for certain other products, including medicinal products that are a significant therapeutic, scientific or technical innovation, or whose authorization would be in the interest of public or animal health.
In accordance with the centralized procedure, the applicant can submit a single application for marketing authorization to the EMA which will provide a positive opinion regarding the application if it meets certain quality, safety, and efficacy requirements. Based on the opinion of the EMA, the European Commission takes a final decision to grant a centralisedcentralized marketing authorization which permits the marketing of a product in all 28 E.U.27 EU Member States and three of the four European Free Trade Association States - Iceland, Liechtenstein and Norway. Under the centralized procedure in the E.U.,EU, the maximum timeframe for the evaluation of a marketing authorization application is 210 days (excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the EMA Committee for Medicinal Products for Human Use, or CHMP).CHMP.
For other countries outside of the E.U.,EU, such as the United Kingdom and countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. Internationally, clinical trials are generally required to be conducted in accordance with GCPs, applicable regulatory requirements of each jurisdiction and the medical ethics principles that have their origin in the Declaration of Helsinki. If we fail to comply with applicable foreignnon-US regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Advertising, Promotion and Compliance
In the E.U.,EU, the advertising and promotion of our products will also be subject to E.U.EU laws and E.U.EU Member States’ national laws governing promotion of medicinal products, interactions with physicians, misleading and comparative advertising and unfair commercial practices. Other E.U.EU Member State national legislation may also apply to the advertising and promotion of medicinal products. These laws require that promotional materials and advertising in relation to medicinal products comply with the product’s Summary of Product Characteristics or SmPC,("SmPC"), as approved by the competent authorities. The SmPC is the document that provides information to physicians concerning the safe and effective use of the medicinal product. The SmPC forms an intrinsic and integral part of the marketing authorization granted for the medicinal product. Promotion of a medicinal product that does not comply with the SmPC is considered to constitute off-label promotion and is prohibited in the E.U.EU. The applicable laws at the E.U.EU level and in the individual E.U.EU Member States also prohibit the direct-to-consumer advertising of prescription-only medicinal products. Violations of the rules governing the promotion of medicinal products in the E.U.EU could be penalized by administrative measures, fines and imprisonment.
During all phases of development (pre- and post-marketing), failure to comply with applicable regulatory requirements may result in administrative or judicial sanctions. These penalties imposed by the European Commission, the competent authorities of the E.U. Member States or comparable foreign regulatory authorities could include the imposition of a clinical hold on trials, refusal to approve pending applications, withdrawal of an approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, product detention or refusal to permit the import or export of products, injunctions, fines, civil penalties or criminal prosecution. Any agency or judicial enforcement action could have a material adverse effect on us.
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Orphan Drug Designation
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.
In the United States, orphan drug designationOrphan Drug Designation entitles a party to financial incentives, such as opportunities for grant funding towards clinical trial costs, tax credits for certain research and user fee waivers under certain circumstances. In addition, if a product receives the first FDA approval for the indication for which it has orphan designation, the product is entitled to seven years of market exclusivity, which means the FDA may not approve any other application for the samea biologic for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity. The FDA can revoke a product’s orphan drug exclusivity under certain circumstances, including when the product sponsor is unable to assure the availability of sufficient quantities of the product to meet patient needs. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same biologic for a different disease or condition.
In the E.U.,EU, medicinal products: (a) that are used to diagnose, treat or prevent life-threatening or chronically debilitating conditions that affect no more than five in 10,000 people in the E.U.;EU; or (b) that are used to treat or prevent life-threatening, seriously debilitating or chronically debilitatingserious and chronic conditions and that, for economic reasons, would be unlikely to be developed without incentives; and (c) where no satisfactory method of diagnosis, prevention or treatment of the condition concerned exists, or, if such a method exists, the medicinal product would be of significant benefit to those affected by the condition, may be granted an orphan designation in the E.U.EU. The application for orphan designation must be submitted to the EMA and approved by the European Commission before an application is made for marketing authorization for the product. Once authorized,designated, Orphan medicinal product designation also entitles a party to financial incentives such as reduction of fees or fee waivers. Moreover, ten years of market exclusivity is granted following biologic approval.marketing authorization, if the product continues to be designated as an orphan medicinal product upon grant of the marketing authorization. During this ten-year period, with a limited number of exceptions, neither the competent authorities of the E.U.EU Member States, the EMA, or the European Commission are permitted to accept applications or grant marketing authorization for other similar medicinal products with the same therapeutic indication. However, marketing authorization may be granted to a similar medicinal product with the same orphan indication during the ten-year period with the consent of the marketing authorization holder for the original orphan medicinal product or if the manufacturer of the original orphan medicinal product is unable to supply sufficient quantities. Marketing authorization may also be granted to a similar medicinal product with the same orphan indication if this latter product is demonstrated to be safer,
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.
Expedited Programs in the United States and Other Jurisdictions
In the United States, a product may be granted fast trackFast Track designation if it is intended for the treatment of a serious or life-threatening condition and demonstrates the potential to address unmet medical needs for such condition. With fast-trackFast Track designation, the sponsor may be eligible for more frequent opportunities to obtain the FDA’s feedback, and the FDA may initiate review of sections of a BLA before the application is complete. This ‘‘rolling review’’Rolling Review is available if the applicant provides, and the FDA approves, a schedule for the remaining information. Even if a product receives fast-trackFast Track designation, the designation can be rescinded and provides no assurance that a product will be reviewed or approved more expeditiously than would otherwise have been the case, or that the product will be approved at all.
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
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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.
The FDA may grant priority reviewPriority Review designation to a product candidate, which sets the target date for FDA action on the application at six months from FDA filing, or eight months from the sponsor’s submission. Priority reviewReview may be granted where a product is intended to treat a serious or life-threatening disease or condition and, if approved, has the potential to provide a safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement in safety or efficacy compared to available therapy. If criteria are not met for priority review,Priority Review, the standard FDA review period is ten months
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.
Under the Centralized Procedure in the E.U.,EU, the maximum timeframe for the evaluation of a marketing authorization application is 210 days (excluding ‘‘clock stops,’’ when additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP. Accelerated evaluation might be granted by CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest, defined by three cumulative criteria: (1) the seriousness of the disease (for example, heavy disabling or life-threatening diseases) towhich should be treated, (2) the absence or insufficiency of an appropriate alternative therapeutic approach,justified and (3) anticipation of high therapeutic benefit.assessed on a case-by-case basis. In this circumstance, EMA ensures that the opinion of CHMP is given within 150 days.
Healthcare Reform
In the United States and some foreignnon-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 collaborators,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 collaborators,partners, may receive for any approved products.
In addition, in March 2010, the President of the United StatesObama signed one of the most significant healthcare reform measures in decades. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the "ACA") substantially changeschanged the way healthcare will beis financed by both governmental and private insurers and significantly impacts the pharmaceutical industry. The Affordable Care ActACA has impacted existing government healthcare programs and has resulted in the development of new programs. For example, the Affordable Care ActACA provides for Medicare payment for performance initiatives and improvements to the physician quality reporting system and feedback program.initiatives.
Among the Affordable Care Act’sACA's provisions of importance to the pharmaceutical industry 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 Medicaid Drug Rebate Program ("MDRP") to 23.1% for innovator drugs and 13% for non-innovator drugs of the average manufacturer price;price ("AMP");
•a new methodology by which average manufacturer priceAMP 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 partial prescription drug benefit for Medicare recipients or ("Medicare Part D,D") coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of
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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);
•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 pharmaceuticaldrug pricing program;
•new requirements to report to CMS annually specifying financial arrangements with physicians and teaching hospitals, as defined in the Affordable Care ActACA 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 offor Medicare and Medicaid Innovation within CMS to test innovative payments 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;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
In addition, other legislative changes have been proposed and adopted since the Affordable Care ActACA was enacted. In August 2011, forFor example, the President signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend proposals in spending reductions to Congress. The Joint Select Committee did not achieve its targeted deficit reduction of an amount greater than $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reductions to several government programs. Subsequent legislation has extended the reduction through 2025. These reductions include aggregate reductions to Medicare payments to healthcare providers of up to 2% per fiscal 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.
Additional legislative changes, FDAregulatory changes, or CMS regulations, guidance or interpretations could be adopted, which may impact the marketing approvals and reimbursement offor our product candidates. For example, there has been increasing legislative, regulatory, and enforcement interest in November 2015, the U.S. House of Representatives formed an Affordable Drug Pricing Task ForceUnited States with respect to advance legislation intended to control pharmaceutical drug costs and investigate pharmaceutical drug pricing practices. There have been several Congressional inquiries and the U.S. Senate has requested information from certain pharmaceutical companies in connection with an investigation into pharmaceutical drug pricing practices.
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It is possible and appear likely in the 115th United States Congress and under the Trump Administration. We anticipate that the Affordable Care Act,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.
Coverage, pricingPricing and reimbursementReimbursement
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.
In 2003, the United States Congress enacted legislation providingcreating Medicare Part D, which became effective at the beginning of 2006. Government payment for some of the costs of prescription drugs may increase demand for any products for which we receive marketing approval. However, to obtain payments under this program, we would be required to sell products to Medicare recipients through prescription drug plans operating pursuant to this legislation. These plans will likely negotiate discounted prices for our products. Federal, state and local governments in the United States continue to consider legislation to limit the growth of healthcare costs, including the cost of prescription drugs. Future legislation could limit payments for pharmaceuticals such as the product candidates that we are developing.developing or modify manufacturer discounts. For example, Congress is currently considering legislation that would sunset the current Part D discount program and replace it with a new manufacturer discount program, effective 2024. Congress further could enact a Medicare Part D inflation rebate, under which manufacturers would owe rebates if the average manufacturer price of a drug were to increase faster than the pace of inflation.
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.
In the E.U.,EU, once a marketing authorization is granted for a medicinal product the applicant is required to engage in pricing and reimbursement discussions and negotiate with a separate pricing authority in each of the E.U.EU Member States. The E.U.EU Member States governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed upon. To obtain reimbursement or pricing approval, some of the E.U.EU Member States may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other E.U.EU Member States allow companies to fix their own prices for medicines,medicinal products but monitor and control company profits. The downward pressure on healthcare costs in general, particularly pharmaceuticals, has become more intense. As a result, increasingly high barriers are being erected to the entry of new products. Furthermore, an increasing number of E.U.many EU Member States and other foreignnon-US countries use prices for medicinal products established in other countries as “reference prices” to help determine the price of the product in their own territory. Consequently, a downward trend in prices of medicinal products in some countries could contribute to similar downward trends elsewhere. The E.U.EU Member States have discretion to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. An E.U. Member State may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. We may face competition for our products, if approved, from lower priced products in foreignnon-US countries that have placed price controls on pharmaceutical products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.
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Health Technology Assessment or HTA,("HTA") of medicinal products is becoming an increasingly common part of the pricing and reimbursement procedures in some E.U.EU Member States. These E.U.EU Member States include the United Kingdom, France, Germany, Ireland, Italy and Sweden. The HTA process in European Economic Area or EEA,("EEA") countries is governed by the national laws of these countries. HTA is the procedure according to which the assessment of the public health impact, therapeutic impact and the economic and societal impact of use of a given medicinal product in the national healthcare systems of the individual country is conducted. HTA generally focuses on the clinical efficacy and effectiveness, safety, cost, and cost-effectiveness of individual medicinal products as well as their potential implications for the healthcare system. Those elements of medicinal products are compared with other treatment options available on the market.
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.
American Society of Clinical Oncology or ASCO, value assessment("ASCO") Value Assessment for cancer treatmentsCancer Treatments
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.
Other healthcare lawsHealthcare Laws and compliance requirementsCompliance Requirements
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 candidatescandidate for which we obtain marketing approval. Our future arrangements with third-party payors and customers maywill 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.United States federal and state governments and by governments in foreignnon-US jurisdictions in which we conduct our business. We have described below some of the key federal, state and foreignnon-US healthcare laws and regulations that may affect our ability to operate.
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.
The federal civil False Claims Act prohibits, among other things, any person from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment of government funds; knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government; or knowingly concealing or knowingly and improperly avoiding, decreasing, or concealing an obligation to pay money to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes ‘‘any request or demand’’ for money or property presented to the U.S. government. The False
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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 fraud provisions of the federal Health Insurance Portability and Accountability Act of 1996 or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH,its implementing regulations (collectively, "HIPAA"), among other things, imposesimpose criminal and civil liability for knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.
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.
HIPAA as amended by HITECH and its implementing regulations, imposes requirements relating to the privacy, security and transmission of individually identifiable health information. HITECH also increased the civil and criminal penaltiesWe may obtain health information from third parties, such as research institutions, that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authorityare subject to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security ofrequirements under HIPAA. Although we are not directly subject to HIPAA other than with respect to providing certain employee benefits, we could potentially be subject to criminal penalties if we, our affiliates, or our agents knowingly obtain, use, or disclose individually identifiable health information maintained by a HIPAA-covered entity in specified circumstances, many of which differ from each other in significant ways and maya manner that is not have the same effect, thus complicating compliance efforts. authorized or permitted by HIPAA.
Other jurisdictions including Canada, have corresponding laws and regulations governing the handling of personal information and third partythird-party communications that may be more or less stringent than those of the United States. In Canada, such laws include the Personal Information Protection and Electronic Documents Act, similar provincial legislation regarding privacy and personal health information and anti-spam legislation, wherein the failure to comply or breaches can result in notification requirements or corrective action, including civil and criminal fines and sanctions.
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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.
If we participate in the Medicaid drug rebate program,MDRP, we will have certain price reporting obligations to the Medicaid drug rebate program,MDRP, and we may have obligations to report average sales price or ASP,("ASP") figures to the Medicare program. Under the Medicaid drug rebate program,MDRP, 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 arewould be based on pricing data reported by us on a monthly and quarterly basis to CMS. These data would include average manufacturer price, or 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. On December 21, 2020, CMS issued a final rule that modified MDRP regulations to permit reporting multiple best price figures with regard to value based purchasing arrangements (beginning in 2022); provide definitions of “line extension,” “new formulation,” and related terms with the practical effect of expanding the scope of drugs considered to be line extensions (beginning in 2022); and revise best price and AMP exclusions of manufacturer-sponsored patient benefit programs, including with respect to the potential inapplicability of such exclusions in the context of pharmacy benefit manager “accumulator” programs (beginning in 2023).
Federal law also requires that a company that participates in the Medicaid drug rebate programMDRP 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.statute. CMS uses these submissions to determine payment rates for drugs under Medicare Part B. For calendar quarters beginning January 1, 2022, manufacturers will be required to report the average sales price for certain drugs under the Medicare program regardless of whether they participate in the Medicaid Drug Rebate Program. In addition, starting in 2023, manufacturers must pay refunds to Medicare for single source drugs or biologicals, or biosimilar biological products, reimbursed under Medicare Part B and packaged in single-dose containers or single-use packages for units of discarded drug reimbursed by Medicare Part B in excess of 10 percent of total allowed charges under Medicare Part B for that drug. Manufacturers that fail to pay refunds could be subject to civil monetary penalties of 125 percent of the resulting Medicare payment rate.refund amount.
Federal law requires that any company that participates in the Medicaid drug rebate programMDRP 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-definedstatutorily defined covered entities no more than the 340B “ceiling price” for the manufacturer’s covered outpatient drugs. The Health Resources and Services Administration ("HRSA"), which administers the 340B program, issued a final regulation regarding the calculation of the 340B ceiling price and the imposition of civil monetary penalties on manufacturers that knowingly and intentionally overcharge covered entities, which became effective on January 1, 2019. HRSA also has implemented a ceiling price reporting requirement, pursuant to which manufacturers must report the 340B ceiling prices for their covered outpatient drugs to HRSA on a quarterly basis. HRSA then publishes those prices to 340B covered entities. Moreover, under a final regulation effective January 13, 2021, HRSA newly established an administrative dispute resolution (“ADR”) process for claims by covered entities that a manufacturer has engaged in overcharging, and by manufacturers that a covered entity violated the prohibitions against diversion or duplicate discounts. Such claims are to be resolved through an ADR panel of government officials rendering a decision that could be appealed only in federal court. An ADR proceeding could subject a manufacturer to onerous procedural requirements and could result in additional liability. HRSA further could terminate a manufacturer’s agreement to participate in the 340B program for a failure to comply with 340B program requirements. In the event that HRSA were to terminate such an 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.
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
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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.
If we participate in the Medicaid drug rebate programMDRP or our products are covered under Medicare Part B, we will be liable for errors associated with our submission of pricing data. We cannot assure you that our submissions, if we participate in these programs, will not be found by CMS to be incomplete or incorrect. 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. Civil monetary penalties also can be applied if we are found to have intentionally charged 340B covered entities more than the statutorily mandated ceiling price. 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.
Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, it is possible that some of our business activities could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the federal and state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including (depending on the applicable law) criminal and significant civil monetary penalties, damages, fines, imprisonment, exclusion from participation in government programs, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, private ‘‘qui tam’’ actions brought by individual whistleblowers in the name of the government or refusal to allow us to enter into supply contracts, including government contracts, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. To the extent that any of our products are sold in a foreignnon-US country, we may be subject to similar foreignnon-US laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and more extensive reporting of payments or transfers of value to healthcare professionals.
In the E.U.,EU, interactions between pharmaceutical companies and physicians are also governed by strict laws, regulations, industry self-regulation codes of conduct and physicians’ codes of professional conduct in the individual E.U.EU Member States. The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is prohibited. The provision of benefits or advantages to physicians is also governed by the national anti-bribery laws of the E.U.EU Member States. One example isStates and by the UKUnited Kingdom's Bribery Act 2010. This act applies to any company incorporated in or “carrying on business” in the UK, irrespective of where in the world the alleged bribery activity occurs. Violation of these laws could result in substantial fines and imprisonment.
The national laws of certain E.U.EU Member States require payments made to physicians to be publicly disclosed. Moreover, the European Federation of Pharmaceutical Industries and Associations or EFPIA("EFPIA") Code on disclosure of transfers of value from pharmaceutical companies to healthcare professionals and healthcare organizations imposes a general obligation on members of EFPIA or related national industry bodies to disclose transfers of value to healthcare professionals. In addition, agreements with physicians must often be the subject of prior notification and approval by the physician’s employer, his/her competent professional organization, and/or the competent authorities of the individual E.U.EU Member States. These requirements are provided in the national laws, industry codes, or professional codes of conduct, applicable in the individual E.U.EU Member States.
If we fail to comply with applicable foreignnon-US regulatory requirements, we may be subject to, among other things, warning letters or untitled letters, injunctions, civil, administrative, or criminal penalties, monetary fines or imprisonment, suspension or withdrawal of regulatory approvals, suspension of ongoing clinical studies, refusal to approve pending applications or supplements to applications filed by us, suspension or the imposition of restrictions on operations, product recalls, the refusal to permit the import or export of our products or the seizure or detention of products.
Environmental and safety lawsSafety Laws
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
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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.
Corporate History -and Acquisition of Viventia
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.
In connection with the Viventia Acquisition, we are obligated to pay to the sellersSelling 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 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 (referred to herein as the Purchased Product)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) 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.
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.
Our key human capital management objectives are to recruit, retain, manage and motivate our employees. There are a 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 given the numerous pharmaceutical and biotechnology companies looking for similar personnel as well as universities and research institutions. We rely on our executive officers and other key employees to achieve our research, development and commercialization objectives and to successfully implement our business strategy. We also rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy.
We are committed to maintaining a diverse and inclusive workplace in which our employees from all backgrounds can fully contribute to the growth and success of our business. We communicate shared values and leadership behaviors, which are expected of all employees. Additionally, every employee has an annual performance review and has opportunities to contribute to corporate goals. We rely on a variety of sources to fill open positions, including job boards and postings on our corporate website.
We have a demonstrated history of investing in our workforce through comprehensive and competitive compensation and benefits, and a focus on health and employee wellbeing. We have adopted our 2014 Stock Incentive Plan ("2014 Plan") and Employee Stock Purchase Plan (“ESPP”) to enable us and our subsidiaries to recruit and retain highly qualified employees, directors and consultants, provide those individuals with an incentive for productivity, and provide those individuals with an opportunity to share in our growth and value.
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As of December 31, 2016,2021, we had 34thirty-five full-time employees and oneno part-time employee, eight of whom are term specific employees, sixnine hold Ph.D. degrees and one is a medicalveterinary doctor. This number consists of sevenfifteen employees engaged in administration ten employees engaged in clinical activities, twoand twenty employees engaged in research and development eight employees engaged(eight in operations (five in manufacturingclinical and regulatory, three in facility/engineering)supply chain, five in manufacturing/engineering, and eight employees engagedfour in quality and support. Fivesupport). Two of our employees are located in our corporate headquarters in Boston, 26Cambridge, fifteen of our employees are located in our Winnipeg facility, two of our employees are located in our Toronto office and twofive of our employees are located in our Philadelphia office. We have no collective bargaining agreements with our employees, and none are represented by labor unions. We have not experienced any work stoppages. We believe our relationship with our employees is satisfactory.
Since the beginning of the COVID-19 pandemic, approximately 30% of our employees have continued to work at our Winnipeg facility, where we have adopted health screening, implemented socially distancing and personal protective equipment requirements, enhanced cleaning and sanitation protocols, and modified workspaces to reduce the potential for transmission of the virus. All other employees who do not require access to our facility to perform their work have been working from home during the pandemic.
Corporate Information and Access to SEC Reports
Our principal executive offices are located at 245 First Street, Suite 1800, Cambridge, Massachusetts 02142, our telephone number is (617)-444-8550 and our website address is www.sesenbio.com. We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, available free of charge in the “Investors” section of our website as soon as reasonably practicable after we file these reports with the SEC. We routinely post these reports, recent news and announcements, financial results and other important information about our business on our website at www.sesenbio.com. Information contained on our website is not a part of this Annual Report on Form 10-K.
In addition, the SEC maintains an Internet website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
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Item 1A. Risk Factors.
Our business is subject to substantial risks and uncertainties. The occurrence of any of the following risks and uncertainties, either alone or taken together, could materially and adversely affect our business, financial condition, results of operations or prospects. In these circumstances, the market price of our common shares could decline, and you may lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Risks and uncertainties of general applicability and additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition, results of operations or prospects.
Risks Related to Our Financial Position and Need Forfor Additional Capital
We have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future.
We are a specialty pharmaceutical company with a limited operating history. Over the past few years, we have focused primarily on developing our lead product candidate, Vicineum. Since our inception, we have received no revenues from sales of our products, have incurred significant operating losses and expect to continue to incur operating losses for the foreseeable future.future as we continue the 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 seek marketing approval from the FDA. We had net incomelosses of $1.9$0.3 million, $22.4 million and $107.5 million for the yearyears ended December 31, 2016 due to the $29.62021, 2020 and 2019, respectively. We incurred negative cash flows from operating activities of $68.9 million, of revenue from the License Agreement; however, we have incurred net losses of $33.5$30.8 million and $37.5 million for the yearyears ended December 31, 20152021, 2020 and $34.2 million for the year ended December 31, 2014.2019, respectively. As of December 31, 2016,2021, we had cash and cash equivalents of $162.6 million, net working capital (current assets less current liabilities) of $194.0 million and an accumulated deficit of $123.3$316.3 million. To date, weWe have financed our operations to date primarily through private placements of our common stock, and preferred stock, common stock warrants and convertible bridge notes, venture debt borrowings, and our initial public offering or IPO,("IPO"), our follow-on public offerings, sales effected in an "at-the-market" offering throughat-the-market ("ATM") offerings and, our agent, Cowenout-licensing and Company, LLC, through our License Agreement with Roche and, to a lesser extent, from a collaboration. Substantially allOUS business development partnership agreements. The majority of our revenue to date has been licensing revenue from milestone payments received under our License Agreement with Rocheout-licensing and collaboration revenue. We have devoted substantially all of our financial resources and efforts to research andOUS business development activities. We are still in the early stages of development of certain of our product candidates, and we have not completed development of any product candidates. partnership agreements. 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 quarterquarter-to-quarter and year to year.year-to-year.
We willexpect to incur substantial expenses iflosses for the foreseeable future, and we expect these losses to increase as we:
•continue our planned Phase 3 clinical trial for Vicinium and initiate our Phase 1/2a clinical trial for Proxinium;
•seek marketing approval for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG in the United States and the European Union;
•establish a commercialization infrastructure and scale up external manufacturing and distribution 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;
•adapt our other product candidates;regulatory compliance efforts to incorporate requirements applicable to marketed drugs;
•seek and conduct combination trials of one or more of our product candidates;
•seek to discover and develop additional product candidates;
•in-license or acquire the rights to other products, product candidates or technologies; and
•maintain, expand and protect our intellectual property portfolio;
Because of the numerous risks and uncertainties associated with pharmaceutical productdrug development and commercialization, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Our expenses will increase substantially if:
If we are required by the FDA, the EMA or Health Canadaregulatory authorities to perform studies or clinical trials in addition to those currently expected;expected or
if there are any delays in enrollmentthe initiation and completion of subjects in, or completing our clinical trials or the development of any of our product candidates, that we may develop.our expenses could increase.
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.
Our ability to become and remain profitable depends on our ability to generate revenue. Although we may be entitled to certain licensing fees related to specific regulatory, development and commercial milestones for EBI-031payments under our License Agreement with Roche,out-licensing and OUS business development partnership agreements, neither we nor any of our business development partners have not commercialized any of our product candidates. We do not expect to generate significant revenue from the development of our product candidates unless and until we or one of our business development partners obtain marketing approval for, and commercialize, Vicinium, ProxiniumVicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or our other product candidates that we may develop, in-licenseless than adequate BCG. Our ability to generate revenue from Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or acquire in the future. This would require us to be successful inless than adequate BCG will depend on a range of challenging activities, including:
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•our clinical trials and completion of the necessary clinical trials;
•the size of the markets in the territories for which we or our business development partners gain regulatory approval;
•our ability to find a suitable contract sales organization ("CSO") to help us market and the European Commission;promote Vicineum, if approved;
•our success in defending against potential competition and other developments in our market generally;
•our ability to manufacture of commercial quantities of Vicineum at acceptable cost levels;
•our product candidates;
•our and private payors.our business development partners' ability to successfully complete development activities, including necessary 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.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, obtain drug approvals, diversify our product offerings or even continue our operations. A decline in the value of our company could also cause our stockholdersyou to lose all or part of theiryour investment.
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.
Our future capital requirements will depend on many factors, including:
•the initiation, progress, timing, costs and resultstiming of continuing the 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;
•the success of our commercialization 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;
•the outcome, timing and cost of the regulatory approval process for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG by the FDA and comparable non-US regulatory authorities, including the potential for the FDA to require that we perform more studies and clinical trials for our product candidates;than those we currently expect;
•the scope, progress, resultscosts and coststiming of pre-clinical development and laboratory testingthe implementation of our pre-clinical product candidates;commercial-scale manufacturing activities;
•our ability to establish collaborationsand maintain commercial arrangements on favorable terms, if at all, particularly manufacturing, marketing and distribution arrangements for our product candidates;
Vicineum for the costs and timingtreatment of non-muscle invasive CIS of the implementation of commercial-scale manufacturing activities;bladder in patients previously treated with adequate or less than adequate BCG;
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•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 licensingin-licensing agreements;
•the extent to which we in-license or acquire rights to other products, product candidates or technologies; and
•the effect of competing technological and market developments; and
We cannot be certain that additional funding will be available when needed on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts, when required or on acceptable terms, we also could be required to:
•seek out-licensing or commercialization partners to assist in the clinical development or commercialization of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG in the United States and other markets;
•delay, limit, reduce or terminate the 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; or
•significantly curtail our operations.
Based on our current operating plan, we believe that our cash and cash equivalents of $25.3$162.6 million as of December 31, 20162021, will be sufficient to fund our current operating planoperations into early 2018;2024; however, we have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources soonermay be utilized faster than we currently expect.
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.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, government or other third-party funding, collaborations,licensing and OUS business development partnership agreements, strategic alliances licensing arrangements and marketing and distribution arrangements and other commercial arrangements. We do not have any committed external source of funds other than the amounts payable under the License Agreement with Roche.our out-licensing 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’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights as holders of our common stock. For example, in September 2016, we acquired Viventia in an all-stock transaction pursuant to which we issued 4,013,431 shares of our common stock to the Selling Stockholders, which resulted in further dilution to our existing stockholders.
We have also adopted the 2014 Stock Incentive Plan, or the 2014 Plan to enable us and our subsidiaries to recruit and retain highly qualified employees, directors and consultants, provide those individuals with an incentive for productivity, and provide those individuals with an opportunity to share in our growth and value. As of December 31, 2016,2021, we had 1,088,303an aggregate of 15.8 million stock options and RSUs outstanding under the 2014 Plan, our prior equity plan and inducement awards granted outside of our equity plans. In addition, as of December 31, 2021, we had 8.9 million shares of
common stock available for issuancegrant under theour 2014 Plan. Future equity incentive grants and issuances of shares of common stock under the 2014 Plan, or other grants outside of the 2014 Plan pursuant to inducement equity awards, may have an adverse effect on the market price of shares of our common stock.
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.
If we raise additional funds through government or other third-party funding, collaborations,licensing or OUS business development partnership agreements, strategic alliances licensing arrangements or marketing and distribution 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.
Risks Related to the DiscoveryClinical Development and DevelopmentRegulatory Approval of Our Product Candidates
Vicineum
We are dependent on our lead product candidates, Vicinium and Proxinium.candidate, Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG. If we are unable to obtain marketing approval for or successfully commercialize either of theseour lead product candidates,candidate, either alone or through a collaboration,an out-license or OUS business development partnership, or experience significant delays in doing so, our business could be materially harmed.
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
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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. In October and December 2021, we participated in a CMC Type A Meeting and a Clinical Type A Meeting, respectively, with squamous cell carcinomathe 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 headrequirements 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 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 may be unable to address the issues identified in the CRL from the FDA or resubmit a BLA for Vicineum, or address the concerns identified in the EMA Withdrawal Assessment Report or resubmit our MAA for Vysyneum, including because of a lack of capital or otherwise.
Even if the issues identified in the CRL or the concerns identified in the EMA Withdrawal Assessment Report are resolved to the satisfaction of the FDA or the EMA, respectively, the FDA and neck,the European Commission retain the right not to approve a BLA or SCCHN. MAA, respectively, or to require additional information, or to raise additional issues with regard to regulatory approval, which could further delay or prevent its approval or limit product labelling claims.
Our prospects are substantially dependent on our ability and the ability of our out-licensing and OUS business development partners to obtain marketing approval for and successfully commercialize Vicinium and Proxinium. The success of these two lead product candidates will depend, among other things, on our ability to design and successfully complete clinical trials for each product candidate. The clinical trial process is uncertain, and failure of one or more clinical trials can occur at any stage of testing. For example, in 2009, Viventia put its development of Vicinium on hold due to the uncertainty of the standard of care for bladder cancer, and in 2008, Viventia terminated its Phase 3 clinical trial of Proxinium due to enrollment and retention reasons that we believe were specific to emerging markets. While we plan to move both of these programs forward, and believe that we will not have enrollment and retention problems with our Phase 3 clinical trial for Vicinium and our Phase 2 clinical trial for Proxinium each in the United States and Canada, the general clinical development of product candidates involves a lengthy and expensive process with an uncertain outcome. We are also in the early stages of development of VB6-845d and EBI-031. We submitted an IND for EBI-031Vicineum for the treatment of diabetic macular edema,non-muscle invasive CIS of the bladder in patients previously treated with adequate or DME, and uveitis in June 2016, which received IND Clearance fromless than adequate BCG. In addition, either the substance of the issues identified by the FDA in the CRL, or the CRL itself, or the concerns identified in the EMA Withdrawal Assessment Report could have an adverse impact on July 7, 2016,future efforts to obtain marketing authorization for Vicineum from other non-US regulatory authorities, or on our future efforts to commercialize Vicineum and enables initiationgain acceptance of clinical development of this product candidate.We subsequently licensed EBI-031 pursuant to the License Agreement with Roche, who will now be responsible for the development and potential commercialization of EBI-031.
•addressing the issues identified in the CRL we received from the FDA and the concerns identified in the EMA Withdrawal Assessment Report;
•receiving marketing approvals from the FDA, Health Canada, the European Commission or comparable foreignnon-US regulatory authorities;authorities, including our ability to address the issues identified by the FDA in the CRL or the EMA Withdrawal Assessment Report;
•developing and maintaining the commercial manufacturing supply and distribution chain for Vicineum;
•performance of our current and future collaborators, if any;out-licensing or OUS business development partners;
•the extent of any required post-marketing approval commitments to applicable regulatory authorities;
•obtaining and maintaining patent, trade secret protection and regulatory exclusivity, both in the United States and internationally;
•obtaining marketplace acceptance, if and when approved, by patients, the medical community and third-party payors;
•establishing and maintaining pricing sufficient to realize a meaningful return on our investment; and
•competition with other therapies.
If we (or, in the case of EBI-031, Roche)or our OUS business development partners are unable to develop, receive marketing approval for, or successfully commercialize Vicinium, Proxinium, VB6-845d or EBI-031,Vicineum or experience delays as a result of any of these factors or otherwise, our business could be materially harmed.
If additional clinical trials of any product candidate that we developVicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG fail to demonstrate quality, safety and efficacy to the satisfaction of the FDA, Health Canada, the EMA or other non-US regulatory authorities or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimatelywill be delayed or unable to complete the development and potential commercialization of any 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.
Before obtaining marketing approval from regulatory authorities for the sale of any 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 must complete pre-clinical development and then conduct extensive clinical trials to demonstrate the quality, safety and efficacy of our product candidatesVicineum in humans.humans. In order to address the issues identified in the CRL we received from the FDA for the BLA for Vicineum and the concerns
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identified in the EMA Withdrawal Assessment Report, we will need to complete one or more additional clinical trials. Such trials will require us to incur substantial additional costs and will delay the potential commercialization of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome.outcome. A failure of one or more clinical trials can occur at any stage of testing. Thetesting. Further, the outcome of pre-clinical testingstudies and early clinical trials may not be predictive of the success of later clinical trials, and interimpreliminary results of a clinical trial do not necessarily predict final results.
Even if such clinical trials are successfully completed as planned, the results. Moreover, pre-clinical may not support approval of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG under the laws and regulations of the FDA, the European Commission or comparable non-US regulatory authorities. We cannot be certain that additional clinical data will demonstrate Vicineum is both safe and effective for its intended uses to the satisfaction of the FDA, the EMA or comparable non-US regulatory authorities. Pre-clinical and clinical data and analyses are often susceptibleable to varying interpretationsbe interpreted in different ways. Even if we view our results favorably, we may be unable to demonstrate safety and analyses, and many companies that have believed their product candidates performed satisfactorilyefficacy of Vicineum for the treatment of non-muscle invasive CIS of the bladder in pre-clinical studies and clinical trials have nonetheless failedpatients previously treated with adequate or less than adequate BCG to the satisfaction of the FDA, the EMA or other non-US regulatory authorities. If a regulatory authority has a different view, we may still fail to obtain marketingregulatory approval of their product candidates. For example,Vicineum. This, in January 2016, we announced top-line resultsturn, would prevent us from commercializing Vicineum and our Phase 3 clinical trial of isunakinraability to generate revenues in patients with severe allergic conjunctivitis.the future would be materially impaired.
We will need to develop a more sensitive bioanalyticalassay for the results from our completedadditional Phase 3 clinical trialstrial for Vicineum for the treatment of non-muscle invasive CIS of the bladder in dry eye disease and allergic conjunctivitis, we dopatients previously treated with adequate or less than adequate BCG than was used in our prior VISTA Trial for Vicineum. This bioanalyticalassay will be used to measure levels of Vicineum in the blood. The development of a new bioanalyticalassay for a novel biologic like Vicineum can be complex. There is risk that an adequately sensitive bioanalyticalassay may not plan to pursuebe scientifically or economically feasible or that any new bioanalyticalassay developed by us or a third party will not be accepted by the FDA or other comparable regulatory bodies. As a result, further development of isunakinra.
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:
•clinical trials of our product candidatesVicineum may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon productthe development programs;of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG;
•our third-party contractors may fail to comply with regulatory requirements, including GCPsGCP or meet their contractual obligations to us in a timely manner, or at all;
•inspection of the clinical trial operations, trial sites or manufacturing facilityfacilities by the FDA or other comparable foreignnon-US regulatory authorities such as Health Canada, or the competent authorities of the E.U. Member States, could result in findings of non-compliance and the imposition of a clinical suspension or termination;
•regulators or institutional review boardsIRBs/Ethics Committees may delay or not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
•we may experience delays or fail to reach agreement with the FDA or a comparable foreignnon-US regulatory authority including Health Canada, or the competent authorities of the E.U. Member States, on a trial design that we are able to execute;
•we may be unable to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including for the same indications as our clinical trials;
•we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
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•trial sites and investigators may deviate from clinical trial protocols or otherwise fail to conduct the trial in accordance with regulatory requirements, and investigators may drop out of the clinical trial;
•trial sites may withdraw from our clinical trials, including as a result of changing standards of care or ineligibility of a site to participate in our clinical trials;
•we may decide, or regulators or institutional review boards/IRBs/Ethics Committees or other reviewing entities, including comparable foreignnon-US regulatory authorities, such as Health Canada, or the competent authorities of the E.U. Member States, may require us to suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements including GCPsGCP or a finding that the subjectspatients are being exposed to unacceptable health risks;
•the cost of clinical trials 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 may be greater than we anticipate;
•we may receive feedback from DSMBs or the FDA, DSMBs, or a comparable foreignnon-US regulatory authority, including Health Canada, or the competent authorities of the E.U. Member States, that might require modification to the protocol for the clinical trial or performance of additional studies before clinical trials may continue;
•as a clinical trial proceeds, or as the results of earlier stage studies or concurrent studies become available, we may determine that we need to modify the protocol and/or other aspects of the clinical trial before it may continue;
•the FDA, a comparable foreignnon-US regulatory authority, including Health Canada, or the competent authorities of the E.U. Member States, or we may decide to, or a DSMB may recommend to, suspend or terminate clinical trials at any time for safety issues or for any other reason;
•the supply or quality of our product candidatesVicineum or other materials necessary to conduct clinical trials of our product candidatesVicineum may be insufficient or inadequate;
•lack of adequate funding to continue a clinical trial, including the incurrenceoccurrence of unforeseen costs due to enrollment delays, requirements to conduct additional clinical trials or increased expenses associated with the services of our CROs and other third parties; and
•changes in applicable laws, governmental regulations or administrative actions.
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.
Further, conducting clinical trials in foreign countries,outside of the United States, as we have done historically for ViciniumVicineum (both for the treatment of BCG-unresponsive NMIBC and Proxiniumfor the treatment of SCCHN) and as we may decide to do in the future, presents additional risks that may delay completion of our clinical trials. These risks include the failure of enrolled subjectspatients in foreign countries outside of the United States to adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreignnon-US regulatory schemes,frameworks, as well as political and economic risks relevant to such foreign countries.
If we are required to conduct additional clinical trials or other testing 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 beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidatesVicineum or other testing, if the results of these trials or tests are not favorable or are only modestly favorable or if there are safety concerns, we may:
•be delayed in obtaining marketing approval for 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;
•not obtain marketing approval at all;
•obtain approval for indications or patient populations that are not as broad as intended or desired;
•obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, or is subject to a REMS;
•be subject to additional post-marketing testing requirements; or
•have the productVicineum removed from the market after obtaining marketing approval.
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
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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.
If we experience delays or difficulties in the enrollment of subjectspatients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for 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.
Subject enrollment is affected by a number of factors, including:
•the severity of the disease under investigation;
•the eligibility criteria for the clinical trial in question;
•the size of the patient population for the disease;
•the size of the subjectpatient population required for statistically significant analysis of the clinical trial’s primary endpoints;
•the design of the clinical trial;
•the clinicians' and subjects'patients' perceived risks and benefits of the product candidate under study, including relative to alternative treatments;
•the efforts to facilitate timely enrollment in clinical trials;
•the subjectpatient referral practices of physicians;
•any ongoing clinical trials conducted by competitors for the same indication;
•the risk that subjectspatients enrolled in clinical trials will drop out of the clinical trials before completion;
•the ability to monitor subjectspatients adequately during and after treatment; and
•the proximity and availability of clinical trial sites for prospective subjects.patients.
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:
•difficulty in establishing or managing relationships with CROs and physicians;
•different or additional standards for the conduct of clinical trials;
•absence in some countries of established groups with sufficient regulatory expertise for review of the protocols associated with our product candidates;
•ensuring that clinical trial quality is sufficient to meet the standards of the FDA or other regulatory authorities;
•our inability to locate qualified local consultants, physicians and partners; and
•the potential burden of complying with a variety of foreignnon-US laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and biotechnology products and treatments.
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.
Our inability to enroll a sufficient number of subjectspatients for our clinical trials would result in significant delays, could require us to abandon one or more clinical trials altogether and could delay or prevent our receipt of necessary regulatory approvals. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing.
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halt clinical trials, delay or prevent theirits regulatory approval, limit the commercial profile of theirits labeling, if approved, or result in significant negative consequences following any marketing approval.
Undesirable side effects or serious adverse events caused by 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 cause us or regulatory authorities to interrupt, delay or halt respective clinical trials and could result in a restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreignnon-US regulatory authorities, including Health Canada or the European Commission. For example, even though each of our product candidates that have been administered to humans in earlier-stage clinical trials have generally been well-tolerated by subjects, in some cases there were side effects and serious adverse events, some of which were severe.
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.
renal failure (Grade 5 or death). There were no Grade 5 seriousage-related increases in adverse events that were considered byobserved in the clinical investigator to be related to VB6-845, which is the prior version of VB6-845d, during the Phase 1 clinical trial. The Grade 3 and Grade 4 serious adverse events that were considered to be possibly, probably or definitely related to treatment consisted of an infusion related reaction and an infusion site reaction.VISTA Trial.
•we may suspend or be forced to suspend marketing 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;
•we may be obliged to conduct a product recall or product withdrawal;
•regulatory authorities may suspend, vary, or withdraw their approvals 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;
•regulatory authorities may order the seizure or recall of our product candidates;Vicineum;
•regulatory authorities may require additional warnings on the label or a REMS or other post-marketing obligations that could diminish the usage or otherwise limit the commercial success 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;
•we may be required to conduct post-marketing studies;
•we could be sued and held liable for harm caused to subjects or patients;
•we could be required to pay fines and face other administrative, civil and criminal penalties; and
•our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of our product candidates, if approved.
We will need to obtain FDAregulatory authority approval of any proposed names for our product candidates,oportuzumab monatox for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, and any failure or delay associated with such naming approval may adversely impact our business.
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Although the FDA previously conditionally accepted the name Vicineum, and EMA previously conditionally accepted the name Vysyneum, for our proposed proprietary names, Viciniumproduct candidate, oportuzumab monatox, these approvals are subject to further and Proxinium, tofinal review by FDA and EMA upon potential resubmission of our respective applications and at the time of regulatory authority review of such applications. If the FDA or any foreign regulatory authority, including Health Canada or the European Commission, for provisional approval. Any proprietary name we propose to use with our product candidates in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA reviews any proposed product name, including an evaluation of potential for confusion with other product names. The FDA may alsoEMA object to a product name if it believes the name inappropriately implies medical claims or contributes to an overstatement of efficacy. If the FDA objects to any proposed proprietary product name, we may be required to expend significant additional resources in an effort to identify a suitable proprietary product name that would qualify under applicable laws, not infringe the existing rights of third parties and be acceptable to the FDA.FDA and EMA, as applicable.
The marketing approval process is expensive, time-consuming and uncertain. As a result, we cannot predict when or if we, or any licensees or partners, will obtain marketing approval 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 or any other product candidate.
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. 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. In October and December 2021, we participated in a CMC Type A Meeting and Clinical Type A Meeting, respectively, with the FDA to discuss issues raised in the CRL and 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. We may applyhave 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 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.
Securing marketing approval also requires the submission of information about the product manufacturing process to, and could possibly obtain provisional approvalinspection of our proprietary namesmanufacturing facilities by, the regulatory authorities. The FDA prioror other comparable non-US 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 submissionrestrictions or post-approval commitments that render the approved product not commercially viable.
The different requirements and expectations of our BLAs. However, this approval is conditional upon a further and final review bythe non-US regulatory authorities compared with the FDA atmay lengthen the time of BLA review.
Failure to obtain marketing approval in non-US jurisdictions would prevent our product candidates from being marketed abroad, and any approval we are ineligiblegranted for established therapies or for whom prior therapies have failed, and may be small.
In order to market and sell any product candidate that we may develop outside of the United States, we or our third-party licensees or commercialization partners 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 on a timely basis, if at all. For example, on March 5, 2021, we submitted our MAA to the EMA for Vicineum for the treatment of high-gradeBCG-unresponsive NMIBC after prior therapies have failed and approvalunder the EMA’s centralized procedure. On August 20, 2021, we withdrew our MAA to the EMA for ProxiniumVysyneum for the treatment of late-stage SCCHN. Subsequently, for those product candidates that proveBCG-unresponsive NMIBC. We have decided to be sufficiently beneficial, if any, we would expectpause our plans to seekpursue regulatory approval potentially earlierof Vysyneum in the treatment paradigm, butEuropean Union until there is no guarantee thatmore clarity from the FDA on the next steps for Vicineum in the United States. Additionally, on October 20, 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 Assessment Report reflects the initial assessment and corresponding questions from the EMA and identifies major objections in the areas of quality, good clinical practice, efficacy and safety. 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 even if approved, would be approved for first-line therapy, and, prior to any such approvals, we will have to conduct additional clinical trials.
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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.
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.
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.
•the United States Congress could amend the BPCIA to significantly shorten this exclusivity period as has been previously proposed; and if approved, we intend
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•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.
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.
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
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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.
•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;
•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;
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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.
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
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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.
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.
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
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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.
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.
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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
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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.
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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.
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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;
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•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;
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•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
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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
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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
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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.
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-
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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
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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.
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
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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:
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.
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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 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.
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.
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Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
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 | |||
As 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.
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.]
| 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 | ||||||||||||||
| 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 | ) | ||||||||||||
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.
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
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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.
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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%) | ||||||
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†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.
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.
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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.
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.
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)
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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.
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;
the costs and timingterm of the implementation of commercial-scale manufacturing activities;Hikma License Agreement.
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.
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.
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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 | |||||||||||
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| 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 | |||||
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
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| 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
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(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.
| 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% | ||
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 | ||||
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 | |||
Liquidity and Capital Resources
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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.
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.
| 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 | |||
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
Funding Requirements
Our future success is dependent on our ability to develop and, liabilities of $(2.5) million.
We will incur substantial expenses if and as we:
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•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;
•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;
•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 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
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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 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
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.
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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.
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
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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.
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
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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.
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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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.
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 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.
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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.
Boston, Massachusetts
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Changes in Internal Control over Financial Reporting
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Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
PART III
| Item 10. Directors, Executive Officers and Corporate Governance. |
Code of Business Conduct and Ethics
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.
| Name and Principal Position | Year | Salary ($) | Bonus ($)(6) | Stock-based awards ($)(7) | Option awards ($)(7) | All other compensation ($) | Total ($) | |||||||||||||
| Stephen A. Hurly(1) | 2016 | 119,093 | — | — | 755,511 | — | 874,604 | |||||||||||||
| President and Chief Executive Officer | 2015 | — | — | — | — | — | — | |||||||||||||
| Abbie C. Celniker, Ph.D.(2) | 2016 | 325,137 | — | — | 51,385 | 675,000 | (8) | 1,051,522 | ||||||||||||
| Former President and Chief Executive Officer | 2015 | 430,000 | 150,500 | 236,722 | 976,898 | 4,000 | (9) | 1,798,120 | ||||||||||||
| John J. McCabe, C.P.A.(3) | 2016 | 305,000 | 75,000 | — | 227,846 | — | 607,846 | |||||||||||||
| Chief Financial Officer | 2015 | — | — | — | — | — | — | |||||||||||||
| Arthur DeCillis, M.D.(4) | 2016 | 116,855 | — | — | 215,860 | — | 332,715 | |||||||||||||
| Chief Medical Officer | 2015 | — | — | — | — | — | — | |||||||||||||
| Karen Tubridy, Pharm.D.(5) | 2016 | 233,889 | — | — | 24,652 | 323,710 | (10) | 582,251 | ||||||||||||
| Former Chief Development Office | 2015 | 312,000 | 65,525 | 103,187 | 437,920 | 4,000 | (9) | 922,632 | ||||||||||||
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
| Option Awards | Stock Awards | |||||||||||||||||
| Name | Number of securities underlying unexercised options (#) exercisable | Number of securities underlying unexercised options (#) unexercisable | Option exercise price ($) | 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 | ||||||||||||
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.
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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.
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 $305,000.
Exhibit Index
| Name | Fees Earned or Paid in Cash ($) | 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 | ||||||
Exhibit No. | Description | ||||||||
| 2.1 | |||||||||
| 4.7 | |||||||||
| 10.1+ | |||||||||
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| 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+ | |||||
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| 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). | ||||
| * | 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 | |||||
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Item 16. Form 10-K Summary.
Not applicable.
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SIGNATURES
Pursuant to the beneficial ownershiprequirements of our common stock asSection 13 or 15(d) of March 24, 2017 by:
| 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 | % | |||
| 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 | |||||||
| 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. | ||||||||
93
INDEX TO FINANCIAL STATEMENTS
| Page | |||||
| Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) | F-2 | ||||
| Consolidated Balance Sheets | F-5 | ||||
| Consolidated Statements of Operations and Comprehensive Loss | F-6 | ||||
| Consolidated Statements of Changes in Stockholders’ Equity (Deficit) | F-7 | ||||
| Consolidated Statements of Cash Flows | F-8 | ||||
| Notes to Consolidated Financial Statements | F-8 | ||||
F-1
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.
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.
F-2
| 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. | |||||||
| 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. | ||||||||
| 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. | ||||||||
F-3
| 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. | |||||||
| 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
F-4
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.
F-5
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.
F-6
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.
F-7
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:
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;
| 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 | ||||
| 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.
F-5
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.
F-6
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.
F-7
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.
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.
F-5
| 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 | |||
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.
F-6
| 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 | ||||||||
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.
F-7
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 | ||||||||||||||||
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 | |||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of PresentationDESCRIPTION OF BUSINESS
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.
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.
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").
F-8
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.
Principles of Consolidation
Foreign Currency Translation
The functional currency of Viventia Bio Inc., Viventia Bio USA Inc. and Viventia Biotech (EU) Limited is the U.S. dollar. Consolidated balance sheet accounts of the Company’s subsidiaries are translated into U.S. dollars using the exchange rate in effect at the consolidated balance sheet date while expenses are translated using the average exchange rate in effect during the period. Gains and losses arising from translation of the wholly owned subsidiaries’ financial statements are included in the determination of net income (loss).
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash, Cash Equivalents, Restricted Cash and Concentration of Credit Risk
The Company's cash is held on deposit in demand accounts at a general right of return relative to the delivered item(s).
| Year Ended December 31, | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| Research and development expense | $ | 1,455 | $ | 1,032 | $ | 1,069 | |||||
| General and administrative expense | 2,558 | 1,497 | 1,363 | ||||||||
| $ | 4,013 | $ | 2,529 | $ | 2,432 | ||||||
respectively. The Company considers all highly liquid investments purchased with aan original maturity of three months or less when purchased to be cash equivalents.