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Filed: 28 Feb 21, 7:00pm
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-K
 
 
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
    
    
    
    
to
    
    
    
    
Commission File
Number: 001-38550
 
 
Translate Bio, Inc.
(Exact name of Registrant as specified in its Charter)
 
 
 
Delaware
 
61-1807780
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
  
29 Hartwell Avenue
Lexington, Massachusetts
 
02421
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (617)
945-7361
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange
on which registered
Common Stock, $0.001 par value
 
TBIO
 
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  ☒    NO  ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    YES  ☐    NO  ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  ☒    NO  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    YES  ☒    NO  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer   Accelerated filer 
    
Non-accelerated
filer
   Smaller reporting company 
    
     Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☒
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).    YES  ☐    NO  ☒
The aggregate market value of the voting and
non-voting
common equity held by
non-affiliates
of the registrant, based on the closing price of the shares of common stock on The Nasdaq Global Select Market on June 30, 2020, was $825,813,865.
The number of shares of registrant’s common stock outstanding as of February 24, 2021 was
 
75,211,832.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement relating to its 2021 Annual Meeting of Stockholders, scheduled to be held on June 16, 2021, are incorporated by reference into Part III of this Report.
 
 
 

Table of Contents
 
      
Page
 
PART I
        
Item 1.
     4 
Item 1A.
     51 
Item 1B.
     107 
Item 2.
     107 
Item 3.
     107 
Item 4.
     107 
   
PART II
        
Item 5.
     108 
Item 6.
     108 
Item 7.
     109 
Item 7A.
     130 
Item 8.
     130 
Item 9.
     130 
Item 9A.
     130 
Item 9B.
     131 
   
PART III
        
Item 10.
     132 
Item 11.
     132 
Item 12.
     132 
Item 13.
     132 
Item 14.
     132 
   
PART IV
        
Item 15.
     133 
Item 16.
     136 
 
i

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Annual Report on Form
10-K
contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this Annual Report on Form
10-K,
including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” 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:
 
  
the impacts of the
COVID-19
pandemic;
 
  
the initiation, timing, progress and results of our current and future preclinical studies and clinical trials and our research and development programs;
 
  
our estimates regarding expenses, future revenue, capital requirements and need for additional financing;
 
  
our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash, cash equivalents and investments and the period in which we expect that such cash, cash equivalents and investments will enable us to fund such operating expenses and capital expenditure requirements;
 
  
our plans to develop our product candidates;
 
  
the timing of and our ability to submit applications for, obtain and maintain regulatory approvals for our product candidates;
 
  
the potential advantages of our product candidates;
 
  
the rate and degree of market acceptance and clinical utility of our product candidates;
 
  
our estimates regarding the potential market opportunity for our product candidates;
 
  
our commercialization, marketing and manufacturing capabilities and strategy;
 
  
our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates;
 
  
our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;
 
  
the impact of government laws and regulations;
 
  
our competitive position;
 
  
developments relating to our competitors and our industry; and
 
  
our ability to establish collaborations or obtain additional funding.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Annual Report on Form
10-K,
particularly in the “Risk Factor Summary” below and in Part I, Item 1A “Risk Factors”, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
 
1

You should read this Annual Report on Form
10-K
and the documents that we reference herein and have filed or incorporated by reference hereto completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Annual Report on Form
10-K
are made as of the date hereof, and we do not assume any obligation to update any forward-looking statements except as required by applicable law.
This Annual Report on Form
10-K
includes certain statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties as well as our own estimates of potential market opportunities. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Our estimates of the potential market opportunities for our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions.
 
2

Risk Factor Summary
Investment in our securities involves risk. You should carefully consider the following summary of what we believe to be the principal risks facing our business, in addition to the risks described more fully in Item 1A, “Risk Factors” of Part I of this Annual Report on Form
10-K
and other information included in this report. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations.
If any of the following risks occurs, our business, financial condition and results of operations and future growth prospects could be materially and adversely affected, and the actual outcomes of matters as to which forward-looking statements are made in this report could be materially different from those anticipated in such forward-looking statements.
 
  
The
COVID-19
pandemic has, and may continue to, adversely disrupt our operations, including our ability to complete our ongoing clinical trials, and may have other adverse effects on our business and operations. The pandemic has caused substantial disruption in the financial markets and economies worldwide, both of which could result in adverse effects on our business, operations and ability to raise capital.
 
  
We and Sanofi Pasteur Inc., the vaccines global business unit of Sanofi S.A., may not successfully develop on an expedited timeframe an mRNA vaccine against a novel strain of coronavirus named
SARS-CoV-2,
which causes
COVID-19.
 
  
The manufacture, scale, validation and production of our potential
SARS-CoV-2
vaccine candidate, or MRT5500, is complex and uncertain. We may encounter difficulties and face competition from currently approved vaccines, and our ability to develop and provide a vaccine, if approved, could be delayed, interrupted or halted.
 
  
We have incurred significant losses since inception. We expect to incur losses for at least the next several years and may never achieve or maintain profitability. As of December 31, 2020, we had an accumulated deficit of $413.3 million.
 
  
Our approach to the discovery and development of product candidates based on mRNA is unproven, and we do not know whether we will be able to successfully develop any products.
 
  
We are dependent on the success of MRT5005 for patients with cystic fibrosis. If we are unable to complete satisfactorily the clinical development of, obtain marketing approval for or successfully commercialize MRT5005, our business would be substantially harmed.
 
  
Clinical drug development is a lengthy and expensive process with uncertain timelines and uncertain outcomes.
 
  
We may not have sufficient quantities of our product candidates at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
 
  
If we are unable to obtain and maintain patent protection for our products and technology, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to successfully commercialize our products and technology may be adversely affected.
 
  
If we fail to comply with our obligations under our licenses to develop and commercialize our product candidates, we could lose such intellectual property rights or owe damages to the licensor of such intellectual property.
 
  
If we are ultimately unable to obtain regulatory approval for our product candidates under the U.S Food and Drug Administration, the European Medicines Agency and other regulatory authorities, our business will be substantially harmed.
 
  
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
 
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PART I
Item 1. Business.
Overview
We are a clinical-stage messenger RNA, or mRNA, therapeutics company developing a new class of potentially transformative medicines to treat diseases caused by protein or gene dysfunction, or to prevent infectious diseases by generating protective immunity. Using our proprietary mRNA therapeutic platform, or MRT platform, we create mRNA that encodes functional proteins. Our mRNA is designed to be delivered to the target cell where the cell’s own machinery recognizes it and translates it, restoring or augmenting protein function to treat or prevent disease. We believe the mRNA design, delivery and manufacturing capabilities of our MRT platform provide us with the most advanced platform for developing product candidates that deliver mRNA encoding functional proteins for therapeutic uses. We believe our MRT platform is broadly applicable across multiple diseases in which the production of a desirable protein can have a therapeutic effect. We are primarily focused on applying our MRT platform to treat pulmonary diseases caused by insufficient protein production or where production of proteins can modify disease. In addition, we are pursuing discovery efforts in diseases that affect the liver. We are also pursuing the applicability of our MRT platform for the development of mRNA vaccines for infectious diseases under a collaboration with Sanofi Pasteur Inc., or Sanofi, the vaccines global business unit of Sanofi S.A.
The outbreak of
SARS-CoV-2
and the resulting
COVID-19
pandemic has presented a substantial public health and economic challenge around the world and continues to affect our employees, patients, communities and business operations, as well as economies and financial markets worldwide. In 2020, we progressed certain of our preclinical programs, specifically in therapeutics for pulmonary diseases and in vaccine development under our collaboration with Sanofi, as further discussed herein. However, as a consequence of the
COVID-19
pandemic, we announced that enrollment and dosing in the ongoing Phase 1/2 clinical trial in patients with cystic fibrosis, or CF, was paused in April 2020 and then resumed in September 2020. The full extent to which the
COVID-19
pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning
COVID-19,
the actions taken in an effort to contain it or to potentially treat or vaccinate against
COVID-19
and the economic impact on local, regional, national and international markets. Management actively monitors this situation and the possible effects on our financial condition, liquidity, operations, suppliers, industry and workforce. For additional information on risks posed by the
COVID-19
pandemic, please see Part I, Item 1A—“Risk Factors—Risks Related to the
COVID-19
Pandemic,” included elsewhere in this Annual Report on Form
10-K.
We are developing MRT5005 for the treatment of CF, which is the most common fatal inherited disease in the United States. According to the Cystic Fibrosis Foundation, or CFF, CF affects approximately 30,000 patients in the United States and a total of more than 70,000 patients worldwide and leads to premature death. CF is caused by genetic mutations that result in dysfunctional or absent cystic fibrosis transmembrane conductance regulator, or CFTR, protein. CF leads to mucus buildup in the lungs, pancreas and other organs, and mortality is primarily driven by a progressive decline in lung function.
We believe MRT5005 is the first clinical-stage mRNA product candidate designed to deliver mRNA encoding fully functional CFTR protein to the lung. We have designed MRT5005 to be inhaled via a handheld nebulizer. Once the inhaled MRT5005 has entered the epithelial cells lining the patient’s lungs, our therapeutic mRNA uses the cells’ own machinery for translation and expression of fully functional CFTR protein, thereby restoring this essential ion channel, which we believe will address the pathology of CF directly. Currently approved CFTR modulating therapies are limited to patients with specific genetic mutations; therefore, there remains a significant unmet medical need for patients with CF who have genetic mutations
non-amenable
to currently approved CFTR modulating therapies. Additionally, patients treated with these current therapies still suffer from a long-term decline in lung function and exacerbations that require hospitalization. MRT5005 is
 
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being developed to treat the underlying cause of CF, regardless of the specific genetic mutation, including in patients with limited or no CFTR protein. The U.S. Food and Drug Administration, or FDA, has granted orphan drug designation, fast track designation and rare pediatric disease designation for MRT5005 for the treatment of CF.
We are conducting a Phase 1/2 clinical trial to evaluate the safety and tolerability of single- and multiple-ascending doses of MRT5005. The clinical trial is investigating several groups receiving five once-weekly doses, as well as a group receiving five daily doses. Percent predicted forced expiratory volume in one second, or ppFEV
1
, which is a well-defined and accepted endpoint measuring lung function, is also being measured at
pre-defined
timepoints throughout the trial. In April 2019, we completed dosing of patients in the originally planned single-ascending dose, or SAD, portion of the Phase 1/2 clinical trial, which included 8, 16 and 24 mg SAD groups, and in July 2019, we reported interim data from the SAD portion of the clinical trial through
one-month
follow up post dosing. MRT5005 was generally well-tolerated at low and
mid-dose
levels with no serious adverse events reported at any dose level. Marked increases in ppFEV
1
were observed after a single dose of MRT5005, primarily at the
mid-dose
level. Based on the analysis of the interim results, we amended the clinical trial protocol to evaluate additional dose levels. We added a 20 mg SAD group and 12 and 20 mg multiple-ascending dose, or MAD, groups; the MAD portion of the clinical trial includes 8, 12, 16 and 20 mg MAD groups. In January 2021, we announced that we completed enrollment and dosing in the dose cohorts comprising the second interim data analysis, including the 8, 12 and 16 mg MAD groups and the 20 mg SAD group. We anticipate reporting interim clinical data from these cohorts early in the second quarter of 2021. The clinical trial continues to enroll and dose in the remaining dose groups, which include a 20 mg MAD group and the daily dosing cohort.
We are leveraging our lung delivery platform and focusing our preclinical research efforts on identifying lead product candidates for a next-generation CF program, as well as beyond CF in additional pulmonary diseases with unmet medical need. Building upon the MRT5005 program’s success to date, we are exploring innovation in the MRT platform including novel lipid nanoparticles, or LNPs, protein engineering and codon optimization approaches and manufacturing process enhancements to identify next-generation CF candidates that can support expansion of our pipeline opportunities. Beyond CF, we have discovery efforts underway to identify lead product candidates in additional pulmonary diseases, including primary ciliary dyskinesia, or PCD, and pulmonary arterial hypertension, or PAH.
We continue to explore ways to apply our mRNA and delivery platform expertise to diseases where the degradation of a protein would lead to therapeutic benefit. We believe that using mRNA to enable the production of a molecule that can help tag a target protein for destruction within the cell may have advantages over other protein degradation approaches, including the ability to reach previously undruggable therapeutic targets and increase target selectivity. Additionally, we are evaluating the potential of delivering mRNA encoding therapeutic antibodies. We have early discovery efforts ongoing in these areas.
Additionally, we are leveraging the broad applicability of our platform through a collaboration with Sanofi to develop infectious disease vaccines using our mRNA technology. In the case of vaccines, the mRNA instructs certain cells in the body to produce an antigen that will induce an immune response to an infectious pathogen. Under the collaboration with Sanofi, we are jointly conducting research and development activities to advance vaccines targeting up to seven infectious disease pathogens. As part of the ongoing vaccine development program, comprehensive
in vivo
studies have been conducted across several infectious disease targets. Multiple development candidates have been evaluated against distinct pathogens, all of which were well tolerated across all species tested. Multiple antigens have been tested with all demonstrating robust neutralization titers. Two of the target pathogens under development are
SARS-CoV-2
and influenza. After evaluation of multiple
COVID-19
vaccine candidates
in vivo
for immunogenicity and neutralizing antibody activity, MRT5500 was selected as the lead candidate for a vaccine against
SARS-CoV-2.
In October 2020, preclinical data was reported demonstrating that MRT5500 induced potent neutralizing antibodies against
SARS-CoV-2
in mice and
non-human
primates, or NHPs. Two doses of MRT5500 in NHPs induced neutralizing antibody levels significantly higher than those
 
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observed in a panel of samples from
COVID-19
patients. It was also demonstrated that MRT5500-immunized mice and NHPs exhibited a
Th1-biased
T cell response against
SARS-CoV-2.
Vaccine-associated enhanced respiratory disease, or VAERD, has generally not been reported to be associated with a
Th1-biased
T cell response and therefore these data suggest the potential for a reduced risk for VAERD. A Phase 1/2 clinical trial to evaluate MRT5500 is expected to begin in the first quarter of 2021. For information on risks related to our successful development of a vaccine against
COVID-19,
please see Part I, Item 1A—“Risk Factors—Risks Related to the
COVID-19
Pandemic,” included elsewhere in this Annual Report on Form
10-K.
For the influenza vaccine program, lead LNP/mRNA formulations are being evaluated in preclinical studies to support a clinical proof of technology trial anticipated to begin
mid-year
2021. Preclinical studies are ongoing for targets against additional viral and bacterial pathogens.
The successful development of our product candidates will require, among other things, our mRNA manufacturing capabilities. To date, we have established
100-gram
single-batch production with our clinical-stage mRNA therapeutics platform.
Build-out
of a dedicated manufacturing space through a contract manufacturing partner was completed during the third quarter of 2020 and has the potential to accommodate multiple
250-gram
batches per month upon continued investments and third-party supplier arrangements. As it relates to the development of a
COVID-19
vaccine, depending on the final human
COVID-19
vaccine dose and timing of
scale-up
activities, we estimate that we could have manufacturing capacity to produce
90-360 million
doses annually. We plan to further expand our mRNA manufacturing capabilities to increase production capacity and will need to work with raw material and other third-party suppliers to achieve this goal.
mRNA plays a central role in the production of proteins, which are needed to carry out essential cellular functions. Cells transcribe genetic information encoded in DNA into mRNA that contains the instructions that are used by cells to produce proteins. mRNA therapy is engineered to deliver mRNA encoding functional proteins that replace defective or missing proteins, and has potential advantages, including that it:
 
  
restores gene expression without entering the cell nucleus or changing the genome;
 
  
enables the treatment of diseases that were previously undruggable by using the cell’s own machinery to produce fully functional proteins;
 
  
has drug-like properties that are familiar to health care providers, including the potential to repeat and adjust dosing in a chronic setting; and
 
  
permits rapid development from target gene selection to product candidate.
Our product candidates consist of two major components: the protein-coding mRNA and a delivery vehicle. Once we have established delivery capability to a target tissue, we can design new product candidates that vary only in the mRNA sequence, which we expect will allow for rapid target and product candidate identification. We are continuing the development of next-generation delivery systems with unique chemistries focused on different routes of administration including pulmonary, systemic and intramuscular. We believe this will enable our MRT platform to be flexible and scalable as we develop additional product candidates. We engineer our mRNA sequences for enhanced stability and to provide for optimal expression of desired proteins. Our mRNA is manufactured by a proprietary, cell-free, enzyme catalyzed process using structural components that are identical to natural mRNA within the body. We then formulate the product candidate by packaging our biosynthetic mRNA into proprietary LNP delivery vehicles that are optimized for distribution to specific tissues. We are initially focused on the development of product candidates to treat diseases of the lung and have generated substantial preclinical data and early clinical data to support mRNA delivery to this target tissue through nebulization. We also believe that our platform has the potential to apply across a broad array of diseases and target tissues. In our preclinical studies, we have observed targeted delivery to the liver, eye, central nervous system, lymphatic system and circulatory system, and we have also observed the ability of our platform to enable the production of antibodies.
Our MRT platform has been in development for over 10 years, initially at Shire Human Genetic Therapies, Inc., or Shire, a subsidiary of Takeda Pharmaceutical Company Ltd. We acquired the MRT platform from Shire
 
6

in December 2016 and have dedicated substantial resources to the further development of the platform and product candidates. We have been building upon Shire’s pioneering work and significant investment by advancing our product candidates into and towards clinical trials. We believe these efforts have positioned us as a leading company in mRNA therapeutic development worldwide.
Our technology and products are protected by an extensive intellectual property portfolio, including issued patents and pending patent applications covering mRNA sequences, lipids and polymer composition of matter, manufacturing, specific targets, disease treatments, and formulation and delivery technology. We continue to innovate to improve both the mRNA constructs as well as the delivery technology involved in creating our MRT product candidates.
Our Pipeline
Our proprietary MRT platform has been designed with the potential to be applied across a broad array of diseases and target tissues and through multiple routes of administration. The following chart summarizes key information about our development programs:
 

Our Strategy
Our vision is to build a leading mRNA product company, leveraging our extensive experience with proprietary mRNA product development, delivery, manufacturing and process development. Our proprietary MRT platform has enabled us to focus on direct therapeutic approaches to treat specific genetic diseases with significant unmet medical need. We are primarily focused on applying our MRT platform to treat pulmonary diseases where the production of proteins can modify disease. We are also leveraging our platform’s broad applicability to treat other diseases, including liver diseases, as well as to prevent disease through the development of infectious disease vaccines. To realize our vision, we plan to advance multiple programs to clinical stage, add new pipeline programs and continue to innovate on the mRNA platform. In order to achieve these goals, we plan to increase our research and development investments, add key
in-house
capabilities, deepen our platform and delivery expertise as well as expand our infrastructure and facility size. We also plan to appropriately invest in manufacturing and commercial capabilities to support continued growth and advancement and our ultimate goal of delivering mRNA medicines to treat or prevent life-threatening or debilitating illnesses.
The key components of our strategy to achieve our goals include:
 
  
Rapidly advance MRT5005 through clinical development as a
first-in-class
treatment to provide mRNA encoding the fully functional CFTR protein initially in patients with CF who are considered
non-amenable
to currently approved CFTR modulators with the potential to pursue future clinical development in all patients with CF, regardless of the specific genetic mutation.
 
7

  
Pursue the development of mRNA infectious disease vaccines through our collaboration with Sanofi, including vaccines against influenza and
SARS-CoV-2.
 
  
Focus primarily on identifying product candidates for additional pulmonary diseases caused by insufficient protein production through use of our lung delivery platform.
 
  
Develop additional product candidates that address diseases with significant unmet medical need in which the production of a desirable protein or the degradation of an unwanted protein can have a therapeutic effect or that could be applied to produce therapeutic antibodies and vaccines in areas such as infectious disease and other diseases.
 
  
Continue to develop next-generation delivery technologies for further applications in lung and liver diseases, as well as in vaccine applications.
 
  
Explore opportunities to collaborate where potential partners may add strategic value to our platform or programs.
 
  
Develop deep and active relationships with patient advocacy groups in order to better understand the needs of patients to optimize our treatment approaches and also to identify patients that could potentially benefit from our MRT product candidates, if approved.
 
  
Seek strategic acquisitions or
in-licenses
of technology or assets that may complement our proprietary MRT platform and programs.
 
  
Aggressively strengthen and protect our intellectual property and scientific and technical
know-how.
 
  
Maintain the flexibility to develop and potentially commercialize products ourselves.
The Role of mRNA
mRNA is a fundamental component of gene expression. It is the key link in the process of translating genetic information encoded in DNA into instructions that are used by cells to produce the proteins needed to carry out essential cellular functions. These instructions are processed through cellular mechanisms in two steps: transcription and translation. During transcription, a gene that encodes an amino acid sequence for a particular protein is transcribed into a complementary sequence of mRNA. The mRNA then carries these instructions to other areas of the cell where the instructions are translated by ribosomes, which are specialized molecular machines within cells that carry out protein synthesis. During translation, the ribosomes use the instructions conveyed by mRNA as a template for assembling the amino acids to create the desired protein. The following graphic illustrates the transcription and translation processes.
 
 
 
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Abnormal gene expression, caused by a mutation in a DNA sequence, can result in the transcription of defective instructions. The translation of defective instructions by the cell can lead to the failure to produce, insufficient production or over production of a protein, or the production of dysfunctional proteins. This protein defect is the underlying cause of genetic disease.
There are several existing treatment approaches that seek to address the underlying cause of the absent or defective proteins associated with genetic disorders, including protein replacement therapy, gene therapy, gene editing and small molecule therapies. However, each has important limitations.
Existing Treatment Approaches and Their Limitations
Protein Replacement Therapy
Protein replacement therapy seeks to supplement or replace absent or deficient proteins or enzymes. While this approach has been used successfully to treat a subset of protein-based disorders, it is most effective if the protein carries out its function outside the cell. However, a majority of genetic disorders involve intracellular or transmembrane proteins, which carry out their function inside the cell. These proteins are significantly more challenging to replace.
Gene Therapy
Gene therapy is the process of introducing a functional copy of a defective gene sequence into a patient’s cells to express the desired protein. However, some current gene therapy approaches do not efficiently integrate this functional genetic sequence into the genome, while other approaches randomly integrate thereby causing safety concerns. A consequence of the failure to efficiently integrate the genetic sequence into the genome is that the functional genetic sequence is not effectively passed to new cells following cell division. As a result, in genetic disorders that involve dividing cells, such as epithelial cells of the lung, the efficacy of gene therapy may be limited. Repeated gene therapy treatments may be required to effectively treat such disorders. However, the ability to provide repeated treatments is limited by current gene therapy’s reliance on the delivery through a viral vector, which is an engineered virus that is designed to express genes of interest and results in serious challenges concerning safety and immunogenicity, such as neutralizing antibodies. The success of this approach is further limited by difficulties in delivering the therapy to the cell nucleus, which is a crucial step to ensure ultimate expression of the desired therapeutic protein. The cost of manufacturing gene therapy product candidates in large scale is also significant.
Gene Editing
Gene editing seeks to permanently replace, delete or repair a defective gene sequence at the natural gene location in a patient’s genome. In contrast to gene therapy, an edited genetic sequence would be replicated in new cells following cell division, thereby reducing or eliminating the need for repeat dosing. However, current methods of gene editing face significant limitations, including unwanted
on-
and
off-target
modifications to DNA, failure to make the intended modification, challenges in introducing the particular edit into the cell nucleus, and manufacturing complexities. There are currently no approved gene editing products and there is limited clinical experience with this approach.
Small Molecule Therapy
In small molecule therapy, small molecules are designed to bind to disease-associated molecules and modulate their activity. Small molecule approaches to genetic disorders have limitations, including the inability to directly address specific gene defects and the potential to cause
off-target
toxicities.
mRNA Therapy
mRNA therapy has long been of interest because of its potential to overcome many of the shortcomings of existing approaches. The goal of mRNA therapy is to provide the instructions needed for cells to produce
 
9

functional proteins through the cells’ own machinery. mRNA does not integrate into or alter the genome, which may offer a better safety profile than gene therapy, gene editing or small molecule therapy. Because mRNA is a natural component of all cells, it is inherently biocompatible. As such, mRNA therapy offers the ability to titrate and dose repeatedly. The central role of mRNA in protein expression confers the potential for mRNA therapy to have broad applicability across multiple diseases in which the production of a desirable protein can have a therapeutic effect.
However, the development of mRNA therapy has been limited due to the following key challenges:
 
  
Stability
: mRNA is susceptible to rapid degradation by nucleases, including ribonuclease, or RNase, which can limit the duration of the therapeutic effect.
 
  
Immunogenicity
: An effective therapeutic mRNA must be pure and in a form not recognized by the body as foreign to avoid triggering an immune response.
 
  
Delivery
: Therapeutic mRNA must be safely and effectively delivered across the cell membranes of the target tissues without
off-target
toxicity and degradation.
 
  
Manufacture of mRNA Products
: It is difficult to achieve scalable and cost-effective manufacturing of stable and
non-immunogenic
therapeutic mRNA in quantities sufficient to support clinical trials and commercial production.
We believe that our scientific expertise and years of investment in mRNA construct design, delivery and manufacturing have allowed us to overcome many challenges that have limited the development of mRNA therapy.
Our MRT Platform
Our MRT platform has enabled us to discover product candidates designed to deliver mRNA that can carry instructions to produce intracellular, transmembrane and secreted proteins. Our platform is also designed to be flexible and scalable by allowing for the development of MRT product candidates that vary only in the mRNA sequence and the tissue-specific delivery vehicle. This modular nature of our platform may allow us to rapidly advance into new indications after successfully establishing delivery vehicles for specific tissues. For example, we are utilizing our MRT platform in an effort to identify and rapidly develop new product candidates designed to address the underlying causes of additional diseases of the lung. We are also continuing the development of potential next-generation delivery systems with unique chemistries tailored for different routes of administration including pulmonary, systemic and intramuscular, which are tailored for specific disease applications.
 
10

As depicted below, mRNA directly provides the instructions for the body to produce proteins. Our MRT product candidates are designed to enter the cell and unpackage our therapeutic mRNA in the cytoplasm. Upon release of the mRNA, the ribosomes in the cell engage the mRNA and begin the translation process, resulting in the production of the desired natural protein. This process of translation is designed to continue until the mRNA is expended.
 
 
Advantages of our MRT Platform
We believe that our proprietary MRT platform and the design of our product candidates, which consist of the protein-coding mRNA and a delivery vehicle, will enable us to overcome the challenges of mRNA therapy and allow for chronic dosing of our MRT product candidates for the following reasons:
 
  
Enhanced Stability
. Our mRNA design, manufacturing processes and nanoparticle formulations are designed to protect our mRNA from degradation by nucleases, including RNase, and by chemical or physical forces, in order to achieve the appropriate duration of therapeutic effect.
 
  
Targeting Lower Immunogenicity
. We use
manufacturing processes to remove impurities and we design our mRNA using structural components that are identical to natural mRNA within the body, thereby potentially reducing the risk of stimulating an immune response.
 
  
Tissue-Specific Delivery
. Our delivery technology is designed for efficient encapsulation and cellular uptake in target tissues, thereby reducing the risk of degradation,
off-target
toxicity and unwanted stimulation of the immune system.
 
11

  
Scalable and Flexible Manufacturing
. We employ a unique, biosynthetic, cell-free process to manufacture pure, high-quality mRNA and delivery vehicles with significant potency at a scale suitable for clinical trials and that is designed to be scaled to support commercial production.
mRNA Construct Design
Delivering the desired mRNA sequences is the first step to restoring healthy function to proteins. In our preclinical studies, we observed that such mRNA sequences, when flanked by proprietary signaling sequences and packaged into our delivery vehicles, entered cells and restored proper cellular protein production.
We design our proprietary mRNA sequences to encode the natural protein sequences. We use unmodified mRNA bases to replicate the composition and function of endogenous mRNA. We then further optimize the sequences to result in efficient protein production. We achieve this optimization through the selection of appropriate transcription and translational control elements to maximize protein expression across a broad range of tissues.
Delivery
After we create the desired mRNA sequences, we package our mRNA sequences into delivery vehicles, such as our LNPs, that are customized for delivery to specific tissues. We design our delivery vehicles for optimal size, surface charge and lipid composition.
For example, MRT5005 is intended to address the underlying cause of CF, and thus we use a lipid composition and particle size designed specifically to deliver mRNA to the lung by inhalation.
We intend to apply our delivery expertise gained in the development of MRT5005 to the design, optimization and manufacturing of new MRT product candidates.
Our LNPs are designed to have low immunogenicity, meaning that they are intended to avoid stimulating the body’s natural response to exogenous therapies, thereby preventing the formation of antibodies which can neutralize exogenous therapeutic products and dramatically decrease their efficacy. Neutralizing antibodies pose a major limitation to gene therapies and related approaches. In preclinical studies, we have not observed any neutralizing antibody effect towards our MRT product candidates and have observed continued therapeutic benefits after repeat administrations. Because we can dose our MRT product candidates repeatedly, we expect to be able to titrate dosing to the minimally effective dose to maximize patient-specific therapeutic benefit. The ability to dose repeatedly may also allow us to treat cells that routinely turn over in the body, such as epithelial cells in the lungs.
Manufacturing
Through years of investment, we have established current Good Manufacturing Practices, or cGMP, of our mRNA drug substance. We have developed proprietary processes that reproducibly provide sufficient quantities of highly pure, high-quality and highly potent mRNA to support our clinical trials. We have made extensive efforts to develop analytical assays to allow for complete characterization of the mRNA drug substance. These assays allow us to demonstrate the quality and potency of the resulting mRNA drug substance. We believe that our manufacturing processes successfully address key issues commonly associated with the manufacturing of mRNA, such as poor capping at one end of the mRNA sequence and the extensive presence of prematurely terminated sequences, such as double-stranded RNA and other contaminants.
The modular nature of our mRNA drug substance manufacturing processes allows for versatility by using the same core production and purification processes for any mRNA drug substance. We only change the sequence of the coding region for the desired mRNA candidate to produce a new mRNA drug substance. Further,
 
12

we believe that our manufacturing process is cost-effective and minimizes development costs associated with a new mRNA drug substance because, unlike other treatment approaches, it does not require new cell line development or a new production and purification process for each new MRT product candidate.
We have also established cGMP manufacturing of the LNP drug product, which is the delivery vehicle containing the mRNA drug substance. We have developed a proprietary process to produce high-quality, highly potent and stable LNPs that encapsulate our mRNA drug substance. We have designed our LNP drug product to facilitate cellular uptake as well as provide stability, including against degradation by nucleases, such as RNase. We have designed a large-scale cGMP manufacturing process for our LNP drug products that we believe can support our clinical trials and is readily scalable. We have made extensive efforts to develop analytical assays to allow for complete characterization of the LNP final drug product and to allow us to demonstrate the quality and potency of the final LNP drug product.
Similar to our mRNA manufacturing, our LNP manufacturing process utilizes a modular approach that we believe will be cost-effective and will minimize development costs associated with each new mRNA drug substance.
Broad Applicability of our MRT Platform in Additional Therapeutic Areas
We believe that our MRT platform may be applied across a broad array of diseases and target tissues via multiple routes of administration where the production of a desired protein or the degradation of a protein can provide therapeutic benefit. In addition to the inhalation administration employed for our lead program for the treatment of CF, we have observed successful production of the desired proteins through other routes of administration in preclinical studies, which may allow us to develop MRT product candidates for the treatment of a wide range of rare and
non-rare
diseases, including diseases of the liver.
Broad Applicability of our MRT Platform for Infectious Disease Vaccines
In furtherance of our intention to leverage the broad applicability of our MRT platform beyond its current therapeutic applications, we have established a collaboration and license agreement with Sanofi to develop mRNA vaccines for infectious diseases.
 
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Vaccines work by mimicking disease-causing agents to stimulate the immune system, building up a defense mechanism that can be deployed to fight future infections. mRNA vaccines offer an innovative approach by delivering the nucleotide sequence encoding a protein associated with prevention or treatment of a pathogen. Because of their high potency, capacity for rapid development and potential for
low-cost
manufacture and safe administration, we believe that mRNA vaccines represent a potentially innovative alternative to conventional vaccine approaches. The same production process to manufacture mRNA designed to create desired protein for our product candidates can be used to manufacture different mRNA for vaccines, which we believe provides flexibility in development and potentially enables the development of vaccines for disease areas where vaccination is not yet a viable option. As part of the collaboration with Sanofi, we have advanced our development programs including screening, optimization and production of mRNA and LNP formulations across multiple infectious disease vaccine targets.
 
 
Therapies
Our Lead Program for the Lung: MRT5005
MRT5005 is designed to address the underlying cause of CF by delivering mRNA encoding fully functional CFTR protein to the lung epithelial cells through nebulization. In preclinical and early clinical studies, data supports delivery of MRT5005 resulting in the production of fully functional CFTR protein. According to research from the National Institutes of Health, or NIH, the average number of copies of human CFTR mRNA is approximately one or two per cell. We believe that we can provide therapeutic levels of human CFTR mRNA because MRT5005 is designed to efficiently deliver human CFTR mRNA to the lung with widespread distribution.
Currently approved CFTR modulating therapies are limited to patients with specific genetic mutations; therefore, there remains a significant unmet medical need for patients with CF who have genetic mutations
non-amenable
to currently approved CFTR modulating therapies. Additionally, patients treated with these current therapies still suffer from long-term decline in lung function and exacerbations that require hospitalization. MRT5005 has the potential to treat the underlying cause of CF, regardless of the specific genetic mutation, including patients with limited or no CFTR protein. Our goal for MRT5005 is to provide patients with significant improvements in lung function, halt the progressive decline in lung function and substantially reduce the frequency of pulmonary exacerbations.
We believe MRT5005 is the first clinical-stage mRNA product candidate designed to deliver mRNA encoding fully functional CFTR protein to lung epithelial cells. We are conducting a Phase 1/2 clinical trial to evaluate the safety and tolerability of single- and multiple-ascending doses of MRT5005. The clinical trial is investigating several groups receiving five once-weekly doses, as well as a group receiving five daily doses.
 
14

ppFEV
1
, which is a well-defined and accepted endpoint measuring lung function, is also being measured at
pre-defined
timepoints throughout the trial. In April 2019, we completed dosing of patients in the originally planned SAD portion of the Phase 1/2 clinical trial, which included 8, 16 and 24 mg SAD groups, and in July 2019, we reported interim data from the SAD portion of the clinical trial through
one-month
follow up post dosing. MRT5005 was generally well-tolerated at low and
mid-dose
levels with no serious adverse events reported at any dose level. Marked increases in ppFEV
1
were observed after a single dose of MRT5005, primarily at the
mid-dose
level. Based on the analysis of the interim results, we amended the clinical trial protocol to evaluate additional dose levels. We added a 20 mg SAD group and 12 and 20 mg MAD groups; the MAD portion of the clinical trial includes 8, 12, 16 and 20 mg MAD groups. In January 2021, we announced that we completed enrollment and dosing in the dose cohorts comprising the second interim data analysis, including the 8, 12 and 16 mg MAD groups and the 20 mg SAD group. We anticipate reporting interim clinical data from these cohorts early in the second quarter of 2021. The clinical trial continues to enroll and dose in the remaining dose groups, which include a 20 mg MAD group and the daily dosing cohort.
Cystic Fibrosis
CF is the most common fatal inherited disease in the United States. CF results in mucus buildup in the lungs, pancreas and other organs, and mortality is primarily driven by a progressive decline in lung function. There is no cure for CF. According to the CFF, the median age at death for patients with CF in the United States was 32.4 years in 2019. According to the CFF, approximately 30,000 patients in the United States and more than 70,000 patients worldwide are living with CF and approximately 760 new cases of CF in the United States were diagnosed in 2019. Patients with CF experience frequent pulmonary exacerbations, chronic infections and persistent inflammation, all of which may require outpatient doctor visits and hospitalizations. In some severe cases, these patients require lung transplants. The quality of life for patients with CF is severely compromised and requires significant self-care time, including life-long treatment with multiple daily medications, use of nebulizers and physiotherapy.
CF is caused by dysfunctional or missing CFTR protein. The CFTR protein functions as a channel that regulates the movement of chloride ions in and out of the cells of organs such as the lungs, pancreas and the gastrointestinal tract. Through regulation of these ions, the amount of salts in the fluid both inside and outside of the cell remains balanced. When CFTR protein expels the ions, water is drawn out of cells and hydrates the cell surface. In patients with CF, the CFTR protein is defective and cannot perform its normal function of transporting ions across the cell membrane, resulting in an environment characterized by thick mucus on affected cellular surfaces. The deficiency in CFTR protein activity in patients with CF is particularly problematic in the lungs, where the
build-up
of thick mucus obstructs air flow and provides a favorable environment for bacteria, which leads to chronic infection and persistent inflammation.
Current Treatment Landscape for CF
Until the development of CFTR modulators, approved therapies to treat patients with CF only treated the symptoms of CF, by preventing and controlling infections that occur in the lungs. Accordingly, antibiotics are frequently used in conjunction with mucus-thinning drugs. A significant portion of patients with CF are prescribed bronchodilators, although no bronchodilator is currently approved by the FDA for the treatment of patients with CF.
For patients with certain genetic mutations, four medications, all marketed by Vertex Pharmaceuticals Inc., or Vertex, have been shown to have direct effects on CFTR. The first is ivacaftor, or Kalydeco, a small molecule which stimulates the activity of certain types of defective CFTR and is known as a CFTR potentiator. The second is Orkambi, a small molecule which combines ivacaftor and lumacaftor, another CFTR-specific drug that helps stabilize defective and misfolded CFTR molecules, allowing increased trafficking of CFTR to the cell membrane rather than to protein degradation pathways. Orkambi was approved by the FDA based on its ability to improve
 
15

lung function in subsets of patients with CF with certain genetic mutations. A third drug, tezacaftor/ivacaftor and ivacaftor, or Symdeko, was approved by the FDA for the treatment of patients with CF who are homozygous for the F508del mutation in the CFTR gene or have at least one mutation in their CFTR gene that is responsive to tezacaftor/ivacaftor. A fourth drug, elexacaftor/tezacaftor/ivacaftor and ivacaftor, or Trikafta, was approved for all patients who have at least one F508del mutation. Vertex reported net product revenues of $6.2 billion and $4.2 billion from sales of Trikafta, Symdeko, Orkambi and Kalydeco in 2020 and 2019, respectively. While these therapies improve lung function, they are limited to patients with certain genetic mutations. Patients treated with approved modulators may still experience pulmonary exacerbations, which are typically caused by bacterial infections in the lungs. None of the approved modulators are able to halt the progressive decline in pulmonary function, which represents a significant unmet medical need.
An mRNA therapy that results in the expression of the functional CFTR protein has the potential to significantly reduce the number of pulmonary exacerbations, halt the progressive decline in pulmonary function and provide significant improvements in lung function. We believe there is a significant unmet need and market opportunity for an mRNA therapy that can restore fully functional CFTR protein across all patients with CF regardless of the specific genetic mutation, including patients with CF considered
non-amenable
to currently approved CFTR modulating therapies.
Our Solution: MRT5005
We are developing MRT5005 to treat the underlying cause of CF, regardless of the genetic mutation, including in patients with limited or no CFTR protein. We designed MRT5005 to be inhaled via a handheld nebulizer. Once the inhaled MRT5005 has entered the epithelial cells lining the patient’s lungs, our therapeutic mRNA uses the cells’ own machinery for translation and expression of fully functional CFTR protein, thereby restoring this essential ion channel, which we believe will address the pathology of CF directly. Our CFTR mRNA encodes the protein that forms a functional ion channel that is defective or absent in patients with CF, and we have observed functionally active ion channels in preclinical studies. In our preclinical studies we have observed dose-dependent increases in CFTR being restored to cell membranes. The inhaled formulation of MRT5005 resulted in broad CFTR expression in lung tissue. We are conducting a Phase 1/2 clinical trial to evaluate the safety and tolerability of MRT5005 in patients with CF. As further discussed below, interim single-dose data from our Phase 1/2 clinical trial supports delivery of MRT5005 resulting in the production of fully functional CFTR protein.
Phase 1/2 Clinical Trial.
    
In our double-blind, placebo-controlled Phase 1/2 clinical trial of MRT5005, we plan to enroll up to 40 adult patients with CF who have two Class I and/or Class II mutations, across multiple sites in the United States. The primary endpoint of the trial is to assess the safety and tolerability of single- and multiple-ascending doses of MRT5005 administered by nebulization. In the MAD portion of the clinical trial, MRT5005 is administered once weekly for five weeks. There is also a daily dose cohort in which MRT5005 is administered once daily for five days. In this Phase 1/2 clinical trial, we are also performing measurements of ppFEV
1,
which represents the amount of air that can be exhaled from the lungs in one second. The rate of decline in ppFEV
1
in patients with CF is considered a strong clinical predictor of mortality. In patients with CF, lung function is typically reported as a percentage of their ppFEV
1
compared to that of a healthy individual of the same height, sex and race. We expect to design future clinical trials in which improvements in ppFEV
1
or the reduction of pulmonary exacerbations will be the primary efficacy endpoint. The Phase 1/2 clinical trial of MRT5005 for the treatment of CF is being conducted in collaboration with the Cystic Fibrosis Foundation Therapeutics Development Network and the Emily’s Entourage Patient Registry.
Interim Results from Phase 1/2 Clinical Trial of MRT5005 in Patients with Cystic Fibrosis.
    
In July 2019, we reported interim results from the SAD portion of our Phase 1/2 clinical trial of MRT5005 for the treatment of CF. The interim results summarize data from 12 adult patients with CF who received a single dose of either MRT5005 or placebo (3:1 randomization). Patients who received MRT5005 were assigned to one of
 
16

three dose groups (8, 16 or 24 mg). Of the 12 patients, 11 had at least one copy of the F508del mutation, and one patient did not have the F508del mutation and was considered
non-amenable
to CFTR modulator treatment. Seven of the 12 patients were being treated with an approved CFTR modulator through screening, dosing and
follow-up.
Safety, Tolerability and Pharmacokinetic Summary
.
    
The most common adverse events through Day 29 were cough and headache. There were no treatment-emergent serious adverse events. All treatment-emergent adverse events, or TEAEs, were considered mild to moderate. Five patients, three of whom were in the 24 mg dose group, experienced transient, mild to moderate febrile reactions deemed related to study drug. These events occurred approximately
4-10
hours post-dosing, and were characterized by fever and symptoms such as headache, fatigue, chills or nausea, which were treated with medicines such as acetaminophen and nonsteroidal anti-inflammatory drugs or an anti-emetic. Symptoms resolved within 24 hours, and all patients were discharged from the study center on Day 2 as planned. In these five patients, low levels of human CFTR mRNA and/or lipid were detected in the blood.
Lung Function (ppFEV
1
) Summary.
    
A primary measure of lung function, ppFEV
1
, was assessed at
pre-defined
timepoints throughout the trial. Patients in the pooled placebo group and the 8 mg dose group did not show a marked improvement in ppFEV
1
. In the
eight-day
period after dosing, the three patients in the 16 mg dose group demonstrated maximal ppFEV
1
increases of 11.1%, 13.6% and 22.2%, for a mean maximum increase from baseline (+/- standard deviation) of 15.7% (5.8). Of the three patients in the 16 mg dose group, two were on a stable CFTR modulator treatment regimen for at least 28 days, while the third had a genotype that is considered
non-amenable
to CFTR modulator treatments. Of the three patients in the 24 mg dose group, through Day 8, one patient experienced a maximum increase in ppFEV
1
from baseline of 21.4%, while two patients did not show a marked increase in ppFEV
1
.
 
 
Current Phase 1/2 Clinical Trial Design and Status.
    
Based on the first interim analysis of the SAD (Part A) data, we implemented certain protocol changes in this ongoing Phase 1/2 clinical trial. In the SAD portion of the trial, we amended the clinical trial protocol to include an additional 20 mg single dose group of four patients. In the MAD portion of the trial (Part B), we amended the clinical trial protocol to add 12 and 20 mg dose groups with four patients each, the latter dosing group contingent on successful completion of the 20 mg single dose
 
17

group and an acceptable safety profile in the lower MAD groups. We no longer plan to evaluate a 24 mg dose group in the MAD portion of the trial. We made an additional amendment in the third quarter of 2020 to evaluate daily dosing of MRT5005 once daily for five days, which will include eight patients with CF.
Preclinical Validation of Our Approach.
    
Human CFTR protein is a large, transmembrane protein that undergoes critical folding and extensive glycosylation prior to being trafficked to incorporate into the membrane of the cell within the lungs. By delivering mRNA encoding the CFTR protein to cells, we rely on the endogenous ribosomes to translate the proper CFTR protein and other endogenous cellular machinery to accurately fold, glycosylate and traffic the protein to its natural state and location within the cell.
Prior to the initiation of our Phase 1/2 clinical trial, our preclinical program included
in vitro
studies as well as
in vivo
studies in multiple species to establish the ability of our MRT platform for the treatment of CF. We conducted
in vitro
studies in which we observed that our CFTR mRNA drug substance successfully resulted in the production of human CFTR protein and we observed ion channel activity of the measured CFTR protein. We obtained substantial data through
in vivo
studies conducted in mice, rats and NHPs. In these studies, we observed successful mRNA delivery and subsequent human CFTR protein production within the lungs of all species tested. In addition, we generated ion channel activity, biodistribution, pharmacokinetic and safety data through
in vivo
evaluation of single- and multiple-dose regimens.
In Vitro Validation of MRT5005
.
    We performed an
in vitro
study to evaluate the ability of our CFTR mRNA drug substance to produce human CFTR protein. In this study, we introduced the mRNA into cells and, after a given period of time, we analyzed the cells for human CFTR protein using standard laboratory methods. We observed a dose-dependent correlation with respect to both the amount of CFTR mRNA introduced into cells and the amount of full length human CFTR protein produced.
Once we established that our mRNA drug substance could produce the desired human CFTR protein, we used an
in vitro
Ussing Chamber assay to evaluate whether the mRNA-derived CFTR protein was active. An Ussing Chamber assay is commonly used to determine the function of CFTR protein by measuring ion transport across a cell membrane through CFTR. In this
in vitro
study, we evaluated the activity of the CFTR protein that was produced from three separate manufacturing lots of our CFTR mRNA drug substance. We evaluated each lot of our CFTR mRNA in polarized epithelial cells and conducted electrophysiological assays to measure ion flow across the cell membrane through our CFTR mRNA.
Three independent parameters confirmed that this ion flow was due to increased CFTR activity. First, the activity was stimulated by forskolin, a known activator of CFTR. The activity was further stimulated by ivacaftor, an
FDA-approved
potentiator of CFTR function, and it was selectively inhibited by a human-specific CFTR inhibitor. Based on these findings, we believe that the human CFTR protein produced from our mRNA drug substance was active and produced normal ion channel activity.
Additionally, in other
in vitro
studies, MRT5005 demonstrated active CFTR ion channel in human bronchial epithelial cells that were derived from human lung tissue.
In Vivo Validation of MRT5005
.
    We investigated the ability of a single dose of MRT5005 to deliver CFTR mRNA to lungs in rats and NHPs. We observed CFTR mRNA levels of up to
1,500-fold
higher than normal in NHPs 24 hours after a single exposure to MRT5005. We also observed high levels of human CFTR mRNA deposition after a single administration in rats. While these levels in the rats decreased over time, CFTR mRNA deposition was still detectable at higher than normal levels 28 days after administration at the highest doses. Biodistribution analysis of multiple respiratory tract organs demonstrated that the large majority of our drug product deposited in the lungs of rats and NHPs. We believe that these results provide preclinical validation of the ability of MRT5005 to reach the lungs while protecting the delivered mRNA from rapid degradation by nuclease activity.
 
18

We evaluated CFTR protein expression in normal NHPs and rats and observed a dose-dependent staining intensity that generally reflected the mRNA levels that were measured. Importantly, after a single dose, we observed significant staining in the NHPs at one week post-administration. We observed remaining CFTR expression at 28 days post-administration at the high dose levels in the rats. We observed that CFTR protein expression was widespread throughout the upper airways in bronchial epithelial cells as well as in the lower airways and alveolar regions, in both NHPs and rats. We have also observed membrane localization of human CFTR protein within the lung epithelial cells of treated NHPs.
We conducted multiple-dose inhalation
in vivo
studies in both rats and NHPs. We administered five weekly treatments with a
28-day
recovery period in each species. We monitored safety as well as pharmacodynamic parameters. We observed robust delivery of human CFTR mRNA upon treatment with MRT5005, resulting in higher than normal levels of CFTR mRNA, similar to what we observed in the single dose administration studies. We observed widespread distribution of the resulting human CFTR protein, with staining in both the bronchial epithelial cells as well as lower airway and alveolar regions. Upon multiple exposures, we observed the presence of human CFTR protein 28 days after the final treatment in rats and NHPs. More specifically, after five weekly doses of MRT5005, we observed a dose-dependent increase in human CFTR protein production.
MRT5005 was well-tolerated in all of our preclinical studies at all doses. We did not observe adverse effects or physiological changes throughout the preclinical toxicology studies in rats and NHPs. Histopathological analysis of the lungs and respiratory tract tissues after multiple-dose regimens demonstrated normal histology and normal morphology with no signs of inflammation. Based on these results, we believe that MRT5005 has the potential to safely and efficiently deliver mRNA to the lungs and successfully result in CFTR protein production within the epithelial cells of the lung.
Pulmonary Focus and Other Indications
We are leveraging our lung delivery technology to conduct research in a next-generation CF program as well as additional pulmonary diseases beyond CF.
For our CF discovery program, we are applying advances in mRNA science and LNP chemistry to design a next-generation CF mRNA therapeutic with the goal of building on the early encouraging data we have observed with our lead CF clinical candidate, MRT5005. We are utilizing novel LNPs, protein engineering and codon-optimization approaches, as well as manufacturing process enhancements with the potential to increase protein production, which may allow for low dose and/or short nebulization time. Preclinical studies are ongoing to evaluate safety, protein expression and duration of protein expression to support product candidate selection in this program. These data will inform the selection of the optimal mRNA sequence and LNP for a next-generation CF candidate, which we anticipate advancing into
IND-enabling
studies in the second half of 2021.
Our PCD discovery program is designed to deliver mRNA to the lung enabling the production of target proteins that would potentially restore ciliary function. We are performing
proof-of-concept
studies to support the selection of our lead PCD candidate which we anticipate advancing into
IND-enabling
studies in the second half of 2021.
For our PAH discovery program, we are conducting research to evaluate and validate target proteins for this disease.
We are also currently conducting discovery activities to advance our scientific platform. As part of this effort, we are working to identify next-generation LNPs to support lung, vaccine, liver and additional disease program development. With respect to our liver disease discovery program, we are applying our next-generation liver LNPs to identify liver diseases for further evaluation. Additionally, we are evaluating an mRNA-mediated approach to protein degradation, the potential of delivery mRNA encoding therapeutic antibodies and conducting research to advance our technology.
 
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Vaccines
Through our collaboration with Sanofi, we continue to develop mRNA vaccine candidates for infectious diseases and we have advanced our preclinical development programs including screening, optimization and production of mRNA and LNP formulations across multiple targets. Two of the target pathogens under development are
SARS-CoV-2,
which causes
COVID-19,
and influenza.
COVID-19
and MRT5500
After evaluation of multiple
COVID-19
vaccine candidates
in vivo
for immunogenicity and neutralizing antibody activity, MRT5500 was selected as the lead candidate for a vaccine against
SARS-CoV-2.
In October 2020, preclinical data was reported demonstrating that MRT5500 induced potent neutralizing antibodies against
SARS-CoV-2
in mice and NHPs. Two doses of MRT5500 in NHPs induced neutralizing antibody levels significantly higher than those observed in a panel of samples from
COVID-19
patients. It was also demonstrated that MRT5500-immunized mice and NHPs exhibited a
Th1-biased
T cell response against
SARS-CoV-2.
VAERD has generally not been reported to be associated with a
Th1-biased
T cell response and therefore these data suggest the potential for a reduced risk for VAERD. A Phase 1/2 clinical trial to evaluate MRT5500 is expected to begin in the first quarter of 2021.
Influenza
We have evaluated proprietary LNP/mRNA formulations for the development of a vaccine against influenza in preclinical studies, including immunogenicity assessments and neutralizing antibody (nAb) titer generation against key influenza antigens in both rodents and NHPs. We observed robust titers in NHPs administered at doses ranging from 15 micrograms to 250 micrograms. Further, activity was demonstrated upon immunization at a 400 nanogram dose of hemagglutinin mRNA/LNP vaccine when applied in an H1N1 lethal challenge influenza mouse model. These data are part of a broader preclinical package that we have generated supporting selection of lead LNP/mRNA formulations, and a clinical proof of technology trial is anticipated to begin
mid-year
2021.
Competition
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe we have significant competitive advantages with our industry-leading expertise in mRNA technology, rare disease clinical development expertise and advanced intellectual property position, we currently face and will continue to face competition for our development programs from companies that use mRNA, gene editing or gene therapy development platforms and from companies focused on more traditional therapeutic modalities, such as small molecules.
The competition is likely to come from multiple sources, including larger pharmaceutical companies, biotechnology companies and academia. Accordingly, our competitors may be more successful than us in obtaining approval for treatments and achieving widespread market acceptance. For any products that we may ultimately commercialize, not only will we compete with any existing therapies and those therapies currently in development, we will have to compete with new therapies that may become available in the future.
Our competitors also include companies that are or will be developing other mRNA technology methods as well as small molecules, biologics and nucleic acid-based therapies for the same indications that we are targeting with our mRNA-based therapeutics. Some of our competitors, either alone or with their strategic partners, have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of treatments and commercializing those treatments. These same competitors may invent technology that competes with our product candidates.
 
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Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even greater concentration of resources among a smaller number of our competitors. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and registering subjects for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
We expect any products that we develop and commercialize to compete on the basis of, among other things, efficacy, safety, health-economic benefit, convenience of administration and delivery, price, the level of generic or biosimilar competition and the availability of adequate reimbursement from government and other third-party payors.
Our commercial opportunity could be reduced or eliminated if 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 any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products faster or earlier 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, we expect that our products, if approved, will be priced at a premium over competitive generic products, and our ability to compete may be affected by insurers or other third-party payors encouraging the use of generic products.
mRNA Platform
Companies with mRNA platform capabilities include: Novartis AG, GlaxoSmithKline plc, Moderna, Inc., CureVac AG, BioNTech AG, Ethris GmbH, Arcturus Therapeutics Holdings, Inc., eTheRNA immunotherapies NV, ReCode Therapeutics, Inc., Strand Therapeutics, GreenLight BioSciences, Inc., Kernal Biologics, Inc. and Genevant Sciences Ltd.
MRT5005 / Cystic Fibrosis
If approved for the treatment of CF, MRT5005 would compete with Kalydeco, Orkambi, Symdeko and Trikafta, each of which is marketed by Vertex. Vertex also has two other CFTR modulator compounds in clinical development, each of which is currently in Phase 2 clinical trials.
Other potential competitors for CF include large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, academic institutions, government agencies and research institutions. Examples include AbbVie Inc., Eloxx Pharmaceuticals Ltd and Proteostasis Therapeutics, Inc.
Other companies developing products that modulate or affect CFTR function for the treatment of CF also include: Arcturus Therapeutics Holdings, Inc., CRISPR Therapeutics AG and Moderna, Inc.
MRT5500 /
COVID-19
and Vaccine Platform
Large and established companies, such as Merck & Co., Inc., GlaxoSmithKline plc, Sanofi, Pfizer, Inc., Johnson & Johnson and AstraZeneca plc, among others, compete in the vaccine market. In addition, some of our mRNA competitors, Moderna, Inc. and BioNTech AG, have also developed
COVID-19
vaccines using mRNA technology, and other mRNA competitors, such as CureVac AG and Arcturus Therapeutics Holdings, Inc., are developing
COVID-19
vaccines. Currently, several of our competitors have developed
COVID-19
vaccines that have received emergency use approval by the FDA or conditional marketing authorization from the European Medicines Agency, or EMA, and are being administered throughout the United States, Europe and other parts of the world.
 
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Strategic Transactions
Sanofi Collaboration and License Agreement
In 2018, we entered into a collaboration and license agreement with Sanofi, or the Original Sanofi Agreement, to develop mRNA vaccines for up to five infectious disease pathogens, or the Licensed Fields. On March 26, 2020, we and Sanofi amended the Original Sanofi Agreement, or the First Sanofi Amendment, to include vaccines against
SARS-CoV-2
as an additional Licensed Field, increasing the number of infectious disease pathogens to up to six. On June 22, 2020, we and Sanofi further amended the Original Sanofi Agreement to expand the scope of the collaboration and licenses granted to Sanofi, or the Second Sanofi Amendment. The Original Sanofi Agreement, as amended by the First Sanofi Amendment and the Second Sanofi Amendment, is referred to as the Amended Sanofi Agreement.
Under the terms of the Amended Sanofi Agreement, we have agreed to grant to Sanofi exclusive, worldwide licenses under applicable patents, patent applications,
know-how
and materials, including those arising under the collaboration, to develop, commercialize and manufacture mRNA vaccines to prevent, treat or cure diseases, disorders or conditions in humans caused by any infectious disease pathogen, with certain specified exceptions.
Pursuant to the Amended Sanofi Agreement, we and Sanofi are jointly conducting research and development activities to advance mRNA vaccines targeting up to seven infectious disease pathogens. The term of the research collaboration, or the Collaboration Term, expires in June 2022, with an option for Sanofi to extend the Collaboration Term for one additional year, followed by a technology transfer to Sanofi. If Sanofi elects to extend the Collaboration Term, the collaboration may be further expanded to jointly conduct research and development activities to advance mRNA vaccines for up to an additional three infectious disease pathogens, bringing the total to up to ten pathogens. In addition to the research and development and technology transfer, we are responsible for manufacturing and supplying
non-clinical
products, related materials and investigational products as required by the collaboration plan. Pursuant to the Amended Sanofi Agreement, we and Sanofi agreed to a governance structure to manage the activities under the collaboration. If we and Sanofi do not mutually agree on certain decisions, Sanofi will be able to break a deadlock without our consent under certain conditions. The collaboration includes an estimated budget. Sanofi is responsible for paying reimbursable development costs, including our employee costs, manufacturing costs, and
out-of-pocket
costs paid to third parties, up to a specified amount for each Licensed Field.
We and Sanofi retain the rights to perform our respective obligations and exercise our respective rights under the Amended Sanofi Agreement. Sanofi also granted us
non-exclusive,
sublicensable licenses under patent rights claiming certain improvements that Sanofi may make to the technology we had licensed to it or claiming certain technology arising from the collaboration and owned by Sanofi. We may exercise such licenses to develop, manufacture and commercialize products, other than products that use a vaccine to prevent, treat or cure a disease, disorder or condition in humans caused by an infectious disease pathogen. Sanofi may terminate these licenses to us if we materially breach the terms of the license and the breach remains uncured for a specified period, which may be extended in certain circumstances.
Pursuant to the Original Sanofi Agreement, Sanofi paid us an upfront payment of $45.0 million in 2018. Pursuant to the Second Sanofi Amendment, Sanofi paid us an additional upfront payment of $300.0 million in August 2020. If Sanofi chooses to exercise its option to extend the Collaboration Term for an additional year, Sanofi has agreed to pay us an additional payment of $75.0 million. The Amended Sanofi Agreement provides that we are eligible to receive aggregate potential payments of up to $1.9 billion upon the achievement of additional specified development, regulatory, manufacturing and commercialization milestones, inclusive of the fee to exercise the option to extend the Collaboration Term. In particular, we are entitled to receive development, regulatory and sales milestone payments of up to $148.0 million for each Licensed Field, other than the
SARS-CoV-2
Licensed Field, development, regulatory and sales milestone payments of up to $250.0 million in the
SARS-CoV-2
Licensed Field, and
one-time
manufacturing milestone payments of up to $200.0 million. In addition, we are entitled to receive a $10.0 million milestone payment from Sanofi following completion of the technology and process transfer.
 
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Under the terms of the Amended Sanofi Agreement, Sanofi has also agreed to pay us royalties on net sales of mRNA vaccines in the
SARS-CoV-2
Licensed Field in accordance with the terms of and at the same high single digits to low teens percentages set forth in the Original Sanofi Agreement, except where such vaccines are provided as a donation or transferred to a third party without any profit margin, in which case we will be paid royalties sufficient to cover our royalty obligations.
The Amended Sanofi Agreement provides that it will remain in effect until terminated in accordance with its terms. Either we or Sanofi may terminate the Amended Sanofi Agreement in its entirety if the other party is subject to certain insolvency proceedings. Either party may terminate the Amended Sanofi Agreement in its entirety or with respect to a particular Licensed Field, country or product if the other party materially breaches the Amended Sanofi Agreement and the breach remains uncured for a specified period, which may be extended in certain circumstances. Sanofi may also terminate the Amended Sanofi Agreement in its entirety or with respect to a particular Licensed Field, country or product for safety reasons or for convenience, in each case after a specified notice period. After termination of the Amended Sanofi Agreement, Sanofi may continue to manufacture and commercialize the terminated products for a specified period of time, subject to Sanofi’s payment obligations.
Sanofi has sole responsibility for all commercialization activities for mRNA vaccines in the Licensed Fields and is obligated to bear all costs in connection with any commercialization in the Licensed Fields. We and Sanofi also entered into a separate supply agreement on June 22, 2020, with an effective date of December 20, 2019, governing the terms of the supply of products by us, or the Supply Agreement. Pursuant to the Supply Agreement, we have agreed to use commercially reasonable efforts to manufacture and supply Sanofi with
non-clinical
and clinical supply of products and other research materials in certain Licensed Fields, as set forth in the Amended Sanofi Agreement. Sanofi will pay us for the
non-clinical
and clinical supply at our cost to manufacture plus a specified markup. The Supply Agreement will remain in effect until terminated in accordance with its terms. However, under the Amended Sanofi Agreement, our obligation to manufacture and supply products is limited to a defined duration based on the Licensed Field of the applicable product. The Supply Agreement may be terminated by the mutual consent of the parties. Sanofi may terminate the Supply Agreement for convenience after a specified notice period, or in the event that we do not provide the supply in a timely manner. We may terminate the Supply Agreement in the event of a breach by Sanofi of its payment obligations and such breach remains uncured for a specified period. As part of the Second Sanofi Amendment, we and Sanofi agreed to negotiate in good faith and enter into a further supply agreement in respect of supply of products in the
SARS-CoV-2
Licensed Field for use in Phase 3 clinical trials or commercial supply.
In connection with the execution of the Second Sanofi Amendment, we and an affiliate of Sanofi, or the Sanofi Investor, entered into a securities purchase agreement, or the Securities Purchase Agreement, for the sale and issuance of 4,884,434 shares of our common stock to the Sanofi Investor at a price of $25.59 per share for an aggregate purchase price of approximately $125.0 million. The closing of the transaction contemplated by the Securities Purchase Agreement was consummated in July 2020. Pursuant to the terms of the Securities Purchase Agreement, the Sanofi Investor agreed not to, without the prior written approval from us and subject to specified conditions, directly or indirectly acquire shares of the our outstanding common stock, make a tender, exchange, or other offer to acquire shares of our outstanding common stock, solicit proxies or consents with respect to any matter, or undertake other specified actions related to the potential acquisition of additional equity interests in us, which remain in effect until 12 months after the closing date. Further, the Sanofi Investor agreed not to, and to cause its affiliates not to, sell or transfer the shares without the prior written approval from us subject to specified conditions, which remain in effect until 18 months after the closing date.
Asset Purchase Agreement with Shire
In December 2016, we entered into an asset purchase agreement with Shire (as amended in June 2018), which we refer to as the Shire Agreement, pursuant to which Shire assigned to us all of its rights to certain patent rights, permits, real property leases, contracts, regulatory documentation, books and records, and materials
 
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related to Shire’s mRNA therapy platform, or the MRT Program, including its CFTR mRNA therapy program. We paid Shire an aggregate purchase price of $112.2 million, consisting of the fair value of shares of our common stock we issued to Shire and of contingent consideration on the acquisition date.
Under the Shire Agreement, we are obligated to use commercially reasonable efforts to develop and seek and obtain regulatory approval for products that include or are composed of MRT compounds covered by or derived from patent rights or
know-how
acquired from Shire, or MRT Products, and to achieve specific developmental milestones. Pursuant to the amendment entered into in June 2018, an mRNA vaccine that is developed pursuant to our collaboration with Sanofi will be considered an MRT Product if it includes an MRT compound having an mRNA sequence that encodes a protein that is from, or that binds to, an infectious disease pathogen in a field that has been licensed by us to Sanofi. During the earnout period described below, with respect to any MRT Product in any country, we are obligated to use commercially reasonable efforts to market and sell such MRT Product in such country.
We are obligated to make milestone payments to Shire of up to $60.0 million in the aggregate upon the occurrence of specified commercial milestones, including upon the first commercial sale of an MRT Product for the treatment of CF and upon the achievement of a specified level of annual net sales with respect to an MRT Product. We are also obligated to make additional milestone payments of $10.0 million for each
non-CF
MRT Product upon the first commercial sale of a
non-CF
MRT Product; provided that such milestone payments will only be due once for any two
non-CF
MRT Products that contain the same MRT compounds or once per
non-CF
MRT Product that is a vaccine developed under our collaboration with Sanofi.
Under the Shire Agreement we are also obligated to pay a quarterly earnout payment of a
mid-single-digit
percentage of net sales of each MRT Product. The earnout period, which is determined on a
product-by-product
and
country-by-country
basis, will begin on the date of the first commercial sale of such MRT Product in such country and will end on the later of (i) 10 years after such first commercial sale and (ii) the expiration of the last valid claim of the patent rights acquired from Shire or derived from patent rights or
know-how
acquired from Shire covering such MRT Product in such country.
Prior to first dosing of the first patient with a CFTR MRT Product in a Phase 3 clinical trial, we are obligated to notify Shire if we receive a written notice from a third party seeking to (i) acquire, license or obtain rights to develop or sell a CFTR MRT Product or (ii) other than a transaction resulting in a change of control of our company, acquire all or a substantial portion of the assets we acquired from Shire or our other assets that are necessary for or related to the development and commercialization of CFTR MRT Products. Before we may enter into negotiations with any third party, Shire has 30 days to notify us of its interest in negotiating an agreement with respect to the rights or assets proposed to be acquired by the third party. If Shire provides such notice, we must negotiate exclusively with Shire for up to 90 days. If Shire does not notify us of its interest in such opportunity within such
30-day
period, or if we and Shire do not enter into an agreement with respect to such opportunity within such
90-day
period, then, for a period of 12 months, we may grant the rights or sell the assets to a third party on such terms as we may determine in our sole discretion without any further obligation to Shire with respect to the rights or assets subject to the proposal, but we may not enter into exclusive negotiations with any third party for a period longer than 90 days.
Suite Retention and Development Agreement
In September 2019, we entered into a suite retention and development agreement with Albany Molecular Research, Inc., or AMRI, under which a series of cleanroom suites, or the Suites, were built at AMRI’s manufacturing facility in accordance with our objectives, or the AMRI Agreement. The Suites are for the exclusive use by us and any of our collaboration partners for the manufacture of our product candidates during the term of the AMRI Agreement. The AMRI Agreement continues for five years after the
build-out
completion date of August 31, 2020, or the Initial Term. We have the right to extend the Initial Term for an additional three-year term at prevailing commercially reasonable rates to be agreed between us and AMRI.
 
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AMRI is required to maintain the Suites for our exclusive use and is required to provide certain development services, including formulation development, creation of the master batch record, management of raw materials, manufacturing and storage of drug substance, to us.
We have the right to terminate the AMRI Agreement for convenience after the date that is 36 months from the date of payment of the first monthly payment, which we refer to as the Initial Three-Year Period. In the event that we terminate the AMRI Agreement for convenience, we must pay AMRI
a lump-sum payment
of $6.0 million. If AMRI terminates the AMRI Agreement in the event of our material breach, AMRI is entitled to a lump sum payment from us equivalent to the Monthly Fee multiplied by the number of months remaining in the Initial Three-Year Period plus $6.0 million. In the event of a change of control applicable to us, the termination payment owed by our
successor-in-interest
would be the Monthly Fee multiplied by the number of months remaining in the Initial Term plus $6.0 million.
License Agreements
Exclusive Patent License Agreement with MIT
We are a party an agreement with the Massachusetts Institute of Technology, or MIT, for a worldwide license for specified patent rights owned by MIT. This license grants us an exclusive license under the licensed patent rights to develop, manufacture and commercialize any product containing both (i) any RNA sequences, including mRNA, that encode a protein or peptide suitable for human therapeutic use, which may include operably linked
non-coding
sequences that facilitate translation of the coding portion of such RNA sequence, but such
non-coding
sequences do not include nucleic acids that function through an RNA interface mechanism or transcriptional activation mechanism, or the coding RNA component, and (ii) products covered by the licensed patent rights, or the lipid products. A product containing both a coding RNA component and a lipid product is referred to as a licensed product. Under the licensed patent rights, we are permitted to develop, manufacture and commercialize the licensed products for the delivery of coding RNA components to treat disease in humans. The license is subject to certain rights retained by MIT and other
non-profit
research institutions for research, teaching and educational purposes, rights retained under law by the federal government due to its funding the creation of the invention and rights granted to the sponsor of the research resulting in the inventions permitting internal research by the sponsor and its research collaborators.
We have the right to grant sublicenses under this license. The patent rights licensed to us by MIT include claims that cover certain of our customized LNPs used for delivery of coding RNA components in our MRT platform, including products that may be developed under our collaboration with Sanofi.
Under the license agreement, we are obligated to make an annual license maintenance fee payment to MIT, payable on January 1 of each calendar year, of up to $0.2 million, which may be credited against royalties subsequently due on net sales of licensed products earned in the same calendar year.
We are also obligated to make milestone payments to MIT aggregating up to $1.375 million upon the achievement of specified clinical and regulatory milestones with respect to each licensed product and $1.250 million upon our first commercial sale of each licensed product, and to pay royalties of a low single-digit percentage to MIT based on our, and any of our affiliates’ and sublicensees’, net sales of licensed products. The royalties are payable on a
product-by-product
and
country-by-country
basis, and may be reduced in specified circumstances. Our obligation to make royalty payments extends with respect to a licensed product in a country until four years past the expiration of the
last-to-expire
patent or patent application licensed from MIT covering the licensed product in the country. In addition, we are obligated to pay MIT a low double-digit percentage of the portion of income from sublicensees that we ascribe to the
MIT-licensed
patents, excluding royalties on net sales and research support payments. In 2019, pursuant to such provision, we paid $0.7 million to MIT as their share of sublicense income with respect to the upfront payment received under the Original Sanofi Agreement. We will be required to pay MIT a portion of the $300.0 million upfront payment from Sanofi and a portion of the premium
 
25

payment in consideration for the common stock purchased by the Sanofi Investor under the Securities Purchase Agreement, as well as future option and milestone payments that we may receive. The amount payable to MIT is currently being negotiated between us and MIT and the final amount payable to MIT is unknown as this time. The amounts that we may owe to MIT will depend upon the relative value of the patents we licensed from MIT and sublicensed to Sanofi as compared to the other rights that we licensed to Sanofi. The determination of the relative value of such rights is subject to a process described in our license agreement with MIT.
The agreement obligates us to use commercially reasonable efforts and expend a minimum amount of resources each year to develop licensed products in accordance with a development plan and a development milestone timetable specified in the agreement; to use commercially reasonable efforts to commercialize licensed products; and, upon commercialization, to make the licensed products reasonably available to the public.
MIT has the right to terminate the agreement if we fail to pay amounts when due or otherwise materially breach the agreement and fail to cure such nonpayment or breach within specified cure periods or in the event we cease to carry on our business related to the agreement. In the event of a termination due to our breach caused by a due diligence failure of a licensed product, but where we have fulfilled our obligations with respect to a different licensed product, MIT may not terminate the agreement with respect to the different licensed product. MIT may immediately terminate the agreement if we or any of our affiliates bring specified patent challenges against MIT or assist others in bringing a patent challenge against MIT. We have the right to terminate the agreement for our convenience at any time on three months’ prior written notice to MIT and payment of all amounts due to MIT through the date of termination.
Our patent rights, and the rights of our affiliates and sublicensees, in specified licensed products may also terminate if we, our affiliates or MIT receives a request from a third party to develop such licensed product for which we are unable to, within nine months of receiving notice of any such request, either demonstrate that we have initiated a fully funded project for the commercial development of such licensed product and provide a business plan with acceptable milestones; demonstrate that the licensed product proposed by such third party would be competitive with a licensed product for which we have initiated a fully funded project; or enter into a sublicense agreement with such third party on commercially reasonable terms, and, in each case, MIT, in its sole discretion, grants a license to such third party for the specified patent rights. As of February 24, 2021, we have not received any such request.
Agreement with Ethris GMBH
In December 2012, Shire AG entered into a research collaboration and license agreement with Ethris GMBH, or Ethris. While the research collaboration and license agreement has ended, certain rights survive its termination. With respect to patents and patent applications arising out of the agreement that pertain to the MRT5005 product that are jointly owned by Ethris and us, we and Ethris each have the right to practice and to exploit the jointly owned intellectual property without the approval of the other party. These rights include the right to license or assign the technology of the jointly owned intellectual property to a third party without the approval of the other party.
Intellectual Property
Our commercial success depends in part on our ability to obtain, maintain and enforce our proprietary and intellectual property rights relating to our programs and our core technologies for messenger RNA therapeutics, including discoveries, developments in improvements of mRNA compositions, manufacturing techniques and analytics, as well as LNP and other delivery vehicle compositions, manufacturing techniques and analytics. Our success also depends in part on our ability to develop and commercialize therapeutic products without infringing on the proprietary rights of others. Our policy is to seek to protect our proprietary and intellectual property positions by, among other methods, filing U.S. and foreign patent applications relating to technology important to the development and implementation of our business. We also rely on trade secrets,
know-how
and continuing innovation to develop, maintain and expand our proprietary and intellectual property positions.
 
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We file patent applications directed to our key programs, including MRT5005, in an effort to establish broad and dominant intellectual property positions regarding new compositions relating to these programs as well as uses of these and similar compositions in the treatment of relevant diseases. We also seek patent protection with respect to methods of making these compositions and to therapeutic biomarkers that may be useful in establishing or monitoring the efficacy of these compositions in patients. As of December 31, 2020, we owned or licensed 80 issued or allowed U.S. patents, 68 U.S. pending
non-provisional
patent applications, 139 issued or allowed foreign patents, 250 foreign pending patent applications, and 55 pending Patent Cooperation Treaty, or PCT, or provisional patent applications relating to mRNA therapeutics. The foreign issued patents and patent applications are in a number of jurisdictions, including Europe, including Eastern Europe, North America including Canada and Mexico, Australia, Asia, India and South America.
The intellectual property portfolio for MRT5005 as of December 31, 2020 is summarized below. Prosecution is a lengthy process, during which the scope of the claims initially submitted for examination by the U.S Patent and Trademark Office, or the USPTO, can be significantly narrowed by the time they issue, if they issue at all. We expect this could be the case with respect to some of our pending patent applications referred to below.
The intellectual property portfolio for our MRT5005 program includes patents and applications directed to compositions for the mRNA component of MRT5005 as well as analogs thereof, to compositions for the delivery vehicle component of MRT5005 as well as analogs thereof, to compositions for the combination of the mRNA delivery vehicle components of MRT5005, as well as to methods for using and making these novel compositions. As of December 31, 2020, we owned or licensed 19 issued or allowed U.S. patents, 10 issued or allowed European patents, 15 pending
non-provisional
U.S. patent applications, 10 pending European patent applications, at least 80 other foreign patents and patent applications in a number of jurisdictions, and two pending PCT or provisional patent applications relating to our MRT5005 program. The U.S. or
ex-U.S.
issued patents or patents issuing from these pending applications for our MRT5005 program will have a statutory expiration date from 2030 to 2041. Patent term adjustments or patent term extensions could result in later expiration dates.
The term of individual patents depends upon the legal term for patents in the countries in which they are obtained. In most countries, including the United States, the patent term is 20 years from the earliest filing date of a
non-provisional
patent application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the USPTO in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier filed patent. The term of a patent that covers a drug or biological product may also be eligible for patent term extension when FDA approval is granted, provided statutory and regulatory requirements are met. In the future, if and when our product candidates receive approval by the FDA or foreign regulatory authorities, we expect to apply for patent term extensions on issued patents covering those products, depending upon the length of the clinical trials for each medicine and other factors. There can be no assurance that any of our pending patent applications will issue or that we will benefit from any patent term extension or favorable adjustment to the term of any of our patents.
As with other biotechnology and pharmaceutical companies, our ability to maintain and solidify our proprietary and intellectual property positions for our product candidates and technologies will depend on our success in obtaining effective patent claims and enforcing those claims if granted. However, it may happen that certain patent applications that we have filed or may file, or that we have licensed or may license from third parties, may not result in the issuance of corresponding patents. We also cannot predict the breadth of claims that may be allowed or enforced in our patents. Any issued patents that we may receive in the future may be challenged, invalidated or circumvented. For example, we cannot be certain of the priority of inventions covered by pending third-party patent applications. If third parties prepare and file patent applications in the United States that also claim technology or therapeutics to which we have rights, we may have to participate in proceedings in the USPTO to determine invention rights, which could result in substantial costs to us, even if the eventual outcome is favorable to us. In addition, because of the extensive time required for clinical development and regulatory review of a product candidate we may develop, it is possible that, before any of our product candidates
 
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can be commercialized, any related patent may remain in force for a short period following commercialization, thereby reducing any advantage of any such patent.
In addition to patents, we rely upon unpatented trade secrets and
know-how
and continuing technological innovation to develop and maintain our competitive position. We seek to protect our proprietary information, in part, using confidentiality agreements with any future collaborators, scientific advisors, employees and consultants, and invention assignment agreements with our employees. We also have agreements requiring assignment of inventions with selected consultants, scientific advisors and collaborators. The confidentiality agreements are designed to protect our proprietary information and, in the case of agreements or clauses requiring invention assignment, to grant us ownership of technologies that are developed through a relationship with a third party.
With respect to our proprietary mRNA therapeutic technology platform, we consider trade secrets and
know-how
to be an important component of our intellectual property. Trade secrets and
know-how
can be difficult to protect. In particular, we anticipate that with respect to this technology platform, these trade secrets and
know-how
will over time be disseminated within the industry through independent development, the publication of journal articles describing the methodology, and the movement of personnel skilled in the art from academic to industry scientific positions.
Sales and Marketing
In light of our stage of development, we have not yet established a commercial organization or distribution capabilities. We have retained worldwide commercial rights for our product candidates, other than vaccine candidates for infectious diseases being developed under our collaboration with Sanofi. If our product candidates receive marketing approval, other than vaccine candidates for infectious diseases being development under our collaboration with Sanofi, we plan to commercialize them in the United States and potentially in Europe with our own focused, specialty sales force. We would expect to conduct most of the buildout of this organization following approval in the United States or similar marketing authorization in Europe of any of our product candidates. We expect to explore commercialization of MRT5005 and potentially other product candidates in certain markets outside the United States, including the European Union, utilizing a variety of collaboration, distribution and other marketing arrangements with one or more third parties.
Manufacturing
We currently contract with third parties for the manufacture of our product candidates for clinical trials and intend to do so in the future. We do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates. Although we have the AMRI Agreement, under which a series of cleanroom suites were built at AMRI’s manufacturing facility in accordance with our objectives, we do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates. To date, our third-party manufacturers have met our manufacturing requirements. We expect third-party manufacturers to be capable of providing sufficient quantities of our program materials to meet anticipated clinical-trial scale demands. To meet our projected needs for commercial manufacturing, third parties with whom we currently work will need to increase their scale of production or we will need to secure alternate suppliers. We believe that there are alternate sources of supply that can satisfy our clinical and commercial requirements, although we cannot be certain that identifying and establishing relationships with such sources, if necessary, would not result in significant delay or material additional costs.
See “—Suite Retention and Development Agreement” above for a discussion of our arrangement with AMRI providing for the design and construction of a series of cleanroom suites at AMRI’s manufacturing facility for our exclusive use.
 
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Government Regulation and Product Licensure
Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, pricing, sales, reimbursements, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of biopharmaceutical products. The processes for obtaining marketing approvals in the United States and in foreign countries and jurisdictions, along with compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.
Licensure and Regulation of Biologics in the United States
In the United States, our mRNA-based therapies would be licensed by the FDA as biological products, or biologics, under the Public Health Service Act, or PHSA, and regulated under the Federal Food, Drug and Cosmetic Act, or FDCA, and applicable implementing regulations and guidance. The failure of an applicant to comply with the applicable regulatory requirements at any time during the product development process, including
non-clinical
testing, clinical testing, the approval process or post-approval process, may result in delays to the conduct of a study, regulatory review and approval and/or administrative or judicial sanctions. These sanctions may include, but are not limited to, the FDA’s refusal to allow an applicant to proceed with clinical trials, refusal to approve pending applications, license suspension or revocation, withdrawal of an approval, warning letters, adverse publicity, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines and civil or criminal investigations and penalties brought by the FDA or Department of Justice, or DOJ, or other government entities, including state agencies.
An applicant seeking approval to market and distribute a new biologic in the United States generally must satisfactorily complete each of the following steps before the product candidate will be licensed by the FDA:
 
  
preclinical testing including laboratory tests, animal studies and formulation studies, which must be performed in accordance with the FDA’s good laboratory practice, or GLP, regulations and standards;
 
  
submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may begin;
 
  
approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated;
 
  
performance of adequate and well-controlled human clinical trials to establish the safety, potency, purity and efficacy of the product candidate for each proposed indication, in accordance with current good clinical practices, or GCP;
 
  
preparation and submission to the FDA of a biologics license application, or BLA, for a biologic product which includes not only the results of the clinical trials, but also, detailed information on the chemistry, manufacture and quality controls for the product candidate and proposed labelling for one or more proposed indication(s);
 
  
review of the product candidate by an FDA advisory committee, where appropriate or if applicable;
 
  
satisfactory completion of an FDA inspection of the manufacturing facility or facilities, including those of third parties, at which the product candidate or components thereof are manufactured to assess compliance with cGMP requirements and to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;
 
  
satisfactory completion of any FDA audits of the
non-clinical
and clinical trial sites to assure compliance with GCP and the integrity of clinical data in support of the BLA;
 
  
payment of user fees and securing FDA licensure of the BLA to allow marketing of the new biologic product; and
 
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compliance with any post-approval requirements, including the potential requirement to implement a risk evaluation and mitigation strategy, or REMS, and the potential requirement to conduct any post-approval studies required by the FDA.
Preclinical Studies and Investigational New Drug Application
Before an applicant begins testing a product candidate with potential therapeutic value in humans, the product candidate enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as other studies to evaluate, among other things, the toxicity of the product candidate. The conduct of the preclinical tests and formulation of the compounds for testing must comply with federal regulations and requirements, including GLP regulations and standards. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND. Some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, and long-term toxicity studies, may continue after the IND is submitted.
The IND and IRB Processes
An IND is an exemption from the FDCA that allows an unapproved product candidate to be shipped in interstate commerce for use in an investigational clinical trial and a request for FDA authorization to administer such investigational product to humans. Such authorization must be secured prior to interstate shipment and administration of any product candidate that is not the subject of an approved BLA. In support of a request for an IND, applicants must submit a protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, must be submitted to the FDA as part of an IND. The FDA requires a
30-day
waiting period after the filing of each IND before clinical trials may begin. This waiting period is designed to allow the FDA to review the IND to determine whether human research subjects will be exposed to unreasonable health risks. At any time during this
30-day
period, or thereafter, the FDA may raise concerns or questions about the conduct of the trials as outlined in the IND and impose a clinical hold or partial clinical hold. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin.
Following commencement of a clinical trial under an IND, the FDA may also place a clinical hold or partial clinical hold on that trial. A clinical hold is an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial clinical hold is a delay or suspension of only part of the clinical work requested under the IND. For example, a specific protocol or part of a protocol is not allowed to proceed, while other protocols may do so. No more than 30 days after imposition of a clinical hold or partial clinical hold, the FDA will provide the sponsor a written explanation of the basis for the hold. Clinical holds are typically imposed by the FDA whenever there is concern for patient safety and may be a result of new data, findings, or developments in clinical, nonclinical, and/or chemistry, manufacturing, and controls. Following issuance of a clinical hold or partial clinical hold, an investigation may only resume after the FDA has notified the sponsor that the investigation may proceed. The FDA will base that determination on information provided by the sponsor correcting the deficiencies previously cited or otherwise satisfying the FDA that the investigation can proceed.
A sponsor may choose, but is not required, to conduct a foreign clinical study under an IND. When a foreign clinical study is conducted under an IND, all FDA IND requirements must be met unless waived. When a foreign clinical study is not conducted under an IND, the sponsor must ensure that the study complies with certain regulatory requirements of the FDA in order to use the study as support for an IND or application for marketing approval. Specifically, on April 28, 2008, the FDA amended its regulations governing the acceptance of foreign clinical studies not conducted under an investigational new drug application as support for an IND or a new drug application. The final rule provides that such studies must be conducted in accordance with GCP, including review and approval by an independent ethics committee, or IEC, and informed consent from subjects. The GCP
 
30

requirements in the final rule encompass both ethical and data integrity standards for clinical studies. The FDA’s regulations are intended to help ensure the protection of human subjects enrolled in
non-IND
foreign clinical studies, as well as the quality and integrity of the resulting data. They further help ensure that
non-IND
foreign studies are conducted in a manner comparable to that required for IND studies.
In addition to the foregoing IND requirements, an IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. An IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected serious harm to patients.
Additionally, some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data safety monitoring board or committee, or DSMB. This group provides authorization as to whether or not a trial may move forward at designated check points based on access that only the group maintains to available data from the study. Suspension or termination of development during any phase of clinical trials can occur if it is determined that the participants or patients are being exposed to an unacceptable health risk. Other reasons for suspension or termination may be made by us based on evolving business objectives and/or competitive climate.
Information about specified clinical trials must be submitted within specific timeframes to the NIH for public dissemination on its ClinicalTrials.gov website. Similar requirements for posting clinical trial information are present in the European Union (EudraCT) website: https://eudract.ema.europa.eu/ and other countries, as well.
Expanded Access to an Investigational Drug for Treatment Use
Expanded access, sometimes called “compassionate use,” is the use of investigational products outside of clinical trials to treat patients with serious or immediately life-threatening diseases or conditions when there are no comparable or satisfactory alternative treatment options. The rules and regulations related to expanded access are intended to improve access to investigational products for patients who may benefit from investigational therapies. FDA regulations allow access to investigational products under an IND by the company or the treating physician for treatment purposes on a
case-by-case
basis for: individual patients (single-patient IND applications for treatment in emergency settings and
non-emergency
settings);
intermediate-size
patient populations; and larger populations for use of the investigational product under a treatment protocol or Treatment IND Application.
When considering an IND application for expanded access to an investigational product with the purpose of treating a patient or a group of patients, the sponsor and treating physicians or investigators will determine suitability when all of the following criteria apply: patient(s) have a serious or immediately life-threatening disease or condition, and there is no comparable or satisfactory alternative therapy to diagnose, monitor, or treat the disease or condition; the potential patient benefit justifies the potential risks of the treatment and the potential risks are not unreasonable in the context or condition to be treated; and the expanded use of the investigational drug for the requested treatment will not interfere initiation, conduct, or completion of clinical investigations that could support marketing approval of the product or otherwise compromise the potential development of the product.
On December 13, 2016, the 21st Century Cures Act established (and the 2017 Food and Drug Administration Reauthorization Act later amended) a requirement that sponsors of one or more investigational products for the treatment of a serious disease(s) or condition(s) make publicly available their policy for
 
31

evaluating and responding to requests for expanded access for individual patients. Although these requirements were rolled out over time, they have now come into full effect. This provision requires drug and biologic companies to make publicly available their policies for expanded access for individual patient access to products intended for serious diseases. Sponsors are required to make such policies publicly available upon the earlier of initiation of a Phase 2 or Phase 3 study; or 15 days after the investigational drug or biologic receives designation as a breakthrough therapy, fast track product, or regenerative medicine advanced therapy.
In addition, on May 30, 2018, the Right to Try Act was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a manufacturer to make its investigational products available to eligible patients as a result of the Right to Try Act, but the manufacturer must develop an internal policy and respond to patient requests according to that policy.
Human Clinical Trials in Support of a BLA
Clinical trials involve the administration of the investigational product candidate to human subjects under the supervision of a qualified investigator in accordance with GCP requirements which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written clinical trial protocols detailing, among other things, the objectives of the study, inclusion and exclusion criteria, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated.
Human clinical trials are typically conducted in three sequential phases, but the phases may overlap or be combined. Additional studies may also be required after approval.
Phase 1
 clinical trials are initially conducted in a limited population to test the product candidate for safety, including adverse effects, dose tolerance, absorption, metabolism, distribution, excretion and pharmacodynamics in healthy humans or in patients. During Phase 1 clinical trials, information about the investigational biological product’s pharmacokinetics and pharmacological effects may be obtained to permit the design of well-controlled and scientifically valid Phase 2 clinical trials.
Phase 2
 clinical trials are generally conducted in a limited patient population to identify possible adverse effects and safety risks, evaluate the efficacy of the product candidate for specific targeted indications and determine dose tolerance and optimal dosage. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more costly Phase 3 clinical trials. Phase 2 clinical trials are well controlled, closely monitored and conducted in a limited patient population.
Phase 3
 clinical trials proceed if the Phase 2 clinical trials demonstrate that a dose range of the product candidate is potentially effective and has an acceptable safety profile. Phase 3 clinical trials are undertaken within an expanded patient population to further evaluate dosage, provide substantial evidence of clinical efficacy and further test for safety in an expanded and diverse patient population at multiple, geographically dispersed clinical trial sites. A well-controlled, statistically robust Phase 3 clinical trial may be designed to deliver the data that regulatory authorities will use to decide whether or not to approve, and, if approved, how to appropriately label a biologic: such Phase 3 studies are referred to as “pivotal.”
In some cases, the FDA may approve a BLA for a product candidate but require the sponsor to conduct additional clinical trials to further assess the product candidate’s safety and effectiveness after approval. Such post-approval trials are typically referred to as Phase 4 clinical trials.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. In addition, IND safety reports must be submitted to the FDA for
 
32

any of the following: serious and unexpected suspected adverse reactions; findings from other studies or animal or
in
 vitro
testing that suggest a significant risk in humans exposed to the product; and any clinically important increase in the case of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product has been associated with unexpected serious harm to patients. The FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical data submitted.
Under the Pediatric Research Equity Act of 2003, a BLA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. Sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests, and other information required by regulation. The applicant, the FDA, and the FDA’s internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.
The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in the Food and Drug Safety and Innovation Act. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.
The FDA Reauthorization Act of 2017 established new requirements to govern certain molecularly targeted cancer indications. Any company that submits a BLA three years after the date of enactment of that statute must submit pediatric assessments with the BLA if the biologic is intended for the treatment of an adult cancer and is directed at a molecular target that the FDA determines to be substantially relevant to the growth or progression of a pediatric cancer. The investigation must be designed to yield clinically meaningful pediatric study data regarding the dosing, safety and preliminary efficacy to inform pediatric labeling for the product.
Review and Approval of a BLA
In order to obtain approval to market a biological product in the United States, a marketing application must be submitted to the FDA that provides sufficient data establishing the safety, purity, potency and efficacy of the proposed biological product for its intended indication. The application includes all relevant data available from pertinent preclinical 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 use of a product, 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, purity and potency of the biological product to the satisfaction of the FDA.
The BLA is, thus, a vehicle through which applicants formally propose that the FDA approve a new product for marketing and sale in the United States for one or more indications. Every new biologic product candidate must be the subject of an approved BLA before it may be commercialized in the United States. Under federal law, the submission of most BLAs is subject to an application user fee, which for federal fiscal year 2021 is approximately $2.9 million for an application requiring clinical data. The sponsor of an approved BLA is also subject to an annual program fee, which for fiscal year 2021 is approximately $0.3 million. Certain exceptions
 
33

and waivers are available for some of these fees, such as an exception from the application fee for products with orphan designation and a waiver for certain small businesses.
Following submission of a BLA, the FDA conducts a preliminary review of the application generally within 60 calendar days of its receipt and strives to inform the sponsor by the 74
th
 day after the FDA’s receipt of the submission whether the application is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept the application for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an
in-depth
substantive review. The FDA has agreed to specified performance goals in the review process of BLAs. Under that agreement, 90% of applications seeking approval of New Molecular Entities, or NMEs, are meant to be reviewed within 10 months from the date on which the FDA accepts the application for filing, and 90% of applications for NMEs that have been designated for “priority review” are meant to be reviewed within six months of the filing date. For applications seeking approval of products that are not NMEs, the
10-month
and
6-month
review periods run from the date that the FDA receives the application. The review process and the Prescription Drug User Fee Act goal date may be extended by the FDA for three additional months to consider new information or clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission.
Before approving an application, the FDA typically will inspect the facility or facilities where the product is or will be manufactured. These
pre-approval
inspections may cover all facilities associated with a BLA submission, including component manufacturing, finished product manufacturing and control testing laboratories. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Under the FDA Reauthorization Act of 2017, the FDA must implement a protocol to expedite review of responses to inspection reports pertaining to certain applications, including applications for products in shortage or those for which approval is dependent on remediation of conditions identified in the inspection report.
In addition, as a condition of approval, the FDA may require an applicant to develop a REMS. REMS use risk minimization strategies beyond the professional labeling to ensure that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will consider the size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected duration of treatment, seriousness of known or potential adverse events and whether the product is a new molecular entity.
The FDA may refer an application for a novel product to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides 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.
Fast Track, Breakthrough Therapy, Priority Review and Regenerative Advanced Therapy Designations
The FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. These programs are referred to as fast track designation, breakthrough therapy designation, priority review designation and regenerative advanced therapy designation.
Specifically, the FDA may designate a product for Fast Track review if it is intended, whether alone or in combination with one or more other products, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For
 
34

Fast Track products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a Fast Track product’s application before the application is complete. This rolling review may be available if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a Fast Track product may be effective. The sponsor must also provide, and the FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees. However, the FDA’s time period goal for reviewing a Fast Track application does not begin until the last section of the application is submitted. In addition, the fast track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
Second, a product may be designated as a Breakthrough Therapy if it is intended, either alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA may take certain actions with respect to Breakthrough Therapies, including holding meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design the clinical trials in an efficient manner.
Third, the FDA may designate a product for priority review if it is a product that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. The FDA determines, on a
case-by-case
basis, whether the proposed product represents a significant improvement when compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting product reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a new subpopulation. A priority designation is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing application from 10 months to 6 months.
With passage of the 21st Century Cures Act, or the Cures Act, in December 2016, Congress authorized the FDA to accelerate review and approval of products designated as regenerative advanced therapies. A product is eligible for this designation if it is a regenerative medicine therapy that is intended to treat, modify, reverse or cure a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product has the potential to address unmet medical needs for such disease or condition. The benefits of a regenerative advanced therapy designation include early interactions with the FDA to expedite development and review, benefits available to breakthrough therapies, potential eligibility for priority review and accelerated approval based on surrogate or intermediate endpoints.
Accelerated Approval Pathway
The FDA may grant accelerated approval to a product for a serious or life-threatening condition that provides meaningful therapeutic advantage to patients over existing treatments based upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, or IMM, and that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. Products granted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.
For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign or other measure that is thought to predict clinical benefit, but is
 
35

not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a drug, such as an effect on IMM. The FDA has limited experience with accelerated approvals based on intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval where the therapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect is reasonably likely to predict the ultimate clinical benefit of a product.
The accelerated approval pathway is most often used in settings in which the course of a disease is long and an extended period of time is required to measure the intended clinical benefit of a product, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. Thus, accelerated approval has been used extensively in the development and approval of products for treatment of a variety of cancers in which the goal of therapy is generally to improve survival or decrease morbidity and the duration of the typical disease course requires lengthy and sometimes large trials to demonstrate a clinical or survival benefit. Thus, the benefit of accelerated approval derives from the potential to receive approval based on surrogate endpoints sooner than possible for trials with clinical or survival endpoints, rather than deriving from any explicit shortening of the FDA approval timeline, as is the case with priority review.
The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the product’s clinical benefit. As a result, a product candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, would allow the FDA to initiate expedited proceedings to withdraw approval of the product. All promotional materials for product candidates approved under accelerated regulations are subject to prior review by the FDA.
The FDA’s Decision on a BLA
On the basis of the FDA’s evaluation of the application and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the BLA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
If the FDA approves a new product, it may limit the approved indications for use of the product. The agency may also require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, to help ensure that the benefits of the product outweigh the potential risks. REMS can include medication guides, communication plans for health care professionals, and elements to assure safe use, or 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 patent registries. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.
Post-Approval Regulation
If regulatory approval for marketing of a product or new indication for an existing product is obtained, the sponsor will be required to comply with all regular post-approval regulatory requirements as well as any post-
 
36

approval requirements that the FDA may have imposed as part of the approval process. The sponsor will be required to report, among other things, certain adverse reactions and manufacturing problems to the FDA, provide updated safety and efficacy information and comply with requirements concerning advertising and promotional labeling requirements. Manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMP regulations, which impose certain procedural and documentation requirements upon manufacturers. Accordingly, the sponsor and its third-party manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain compliance with cGMP regulations and other regulatory requirements.
A product may also be subject to official lot release, meaning that the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release, the manufacturer must submit samples of each lot, together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot, to the FDA. The FDA may in addition perform certain confirmatory tests on lots of some products before releasing the lots for distribution. Finally, the FDA will conduct laboratory research related to the safety, purity, potency and effectiveness of pharmaceutical products.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:
 
  
restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;
 
  
fines, warning letters or holds on post-approval clinical trials;
 
  
refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals;
 
  
product seizure or detention, or refusal to permit the import or export of products; or
 
  
injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates the marketing, labeling, advertising and promotion of prescription drug products placed on the market. This regulation includes, among other things, standards and regulations for
direct-to-consumer
advertising, communications regarding unapproved uses, industry-sponsored scientific and educational activities, and promotional activities involving the Internet and social media. Promotional claims about a drug’s safety or effectiveness are prohibited before the drug is approved. After approval, a drug product generally may not be promoted for uses that are not approved by the FDA, as reflected in the product’s prescribing information. In the United States, health care professionals are generally permitted to prescribe drugs for such uses not described in the drug’s labeling, known as
off-label
uses, because the FDA does not regulate the practice of medicine. However, FDA regulations impose rigorous restrictions on manufacturers’ communications, prohibiting the promotion of
off-label
uses. It may be permissible, under very specific, narrow conditions, for a manufacturer to engage in nonpromotional,
non-misleading
communication regarding
off-label
information, such as distributing scientific or medical journal information.
If a company is found to have promoted
off-label
uses, it may become subject to adverse public relations and administrative and judicial enforcement by the FDA, the Department of Justice, or the Office of the Inspector General of the Department of Health and Human Services, as well as state authorities. This could subject a
 
37

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 drug products. The federal government has levied large civil and criminal fines against companies for alleged improper promotion, and has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.
In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, and its implementing regulations, as well as the Drug Supply Chain Security Act, or DSCA, which regulate the distribution and tracing of prescription drug samples at the federal level, and set minimum standards for the regulation of distributors by the states. The PDMA, its implementing regulations and state laws limit the distribution of prescription pharmaceutical product samples, and the DSCA imposes requirements to ensure accountability in distribution and to identify and remove counterfeit and other illegitimate products from the market.
Pediatric Exclusivity
Pediatric exclusivity is another type of
non-patent
marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the
non-patent
and orphan exclusivity. This
six-month
exclusivity may be granted if a BLA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application.
Orphan Drug Designation and Exclusivity
Under the Orphan Drug Act, the FDA may designate a biologic product as an “orphan drug” if it is intended to treat a rare disease or condition, generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost of developing and making a product available in the United States for treatment of the disease or condition will be recovered from sales of the product. A company must seek orphan drug designation before submitting a BLA for the candidate product. If the request is granted, the FDA will disclose the identity of the therapeutic agent and its potential use. Orphan drug designation does not shorten the PDUFA goal dates for the regulatory review and approval process, although it does convey certain advantages such as tax benefits and exemption from the PDUFA application fee.
If a product with orphan designation receives the first FDA approval for the disease or condition for which it has such designation or for a select indication or use within the rare disease or condition for which it was designated, the product generally will receive orphan drug exclusivity. Orphan drug exclusivity means that the FDA may not approve another sponsor’s marketing application for the same drug for the same condition for seven years, except in certain limited circumstances. Orphan exclusivity does not block the approval of a different product for the same rare disease or condition, nor does it block the approval of the same product for different conditions. If a biologic designated as an orphan drug ultimately receives marketing approval for an indication broader than what was designated in its orphan drug application, it may not be entitled to exclusivity.
Orphan drug exclusivity will not bar approval of another product under certain circumstances, including if a subsequent product with the same biologic for the same condition is shown to be clinically superior to the approved product on the basis of greater efficacy or safety, or providing a major contribution to patient care, or if the company with orphan drug exclusivity is not able to meet market demand. This is the case despite an earlier court opinion holding that the Orphan Drug Act unambiguously required the FDA to recognize orphan exclusivity regardless of a showing of clinical superiority.
 
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Biosimilars and Exclusivity
The 2010 Patient Protection and Affordable Care Act, which was signed into law on March 23, 2010, included a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA. That Act established a regulatory scheme authorizing the FDA to approve biosimilars and interchangeable biosimilars. As of January 1, 2021, the FDA has approved 29 biosimilar products for use in the United States. The FDA has issued several guidance documents outlining an approach to review and approval of biosimilars. Additional guidances are expected to be finalized by the FDA in the near term.
Under the Act, a manufacturer may submit an application for licensure of a biologic product that is “biosimilar to” or “interchangeable with” a previously approved biological product or “reference product.” In order for the FDA to approve a biosimilar product, it must find that there are no clinically meaningful differences between the reference product and proposed biosimilar product in terms of safety, purity and potency. For the FDA to approve a biosimilar product as interchangeable with a reference product, the agency must find that the biosimilar product can be expected to produce the same clinical results as the reference product, and (for products administered multiple times) that the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic.
Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date of approval of the reference product. The FDA may not approve a biosimilar product until 12 years from the date on which the reference product was approved. Even if a product is considered to be a reference product eligible for exclusivity, another company could market a competing version of that product if the FDA approves a full BLA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. At this juncture, it is unclear whether products deemed “interchangeable” by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law.
Patent Term Restoration and Extension
A patent claiming a new biologic product may be eligible for a limited patent term extension under the Hatch-Waxman Act, which permits a patent restoration of up to five years for patent term lost during product development and the FDA regulatory review. The restoration period granted on a patent covering a product is typically
one-half
the time between the effective date of a clinical investigation involving human beings is begun and the submission date of an application, plus the time between the submission date of an application and the ultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval date. 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 in question. A patent that covers multiple products for which approval is sought can only be extended in connection with one of the approvals. The USPTO reviews and approves the application for any patent term extension or restoration in consultation with the FDA.
Health Care Law and Regulation
Health care providers and third-party payors play a primary role in the recommendation and prescription of biologic products that are granted marketing approval. Arrangements with providers, consultants, third-party payors and customers are subject to broadly applicable fraud and abuse, anti-kickback, false claims laws, patient privacy laws and regulations and other health care laws and regulations that may constrain business and/or financial arrangements. Restrictions under applicable federal and state health care laws and regulations, include the following:
 
  
the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, paying, receiving or providing remuneration, directly or
 
39

 
indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal health care program such as Medicare and Medicaid;
 
  
the federal civil and criminal false claims laws, including the federal civil False Claims Act, and civil monetary penalties laws, which prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false, fictitious or fraudulent or knowingly making, using or causing to made or used a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government.
 
  
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal laws that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any health care benefit program or making false statements relating to health care matters;
 
  
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their respective implementing regulations, including the Final Omnibus Rule published in January 2013, which impose obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
 
  
the Foreign Corrupt Practices Act, or FCPA, which prohibits companies and their intermediaries from making, or offering or promising to make improper payments to
non-U.S.
officials for the purpose of obtaining or retaining business or otherwise seeking favorable treatment;
 
  
the federal false statements statute, which prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for health care benefits, items or services;
 
  
the federal transparency requirements known as the federal Physician Payments Sunshine Act, under the Patient Protection and Affordable Care Act, as amended by the Health Care Education Reconciliation Act, or the Affordable Care Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services, or CMS, within the United States Department of Health and Human Services, information related to payments and other transfers of value made by that entity to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; and
 
  
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to health care items or services that are reimbursed by
non-government
third-party payors, including private insurers.
Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Pharmaceutical Insurance Coverage
In the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated health care costs. Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities. Thus, even if a product candidate is approved, sales of the product will depend, in part, on the extent to which third-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers
 
40

and managed care organizations, provide coverage and establish adequate reimbursement levels for, the product. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors are increasingly challenging the prices charged, examining the medical necessity and reviewing the cost-effectiveness of medical products and services and imposing controls to manage costs. Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the approved products for a particular indication.
In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable marketing approvals. Nonetheless, product candidates may not be considered medically necessary or cost-effective. A decision by a third-party payor not to cover a product could reduce physician utilization once the product is approved and have a material adverse effect on sales, results of operations and financial condition. Additionally, a payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage and reimbursement for the product, and the level of coverage and reimbursement can differ significantly from payor to payor.
The containment of health care costs also has become a priority of federal, state and foreign governments and the prices of products have been a focus in this effort. Governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit a company’s revenue generated from the sale of any approved products. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which a company or its collaborators receive marketing approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Health Care Reform
There have been a number of federal and state proposals during the last few years regarding the pricing of pharmaceutical and biopharmaceutical products, limiting coverage and reimbursement for drugs and biologics and other medical products, government control and other changes to the health care system in the United States. In March 2010, the ACA was enacted, which includes measures that have significantly changed health care financing by both governmental and private insurers. The provisions of the ACA of importance to the pharmaceutical and biotechnology industry are, among others, the following:
 
  
an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drug agents or biologic agents, which is apportioned among these entities according to their market share in certain government health care programs;
 
  
an increase in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price for branded and generic drugs, respectively;
 
  
a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50%
point-of-sale
discounts to negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D;
 
  
extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations, unless the drug is subject to discounts under the 340B drug discount program;
 
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a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;
 
  
expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability;
 
  
expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
 
  
new requirements under the federal Physician Payments Sunshine Act for drug manufacturers to report information related to payments and other transfers of value made to physicians and teaching hospitals as well as ownership or investment interests held by physicians and their immediate family members;
 
  
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;
 
  
creation of the Independent Payment Advisory Board, which, if and when impaneled, will have authority to recommend certain changes to the Medicare program that could result in reduced payments for prescription drugs; and
 
  
establishment of a Center for Medicare and Medicaid Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.
Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include the Budget Control Act of 2011, which, among other things, led to aggregate reductions to Medicare payments to providers of up to 2% per fiscal year that started in 2013 and due to subsequent legislative amendments to the statute, will stay in effect through 2029. The Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, and other
COVID-19
relief legislation suspended the 2% Medicare sequester from May 1, 2020 through March 3, 2021, and extended the sequester by one year, through 2030. The American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other health care funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.
Further, since enactment of the ACA, there have been, and continue to be, numerous legal challenges and Congressional actions to repeal and replace provisions of the law. For example, with enactment of the Tax Cuts and Jobs Act of 2017, which was signed by President Trump on December 22, 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, will become effective in 2019. Additionally, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the
ACA-mandated
“Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminates the health insurer tax. Further, the Bipartisan Budget Act of 2018, among other things, amended the ACA, effective January 1, 2019, to increase from 50 percent to 70 percent the
point-of-sale
discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” The Congress may consider other legislation to replace elements of the ACA during the next Congressional session.
The Trump Administration also took executive actions to undermine or delay implementation of the ACA, including directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. On January 28, 2021, however, President Biden rescinded those orders and issued a new Executive Order which directs federal agencies to reconsider rules and other policies that limit
 
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Americans’ access to health care, and consider actions that will protect and strengthen that access. Under this Order, federal agencies are directed to re-examine: policies that undermine protections for people with pre-existing conditions, including complications related to COVID-19; demonstrations and waivers under Medicaid and the ACA that may reduce coverage or undermine the programs, including work requirements; policies that undermine the Health Insurance Marketplace or other markets for health insurance; policies that make it more difficult to enroll in Medicaid and the ACA; and policies that reduce affordability of coverage or financial assistance, including for dependents.
Further, there have been several recent U.S. Congressional inquiries and proposed federal and proposed and enacted state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products. At the federal level, Congress and the Trump Administration have each indicated that they will continue to seek new legislative and/or administrative measures to control drug costs. For example, on May 11, 2018, the Trump Administration issued a plan to lower drug prices. The Trump Administration published a final rulemaking that will allow states or certain other
non-federal
government entities to submit importation program proposals to FDA for review and approval. Applicants would be required to demonstrate their importation plans pose no additional risk to public health and safety and will result in significant cost savings for consumers. At the same time, FDA issued draft guidance that would allow manufacturers to import their own
FDA-approved
drugs that are authorized for sale in other countries (multi-market approved products). In addition, President Trump issued five executive orders that are intended to lower the costs of prescription drug products. Several of these orders are reflected in recently promulgated regulations, and one of these regulations is currently subject to a nationwide preliminary injunction. It remains to be seen whether these orders and resulting regulations will remain in force during the Biden Administration.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.
Review and Approval of Medicinal Products in the European Union
In order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of products. Whether or not it obtains FDA approval for a product, an applicant will need to obtain the necessary approvals by the comparable
non-U.S.
regulatory authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions. Specifically, the process governing approval of medicinal products in the European Union, or EU, generally follows the same lines as in the United States. It entails satisfactory completion of preclinical studies and adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed indication. It also requires the submission to the relevant competent authorities of a marketing authorization application, or MAA, and granting of a marketing authorization by these authorities before the product can be marketed and sold in the EU. We anticipate that our mRNA-based therapies designed to treat diseases caused by protein or gene dysfunction will be regulated as advanced therapy medicinal products, or ATMPs, in the EU. Additionally, there may be local legislation in various EU Member States, which may be more restrictive than the EU legislation, and we would need to comply with such legislation to the extent it applies.
 
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Clinical Trial Approval
The Clinical Trials Directive 2001/20/EC, the Directive 2005/28/EC on GCP and the related national implementing provisions of the individual EU Member States govern the system for the approval of clinical trials in the EU. Under this system, an applicant must obtain prior approval from the competent national authority of the EU Member States in which the clinical trial is to be conducted. Furthermore, the applicant may only start a clinical trial at a specific study site after the competent ethics committee has issued a favorable opinion. The clinical trial application must be accompanied by, among other documents, an investigational medicinal product dossier (the Common Technical Document) with supporting information prescribed by Directive 2001/20/EC, Directive 2005/28/EC, where relevant the implementing national provisions of the individual EU Member States and further detailed in applicable guidance documents. Additional GCP guidelines from the European Commission, focusing in particular on traceability, apply to clinical trials of ATMPs. The sponsor must take out a clinical trial insurance policy and, in most EU countries, the sponsor is liable to provide “no fault” compensation to any study subject injured in the clinical trial.
In April 2014, the new Clinical Trials Regulation, (EU) No 536/2014 (Clinical Trials Regulation) was adopted. The Clinical Trials Regulation will be directly applicable in all the EU Member States, repealing the current Clinical Trials Directive 2001/20/EC and replacing any national legislation that was put in place to implement the Directive. Conduct of all clinical trials performed in the EU will continue to be bound by currently applicable provisions until the new Clinical Trials Regulation becomes applicable. The extent to which
on-going
clinical trials will be governed by the Clinical Trials Regulation will depend on when the Clinical Trials Regulation becomes applicable and on the duration of the individual clinical trial.
The Regulation was published on June 16, 2014 but has not yet become effective. In January 2020, the website of the European Commission reported that the implementation of the Clinical Trials Regulation was dependent on the development of a fully functional clinical trials portal and database, which would be confirmed by an independent audit, and that the new legislation would come into effect six months after the European Commission publishes a notice of this confirmation. In late 2020, the EMA indicated that it plans to focus on the findings of a system audit; improving the usability, quality and stability of the clinical trial information system; and knowledge transfer to prepare users and their organizations for the new clinical trial system. The EMA has indicated that the system will go live in December 2021.
The new Clinical Trials Regulation aims to simplify and streamline the approval of clinical trials in the EU. The main characteristics of the regulation include: a streamlined application procedure via a single entry point, the “EU Portal and Database”; a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts. Part I is assessed by the appointed reporting Member State, whose assessment report is submitted for review by the sponsor and all other competent authorities of all EU Member States in which an application for authorization of a clinical trial has been submitted (Concerned Member States). Part II is assessed separately by each Concerned Member State. Strict deadlines have been established for the assessment of clinical trial applications. The role of the relevant ethics committees in the assessment procedure will continue to be governed by the national law of the Concerned Member State. However, overall related timelines will be defined by the Clinical Trials Regulation.
As in the U.S., parties conducting certain clinical trials must post clinical trial information in the European Union at the EudraCT website: https://eudract.ema.europa.eu.
PRIME Designation in the EU
In March 2016, the EMA launched an initiative to facilitate development of product candidates in indications, often rare, for which few or no therapies currently exist. The PRIority MEdicines, or PRIME, scheme is intended to encourage drug development in areas of unmet medical need and provides accelerated assessment
 
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of products representing substantial innovation reviewed under the centralized procedure. Products from small- and
medium-sized
enterprises may qualify for earlier entry into the PRIME scheme than larger companies. Many benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements, and accelerated marketing authorization application assessment once a dossier has been submitted. Importantly, a dedicated Agency contact and rapporteur from the Committee for Human Medicinal Products (CHMP) or Committee for Advanced Therapies (CAT) are appointed early in PRIME scheme facilitating increased understanding of the product at EMA’s Committee level. A
kick-off
meeting initiates these relationships and includes a team of multidisciplinary experts at the EMA to provide guidance on the overall development and regulatory strategies.
Marketing Authorization
To obtain a marketing authorization for a product under EU regulatory systems, an applicant must submit an MAA either under a centralized procedure administered by the EMA, or one of the procedures administered by competent authorities in the EU Member States (decentralized procedure, national procedure or mutual recognition procedure). A marketing authorization may be granted only to an applicant established in the EU. Regulation (EC) No 1901/2006 provides that prior to obtaining a marketing authorization in the EU, applicants have to demonstrate compliance with all measures included in an
EMA-approved
Paediatric Investigation Plan, or PIP, covering all subsets of the pediatric population, unless the EMA has granted (1) a product-specific waiver, (2) a class waiver or (3) a deferral for one or more of the measures included in the PIP.
The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid across the European Economic Area (that is, the EU as well as Iceland, Liechtenstein and Norway). Pursuant to Regulation (EC) No 726/2004, the centralized procedure is compulsory for specific products, including for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, ATMPs and products with a new active substance indicated for the treatment of certain diseases, including products for the treatment of cancer. For products with a new active substance indicated for the treatment of other diseases and products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may be optional. The centralized procedure may at the request of the applicant also be used in certain other cases. We anticipate that the centralized procedure will be mandatory for the product candidates we are developing.
The CAT is responsible in conjunction with the CHMP for the evaluation of ATMPs. The CAT is primarily responsible for the scientific evaluation of ATMPs and prepares a draft opinion on the quality, safety and efficacy of each ATMP for which a marketing authorization application is submitted. The CAT’s opinion is then taken into account by the CHMP when giving its final recommendation regarding the authorization of a product in view of the balance of benefits and risks identified. Although the CAT’s draft opinion is submitted to the CHMP for final approval, the CHMP may depart from the draft opinion, if it provides detailed scientific justification. The CHMP and CAT are also responsible for providing guidelines on ATMPs and have published numerous guidelines, including specific guidelines on gene therapies and cell therapies. These guidelines provide additional guidance on the factors that the EMA will consider in relation to the development and evaluation of ATMPs and include, among other things, the preclinical studies required to characterize ATMPs; the manufacturing and control information that should be submitted in a marketing authorization application; and post-approval measures required to monitor patients and evaluate the long term efficacy and potential adverse reactions of ATMPs. Although these guidelines are not legally binding, we believe that it is likely that our compliance with them will be necessary to gain and maintain approval for any of our product candidates.
Under the centralized procedure, the CHMP is also responsible for several post-authorization and maintenance activities, such as the assessment of modifications or extensions to an existing marketing authorization. Under the centralized procedure in the EU, the maximum timeframe for the evaluation of an MAA is 210 days, excluding clock stops, when additional information or written or oral explanation is to be provided
 
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by the applicant in response to questions of the CHMP. Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation. If the CHMP accepts such request, the time limit of 210 days will be reduced to 150 days but it is possible that the CHMP can revert to the standard time limit for the centralized procedure if it considers that it is no longer appropriate to conduct an accelerated assessment. At the end of this period, the CHMP provides a scientific opinion on whether or not a marketing authorization should be granted in relation to a medicinal product. Within 15 calendar days of receipt of a final opinion from the CHMP, the European Commission must prepare a draft decision concerning an application for marketing authorization. This draft decision must take the opinion and any relevant provisions of EU law into account. Before arriving at a final decision on an application for centralized authorization of a medicinal product the European Commission must consult the Standing Committee on Medicinal Products for Human Use. The Standing Committee is composed of representatives of the EU Member States and chaired by a
non-voting
European Commission representative. The European Parliament also has a related “droit de regard”. The European Parliament’s role is to ensure that the European Commission has not exceeded its powers in deciding to grant or refuse to grant a marketing authorization.
The European Commission may grant a
so-called
“marketing authorization under exceptional circumstances.” Such authorization is intended for products for which the applicant can demonstrate that it is unable to provide comprehensive data on the efficacy and safety under normal conditions of use, because the indications for which the product in question is intended are encountered so rarely that the applicant cannot reasonably be expected to provide comprehensive evidence, or in the present state of scientific knowledge, comprehensive information cannot be provided, or it would be contrary to generally accepted principles of medical ethics to collect such information. Consequently, marketing authorization under exceptional circumstances may be granted subject to certain specific obligations, which may include the following:
 
  
the applicant must complete an identified program of studies within a time period specified by the competent authority, the results of which form the basis of a reassessment of the benefit/risk profile;
 
  
the medicinal product in question may be supplied on medical prescription only and may in certain cases be administered only under strict medical supervision, possibly in a hospital and in the case of a radiopharmaceutical, by an authorized person; and
 
  
the package leaflet and any medical information must draw the attention of the medical practitioner to the fact that the particulars available concerning the medicinal product in question are as yet inadequate in certain specified respects.
A marketing authorization under exceptional circumstances is subject to annual review to reassess the risk-benefit balance in an annual reassessment procedure. Continuation of the authorization is linked to the annual reassessment and a negative assessment could potentially result in the marketing authorization being suspended or revoked. The renewal of a marketing authorization of a medicinal product under exceptional circumstances, however, follows the same rules as a “normal” marketing authorization. Thus, a marketing authorization under exceptional circumstances is granted for an initial five years, after which the authorization will become valid indefinitely, unless the EMA decides that safety grounds merit one additional five-year renewal.
The European Commission may also grant a
so-called
“conditional marketing authorization” prior to obtaining the comprehensive clinical data required for an application for a full marketing authorization. Such conditional marketing authorizations may be granted for product candidates (including medicines designated as orphan medicinal products), if (i) the risk-benefit balance of the product candidate is positive, (ii) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, (iii) the product fulfills an unmet medical need and (iv) the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data are still required. A conditional marketing authorization may contain specific obligations to be fulfilled by the marketing authorization holder, including obligations with respect to the completion of ongoing or new studies, and with
 
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respect to the collection of pharmacovigilance data. Conditional marketing authorizations are valid for one year, and may be renewed annually, if the risk-benefit balance remains positive, and after an assessment of the need for additional or modified conditions and/or specific obligations. The timelines for the centralized procedure described above also apply with respect to the review by the CHMP of applications for a conditional marketing authorization.
The EU medicines rules expressly permit the EU Member States to adopt national legislation prohibiting or restricting the sale, supply or use of any medicinal product containing, consisting of or derived from a specific type of human or animal cell, such as embryonic stem cells. While the products we have in development do not make use of embryonic stem cells, it is possible that the national laws in certain EU Member States may prohibit or restrict us from commercializing our products, even if they have been granted an EU marketing authorization.
Unlike the centralized authorization procedure, the decentralized marketing authorization procedure requires a separate application to, and leads to separate approval by, the competent authorities of each EU Member State in which the product is to be marketed. This application is identical to the application that would be submitted to the EMA for authorization through the centralized procedure. The reference EU Member State prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. The resulting assessment report is submitted to the Concerned EU Member States who, within 90 days of receipt, must decide whether to approve the assessment report and related materials. If a concerned EU Member State cannot approve the assessment report and related materials due to concerns relating to a potential serious risk to public health, disputed elements may be referred to the European Commission, whose decision is binding on all EU Member States.
The mutual recognition procedure similarly is based on the acceptance by the competent authorities of the EU Member States of the marketing authorization of a medicinal product by the competent authorities of other EU Member States. The holder of a national marketing authorization may submit an application to the competent authority of an EU Member State requesting that this authority recognize the marketing authorization delivered by the competent authority of another EU Member State.
Regulatory Data Protection in the European Union
In the EU, innovative medicinal products approved on the basis of a complete independent data package qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity pursuant to Directive 2001/83/EC. Regulation (EC) No 726/2004 repeats this entitlement for medicinal products authorized in accordance the centralized authorization procedure. Data exclusivity prevents applicants for authorization of generics of these innovative products from referencing the innovator’s data to assess a generic (abridged) application for a period of eight years. During an additional
two-year
period of market exclusivity, a generic marketing authorization application can be submitted and authorized, and the innovator’s data may be referenced, but no generic medicinal product can be placed on the EU market until the expiration of the market exclusivity. The overall
10-year
period will be extended to a maximum of 11 years if, during the first eight years of those 10 years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. Even if a compound is considered to be a new chemical entity so that the innovator gains the prescribed period of data exclusivity, another company nevertheless could also market another version of the product if such company obtained marketing authorization based on an MAA with a complete independent data package of pharmaceutical tests, preclinical tests and clinical trials.
Periods of Authorization and Renewals
A marketing authorization has an initial validity for five years in principle. The marketing authorization may be renewed after five years on the basis of a
re-evaluation
of the risk-benefit balance by the EMA or by the
 
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competent authority of the EU Member State. To this end, the marketing authorization holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization ceases to be valid. The European Commission or the competent authorities of the EU Member States may decide, on justified grounds relating to pharmacovigilance, to proceed with one further five-year period of marketing authorization. Once subsequently definitively renewed, the marketing authorization shall be valid for an unlimited period. Any authorization which is not followed by the actual placing of the medicinal product on the EU market (in case of centralized procedure) or on the market of the authorizing EU Member State within three years after authorization ceases to be valid (the
so-called
sunset clause).
Orphan Drug Designation and Exclusivity
Regulation (EC) No. 141/2000, as implemented by Regulation (EC) No. 847/2000 provides that a drug can be designated as an orphan drug by the European Commission if its sponsor can establish: that the product is intended for the diagnosis, prevention or treatment of (1) a life-threatening or chronically debilitating condition affecting not more than five in 10 thousand persons in the EU when the application is made, or (2) a life-threatening, seriously debilitating or serious and chronic condition in the EU and that without incentives it is unlikely that the marketing of the drug in the EU would generate sufficient return to justify the necessary investment. For either of these conditions, the applicant must demonstrate that there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the EU or, if such method exists, the drug will be of significant benefit to those affected by that condition.
Once authorized, orphan medicinal products are entitled to 10 years of market exclusivity in all EU Member States and in addition a range of other benefits during the development and regulatory review process including scientific assistance for study protocols, authorization through the centralized marketing authorization procedure covering all member countries and a reduction or elimination of registration and marketing authorization fees. However, marketing authorization may be granted to a similar medicinal product with the same orphan indication during the
10-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 product is safer, more effective or otherwise clinically superior to the original orphan medicinal product. The period of market exclusivity may, in addition, be reduced to six years if it can be demonstrated on the basis of available evidence that the original orphan medicinal product is sufficiently profitable not to justify maintenance of market exclusivity
Regulatory Requirements after a Marketing Authorization has been Obtained
In case an authorization for a medicinal product in the EU is obtained, the holder of the marketing authorization is required to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of medicinal products. These include:
 
  
Compliance with the EU’s stringent pharmacovigilance or safety reporting rules must be ensured. These rules can impose post-authorization studies and additional monitoring obligations.
 
  
The manufacturing of authorized medicinal products, for which a separate manufacturer’s license is mandatory, must also be conducted in strict compliance with the applicable EU laws, regulations and guidance, including Directive 2001/83/EC, Directive 2003/94/EC, Regulation (EC) No 726/2004 and the European Commission Guidelines for Good Manufacturing Practice. These requirements include compliance with EU cGMP standards when manufacturing medicinal products and active pharmaceutical ingredients, including the manufacture of active pharmaceutical ingredients outside of the EU with the intention to import the active pharmaceutical ingredients into the EU.
 
  
The marketing and promotion of authorized drugs, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs and/or the general public, are strictly
 
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regulated in the EU notably under Directive 2001/83EC, as amended, and EU Member State laws.
Direct-to-consumer
advertising of prescription medicines is prohibited across the EU.
Brexit and the Regulatory Framework in the United Kingdom
On June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the EU, commonly referred to as Brexit. Following protracted negotiations, the United Kingdom left the EU on January 31, 2020. Under the withdrawal agreement, there is a transitional period until December 31, 2020 (extendable by up to two years). On December 24, 2020, the United Kingdom and the European Union entered into a Trade and Cooperation Agreement. The agreement sets out certain procedures for approval and recognition of medical products in each jurisdiction. Since the regulatory framework for pharmaceutical products in the United Kingdom covering quality, safety and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales and distribution of pharmaceutical products is derived from EU directives and regulations, Brexit could materially impact the future regulatory regime that applies to products and the approval of product candidates in the United Kingdom.
Discussions between the United Kingdom and the EU have so far mainly focused on finalizing the withdrawal issues and transition agreements but have been extremely difficult to date. To date, only an outline of a trade agreement has been reached. Much remains open but the Prime Minister has indicated that the United Kingdom will not seek to extend the transitional period beyond the end of 2020. If no trade agreement has been reached before the end of the transitional period, there may be significant market and economic disruption. The Prime Minister has also indicated that the United Kingdom will not accept high regulatory alignment with the EU.
Furthermore, while the Data Protection Act of 2018 in the United Kingdom that “implements” and complements the European Union’s General Data Protection Regulation, or GDPR, has achieved Royal Assent on May 23, 2018 and is now effective in the United Kingdom, it is still unclear whether transfer of data from the European Economic Area, or EEA, to the United Kingdom will remain lawful under GDPR. The Trade and Cooperation Agreement provides for a transitional period during which the United Kingdom will be treated like a European Union member state in relation to processing and transfers of personal data for four months from January 1, 2021. This may be extended by two further months. After such period, the United Kingdom will be a “third country” under the GDPR unless the European Commission adopts an adequacy decision in respect of transfers of personal data to the United Kingdom. The United Kingdom has already determined that it considers all of the EU 27 and EEA member states to be adequate for the purposes of data protection, ensuring that data flows from the United Kingdom to the EU/EEA remain unaffected.
General Data Protection Regulation
The collection, use, disclosure, transfer, or other processing of personal data regarding individuals in the EU, including personal health data, is subject to the EU General Data Protection Regulation, or GDPR, which became effective on May 25, 2018. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors. The GDPR also imposes strict rules on the transfer of personal data to countries outside the EU, including the U.S., and permits data protection authorities to impose large penalties for violations of the GDPR, including potential fines of up to €20 million or 4% of annual global revenues, whichever is greater. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. Compliance with the GDPR will be a rigorous and time-intensive process that may increase the cost of doing business or require companies to change their business practices to ensure full compliance.
 
49

Pricing Decisions for Approved Products
In the EU, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular product candidate to currently available therapies or
so-called
health technology assessments, in order to obtain reimbursement or pricing approval. For example, the EU provides options for its Member States to restrict the range of products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. EU Member States may approve a specific price for a product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the product on the market. Other Member States allow companies to fix their own prices for products, but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions. Recently, many countries in the EU have increased the amount of discounts required on pharmaceuticals and these efforts could continue as countries attempt to manage health care expenditures, especially in light of the severe fiscal and debt crises experienced by many countries in the EU. The downward pressure on health care costs in general, particularly prescription products, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various EU Member States, and parallel trade, i.e., arbitrage between
low-priced
and high-priced Member States, can further reduce prices. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any products, if approved in those countries.
Human Capital Resources
As of December 31, 2020, we had 122 employees, including a total of 37 employees with M.D., Pharm.D. or Ph.D. degrees. Of these full-time employees, 95 employees are engaged in research and development. All of our employees are located in the United States. None of our employees are represented by labor unions or covered by collective bargaining agreements.
We seek to attract, hire and retain individuals of diverse backgrounds and of all ages, genders, ethnicities, religions, home countries and sexual orientation. Approximately 41.8% of our employees are female. Further, 28.6% of our executive leadership level and 12.5% our board of directors are female. As part of our continued growth and investment into our employees, we are focused on developing and integrating an authentic approach to diversity, inclusion and belonging.
Recruiting, retaining and motivating qualified employees, consultants and advisors for our business, including scientific and technical personnel, is critical to our success. Competition for skilled personnel is intense and the turnover rate in our industry can be high. To further our goal of attracting, retaining and motivating employees:
 
  
We provide competitive pay and compensation packages, including stock-based compensation awards and cash-based performance awards.
 
  
We provide a robust professional development program and career development program, where we strive to continually improve performance and promote professional competencies, including a Building Opportunities for Leadership and Development program and mentorship programs.
 
  
We offer numerous wellness programs to support all of our employees’ physical, mental and financial well-being, which we have significantly expanded during the
COVID-19
pandemic, including fitness reimbursements and mindfulness programs to manage anxiety, stress, sleep and overall well-being, as well as a student loan assistance program.
 
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We aim to ensure that all of our employees participate in our legal compliance trainings upon commencement of employment and periodically thereafter, certify and periodically recertify our Code of Business Conduct and Ethics and participate in discrimination and harassment prevention trainings.
The safety of our employees is of utmost importance to us. In response to the
COVID-19
pandemic, we have taken significant steps to protect our employees while simultaneously maintaining operations. We have restricted access to our facility to those individuals who perform critical research, translational medicine and laboratory support activities that must be completed on site, limited the number of such people that can be present at our facility at any one time and required that our
non-laboratory
personnel work remotely. For those individuals who must work
on-site,
we have taken significant steps to implement social distancing protocols consistent with guidelines issued by federal, state and local law. In addition, we have implemented weekly testing, provided antibody testing to all employees, and follow strict protocols to ensure on site safety.
Corporate Information
Our principal executive office is located at 29 Hartwell Avenue, Lexington, Massachusetts 02421, and our telephone number is (617)
945-7361.
Our internet website address is www.translate.bio. The information contained on, or that can be accessed through, our website is not a part of this Annual Report on Form
10-K.
Information Available on the Internet
We have included our website address in this Annual Report on Form
10-K
solely as an inactive textual reference. We make available free of charge through our website our Annual Report on Form
10-K,
Quarterly Reports on Form
10-Q,
Current Reports on Form
8-K
and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities and Exchange Act of 1934, as amended, or the Exchange Act. We make these reports available through the “Financials and Flings” section of our website as soon as reasonably practicable after we electronically file such reports with, or furnish such reports to, the Securities and Exchange Commission, or the SEC. We also make available, free of charge on our website, the reports filed with the SEC by our executive officers, directors and 10% stockholders pursuant to Section 16 under the Exchange Act as soon as reasonably practicable after copies of those filings are provided to us by those persons. You can review our electronically filed reports and other information that we file with the SEC on the SEC’s website at
http://www.sec.gov.
 
Item 1A.
Risk Factors.
You should carefully consider the risks described below, in addition to the other information set forth in this Annual Report on Form
10-K,
including the Management’s Discussion and Analysis of Financial Condition and Results of Operations section and the consolidated financial statements and related notes. These risks, some of which have occurred and any of which may occur, and additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may occur or become material in the future, can have a material adverse effect on our business, financial condition, results of operations or the price of our publicly traded securities. Therefore, historical operating results, financial and business performance, events and trends are often not a reliable indicator of future operating results. If any of the following risks occurs, our business, financial condition, and results of operations and future growth prospects could be materially and adversely affected.
 
51

Risks Related to the
COVID-19
Pandemic
The COVID-19
pandemic has adversely disrupted, and is expected to continue to adversely disrupt, our operations, including our ability to complete our ongoing clinical trials, and may have other adverse effects on our business and operations. In addition, this pandemic has caused substantial disruption in the financial markets and may adversely impact economies worldwide, both of which could result in adverse effects on our business, operations and ability to raise capital.
In December 2019, a novel strain of coronavirus named
SARS-CoV-2,
which causes
COVID-19,
was reported and in March 2020, the World Health Organization declared the outbreak of
COVID-19
a global pandemic. The
COVID-19
pandemic has continued to spread, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. The extent to which the ongoing
COVID-19
pandemic impacts our operations or those of the third parties on which we rely will depend on many factors, which are highly uncertain and cannot be predicted with confidence, including the duration of the pandemic, additional or modified government actions, new information that may emerge concerning the severity and impact of
COVID-19,
and the actions to contain
COVID-19
or address its impact in the short and long term.
In April 2020, we announced that enrollment and dosing were paused in our ongoing Phase 1/2 clinical trial of MRT5005 in patients with cystic fibrosis, or CF, as a consequence of the
COVID-19
pandemic. In September 2020, we announced that enrollment and dosing resumed and in January 2021, we announced that we completed enrollment and dosing in the dose cohorts comprising the second interim data analysis. The uncertain environment associated with the
COVID-19
pandemic could result in additional disruptions in enrollment, affecting our timing to report data. For example, if a patient enrolled in the MRT5005 clinical trial chooses to receive a
COVID-19
vaccine, it is possible that such patient may not be able to continue in our trial. Further, in response to the
COVID-19
pandemic and in accordance with direction from state and local governmental authorities, we have restricted access to our facility to those individuals who perform critical research, translational medicine and laboratory support activities that must be completed on site, limited the number of such people that can be present at our facility at any one time and required that our
non-laboratory
personnel work remotely. We expect to continue experiencing these disruptions and possibly new disruptions in our operations and those of third parties for an unknown period of time, as the trajectory of the
COVID-19
pandemic remains uncertain and continues to evolve in the United States and globally. The
COVID-19
pandemic may further delay or otherwise adversely affect our clinical development activities as a result of many factors, including:
 
  
diversion of healthcare resources away from the conduct of our clinical trials in order to focus on pandemic concerns, including the availability of necessary materials, the attention of physicians serving as our clinical trial investigators, access to hospitals serving as our clinical trial sites, and availability of hospital staff supporting the conduct of our clinical trials;
 
  
potential interruptions in global shipping affecting the transport of clinical trial materials, such as investigational drug product, patient samples, and other supplies used in our clinical trials;
 
  
the impact of further limitations on travel that could interrupt key clinical trial activities, such as clinical trial site initiations and monitoring activities, travel by our employees, contractors or patients to clinical trial sites, or the ability of employees at any of our contract manufacturers or contract research organizations to report to work, any of which could delay or adversely impact the conduct or progress of our clinical trials for MRT5005 and other research and manufacturing activities, and limit the amount of clinical data we will be able to report;
 
  
any future interruption of, or delays in receiving, supplies of clinical trial material from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages, or disruptions in delivery systems;
 
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availability of future capacity at our contract manufacturers to produce sufficient drug substance and drug product to meet forecasted clinical trial demand if any of these manufacturers elect or are required to divert attention or resources to the manufacture of other pharmaceutical products;
 
  
delays in ongoing laboratory experiments and operations if we are required to further reduce the number of employees in our laboratories, or if the contract research organizations, or CROs, we have retained to supplement our internal research efforts are unable to perform as anticipated, whether due to capacity constraints, staffing shortages, or otherwise; and
 
  
business disruptions caused by potential workplace closures and an increased reliance on employees working from home, challenges in recruiting employees required to execute on our research and development plans, cybersecurity and data accessibility issues, and communication or transit disruptions, any of which could adversely impact our business operations and delay necessary interactions among our employees and between our company and the third parties upon which we rely.
Any negative impact that the
COVID-19
pandemic has on recruiting or retaining patients in our clinical trials for MRT5005, the ability of our suppliers to provide materials for our product candidates, or the regulatory review process could cause additional delays with respect to product development activities, which could materially and adversely affect our ability to obtain regulatory approval for and to commercialize our product candidates, increase our operating expenses, affect our ability to raise additional capital, and have a material adverse effect on our financial results.
The response to the
COVID-19
pandemic may redirect resources with respect to regulatory and intellectual property matters in a way that would adversely impact our ability to progress regulatory approvals and protect our intellectual property. In addition, we may face impediments to regulatory meetings and approvals due to measures intended to limit
in-person
interactions.
The COVID-19
pandemic continues to rapidly evolve and its ultimate scope, duration and effects are unknown. The extent of the impact of the disruptions to our business, preclinical studies and clinical trials as a result of the
COVID-19
pandemic will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and actions to contain the outbreak or treat its impact, such as social distancing and quarantines or lock-downs in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
The pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could adversely impact any future plans to raise capital. The trading prices of our stock and that of other biopharmaceutical companies have been highly volatile as a result of the economic volatility. Moreover, it is possible the pandemic will significantly impact economies worldwide, which could result in adverse effects on our business and operations. We cannot be certain what the overall impact of the
COVID-19
pandemic will be on our business and it has the potential to adversely affect our business, financial condition, results of operations, and prospects.
We and Sanofi Pasteur, Inc., or Sanofi, may not be successful in our joint efforts to successfully develop in an expedited timeframe an mRNA vaccine against
SARS-CoV-2,
the virus responsible for
COVID-19.
We have a collaboration with Sanofi to develop infectious disease vaccines using our messenger RNA, or mRNA, technology, including mRNA vaccines against
SARS-CoV-2,
the virus responsible for
COVID-19.
Pursuant to the collaboration, we are leveraging our mRNA platform and Sanofi’s vaccine expertise to develop mRNA vaccines for infectious diseases, which includes a goal of discovering, developing and advancing rapidly into the clinic a
SARS-CoV-2
vaccine candidate.
Although MRT5500 has been selected as the lead
COVID-19
vaccine candidate, and a Phase 1/2 clinical trial to evaluate MRT5500 is expected to begin in the first quarter of 2021, the development of a
SARS-CoV-2
 
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vaccine candidate is still in its early stages. MRT5500 may not be safe and may not successfully prevent
COVID-19
in a timely manner, if at all. In order to obtain regulatory approval to market a new biological product such as a
SARS-CoV-2
vaccine, proof of safety, purity and potency must be demonstrated in humans. To satisfy these requirements, one or more adequate and well-controlled clinical trials will have to be conducted. We cannot predict if any applicable regulatory bodies will accept the proposed clinical program or if the outcome of the preclinical testing and studies will ultimately support the further development of MRT5500. As a result, we cannot be sure that MRT5500 will be able to be advanced into clinical trials on the expected timeline, if at all, and we cannot be sure that applicable regulatory authorities will allow clinical trials to begin. Moreover, even if clinical trials for MRT5500 are initiated, development efforts may not be successful, and clinical trials conducted may not demonstrate sufficient safety, purity and potency necessary to obtain the requisite regulatory approvals for MRT5500.
The timing and success of any clinical trials will also depend on our ability enroll subjects in the clinical trials. Vaccines for
COVID-19
have been approved by the Food and Drug Administration, or FDA, and European Medicines Agency, or EMA, and are available on limited basis in the United States and Europe. In addition, several other companies are pursuing the development of a vaccine for
COVID-19,
and subject enrollment may be affected by availability of the authorized available vaccines and other clinical trials of competing vaccine candidates. Subject enrollment may also be affected by other factors, including variations in the incidence of
COVID-19
at the time of the trial and the perceived risks and benefits of the clinical trial among potential subjects. Our inability to enroll a sufficient number of subjects for clinical trials would result in significant delays and could require us to abandon one or more clinical trials altogether. Even if we obtain positive results from preclinical studies or initial clinical trials, we may not achieve the same success in demonstrating safety and potency in later trials.
Further, while the FDA and other regulatory authorities have authority to expedite review and approval of various products, including vaccines, it is unclear how the FDA or such other authorities will exercise these powers with respect to our vaccine candidate, if at all. For example, while the FDA issued an Emergency Use Authorization, or EUA, for the first
COVID-19
vaccine, it is unclear whether it will do so for future
COVID-19
vaccine candidates. An EUA allows for the manufacture, research and distribution of drugs, biologics and medical devices that have not been approved or licensed by the agency under the standard requirements that typically govern the development of new medical products. The extent to which the FDA relies on the EUA process, or other expedited regulatory mechanisms for the study and review of vaccine candidates, remains unclear and will be subject to a number of different factors. As a result, even if our vaccine candidate shows promising results in preclinical and clinical studies, its approval under an EUA or expedited licensing processes is not assured and the need for authorization from the FDA may result in delays.
If the
COVID-19
pandemic is effectively contained or the risk of
SARS-CoV-2
infection is diminished or eliminated before we can successfully develop and manufacture an mRNA vaccine against
SARS-CoV-2,
Sanofi could
de-prioritize
its support for the joint development of such a vaccine. We are also committing financial resources and personnel to the development of MRT5500,
which may cause delays in or otherwise negatively impact our other development programs, despite uncertainties surrounding the longevity and extent of coronavirus as a global health concern. Our business could be negatively impacted by our allocation of significant resources to a global health threat that is unpredictable and could rapidly dissipate or against which our vaccine, if developed, may not be partially or fully effective. In addition, other companies have developed an FDA approved a vaccine for
COVID-19,
and it is possible that
SARS-CoV-2
could be effectively contained before or shortly after we are able to receive authorization for our vaccine candidate.
The failure to successfully develop, manufacture and commercialize MRT5500 could have an adverse effect on our business, prospects, financial condition and results of operations and cause us reputational harm, any of which could cause our stock price to decline.
 
54

The manufacture, scale, validation and production of a potential
SARS-CoV-2
vaccine candidate is complex and uncertain. We may encounter difficulties, and our ability to develop and provide a vaccine, if approved, could be delayed, interrupted or halted.
To date, we have produced multiple mRNA constructs and have established 100 gram single-batch production with our clinical-stage mRNA therapeutics platform.
Build-out
of a dedicated manufacturing space through a contract manufacturing partner was completed during the third quarter of 2020 and has the potential to accommodate multiple
250-gram
batches per month upon continued investments and third-party supplier arrangements. As it relates to development of MRT5500, depending on the final human dose and timing of
scale-up
activities, we estimate that we could have manufacturing capacity to produce
90-360 million
doses annually. However, the manufacture of mRNA-based therapeutics is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. We may face difficulties in production of MRT5500, including scaling up and validating production, potential shortages of raw materials, a failure by our contract manufacturer to comply with guidelines, specifications and regulations necessary for the manufacture of any vaccine candidate we seek to manufacture, and other disruptions relating to the manufacture of any potential
SARS-CoV-2
vaccine candidates.
We will also require substantial capital to commence and continue production of MRT5500, which capital may not be available in the time frame or amount needed. Any delay or interruption in the supply of clinical trial supplies could delay the completion of planned clinical trials of MRT5500, increase the cost associated with the related clinical trial program and, depending upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials completely. For example, a delay in the manufacturing of clinical trial material for the Phase 1/2 clinical trial of MRT5500 resulted in a delay in the initiation of the trial. Any adverse developments affecting clinical or commercial manufacturing of MRT5500 or approved vaccine may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls or other interruptions in supply.
Risks Related to our Financial Position and Need for Additional Capital
We have incurred significant losses since inception. We expect to incur losses for at least the next several years and may never achieve or maintain profitability.
Since inception, we have incurred significant losses. Our net losses were $53.8 million and $113.3 million for the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, we had an accumulated deficit of $413.3 million. We have funded our operations to date primarily through sales of equity securities and upfront payments received under a collaboration and license agreement with Sanofi. We expect that it could be several years, if ever, before we have a commercialized product candidate. We expect to continue to incur significant expenses and operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from quarter to quarter. We anticipate that our expenses will increase substantially if, and as, we:
 
  
continue the clinical development of MRT5005;
 
  
continue the development of mRNA vaccine candidates against infectious diseases, including MRT5500, the lead vaccine candidate against
SARS-CoV-2;
 
  
leverage our programs to advance our other product candidates into preclinical and clinical development;
 
  
seek regulatory approvals for any product candidates that successfully complete clinical trials;
 
  
seek to discover and develop additional product candidates;
 
  
expand our manufacturing, operational, financial and management systems;
 
  
increase personnel, including personnel to support our research, clinical development, manufacturing and commercialization efforts and our operations as a public company;
 
55

  
maintain, expand and protect our intellectual property portfolio;
 
  
acquire or
in-license
other product candidates and technologies; and
 
  
incur additional legal, accounting and other expenses in operating as a public company; and
 
  
establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval and intend to commercialize on our own or jointly.
To become and remain profitable, we, or our collaborators, must develop and eventually commercialize product candidates with significant market potential. This will require us to succeed in a range of challenging activities, including completing preclinical studies and clinical trials of our product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those products for which we may obtain marketing approval and satisfying any post-marketing requirements. We may never succeed in any or all of these activities and, even if we do, we may never generate sufficient revenue to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company also could cause you to lose all or part of your investment.
We have never generated revenue from product sales and may never be profitable.
We have never generated revenue from product sales. Our ability to generate revenue from product sales and achieve profitability depends on our ability, alone or with our collaborative partners, to successfully develop and obtain the regulatory approvals necessary to commercialize our product candidates. We do not have any products approved for sale and do not anticipate generating revenue from product sales for the next several years, if ever. Our ability to generate future revenue from product sales depends heavily on our, or our collaborators’, success in:
 
  
completing preclinical and clinical development of our product candidates and identifying and developing new product candidates;
 
  
seeking and obtaining marketing approvals for any of our product candidates;
 
  
launching and commercializing product candidates for which we obtain marketing approval by establishing a sales force, marketing, medical affairs and distribution infrastructure or, alternatively, collaborating with a commercialization partner;
 
  
achieving formulary status in hospitals and adequate coverage and reimbursement by government and third-party payors for our product candidates;
 
  
establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate, in both amount and quality, products and services to support clinical development and the market demand for our product candidates, if approved;
 
  
obtaining market acceptance of our product candidates as viable treatment options;
 
  
addressing any competing technological and market developments;
 
  
negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter and performing our obligations in such collaborations;
 
  
maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and
know-how;
 
  
defending against third-party interference or infringement claims, if any; and
 
  
attracting, hiring and retaining qualified personnel.
 
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Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs in commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA, the EMA or other regulatory agencies to perform clinical trials or studies in addition to those that we currently anticipate. Even if we are able to generate revenue from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.
Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights, conducting discovery, research and development activities for our programs, undertaking preclinical studies, entering into licensing agreements and planning for potential commercialization. While we are conducting a Phase 1/2 clinical trial of MRT5005, we have not yet completed a clinical trial of any of our product candidates. We have not yet demonstrated the ability to obtain marketing approvals, manufacture a commercial-scale product or conduct sales and marketing activities necessary for successful commercialization. Consequently, any evaluation of our business to date or predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history.
If we obtain marketing approval for any of our product candidates, we will need to transition from a company with a research and development focus to a company capable of supporting commercial activities. We may encounter unforeseen expenses, difficulties, complications and delays and may not be successful in such a transition.
We will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain capital when needed may force us to delay, reduce or eliminate certain of our product development efforts or other operations.
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue ongoing and initiate clinical trials of and seek marketing approval for our product candidates. These expenditures will include costs associated with our asset purchase agreement, as amended, with Shire Human Genetic Therapies, Inc., or Shire, a subsidiary of Takeda Pharmaceutical Company Ltd., referred to as the Shire Agreement. Under the terms of the Shire Agreement, we are obligated to make significant cash payments upon the achievement of specified commercial milestones, as well as earnout payments in connection with sales of products based on the compounds that we acquired from Shire.
We will require additional capital to advance MRT5005 and any other product candidates we develop through necessary clinical trials and clinical development. In addition, if we obtain marketing approval for any of our product candidates that we plan to commercialize ourselves, we expect to incur significant expenses related to product sales, medical affairs, marketing, manufacturing and distribution. Furthermore, we expect to continue to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain additional funding in connection with our continuing operations. We may raise this additional funding through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions and funding under government or other contracts. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans.
We believe that our existing cash, cash equivalents and investments of $654.0 million as of December 31, 2020 will enable us to fund our operating expenses and capital expenditure requirements through 2023. If we are unable to obtain funding, we may be required to delay, reduce or eliminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise
 
57

prefer to develop and market ourselves, which could adversely affect our business prospects, and we may be unable to continue operations. To finance our operations beyond that point, we will need to raise additional capital, which cannot be assured.
Our estimates regarding our ability to fund our operating expenses and capital expenditure requirements with our existing cash and cash equivalents are based on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. Our future funding requirements will depend on, and could increase significantly as a result of, many factors, including:
 
  
the impacts of the
COVID-19
pandemic and our response to it;
 
  
the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical studies and clinical trials;
 
  
the success of our collaboration with Sanofi;
 
  
the costs, timing and outcome of regulatory review of our product candidates;
 
  
the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
 
  
the costs of manufacturing commercial-grade products and sufficient inventory to support commercial launch;
 
  
the ability to receive additional
non-dilutive
funding, including grants from organizations and foundations;
 
  
the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;
 
  
the cost and timing of hiring new employees to support our continued growth;
 
  
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
 
  
our ability to establish and maintain collaborations on favorable terms, if at all;
 
  
the extent to which we acquire or
in-license
other product candidates and technologies; and
 
  
the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future product candidates, if any.
Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that typically takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our product revenue, if any, and any commercial milestones or royalty payments under any collaboration agreements that we enter into, including our collaboration with Sanofi, will be derived from or based on sales of products that may not be commercially available for many years, if at all. Accordingly, we will continue to rely on additional financing to achieve our business objectives.
Any additional fundraising efforts may divert our management from their
day-to-day
activities, which may adversely affect our ability to develop and commercialize our product candidates. We cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Our issuance of additional securities, whether equity or debt, or the possibility of such issuance, may cause the market price of our common stock to decline, and our stockholders may not agree with our financing plans or the terms of such financings.
 
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Our failure to raise capital as and when needed would negatively impact our financial condition and our ability to pursue our business strategy, and we could be forced to delay, reduce or eliminate certain of our research and development programs or any future commercialization efforts.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to technologies or product candidates.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through the combination of public or private equity offerings, debt financings, grants, collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring debt, making capital expenditures or declaring dividends. In addition, debt financing would result in increased fixed payment obligations.
If we raise funds through collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we will be required to delay, reduce or eliminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
We may be required to make payments in connection with our acquisition of the MRT Program from Shire.
In December 2016, we acquired the mRNA therapeutic platform, or MRT Program, pursuant to the Shire Agreement. Under the Shire Agreement, we are obligated to make milestone payments to Shire of up to $60.0 million in the aggregate upon the occurrence of specified commercial milestones, including upon the first commercial sale of a product that includes or is composed of MRT compounds acquired from Shire, or MRT Product, for the treatment of cystic fibrosis, or CF, and upon the achievement of a specified level of annual net sales with respect to MRT Products. We are also obligated to make additional milestone payments of $10.0 million for each
non-CF
MRT Product upon the first commercial sale of a
non-CF
MRT Product; provided that such milestone payments will only be due once for any two
non-CF
MRT Products that contain the same MRT compounds, or once for
non-CF
MRT Products that are mRNA vaccines in certain Licensed Fields under our collaboration and license agreement with Sanofi. Under the Shire Agreement, we are also obligated to pay a fixed, quarterly earnout payment of a
mid-single-digit
percentage of net sales of each MRT Product. The earnout period will begin on the date of the first commercial sale of MRT Products and will end, on a
product-by-product
and
country-by-country
basis, on the later of (1) the expiration of the last valid claim of the assigned patents covering the manufacture, use or composition of such product in such country of the applicable MRT Product and (2) 10 years after the first commercial sale of the MRT Product in such country. If these payments become due under the terms of the Shire Agreement, we may not have sufficient funds available to meet our obligations and our development efforts may be materially harmed. If a combination MRT Product that is a vaccine is sold, in certain circumstances, we would be obligated to pay Shire a royalty on a minimum portion of net sales.
We might not be able to utilize a significant portion of our net operating loss carryforwards and research and development tax credit carryforwards.
As of December 31, 2020, we had federal net operating loss carryforwards of $239.3 million, of which $116.1 million will, if not utilized, begin to expire in 2031. As of December 31, 2020, we had state net operating loss carryforwards of $227.6 million, which will, if not utilized, begin to expire in 2031. Our federal and state research and development tax credit carryforwards of $7.0 million and $4.3 million, respectively, will, if not
 
59

utilized, begin to expire in 2032 and 2028, respectively, and orphan drug tax credit carryforwards of $17.4 million will, if not utilized, begin to expire in 2037. We also have state investment tax credit carryforwards of $0.8 million, which will, if not utilized, begin to expire in 2020. These net operating loss and tax credit carryforwards could expire unused and be unavailable to offset our future income tax liabilities.
In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its
pre-change
net operating loss carryforwards and other
pre-change
tax attributes to offset its post-change income may be limited. We have determined that we have experienced multiple Sections 382 and 383 ownership changes in the past and if a portion of our net operating loss and tax credit carryforwards are subject to an annual limitation under Section 382. In addition, we may experience ownership changes in the future as a result of subsequent changes in our stock ownership, some of which may be outside of our control. If an ownership change has occurred or occurs in the future and our ability to use our historical net operating loss and tax credit carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations.
There is also a risk that due to regulatory changes, such as suspensions on the use of net operating losses, or other unforeseen reasons, our existing net operating losses could expire or otherwise become unavailable to offset future income tax liabilities. As described below in “Changes in tax laws or in their implementation or interpretation may adversely affect our business and financial condition,” the Tax Cuts and Jobs Act, or the Tax Act, as amended by the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, includes changes to U.S. federal tax rates and the rules governing net operating loss carryforwards that may significantly impact our ability to utilize our net operating losses to offset taxable income in the future. In addition, state net operating losses generated in one state cannot be used to offset income generated in another state. For these reasons, even if we attain profitability, we may be unable to use a material portion of our net operating losses and other tax attributes.
Risks Related to the Development of Our Product Candidates
Our approach to the discovery and development of product candidates based on mRNA is unproven, and we do not know whether we will be able to successfully develop any products.
We focus on delivering mRNA encoding functional versions of proteins into cells without altering the underlying DNA. Our future success depends on the successful development of this novel therapeutic approach. Relatively few mRNA-based therapeutic product candidates have been tested in animals or humans, and the data underlying the feasibility of developing mRNA-based therapeutic products is both preliminary and limited. While
COVID-19
vaccines relying on mRNA have been approved by the FDA and EMA and are commercially available, to date, no product that utilizes mRNA as a therapeutic has been approved in the United States or Europe. We have not yet succeeded and may not succeed in demonstrating the efficacy and safety of any of our product candidates in clinical trials or in obtaining marketing approval thereafter. We have not yet completed a clinical trial of any product candidate and we have not yet assessed safety of any product candidate in humans. As such, there may be adverse effects from treatment with any of our current or future product candidates that we cannot predict at this time.
As a result of these factors, it is more difficult for us to predict the time and cost of product candidate development, and we cannot predict whether the application of our MRT platform, or any similar or competitive mRNA platforms, will result in the development and regulatory approval of any products. There can be no assurance that any development problems we experience in the future related to our MRT platform or any of our research programs will not cause significant delays or unanticipated costs, or that such development problems can be solved. Any of these factors may prevent us from completing our preclinical studies or any clinical trials that we may initiate or commercializing any product candidates we may develop on a timely or profitable basis,
 
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if at all. For example, in September 2019 we discontinued the development of MRT5201, a liver targeted treatment for ornithine transcarbamylase, or OTC, deficiency, and terminated our Phase 1/2 clinical trial for MRT5201 in patients with OTC deficiency.
We have never obtained marketing approval for a product candidate, and we may be unable to obtain, or may be delayed in obtaining, marketing approval for any of our product candidates.
We are a clinical-stage company and have not received approval from the FDA, EMA or other regulatory authority to market any product candidate. The regulatory review process may be more expensive or take longer than we expect, and we may be required to conduct additional studies and/or trials beyond those we anticipate. If it takes us longer to develop and/or obtain regulatory approval for our product candidates than we expect, such delays could materially and adversely affect our business, financial condition, results of operations and prospects.
If we are unable to complete satisfactorily the clinical development of, obtain marketing approval for or successfully commercialize MRT5005, either alone or with a future collaborator, or if we experience significant delays in doing so, our business would be substantially harmed.
We do not currently have products approved for sale and are investing a significant portion of our efforts and financial resources in the development of MRT5005. As a consequence of the
COVID-19
pandemic, we announced that enrollment and dosing in the ongoing Phase 1/2 clinical trial in patients with CF was paused in April 2020 and then resumed in September 2020. The uncertain environment associated with the
COVID-19
pandemic could result in additional disruptions in enrollment, affecting our timing to report data. For example, if a patient enrolled in the MRT5005 clinical trial chooses to receive a
COVID-19
vaccine, it is possible that such patient may not be able to continue in our trial. We expect that the
COVID-19
pandemic will continue to impact our clinical trials as described above in “Risks Related to the
COVID-19
Pandemic.” Our prospects are substantially dependent on our ability, or that of any future collaborator, to develop and obtain marketing approval for, and successfully commercialize, MRT5005.
The success of MRT5005 will depend on several factors, including the following:
 
  
successful patient enrollment in and completion of clinical trials;
 
  
a safety, tolerability and efficacy profile that is satisfactory to the FDA, EMA or other regulatory authorities for marketing approval;
 
  
timely receipt of marketing approvals from applicable regulatory authorities;
 
  
the extent of any required post-marketing approval commitments to applicable regulatory authorities;
 
  
establishment and maintenance of arrangements with third-party manufacturers for both clinical and any future commercial manufacturing;
 
  
adequate ongoing availability of raw materials and drug product for clinical development and any commercial sales;
 
  
obtaining and maintaining patent, trade secret protection and regulatory exclusivity, both in the United States and internationally;
 
  
protection of our rights in our intellectual property portfolio;
 
  
successful launch of commercial sales following any marketing approval;
 
  
a continued acceptable safety profile following any marketing approval;
 
  
commercial acceptance by hospitals, the patient community, the medical community and third-party payors;
 
  
the availability of coverage and adequate reimbursement from third-party payors;
 
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the performance of our future collaborators, if any; and
 
  
our ability to compete with other therapies.
Many of these factors are beyond our control, including clinical development, the regulatory review process, potential threats to our intellectual property rights and the manufacturing, marketing and sales efforts of any future collaborator. If we are unable to develop, receive marketing approval for and successfully commercialize MRT5005, on our own or with any future collaborator, or experience delays as a result of any of these factors or otherwise, our business would be substantially harmed.
Clinical drug development is a lengthy and expensive process with uncertain timelines and uncertain outcomes. If the initiation or completion of clinical trials of our product candidates, particularly MRT5005, is prolonged or delayed, we or any future collaborators may be unable to obtain required regulatory approvals, and therefore will be unable to commercialize our product candidates on a timely basis or at all, which will adversely affect our business.
Before obtaining marketing approval for our product candidates, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates. Clinical testing is expensive, time-consuming, difficult to design and implement and uncertain as to outcome. We cannot guarantee that our clinical trials, such as the planned Phase 1 trial for MRT5500 and our Phase 1/2 clinical trial of MRT5005 in patients with CF, will be conducted as planned, completed on schedule, if at all, or yield positive results. As a consequence of the
COVID-19
pandemic, we announced that enrollment and dosing in the ongoing Phase 1/2 clinical trial in patients with CF was paused in April 2020 and then resumed in September 2020. The uncertain environment associated with the
COVID-19
pandemic could result in additional disruptions in enrollment, affecting our timing to report data. For example, if a patient enrolled in the MRT5005 clinical trial chooses to receive a
COVID-19
vaccine, it is possible that such patient may not be able to continue in our trial. We expect that the
COVID-19
pandemic will continue to impact our clinical trials as described above in “Risks Related to the
COVID-19
Pandemic.”
A clinical trial failure can occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:
 
  
delays in reaching a consensus with regulatory authorities or collaborators on trial design;
 
  
delays in reaching agreement on acceptable terms with CROs and clinical trial sites;
 
  
delays in opening clinical trial sites or obtaining required institutional review board or independent ethics committee approval at each clinical trial site;
 
  
delays in recruiting suitable subjects or a sufficient number of subjects to participate in our clinical trials;
 
  
imposition of a clinical hold by regulatory authorities, including upon submission of an IND, or as a result of a serious adverse event or after an inspection of our clinical trial operations or trial sites;
 
  
failure by us, any CROs we engage, clinical investigators or any other third parties to adhere to clinical trial requirements;
 
  
failure to perform the clinical trial in accordance with good clinical practices, or GCP, or applicable regulatory requirements in the European Union, the United States, or other countries;
 
  
delays in the testing, validation, manufacturing and delivery of our product candidates to the clinical sites, including delays by third parties with whom we have contracted to perform certain of those functions;
 
  
delays or failures in demonstrating the comparability of product manufactured at one facility or with one process to product manufactured at another facility or with another process, including clinical trials to demonstrate such comparability;
 
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delays in having patients complete participation in a trial or return for post-treatment
follow-up;
 
  
clinical trial sites or subjects dropping out of a trial;
 
  
selection of clinical endpoints that require prolonged periods of clinical observation or analysis of the resulting data;
 
  
occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits;
 
  
occurrence of serious adverse events in trials of the same class of agents conducted by other sponsors; and
 
  
changes in regulatory requirements and guidance that require amending or submitting new clinical protocols.
Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue from product sales, regulatory and commercialization milestones and royalties. In addition, if we make manufacturing or formulation changes to our product candidates, we may need to conduct additional trials to bridge our modified product candidates to earlier versions. Clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business, financial condition, results of operations and prospects.
We have experienced delays in enrollment and dosing in our ongoing Phase 1/2 clinical trial in patients with CF as a consequence of the
COVID-19
pandemic. We could also encounter delays if a clinical trial is suspended or terminated by us, by the institutional review boards of the institutions in which such trials are conducted or their ethics committees, by the Data Review Committee or Data Safety Monitoring Board for such trial or by the FDA or other foreign regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other foreign regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, including those relating to the class of products to which our product candidates belong.
Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause or lead to a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates or early termination of the development of our product candidates.
Preclinical drug development is uncertain. Some or all of our preclinical programs may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory approvals or commercialize these product candidates on a timely basis or at all, which would have an adverse effect on our business.
In order to obtain FDA approval to market a new biological product, we must demonstrate proof of safety, purity and potency or efficacy in humans. To satisfy these requirements, we will have to conduct adequate and well-controlled clinical trials. Before we can commence clinical trials for a product candidate, we must complete extensive preclinical testing and studies that support an IND in the United States. We cannot be certain of the timely completion or outcome of our preclinical testing and studies, and we cannot predict if the FDA will accept our proposed clinical programs or if the outcome of our preclinical testing and studies will ultimately support the further development of these product candidates. As a result, we cannot be sure that we will be able to submit INDs or similar applications for any preclinical programs on the timelines we expect, if at all, and we cannot be sure that submission of INDs or similar applications will result in the FDA or other regulatory authorities
 
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allowing clinical trials to begin. For example, after we submitted an IND for MRT5005 to initiate our Phase 1/2 clinical trial in patients with CF, the FDA placed a clinical hold on the IND, requiring us to submit, prior to initiating the trial, additional chemistry, manufacturing and controls information relating to materials and processes used during the manufacture of the product candidate. The FDA lifted the clinical hold for our Phase 1/2 clinical trial of MRT5005 in April 2018.
Conducting preclinical testing is a lengthy, time-consuming and expensive process. The length of time may vary substantially according to the type, complexity, novelty and intended use of the product candidate, and often can be several years or more per product candidate. Delays associated with product candidates for which we are conducting preclinical testing and studies ourselves may cause us to incur additional operating expenses. Moreover, we may be affected by delays associated with the preclinical testing and studies of certain product candidates conducted by our potential partners over which we have no control. The commencement and rate of completion of preclinical studies and clinical trials for a product candidate may be delayed by many factors, including, for example:
 
  
inability to generate sufficient preclinical or other
in vivo
or
in vitro
data to support the initiation of clinical trials; and
 
  
delays in reaching a consensus with regulatory agencies on study design.
Moreover, even if we do initiate clinical trials for other product candidates, our development efforts may not be successful, and clinical trials that we conduct or that third parties conduct on our behalf may not demonstrate sufficient safety, purity and potency or efficacy necessary to obtain the requisite regulatory approvals for any of our product candidates or product candidates employing our technology. Even if we obtain positive results from preclinical studies or initial clinical trials, we may not achieve the same success in future trials.
Success in preclinical studies or early clinical trials may not be indicative of results obtained in later trials.
Results from preclinical studies are not necessarily predictive of clinical trial results, results from early clinical trials are not necessarily predictive of later clinical trial results and interim results of a clinical trial are not necessarily indicative of final results. Our product candidates may fail to show the desired safety and efficacy in clinical development despite positive results in preclinical studies or successful advancement through initial clinical trials.
There can be no assurance that the success we achieved in preclinical studies of MRT5005 and MRT5500 or may achieve in preclinical studies of other product candidates will result in success in clinical trials of these product candidates. In addition, we cannot assure you that we will be able to achieve the same or similar success in our preclinical studies and clinical trials of our other product candidates.
For example, our preclinical studies in animal models have been conducted using human mRNA, which differs from animal mRNA, making it difficult for us to use animal models to assess whether our product candidates are safe or effective in humans. Preclinical studies conducted in mice, rats and
non-human
primates are not always indicative of clinical trial outcomes in humans.
We have not completed any clinical trials evaluating any of our product candidates or proposed delivery modes, including the use of lipid nanoparticles that are customized for delivery to specific tissues.
There is a high failure rate for drugs and biologic products proceeding through preclinical studies and clinical trials. Any product candidates we develop may fail to show the desired safety and efficacy in later stages of clinical development despite having successfully advanced through initial clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in preclinical studies and earlier-stage clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent
 
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regulatory approval. In addition, we may experience regulatory delays or rejections as a result of many factors, including changes in regulatory policy during the period of our product candidate development. Any such delays could materially and adversely affect our business, financial condition, results of operations and prospects.
We have experienced and may in the future experience difficulty enrolling and dosing patients in our clinical trials, which could delay or prevent us from proceeding with clinical trials of our product candidates.
Identifying, qualifying and enrolling patients to participate in clinical trials of our product candidates is critical to our success, and we may not be able to identify, recruit, enroll and dose a sufficient number of patients, or those with required or desired characteristics, to complete our clinical trials in a timely manner. The timing of our clinical trials depends on our ability to recruit patients to participate as well as to subsequently dose these patients and complete required
follow-up
periods. We depend on Sanofi to design and conduct clinical trials for our vaccine candidates. As a result, we may not control the manner or time schedule in which these clinical trials are conducted, which may negatively impact our business operations. In addition, we anticipate competition recruiting patients for the anticipated future clinical trials of MRT5500 as
COVID-19
vaccines are available and many other companies are conducting or plan to conduct similar trials. In contrast, because our clinical trial of MRT5005 is focused on indications with relatively small patient populations, our ability to enroll eligible patients may be limited or may result in slower enrollment than we anticipate as a consequence to the
COVID-19
pandemic or otherwise. Many CF clinical trial sites place importance on the review, ranking and sanctioning of CF patient advocacy groups. If CF patient advocacy groups do not timely sanction or highly rate our clinical trials, or prioritize trials of other sponsors over our trials, we may not be able to enroll sufficient patients to conduct our trials at their member sites, or it may take longer to conduct these trials.
As a consequence of the
COVID-19
pandemic, we announced that enrollment and dosing had been paused in our ongoing Phase 1/2 clinical trial in patients with CF in April 2020. Even though we were able to resume and complete enrollment and dosing in this trial for the upcoming second interim data analysis as well as continue to enroll and dose in the remaining dose groups, we may encounter slower than expected enrollment or dosing delays due to the CF patient population, or CF advocacy groups may provide additional guidance for the safety of the CF population, which may delay the trial. The uncertain environment associated with the
COVID-19
pandemic could result in additional disruptions in enrollment, affecting our timing to report data. For example, if a patient enrolled in the MRT5005 clinical trial chooses to receive a
COVID-19
vaccine, it is possible that such patient may not be able to continue in our trial. We expect that the
COVID-19
pandemic will continue to impact our clinical trial of MRT5005 as described above in “Risks Related to the
COVID-19
Pandemic.” In addition, we may experience enrollment delays related to increased or unforeseen regulatory, legal and logistical requirements at certain clinical trial sites. For example, a delay in the manufacturing of clinical trial material for the Phase 1/2 clinical trial of MRT5500 resulted in a delay in the initiation of the trial. These delays could be caused by regulatory reviews by regulatory authorities and contractual discussions with individual clinical trial sites. Any delays in enrolling and/or dosing patients in our planned clinical trials could result in increased costs, delays in advancing our product candidates, delays in testing the effectiveness of our product candidates or termination of the clinical trials altogether.
Patient enrollment may be affected if our competitors have ongoing clinical trials for product candidates for the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trials instead enroll in our competitors’ clinical trials. Patient enrollment may also be affected by other factors, including:
 
  
coordination between us, CROs and any future collaborators in our efforts to enroll and administer the clinical trial;
 
  
size of the patient population and process for identifying patients;
 
  
design of the trial protocol;
 
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eligibility and exclusion criteria;
 
  
perceived risks and benefits of the product candidate under study;
 
  
availability of competing commercially available therapies and other competing product candidates’ clinical trials;
 
  
time of year in which the trial is initiated or conducted;
 
  
variations in the seasonal incidence of the target indication;
 
  
severity of the disease under investigation;
 
  
ability to obtain and maintain subject consent;
 
  
ability to enroll and treat patients in a timely manner;
 
  
risk that enrolled subjects will drop out before completion of the trial;
 
  
proximity and availability of clinical trial sites for prospective patients;
 
  
patient referral practices of physicians; and
 
  
ability to monitor subjects adequately during and after treatment.
Our inability to enroll a sufficient number of patients for clinical trials would result in significant delays and could require us to abandon one or more clinical trials altogether. Enrollment delays in these clinical trials may result in increased development costs for our product candidates, which could cause the value of our company to decline and limit our ability to obtain additional financing.
We may not be successful in our efforts to identify or discover additional product candidates and may fail to capitalize on programs or product candidates for which there is a greater likelihood of commercial success.
Our success depends upon our ability to identify, develop and commercialize product candidates based on our MRT platform. If we do not successfully develop and eventually commercialize products, we will not be able to generate product revenue, resulting in significant harm to our financial position and adverse effects to our share price. Research programs to identify new product candidates require substantial technical, financial and human resources. Although our product candidates are currently in preclinical or clinical development, we may fail to identify other potential product candidates for clinical development.
Additionally, because we have limited financial and managerial resources, we may forego or delay pursuit of opportunities for certain programs or product candidates or for indications that later prove to have greater commercial potential. For example, we currently intend to focus our capital resources primarily on the clinical development of MRT5005 and the development of vaccines.
However, the development of MRT5005 or MRT5500 may ultimately prove to be unsuccessful or less successful than another product candidate in our pipeline that we might have chosen to pursue on a more aggressive basis with our capital resources. Our estimates regarding the potential market for our product candidates could be inaccurate, and our spending on current and future research and development programs may not yield any commercially viable products. If we do not accurately evaluate the commercial potential for a particular product candidate, we may relinquish valuable rights to that product candidate through strategic collaboration, licensing or other arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights. Alternatively, we may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to enter into a collaborative arrangement.
If any of these events occur, we may be forced to abandon or delay our development efforts with respect to a particular product candidate, or we may fail to develop a potentially successful product candidate, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
 
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We may fail to demonstrate safety and efficacy of our product candidates to the satisfaction of applicable regulatory authorities.
If the results of any of our clinical trials are inconclusive or if there are safety concerns or serious adverse events associated with our product candidates, we may:
 
  
be delayed in obtaining marketing approval for our product candidates, if 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;
 
  
be subject to changes in the way the product is administered;
 
  
be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements;
 
  
have regulatory authorities withdraw, or suspend, their approval of the product or impose restrictions on its distribution in the form of a modified risk evaluation and mitigation strategy, or REMS;
 
  
be subject to the addition of labeling statements, such as contraindications or warnings, including a black box warning;
 
  
be sued; or
 
  
experience damage to our reputation.
If serious adverse or undesirable side effects are identified during the development of our product candidates or proposed delivery modes, we may abandon or limit our development of such product candidates.
If our product candidates or proposed delivery modes are associated with undesirable side effects or have unexpected characteristics, we may need to abandon their development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in clinical or earlier stage testing have later been found to cause side effects or raise other safety issues that delayed or prevented further development of the compound. Further, given the relatively small patient populations for which we are developing MRT5005, we expect to have to evaluate long-term exposure to establish the safety and tolerability of this product candidate in a chronic dose setting. The adverse effects from long-term exposure, as well as exposure in general, to our product candidates are unknown because they are a new class of therapeutics that have not previously been evaluated in a clinical trial. The risk of adverse or undesirable side effects therefore remains a significant concern, and we cannot assure you that these or other risks will not occur in any of our current or future clinical trials of MRT5005 or other product candidates that we may develop.
If we elect or are forced to suspend or terminate any clinical trial of our product candidates, the commercial prospects of such product candidate will be harmed, and our ability to generate product revenue from such product candidate will be delayed or eliminated. Any of these occurrences could materially harm our business, financial condition, results of operations and prospects.
Because we are developing product candidates for the treatment of diseases in which there is little clinical experience using new technologies, there is increased risk that the FDA, the EMA or other regulatory authorities may not consider the endpoints of our clinical trials to provide clinically meaningful results and that these results may be difficult to analyze.
During the regulatory review process, we will need to identify success criteria and endpoints such that the FDA, the EMA or other regulatory authorities will be able to determine the clinical efficacy and safety profile of
 
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any product candidates we may develop. Because our initial focus is to identify and develop product candidates to treat diseases in which there is little clinical experience using new technologies, there is heightened risk that the FDA, the EMA or other regulatory authorities may not consider the clinical trial endpoints that we propose to provide clinically meaningful results. In addition, the resulting clinical data and results may be difficult to analyze. Even if the FDA determines that our success criteria is sufficiently validated and clinically meaningful, we may not achieve the
pre-specified
endpoints to a degree of statistical significance.
This may be a particularly significant risk for many of the genetically defined diseases for which we plan to develop product candidates because many of these diseases have small patient populations, and designing and executing a rigorous clinical trial with appropriate statistical power is more difficult than with diseases that have larger patient populations. Further, even if we do achieve the
pre-specified
criteria, the results may be unpredictable or inconsistent with the results of the
non-primary
endpoints or other relevant data. The FDA also weighs the benefits of a product against its risks, and the FDA may view the efficacy results in the context of safety as not being supportive of regulatory approval. The EMA and other regulatory authorities may make similar comments with respect to these endpoints and data. Any product candidate we may develop will be based on a novel technology that makes it difficult to predict the time and cost of development and of subsequently obtaining regulatory approval.
We may conduct clinical trials at sites outside the United States. The FDA may not accept data from trials conducted in such locations, and the conduct of trials outside the United States could subject us to additional delays and expense.
We may conduct one or more of our clinical trials with one or more trial sites that are located outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of these data is subject to certain conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted and performed by qualified investigators in accordance with GCP. The FDA must be able to validate the data from the trial through an onsite inspection, if necessary. The trial population must also have a similar profile to the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful, except to the extent the disease being studied does not typically occur in the United States. In addition, while these clinical trials are subject to the applicable local laws, whether the FDA accepts the data will depend upon its determination that the trials also complied with all applicable U.S. laws and regulations. There can be no assurance that the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept the data from any trial that we conduct outside the United States, it would likely result in the need for additional trials, which would be costly and time-consuming and delay or permanently halt the development of MRT5005, MRT5500 or any future product candidates.
In addition, conducting clinical trials outside the United States could have a significant adverse impact on us. Risks inherent in conducting international clinical trials include:
 
  
clinical practice patterns and standards of care that vary widely among countries;
 
  
non-U.S.
regulatory authority requirements that could restrict or limit our ability to conduct our clinical trials;
 
  
administrative burdens of conducting clinical trials under multiple
non-U.S.
regulatory authority schema;
 
  
foreign exchange fluctuations; and
 
  
diminished protection of intellectual property in some countries.
 
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The manufacture of mRNA-based therapeutics is complex and manufacturers often encounter difficulties in production. If we or any of our third-party manufacturers encounter difficulties, our ability to provide product candidates for clinical trials or products, if approved, to patients could be delayed or halted.
The manufacture of mRNA-based therapeutics is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. We and our third-party manufacturers must comply with current Good Manufacturing Practices, or cGMP, regulations and guidelines for the manufacturing of our product candidates used in preclinical studies and clinical trials and, if approved, marketed products. Manufacturers of biotechnology products often encounter difficulties in production, particularly in scaling up and validating initial production. Furthermore, if microbial, viral or other contaminations are discovered in our product candidates or in the manufacturing facilities where our product candidates are made, such manufacturing facilities may be closed for an extended period of time to investigate and remedy the contamination. In addition, the recent increase in large scale demand for the manufacture of mRNA
COVID-19
vaccines may impact our ability to obtain the raw materials required to manufacture our mRNA products. Shortages of raw materials may also extend the period of time required to develop our product candidates.
We cannot assure you that any disruptions or other issues relating to the manufacture of any of our product candidates will not occur in the future. For example, in November 2020, we announced a delay in the manufacturing of our clinical material for the Phase 1/2 clinical trial of MRT5500, which caused a delay in the initiation of the trial. Any delay or interruption in the supply of clinical trial supplies could delay the completion of planned clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials completely. Any adverse developments affecting clinical or commercial manufacturing of our product candidates or products may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls or other interruptions in the supply of our product candidates or products. We may also have to take inventory write-offs and incur other charges and expenses for product candidates or products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Accordingly, failures or difficulties faced at any level of our supply chain could delay or impede the development and commercialization of any of our product candidates or products and could have an adverse effect on our business, prospects, financial condition and results of operations.
If the market opportunities for our product candidates are smaller than we believe they are, even assuming approval of a product candidate, our business may suffer.
Our product candidates are based on novel therapeutic approaches. As such, physicians, hospitals, third-party payors and patients may not accept our product candidates as treatment options, even if approved. While we believe there are commercial opportunities for our product candidates, we cannot be sure that is the case, particularly given the novelty of mRNA-based therapeutics.
Our projections of both the number of people affected by disease within our target indications, as well as the subset of these people who could benefit from treatment with our product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, patient foundations and market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. Likewise, the potentially addressable patient population for each of our product candidates may be limited or may not be amenable to treatment with our product candidates, and new patients may become increasingly difficult to identify or reach, which would adversely affect our results of operations and our business.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
The biotechnology and pharmaceutical industries are highly competitive, characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face and will continue to
 
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face competition from third parties that use mRNA, gene editing or gene therapy development platforms and from companies focused on more traditional therapeutic modalities, such as small molecules. The competition is likely to come from multiple sources, including large and specialty pharmaceutical and biotechnology companies, academic research institutions, government agencies and public and private research institutions.
Our competitors also include companies that are or will be developing other mRNA technology methods as well as small molecules, biologics and nucleic acid-based therapies for the same indications that we are targeting with our mRNA-based therapeutics.
Many of our potential competitors, alone or with their strategic partners, have substantially greater financial, technical and other resources, such as larger research and development, clinical, marketing and manufacturing organizations. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even greater concentration of resources among a smaller number of competitors. Our commercial opportunity could be reduced or eliminated if 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 any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products faster or earlier 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. Additionally, new data from clinical-stage products continue to emerge. Technologies developed by our competitors may render our product candidates uneconomical or obsolete, and we may not be successful in marketing our product candidates against competitors’ products. In addition, the availability of our competitors’ products could limit the demand and the prices we are able to charge for any products that we may develop and commercialize.
If approved for the treatment of CF, MRT5005 would compete with Kalydeco, Orkambi, Symdeko and Trikafta, each of which is marketed by Vertex Pharmaceuticals Incorporated, or Vertex. Vertex also has several CFTR modulator compounds in clinical development, each of which is currently in a Phase 2 clinical trial.
Our other potential competitors for CF include large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, academic institutions, government agencies and research institutions. Examples include AbbVie Inc., Eloxx Pharmaceuticals Ltd, and Proteostasis Therapeutics, Inc.
Other companies developing products that modulate or affect CFTR function for the treatment of CF also include: Arcturus Therapeutics Holdings Inc., CRISPR Therapeutics AG and Moderna, Inc.
Large and established companies, such as Merck & Co., Inc., GlaxoSmithKline plc, Sanofi, Pfizer, Inc., Johnson & Johnson and AstraZeneca plc, among others, compete in the vaccine market. In addition, some of our mRNA competitors, Moderna, Inc. and BioNTech AG, have also developed
COVID-19
vaccines using mRNA technology and other mRNA competitors, such as CureVac AG and Arcturus Therapeutics Holdings, Inc., are developing
COVID-19
vaccines. Currently, several of our competitors have developed
COVID-19
vaccines that have received emergency use approval by the FDA or conditional marketing authorization from the EMA and are being administered throughout the United States, Europe and other parts of the world.
Risks Related to Dependence on Third Parties
We have an existing collaboration with Sanofi and we are highly dependent on the efforts of Sanofi to advance our vaccine development program, including the vaccine against
SARS-CoV-2.
If our collaboration with Sanofi is not successful, our business could be adversely affected.
We currently have a collaboration and license agreement with Sanofi to develop mRNA vaccines for infectious disease pathogens, including
SARS-CoV-2.
MRT5500 has been selected as the lead candidate for a vaccine against
SARS-CoV-2.
Sanofi may not be successful in its efforts to develop or commercialize our vaccine candidates, which could adversely affect our business. In addition, Sanofi could decide not to pursue or prioritize our vaccine candidates, or disputes may arise over certain obligations, which could have an adverse effect on our ability to develop and commercialize any affected product candidate.
 
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We have limited control over the amount and timing of resources that Sanofi dedicates to the development or commercialization of our vaccine candidates. Our ability to generate revenue from our arrangement with Sanofi will depend on Sanofi’s ability to successfully perform the functions assigned to Sanofi.
Our collaboration with Sanofi may pose several risks, including the following:
 
  
Sanofi has significant discretion in determining the efforts and resources that it will apply to our collaboration;
 
  
Sanofi may not perform its obligations as expected;
 
  
The clinical trials conducted as part of our collaboration with Sanofi may not be successful;
 
  
Sanofi may not pursue development and/or commercialization of any vaccine candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in Sanofi’s strategic focus or available funding or external factors, such as an acquisition, that divert resources or create competing priorities;
 
  
Sanofi has final decision-making authority for conducting clinical trials, and this may result in Sanofi delaying clinical trials, providing insufficient funding for clinical trials, stopping a clinical trial or abandoning a vaccine candidate, repeating or conducting new clinical trials or requiring a new formulation of a vaccine candidate for clinical testing;
 
  
We may not have access to, or may be restricted from disclosing, certain information regarding vaccine candidates being developed or commercialized under our collaboration with Sanofi and, consequently, may have limited ability to inform our stockholders about the status of such vaccine candidates;
 
  
Sanofi has an existing collaboration with GlaxoSmithKline plc to develop a
SARS-CoV-2
vaccine candidate that could compete with MRT5500, and Sanofi could further independently develop, or develop with third parties, products that compete directly or indirectly with any of our vaccine candidates if Sanofi believes that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;
 
  
Sanofi may view vaccine candidates developed in collaboration with us as competitive with their own product candidates or products, which may cause Sanofi to cease to devote resources to the commercialization of our vaccine candidates;
 
  
Sanofi may not commit sufficient resources to the marketing and distribution of any such of our vaccine candidates that achieve regulatory approval;
 
  
Disagreements with Sanofi, including disagreements over proprietary rights, contract interpretation or the preferred course of development of any of our vaccine candidates, may cause delays or termination of the research, development, manufacture or commercialization of such vaccine candidates, may lead to additional responsibilities for us with respect to such vaccine candidates or may result in litigation or arbitration, any of which would be time-consuming and expensive. Moreover, in certain circumstances, there could be a misalignment between our contractual obligations to Sanofi and any upstream contractual obligations we may owe to our licensors or other third parties;
 
  
Sanofi may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation. For example, Sanofi has the first right to enforce or defend certain of our intellectual property rights under our collaboration with respect to products in Licensed Fields, and although we may have the right to assume the enforcement and defense of such intellectual property rights if Sanofi does not, our ability to do so may be compromised by Sanofi’s actions;
 
  
Disputes may arise with respect to the ownership of intellectual property developed pursuant to our collaboration with Sanofi;
 
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Sanofi may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and
 
  
Sanofi may terminate our collaboration for convenience after a specified notice period and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable vaccine candidates.
If our collaboration with Sanofi does not result in the successful development and commercialization of vaccines, or if Sanofi terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under our agreement with Sanofi, our development of vaccine candidates could be delayed and we may need additional resources to develop our vaccine candidates.
In addition, if Sanofi terminates its agreement with us, we may find it more difficult to attract new collaborators and our reputation among the business and financial communities could be adversely affected. All of the risks relating to product development, regulatory approval and commercialization described in this Annual Report on Form
10-K
also apply to Sanofi’s activities.
We may enter into additional collaborations with third parties, and if we are not able to establish collaborations on commercially reasonable terms, we may have to alter our development and commercialization plans.
As part of our strategy, we intend to seek to enter into collaborations with third parties for one or more of our programs or product candidates. Our likely collaborators for any other collaboration arrangements include large and
mid-size
pharmaceutical companies and biotechnology companies.
We face significant competition in attracting appropriate collaborators to advance the development of any product candidates for which we may seek a collaboration. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA, EMA or other regulatory authorities, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, the terms of any existing collaboration agreements, and industry and market conditions generally. The collaborator may also have the opportunity to collaborate on other product candidates or technologies for similar indications and will have to evaluate whether such a collaboration could be more attractive than one with us.
Collaborations are complex and time-consuming to negotiate, document and execute. In addition, consolidation among large pharmaceutical companies has reduced the number of potential future collaborators. Even if we are able to successfully enter into collaborations with third parties for one or more of our programs or product candidates, such collaborations may be subject to risks similar to those described above under the risk factor captioned “We have an existing collaboration with Sanofi and we are highly dependent on the efforts of Sanofi to advance our vaccine development program, including the vaccine against
SARS-CoV-2.
If our collaboration with Sanofi is not successful, our business could be adversely affected
.
We may not be able to negotiate collaborations on a timely basis, on acceptable terms or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund
 
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development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue, which could have an adverse effect on our business, prospects, financial condition and results of operations.
Under the Shire Agreement, prior to the first dosing of a patient with a CFTR MRT Product in a Phase 3 clinical trial, Shire has a
90-day
right of first negotiation before we may grant rights or sell assets relating to our CFTR MRT Products to a third party. Shire may exercise the right of first negotiation for a period of 30 days following Shire’s receipt of written notice from us notifying Shire of the offer from a third party to acquire, license or commercialize grant rights or sell assets relating to our CF program.
We expect to rely on third parties to conduct our clinical trials and some aspects of our research and preclinical studies, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research or testing.
We currently rely and expect to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to conduct our clinical trials. In addition, we currently rely and expect to continue to rely on third parties to conduct some aspects of our research and preclinical studies. Any of these third parties may terminate their engagements with us, some in the event of an uncured material breach and some at any time for convenience. In addition, as a consequence of the
COVID-19
pandemic, some of these parties may be unable to perform their engagements satisfactorily or at all. If any of our relationships with these third parties terminate, we may not be able to enter into alternative arrangements on commercially reasonable terms, if at all. Switching or including additional third parties involves increased cost and requires management’s time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, delays may occur in our product development activities. Although we seek to carefully manage our relationships with our third parties, we could encounter similar challenges or delays in the future and these challenges or delays could have a material adverse impact on our business, financial condition and prospects. We expect that the
COVID-19
pandemic will continue to impact our clinical trials as described above in “Risks Related to the
COVID-19
Pandemic.”
Our reliance on third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards. We and these third parties are required to comply with GCP, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area and comparable regulatory authorities, for all of our products in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of these third parties fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, the EMA or comparable regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. 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 regulations. In addition, our clinical trials must be conducted with products produced under cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a U.S. government-sponsored database, clinicaltrials.gov, within certain timeframes. Similar requirements are applicable outside the United States. Failure to comply can result in fines, adverse publicity and civil and criminal sanctions.
Furthermore, third parties on whom we rely may also have relationships with other entities, some of which may be our competitors. In addition, these third parties are not our employees, and except for remedies available to us under our agreements with such third parties, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical,
non-clinical
and preclinical programs. If these third parties do not
 
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successfully satisfy their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our preclinical studies or clinical trials may be extended, delayed or terminated, and we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our products. As a result, our results of operations and the commercial prospects for our products would be harmed, our costs could increase and our ability to generate revenue could be impaired.
Our reliance on third parties to manufacture our product candidates and any future products increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We do not own or operate manufacturing facilities for the production of clinical or commercial supplies of the product candidates that we are developing or evaluating in our research program. Although we have a suite retention and development agreement under which a series of cleanroom suites were built at AMRI’s manufacturing facility in accordance with our objectives, we do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates. We have limited personnel with experience in drug manufacturing and lack the resources and capabilities to manufacture any of our product candidates on a clinical or commercial scale. We currently rely on third parties for supply of our product candidates, and we outsource to third parties all manufacturing of our product candidates in preparation for our clinical trials.
In order to conduct clinical trials of our product candidates, we will need to have them manufactured in potentially large quantities. Our third-party manufacturers may be unable to meet this increased demand in a timely or cost-effective manner, or at all. In addition, as a consequence of the
COVID-19
pandemic, our third-party manufacturers may experience delays or other interruptions with their manufacturing capabilities and may be unable to perform satisfactorily, or at all. In addition, quality issues may arise during
scale-up
activities and at any other time. For example, ongoing data on the stability of our products may shorten the expiry of our products and lead to clinical trial material supply shortages, and potentially clinical trial delays. If these third-party manufacturers are unable to successfully scale up the manufacture of our product candidates in sufficient quality and quantity, the development, testing and clinical trials of that product candidate may be delayed or infeasible, and regulatory approval or commercial launch of that product candidate may be delayed or not obtained, which could significantly harm our business.
Our use of third-party manufacturers increases the risk of delays in production or insufficient supplies of our product candidates as we transfer our manufacturing technology to these manufacturers and as they gain experience manufacturing our product candidates. For example, we are party to a leasing arrangement with a third-party manufacturer, Albany Molecular Research, Inc., or AMRI, for the manufacture of certain portions of our product candidates. Although we were closely involved with the design and construction of the cleanroom suites, we may still experience delays in the development services provided by AMRI. Such delays could materially adversely affect our business.
Even after a third-party manufacturer has gained significant experience in manufacturing our product candidates or even if we believe we have succeeded in optimizing the manufacturing process, there can be no assurance that such manufacturer will produce sufficient quantities of our product candidates in a timely manner or continuously over time, or at all.
In the future, we may be unable to enter into such agreements with third-party manufacturers for commercial supplies of our product candidates, or may be unable to do so on acceptable terms. Even if we are able to establish and maintain arrangements with third-party manufacturers, reliance on third-party manufacturers entails risks, including:
 
  
reliance on the third party for regulatory compliance and quality assurance;
 
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the possible breach of the manufacturing agreement by the third party;
 
  
the possible misappropriation of our proprietary information, including our trade secrets and
know-how;
and
 
  
the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.
Third-party manufacturers may not be able to comply with cGMP requirements or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable requirements could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and/or criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates.
Our product candidates and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP requirements, particularly for the development of mRNA-based therapeutics, and that might be capable of manufacturing for us.
If the third parties that we engage to supply any materials or manufacture product for our preclinical tests and clinical trials should cease to do so for any reason, we likely would experience delays in advancing these tests and trials while we identify and qualify replacement suppliers or manufacturers, and we may be unable to obtain replacement supplies on terms that are favorable to us. For example, we rely on one third-party supplier of the handheld nebulizer that patients in our clinical trials use to administer MRT5005. The failure of our supplier to provide sufficient quantities, acceptable quality and timely delivery of the nebulizer at an acceptable price, or an interruption in the delivery of goods from such supplier, could delay or otherwise adversely affect our clinical trials of MRT5005, and harm our business and prospects. The use of an alternative manufacturer of the nebulizer could involve significant delays and other costs and regulatory challenges, and may not be available to us on reasonable terms, if at all. In addition, if we are not able to obtain adequate supplies of our product candidates or the substances used to manufacture them, it will be more difficult for us to develop our product candidates and compete effectively.
Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to develop product candidates and commercialize any products that receive marketing approval on a timely and competitive basis.
Risks Related to the Commercialization of our Product Candidates
If we are unable to establish sales, medical affairs and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate any product revenue.
We do not currently have a sales and marketing organization and have never commercialized a product. To successfully commercialize any products that may result from our development programs, we will need to develop these capabilities, either on our own or with others. The establishment and development of our own commercial and medical science liaison teams or the engagement of a contract sales force will be expensive and time-consuming and could delay any product launch. Moreover, we cannot be certain that we will be able to successfully develop this capability. We have entered into a collaboration with Sanofi and may also seek to enter into future collaborations with other entities to utilize their established marketing and distribution capabilities, but we may be unable to enter into such agreements on favorable terms, if at all. If our collaborators do not commit sufficient resources to commercialize our products, or we are unable to develop the necessary capabilities on our own, we will be unable to generate sufficient product revenue to sustain our business. We compete with many well-funded and profitable pharmaceutical and biotechnology companies that currently have
 
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extensive and experienced medical affairs, marketing and sales operations to recruit, hire, train and retain marketing and sales personnel. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates. Without an internal team or the support of a third party to perform marketing, sales and medical affairs functions, we may be unable to compete successfully against these more established companies.
Our efforts to educate the medical community and third-party payors about the benefits of our product candidates may require significant resources and may never be successful. If any of our product candidates are approved but fail to achieve market acceptance among physicians, patients, hospitals or third-party payors, we will not be able to generate significant revenue from such product, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
The hospital formulary approval and insurance coverage and reimbursement status of newly approved products, including vaccines, is uncertain. Failure to obtain or maintain adequate hospital formulary approval and/or insurance coverage and reimbursement for our products, if approved, could limit our ability to market those products and decrease our ability to generate product revenue.
We expect that hospital formulary approval and insurance coverage and reimbursement by government and other third-party payors of our products, including vaccines, if approved, will be essential for most patients to be able to access these treatments. Accordingly, sales of our product candidates, if approved, will depend substantially on the extent to which the costs of our product candidates will be paid by hospitals or will be reimbursed by government authorities, private health coverage insurers and other third-party payors. Hospital formulary approval and insurance coverage and reimbursement by other third-party payors may depend upon several factors, including the third-party payor’s determination that use of a product is:
 
  
a covered benefit under the applicable health plan;
 
  
safe, effective and medically necessary;
 
  
appropriate for the specific patient population;
 
  
cost-effective; and
 
  
neither experimental nor investigational.
Obtaining hospital formulary approval and insurance coverage and reimbursement for a product from third-party payors is a time-consuming and costly process that will require us to provide to the hospitals and payors supporting scientific, clinical and cost-effectiveness data. We may not be able to provide data sufficient to gain acceptance with respect to hospital formulary approval and insurance coverage and reimbursement. If hospital formulary approval, insurance coverage and reimbursement are not available, or are available only at limited levels, we may not be able to successfully commercialize our product candidates.
There is significant uncertainty related to hospital formulary approval and insurance coverage and reimbursement of newly approved products. In the United States, third-party payors, including government payors such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs and biologics will be covered and reimbursed. It is difficult to predict what third-party payors will decide with respect to the insurance coverage and reimbursement for our product candidates.
Outside the United States, international operations generally are subject to extensive government price controls and other market regulations, and increasing emphasis on cost-containment initiatives in the European Union, Canada and other countries may put pricing pressure on us. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. In general, the prices of medicines and vaccines under such systems are substantially lower than in the United States. Other countries may use different methods to keep the cost of medical products artificially low. Foreign price controls or other
 
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changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable product revenue.
Moreover, hospitals and government and other third-party payors in the United States and abroad have increasingly taken measures to cap or reduce health care costs. For example, governmental and other third-party payors may attempt to limit both coverage and the level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend toward reducing hospital costs, managed health care, the increasing influence of health maintenance organizations and additional legislative changes.
The commercial success of any of our product candidates will depend upon its degree of market acceptance by physicians, patients, hospitals, third-party payors and others in the medical community.
Even with the requisite approvals from the FDA in the United States, EMA in the European Union and other regulatory authorities internationally, the commercial success of our product candidates, if approved, will significantly depend on the acceptance of physicians, hospitals and health care payors of our product candidates as medically necessary, cost-effective and safe. Any product that we commercialize may not gain acceptance by physicians, hospitals, health care payors and others in the medical community. If these commercialized products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on several factors, including:
 
  
the efficacy and safety of such product candidates as demonstrated in clinical trials;
 
  
the potential and perceived advantages of our product candidates over other treatments;
 
  
the cost-effectiveness of treatment relative to alternative treatments;
 
  
the clinical indications for which the product candidate is approved by the FDA, the EMA or other regulatory body;
 
  
the willingness of physicians to prescribe new therapies over the existing standard of care and future new therapies;
 
  
the willingness of the target patient population to try new therapies;
 
  
the prevalence and severity of any side effects;
 
  
product labeling or product insert requirements of the FDA, EMA or other regulatory authorities, including any limitations or warnings contained in a product’s approved labeling, including any black box warning;
 
  
relative convenience and ease of administration;
 
  
our ability to educate the medical community and third-party payors about the benefit of our product candidates;
 
  
the strength of marketing and distribution support;
 
  
the timing of market introduction of competitive products;
 
  
any restrictions on the use of our products together with other medications;
 
  
publicity concerning our products or competing products and treatments; and
 
  
sufficient third-party payor insurance coverage and adequate reimbursement.
 
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Even if a potential product displays a favorable efficacy and safety profile in preclinical studies and clinical trials, market acceptance of the product will not be fully known until after we begin to commercialize the product.
If we obtain approval to commercialize our product candidates outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.
We expect that we will be subject to additional risks in commercializing our product candidates outside the United States, including:
 
  
different regulatory requirements for approval of drugs and biologics in foreign countries;
 
  
reduced protection for intellectual property rights;
 
  
unexpected changes in tariffs, trade barriers and regulatory requirements;
 
  
economic weakness, including inflation, or political instability in foreign economies and markets;
 
  
different pricing and reimbursement regimes;
 
  
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
 
  
foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;
 
  
workforce uncertainty in countries where labor unrest is more common than in the United States;
 
  
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
 
  
business interruptions resulting from geopolitical actions, including war and terrorism or natural disasters, including earthquakes, typhoons, floods and fires.
Risks Related to Our Business Operations
Unfavorable U.S. or global economic conditions could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely affected by general conditions in the U.S. and global economy and financial markets. A severe or prolonged economic downturn could result in a variety of risks to our business, including, weakened demand for our products, if any, and could adversely impact our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for any current or future approved products. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business. We expect that the
COVID-19
pandemic will continue to disrupt the financial markets and may adversely impact economies worldwide as described above in “Risks Related to the
COVID-19
Pandemic.”
Our future success depends on our ability to retain key employees, consultants and advisors and to attract, retain and motivate qualified personnel.
We are highly dependent on members of our executive team. The loss of the services of any of them may adversely impact the achievement of our objectives. Any of our executive officers could leave our employment at any time, as all of our employees are
“at-will”
employees.
Recruiting and retaining qualified employees, consultants and advisors for our business, including scientific and technical personnel, is also critical to our success. Competition for skilled personnel is intense and the
 
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turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies and academic institutions for skilled individuals. In addition, given the recent development of mRNA
COVID-19
vaccines, there is an increased demand for employees with mRNA manufacturing skills. Furthermore, failure to succeed in preclinical studies, clinical trials or applications for marketing approval may make it more challenging to recruit and retain qualified personnel. The inability to recruit, or loss of services of certain executives, key employees, consultants or advisors, may impede the progress of our research, development and commercialization objectives and have a material adverse effect on our business, financial condition, results of operations and prospects.
If we are unable to manage expected growth in the scale and complexity of our operations, our performance may suffer.
If we are successful in executing our business strategy, we will need to expand our managerial, operational, financial and other systems and resources to manage our operations, continue our research and development activities and, in the longer term, build a commercial infrastructure to support commercialization of any of our product candidates that are approved for sale. Future growth would impose significant added responsibilities on members of management. It is likely that our management, finance, development personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively manage our operations, growth and product candidates requires that we continue to develop more robust business processes and improve our systems and procedures in each of these areas and to attract and retain sufficient numbers of talented employees. We may be unable to successfully implement these tasks on a larger scale and, accordingly, may not achieve our research, development and growth goals.
Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of any product candidates that we may develop.
We face an inherent risk of product liability exposure related to the testing of our product candidates in clinical trials and may face an even greater risk if we commercialize any products that we may develop. If we cannot successfully defend ourselves against claims that our product candidates caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
 
  
decreased demand for any product candidates that we may develop;
 
  
loss of revenue;
 
  
substantial monetary awards to trial participants or patients;
 
  
significant time and costs to defend the related litigation;
 
  
withdrawal of clinical trial participants;
 
  
the inability to commercialize any product candidates that we may develop; and
 
  
injury to our reputation and significant negative media attention.
Our insurance coverage may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage each time we commence a clinical trial and if we successfully commercialize any product candidate. 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.
Our internal computer systems, or those of any collaborators, contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs.
Our internal computer systems and those of any collaborators, contractors or consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and
 
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electrical failures. While we have not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information or other similar disruptions. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. 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, our competitive position could be harmed and the further development and commercialization of our product candidates could be delayed. In addition, we may not have adequate insurance coverage to provide compensation for any losses associated with such events.
We could be subject to risks caused by misappropriation, misuse, leakage, falsification or intentional or accidental release or loss of information maintained in the information systems and networks of our company, including personal information of our employees. In addition, outside parties may attempt to penetrate our systems or those of our vendors or fraudulently induce our employees or employees of our vendors to disclose sensitive information to gain access to our data. Like other companies, we may experience threats to our data and systems, including malicious codes and viruses, and other cyber-attacks. The number and complexity of these threats continue to increase over time. If a material breach of our security or that of our vendors occurs, the market perception of the effectiveness of our security measures could be harmed, we could lose business and our reputation and credibility could be damaged. We could be required to expend significant amounts of money and other resources to repair or replace information systems or networks. Although we develop and maintain systems and controls designed to prevent these events from occurring, and we have a process to identify and mitigate threats, the development and maintenance of these systems, controls and processes is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Moreover, despite our efforts, the possibility of these events occurring cannot be eliminated entirely.
Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including
non-compliance
with regulatory standards and requirements and insider trading laws.
We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners. Misconduct by these parties could include failures to:
 
  
comply with FDA regulations or the regulations applicable in the European Union and other jurisdictions;
 
  
provide accurate information to the FDA, the EMA and other regulatory authorities;
 
  
comply with health care fraud and abuse laws and regulations in the United States and abroad;
 
  
comply with the U.S. Foreign Corrupt Practices Act, or FCPA, or other anti-corruption laws and regulations;
 
  
comply with U.S. federal securities laws relating to trading in our common stock;
 
  
report financial information or data accurately; or
 
  
disclose unauthorized activities to us.
In particular, sales, marketing and business arrangements in the health care industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations regulate a wide range of pricing, discounting, marketing and promotional practices, as well as sales and customer incentive programs and other business arrangements. Other forms of misconduct could involve the improper use of information obtained in the course of clinical trials or interactions with the
 
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FDA, EMA or other regulatory authorities, which could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of conduct and expect to implement other internal controls applicable to all of our employees, consultants and contractors, but it is not always possible to identify and deter third-party 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 government investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, we may be subject to civil, criminal and/or administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from participation in government health care programs, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of
non-compliance
with these laws and the curtailment or restructuring of our operations, any of which could have a significant impact on our business, financial condition, results of operations and prospects.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain patent protection for our products and technology, or if the scope of the patent protection obtained is not sufficiently broad or robust, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to successfully commercialize our products and technology may be adversely affected.
Our success depends, in large part, on our ability to obtain and maintain patent protection in the United States and other countries with respect to our product candidates and technology. We and our licensors have sought, and intend to seek, to protect our proprietary position by filing patent applications in the United States and abroad related to our product candidates and technology that are important to our business.
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 patent rights are highly uncertain. Our pending and future patent applications may not result in patents that protect our technology or product candidates or that effectively prevent others from commercializing competitive technologies and product candidates being issued. Since patent applications in the United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we or our licensors were the first to file a patent application relating to any particular aspect of a product candidate. Furthermore, if third parties have filed such patent applications on inventions claimed in our patent or patent application on or before March 15, 2013, an interference proceeding in the United States can be initiated by such third party to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. If third parties have filed such applications after March 15, 2013, a derivation proceeding in the United States can be initiated by such third parties to determine whether our invention was derived from theirs.
The patent prosecution process is expensive, time-consuming and complex, and we may not be able to file, prosecute, maintain, enforce or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.
Periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents and/or applications will be due to be paid to the United States Patent and Trademark Office, or USPTO, and various government patent agencies outside of the United States over the lifetime of our licensed patents and/or applications and any patent rights we own or may own in the future. We rely, in part, on our outside counsel or our licensing partners to pay these fees due to the USPTO and to
non-U.S.
patent agencies. The USPTO and various
non-U.S.
government patent agencies require compliance with several procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and
 
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other professionals to help us comply and we are also dependent on our licensors to take the necessary action to comply with these requirements with respect to our licensed intellectual property. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which
non-compliance
can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market and this circumstance could have a material adverse effect on our business.
Filing, prosecuting and enforcing patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States could be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from infringing our patents in all countries outside the United States, or from selling or importing products that infringe our patents 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, further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Even if the patent applications we license or own do issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us or otherwise provide us with any competitive advantage. Our competitors or other third parties may be able to circumvent our patents by developing similar or alternative technologies or products in a
non-infringing
manner.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our 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 in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and product candidates. 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 intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
Our product candidates may face competition from biosimilars approved through an abbreviated regulatory pathway.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an
FDA-approved
reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first approved by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first approved. During this
12-year
period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full Biologics License Application, or BLA, for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of the other company’s product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty.
 
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We believe that any of our product candidates approved as a biological product under a BLA should qualify for the
12-year
period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for
non-biological
products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
As is the case with other biotechnology and pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity, and obtaining and enforcing biopharmaceutical patents is costly, time consuming and inherently uncertain. The U.S. Supreme Court has ruled on several patent cases in recent years, and these decisions have narrowed the scope of patent protection available in certain circumstances or weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our and our licensors’ ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once obtained. Depending on future decisions by the U.S. Congress, the federal courts and the USPTO, as well as similar bodies in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that may weaken our and our licensors’ ability to obtain new patents or to enforce existing patents and patents we and our licensors or any collaborators may obtain in the future.
Patent reform legislation enacted in the United States in 2011 could increase the uncertainties and costs surrounding the prosecution of our and our licensors’ patent applications and the enforcement or defense of our or our licensors’ issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art, may affect patent litigation and switch the U.S. patent system from a “first to invent” system to a “first inventor to file” system. The USPTO has developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular the first inventor to file provisions, became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our or our licensors’ patent applications and the enforcement or defense of our or our licensors’ issued patents, all of which could have a material adverse effect on our business and financial condition.
Our rights to develop and commercialize our product candidates are subject, in part, to the terms and conditions of licenses granted to us by others, and, if we fail to comply with our obligations under these arrangements, we could lose such intellectual property rights or owe damages to the licensor of such intellectual property.
We are a party to several intellectual property license agreements, including agreements with the Massachusetts Institute of Technology, or MIT, that are important to our business, and may need to obtain additional licenses from others to advance our research or allow commercialization of our product candidates. These and other licenses may not provide exclusive rights to use such intellectual property and technology in all relevant fields of use and in all territories in which we may wish to develop or commercialize our technology and product candidates in the future. It is possible that we may be unable to obtain additional licenses at a reasonable cost or on reasonable terms, if at all. As a result, we may not be able to prevent competitors from developing and
 
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commercializing competitive products in territories included in all of our licenses. In that event, we may be required to expend significant time and resources to redesign our product candidates or the methods for manufacturing them or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis. If we are unable to do so, we may be unable to develop or commercialize the affected product candidates, which could harm our business significantly.
Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, development and commercialization timelines, milestone payments, royalties and other obligations on us. If we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, the licensor may have the right to terminate the license, in which event we would not be able to market products covered by the license.
For example, our license agreement with MIT imposes specified diligence, annual payment, milestone payment, royalty and other obligations on us. If we fail to comply with our obligations under the license agreement, MIT may have the right to terminate the license agreement, in which event we might not be able to market, and may be required to transfer to MIT our rights in, any product that is covered by the MIT agreement, including products that may be developed under our collaboration with Sanofi. Termination of the license agreement may also result in our having to negotiate a new or reinstated license with less favorable terms, which would have a material adverse impact on our business.
In our existing license agreements, and we expect in future agreements, patent prosecution of our licensed technology is in certain cases controlled solely by the licensor, and we are in certain cases required to reimburse the licensor for their costs of patent prosecution. If our licensors fail to obtain and maintain patent or other protection for the proprietary intellectual property we license from them, we could lose our rights to the intellectual property or our exclusivity with respect to those rights, and our competitors could market competing products covered by the intellectual property. Further, in each of our license agreements, we are responsible for bringing any actions against any third party for infringing the patents we have licensed. Certain of our license agreements also require us to meet development thresholds to maintain the license, including establishing a set timeline for developing and commercializing products and minimum yearly diligence obligations in developing and commercializing the product. Disputes may arise regarding intellectual property subject to a licensing agreement, including:
 
  
the scope of rights granted under the license agreement and other interpretation-related issues;
 
  
the extent to which our technology and processes infringe the intellectual property of the licensor that is not subject to the licensing agreement;
 
  
the sublicensing of patent and other rights under any collaborative development relationships;
 
  
our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
 
  
the inventorship or ownership of inventions and
know-how
resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and
 
  
the priority of invention of patented technology.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.
In addition, the agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our
 
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financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations and prospects.
We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe our patents or the patents of our licensing partners, or we may be required to defend against claims of infringement. Countering infringement or unauthorized use claims or defending against claims of infringement can be expensive and time-consuming. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
In addition, many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own, develop or license.
Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court. We may not be able to protect our trade secrets in court.
If we or one of our licensing partners initiates legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, written description or
non-enablement.
In addition, patent validity challenges may, under certain circumstances, be based upon
non-statutory
obviousness-type double patenting, which, if successful, could result in a finding that the claims are invalid for obviousness-type double patenting or the loss of patent term, including a patent term adjustment granted by the USPTO, if a terminal disclaimer is filed to obviate a finding of obviousness-type double patenting. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld information material to patentability from the USPTO, or made a misleading statement, during prosecution. Third parties also may raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include
re-examination,
post grant review,
inter partes
review and equivalent proceedings in foreign jurisdictions. For example, as of February 24, 2021, four of our patents issued in Europe are under opposition, including one with claims of similar scope as U.S. Patent
 
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10,143,758. Such proceedings could result in the revocation or cancellation of or amendment to our patents in such a way that they no longer cover our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art of which the patent examiner and we or our licensing partners were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we could lose at least part, and perhaps all, of the patent protection on one or more of our product candidates. Such a loss of patent protection could have a material adverse impact on our business.
In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary
know-how
that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our product candidate discovery and development processes that involve proprietary
know-how,
information or technology that is not covered by patents. However, trade secrets can be difficult to protect, and some courts inside and outside the United States are less willing or unwilling to protect trade secrets. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors. We cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary technology and processes. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors.
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 any collaborators to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights and intellectual property of third parties. We cannot provide any assurances that third-party patents do not exist which might be enforced against our current manufacturing methods, product candidates or future methods or products, resulting in either an injunction prohibiting our manufacture or sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties. The biotechnology and pharmaceutical industries are characterized by extensive and complex litigation regarding patents and other intellectual property rights. We may in the future become party to, or be threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our product candidates and technology, including interference proceedings, post grant review and
inter partes
review before the USPTO. The risks of being involved in such litigation and proceedings may also increase as our product candidates approach commercialization and as we gain greater visibility as a public company. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future, regardless of their merit. There is a risk that third parties may choose to engage in litigation with us to enforce or to otherwise assert their patent rights against us. Even if we believe such claims are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, which could materially and adversely affect our ability to commercialize any of our product candidates or technologies covered by the asserted third-party patents. In order to successfully challenge the validity of any such U.S. patent in federal court, we would need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent.
If we are found to infringe a third party’s valid and enforceable intellectual property rights, we could be required to obtain a license from such third party to continue developing, manufacturing and marketing our product candidates and technology. However, we may not be able to obtain any required license on commercially
 
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reasonable terms or at all. Even if we were able to obtain a license, it could be
non-exclusive,
thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. We could be forced, including by court order, to cease developing, manufacturing and commercializing the infringing technology or product candidates. 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 or other intellectual property right. A finding of infringement could prevent us from manufacturing and commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business, financial condition, results of operations and prospects.
Others may claim an ownership interest in our intellectual property and our product candidates, which could expose us to litigation and have a significant adverse effect on our prospects.
While we are presently unaware of any claims or material assertions by third parties with respect to our patents or other intellectual property, we cannot guarantee that a third party will not assert a claim or an interest in any of such patents or intellectual property. For example, a third party may claim an ownership interest in one or more of our, or our licensors’, patents or other proprietary or intellectual property rights. A third party could bring legal actions against us and seek monetary damages or enjoin clinical testing, manufacturing or marketing of the affected product candidate or product. If we become involved in any litigation, it could consume a substantial portion of our resources and cause a significant diversion of effort by our technical and management personnel. If any such action is successful, in addition to any potential liability for damages, we could be required to obtain a license to continue to manufacture or market the affected product candidate or product, in which case we could be required to pay substantial royalties or grant cross-licenses to patents. We cannot, however, assure you that any such license would be available on acceptable terms, if at all. Ultimately, we could be prevented from commercializing a product, or forced to cease some aspect of our business operations as a result of claims of patent infringement or violation of other intellectual property rights. Further, the outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance, including the demeanor and credibility of witnesses and the identity of any adverse party. This is especially true in intellectual property cases, which may turn on the testimony of experts as to technical facts upon which experts may reasonably disagree. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations or prospects.
If we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be adversely affected.
Trade secrets and
know-how
can be difficult to protect. To maintain the confidentiality of trade secrets and proprietary information, we enter into confidentiality agreements with our employees, consultants, collaborators and others upon the commencement of their relationships with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. Our agreements with employees and our personnel policies also provide that any inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. However, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. Thus, despite such agreement, there can be no assurance that such inventions will not be assigned to third parties. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. To the extent that our employees, consultants or contractors use technology or
know-how
owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions. To the extent that an individual who is not obligated to assign rights in intellectual property to us is rightfully an inventor of intellectual property, we may need to obtain an assignment or a license to that intellectual property from that individual, or a third party or from that individual’s assignee. Such assignment or license may not be available on commercially reasonable terms or at all.
 
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Adequate remedies may not exist in the event of unauthorized use or disclosure of our proprietary information. The disclosure of our trade secrets would impair our competitive position and may materially harm our business, financial condition and results of operations. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to maintain trade secret protection could adversely affect our competitive business position. In addition, others may independently discover or develop our trade secrets and proprietary information, and the existence of our own trade secrets affords no protection against such independent discovery. For example, a public presentation in the scientific or popular press on the properties of our product candidates could motivate a third party, despite any perceived difficulty, to assemble a team of scientists having backgrounds similar to those of our employees to attempt to independently reverse engineer or otherwise duplicate our antibody technologies to replicate our success.
We may be subject to claims asserting that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.
Many of our employees, consultants or advisors are currently, or were previously, employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and advisors do not use the proprietary information or
know-how
of others in their work for us, we may be subject to claims that these individuals, or we, have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer, or that patents and applications we have filed to protect inventions of these employees, even those related to one or more of our product candidates, are rightfully owned by their former or current employer. Litigation may be necessary to defend against these claims. If we fail in 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 defending against such claims, litigation could result in substantial costs and be a distraction to management.
In addition, while it is our policy to require our employees and contractors who may be involved in the conception or 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, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
Any registered trademarks or trade names may be challenged, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our financial condition or results of operations.
 
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Intellectual property rights do not necessarily address all potential threats.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business or permit us to maintain our competitive advantage. For example:
 
  
others may be able to make products that are similar to our product candidates but that are not covered by the claims of the patents that we own or license or may own in the future;
 
  
we, or any partners or collaborators, might not have been the first to make the inventions covered by the issued patent or pending patent application that we license or may own in the future;
 
  
we, or any partners or collaborators, might not have been the first to file patent applications covering certain of our or their inventions;
 
  
others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our owned or licensed intellectual property rights;
 
  
it is possible that our pending licensed patent applications or those that we may own in the future will not lead to issued patents;
 
  
issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors;
 
  
our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;
 
  
we may not develop additional proprietary technologies that are patentable;
 
  
the patents of others may have an adverse effect on our business; and
 
  
we may choose not to file a patent for certain trade secrets or
know-how,
and a third party may subsequently file a patent covering such intellectual property.
Should any of these events occur, they could significantly harm our business, financial condition, results of operations and prospects.
Risks Related to Regulatory Approval and Other Legal Compliance Matters
The regulatory approval process of the FDA is lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
The time required to obtain approval by the FDA is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities and the complexity and novelty of the proposed product. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our existing product candidates, or any product candidates we may seek to develop in the future, will ever obtain regulatory approval. Further, as set forth above in the risk factor captioned “We and Sanofi may not be successful in our joint efforts to successfully develop in an expedited timeframe an mRNA vaccine against
SARS-CoV-2,
the virus responsible for
COVID-19,
substantial uncertainty and potential delay surrounds the use of emergency authorization processes to approve products, including vaccines, by the FDA and comparable regulatory authorities in other jurisdictions. The extent to which the FDA and other regulatory authorities rely on such emergency procedures is uncertain and subject to a number of different factors. As a result, even if the FDA and comparable regulatory authorities have indicated that they will rely on these emergency procedures to review our product candidates, including our vaccine candidates, approval of such products under these procedures may be substantially delayed and is not assured.
 
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Our product candidates could fail to receive regulatory approval for many reasons, including the following:
 
  
the FDA may disagree with the design or implementation of our clinical trials;
 
  
we may be unable to demonstrate to the satisfaction of the FDA that a product candidate is safe, pure and potent or effective for its proposed indication;
 
  
results of clinical trials may not meet the level of statistical significance required by the FDA for approval;
 
  
we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
 
  
the FDA may disagree with our interpretation of data from preclinical studies or clinical trials;
 
  
data collected from clinical trials of our product candidates may not be sufficient to support the submission of a BLA to the FDA or other submission or to obtain regulatory approval in the United States;
 
  
the FDA may find deficiencies with or fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and
 
  
the approval policies or regulations of the FDA may significantly change in a manner rendering our clinical data insufficient for approval.
This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market any of our product candidates, which would significantly harm our business, results of operations and prospects. We may also experience delays as a consequence of the
COVID-19
pandemic. The FDA has substantial discretion in the approval process, and determining when or whether regulatory approval will be obtained for any of our product candidates. Even if we believe the data collected from clinical trials of our product candidates are promising, such data may not be sufficient to support approval by the FDA.
Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming and uncertain and may prevent us or any future collaborators from obtaining approvals for the commercialization of some or all of our product candidates. As a result, we cannot predict when or if, and in which territories, we, or any future collaborators, will obtain marketing approval to commercialize a product candidate.
The research, testing, manufacturing, labeling, approval, selling, marketing, promotion and distribution of drug products are subject to extensive regulation by the FDA, EMA and other regulatory authorities, and regulations may differ from country to country. We, and any future collaborators, are not permitted to market our product candidates in the United States or in other countries until we, or they, receive approval of a BLA from the FDA, approval of a marketing authorization application, or MAA, from the EMA, or marketing approval from other applicable regulatory authorities. Our product candidates are in various stages of development and are subject to the risks of failure inherent in drug development. We have not submitted an application for or received marketing approval for any of our product candidates in the United States, Europe or in any other jurisdiction. We have not yet been successful at conducting and managing the clinical trials necessary to obtain marketing approvals, including FDA approval of a BLA and EMA approval of an MAA.
In addition, changes in marketing approval policies during the development period, changes in or the enactment or promulgation of additional statutes, regulations or guidance or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical studies and clinical trials could delay, limit
 
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or prevent marketing approval of a product candidate. Any marketing approval we, or any future collaborators, ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.
Any delay in obtaining or failure to obtain required approvals could materially adversely affect our ability or that of any future collaborators to generate revenue from the particular product candidate, which likely would result in significant harm to our financial position and adversely impact our stock price.
Failure to obtain marketing approval in foreign jurisdictions would prevent our product candidates from being marketed abroad and may limit our ability to generate revenue from product sales.
In order to market and sell our products in the European Union and many other jurisdictions, we, and any future collaborators, must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The marketing approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. We, and any future collaborators, may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA.
In many countries outside the United States, a product candidate must also be approved for reimbursement before it can be sold in that country. In some cases, the price that we intend to charge for our products, if approved, is also subject to approval. Obtaining
non-U.S.
regulatory approvals and compliance with
non-U.S.
regulatory requirements could result in significant delays, difficulties and costs for us and any future collaborators and could delay or prevent the introduction of our product candidates in certain countries. In addition, if we or any future collaborators fail to obtain the
non-U.S.
approvals required to market our product candidates outside the United States or if we or any future collaborators fail to comply with applicable
non-U.S.
regulatory requirements, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed and our business, financial condition, results of operations and prospects may be adversely affected.
Additionally, we could face heightened risks with respect to seeking marketing approval in the United Kingdom as a result of the recent withdrawal of the United Kingdom from the European Union, commonly referred to as Brexit. Pursuant to the formal withdrawal arrangements agreed between the United Kingdom and the European Union, the United Kingdom withdrew from the European Union, effective December 31, 2020. On December 24, 2020, the United Kingdom and European Union entered into a Trade and Cooperation Agreement. The agreement sets out certain procedures for approval and recognition of medical products in each jurisdiction. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of the Trade and Cooperation Agreement would prevent us from commercializing any product candidates in the United Kingdom and/or the European Union and restrict our ability to generate revenue and achieve and sustain profitability. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom and/or European Union for any product candidates, which could significantly and materially harm our business.
We, or any future collaborators, may not be able to obtain and maintain orphan drug exclusivity for our product candidates in the United States and Europe.
Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs and biologics for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug or biologic intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United
 
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States. In November 2015, the FDA granted orphan drug designation to MRT5005 for the treatment of CF. We may seek orphan drug designations for MRT5005 for other indications or for other of our product candidates. There can be no assurances that we will be able to obtain such designations.
Even if we, or any future collaborators, obtain orphan drug designation for a product candidate as we have obtained for MRT5005 for the treatment of CF, we, or they, may not be able to obtain or maintain orphan drug exclusivity for that product candidate. Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving another marketing application for the same product for that time period. The applicable period is seven years in the United States and 10 years in Europe. The European exclusivity period can be reduced to six years if a product no longer meets the criteria for orphan drug designation or if the product is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.
Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different products can be approved for the same condition. For example, the concept of what constitutes the “same drug” for purposes of orphan drug exclusivity remains in flux in the context of gene therapies, and the FDA has issued recent draft guidance suggesting that it would not consider two genetic medicine products to be different drugs solely based on minor differences in the transgenes or vectors. In addition, even after an orphan drug is approved, the FDA can subsequently approve the same product for the same condition if the FDA concludes that the later product is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.
On August 3, 2017, Congress passed the FDA Reauthorization Act of 2017, or FDARA. FDARA, among other things, codified the FDA’s
pre-existing
regulatory interpretation, to require that a drug sponsor demonstrate the clinical superiority of an orphan drug that is otherwise the same as a previously approved drug for the same rare disease in order to receive orphan drug exclusivity. The new legislation reverses prior precedent holding that the Orphan Drug Act unambiguously requires that the FDA recognize the orphan exclusivity period regardless of a showing of clinical superiority. The FDA may further reevaluate the Orphan Drug Act and its regulations and policies. We do not know if, when, or how the FDA may change the orphan drug regulations and policies in the future, and it is uncertain how any changes might affect our business. Depending on what changes the FDA may make to its orphan drug regulations and policies, our business could be adversely impacted.
Although we have received fast track designation for MRT5005 for CF, such designation may not actually lead to a faster development or regulatory review or approval process. In addition, we may not receive such designation for other product candidates.
If a product is intended for the treatment of a serious or life-threatening condition and the product demonstrates the potential to address unmet needs for this condition, the treatment sponsor may apply for FDA fast track designation. We have received fast track designation for MRT5005 for CF. However, even though we received fast track designation, fast track designation does not ensure that we will receive marketing approval or that approval will be granted within any particular timeframe. We may not experience a faster development, regulatory review or approval process with fast track designation compared to conventional FDA procedures. Additionally, the FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program. Fast track designation alone does not guarantee qualification for the FDA’s priority review procedures. In addition, if we seek fast track designation for other product candidates, we may not receive it from the FDA.
 
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The FDA has granted a Rare Pediatric Disease Designation, or RPDD, for MRT5005 and we may seek the same designation for one or more of our other product candidates. However, a BLA for one or more of our product candidates may not meet the eligibility criteria for a priority review voucher upon approval nor does this designation mean that our product candidates, including MRT5005, will be subject to a faster development and regulatory review process.
With enactment of the Food and Drug Administration Safety and Innovation Act in 2012, Congress authorized the FDA to award priority review vouchers to sponsors of certain rare pediatric disease product applications that meet the criteria specified in the law. This provision is designed to encourage development of new drug and biological products for prevention and treatment of certain rare pediatric diseases. Specifically, under this program, a sponsor who receives an approval for a drug or biologic for a “rare pediatric disease” may qualify for a voucher that can be redeemed to receive a priority review of a subsequent marketing application for a different product. The sponsor of a rare pediatric disease drug product receiving a priority review voucher may transfer (including by sale) the voucher to another sponsor. The voucher may be further transferred any number of times before the voucher is used, as long as the sponsor making the transfer has not yet submitted the application.
For the purposes of this program, a “rare pediatric disease” is a (a) serious or life-threatening disease in which the serious or life-threatening manifestations primarily affect individuals aged from birth to 18 years, including age groups often called neonates, infants, children, and adolescents; and (b) rare disease or conditions within the meaning of the Orphan Drug Act. In March 2020, the FDA granted Rare Pediatric Designation for MRT5005 for the treatment of CF. The FDA may, however, determine that a BLA for this product candidate or our other product candidates do not meet the eligibility criteria for a priority review voucher upon approval.
While the opportunity to receive a priority review voucher was meant to expire for those companies that had not received a designation by September 30, 2020, Congress authorized an extension of the program in late 2020. Specifically, on December 27, 2020, the Rare Pediatric Disease Priority Review Voucher Program was extended. Under the current statutory sunset provisions, after September 30, 2024, the FDA may only award a voucher for an approved rare pediatric disease product application if the sponsor has rare pediatric disease designation for the drug, and that designation was granted by September 30, 2024. After September 30, 2026, the FDA may not award any rare pediatric disease priority review vouchers.
A breakthrough therapy designation by the FDA for a product candidate may not lead to a faster development or regulatory review or approval process, and it would not increase the likelihood that the product candidate will receive marketing approval.
We may seek a breakthrough therapy designation for one or more product candidates. A breakthrough therapy is defined as a product candidate that is intended, alone or in combination with one or more other drugs, 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, such as substantial treatment effects observed early in clinical development. For product candidates that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Product candidates designated as breakthrough therapies by the FDA are also eligible for priority review if supported by clinical data at the time of the submission of the BLA.
Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe that one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to product candidates considered for approval under conventional FDA procedures and it would not assure
 
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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 candidate no longer meets the conditions for qualification or it may decide that the time period for FDA review or approval will not be shortened.
Even if we, or any future collaborators, obtain marketing approvals for our product candidates, the terms of approvals and ongoing regulation of our products may limit how we, or they, manufacture and market our products, which could materially impair our ability to generate revenue.
Once marketing approval has been granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensive regulation. We, and any future collaborators, must therefore comply with requirements concerning advertising and promotion for any of our product candidates for which we or they obtain marketing approval. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Thus, we, and any future collaborators, will not be able to promote any products we develop for indications or uses for which they are not approved.
In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. We, our third-party manufacturers, any future collaborators and their third-party manufacturers could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with cGMPs.
Accordingly, assuming we, or any future collaborators, receive marketing approval for one or more of our product candidates, we, and any future collaborators, and our respective third-party manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control.
If we, and any future collaborators, are not able to comply with post-approval regulatory requirements, we, and any future collaborators, could have the marketing approvals for our products withdrawn by regulatory authorities and our, or any future collaborators’, ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.
Any of our product candidates for which we, or any future collaborators, obtain marketing approval in the future could be subject to post-marketing restrictions or withdrawal from the market and we, or any future collaborators, may be subject to substantial penalties if we, or they, fail to comply with regulatory requirements or if we, or they, experience unanticipated problems with our products following approval.
Any of our product candidates for which we, or any future collaborators, obtain marketing approval in the future, as well as the manufacturing processes, post-approval studies and measures, labeling, advertising and promotional activities for such product, among other things, will be subject to continual requirements of and review by the FDA, EMA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, including the requirement to implement a REMS.
The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a product. The FDA and other agencies, including the Department of Justice, closely regulate and monitor the post-approval marketing and promotion of products to ensure that they are
 
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manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding
off-label
use and if we, or any future collaborators, do not market any of our product candidates for which we, or they, receive marketing approval for only their approved indications, we, or they, may be subject to warnings or enforcement action for
off-label
marketing. Violation of the Federal Food, Drug, and Cosmetic Act and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription drugs may lead to investigations or allegations of violations of federal and state health care fraud and abuse laws and state consumer protection laws.
In addition, later discovery of previously unknown side effects or other problems with our products or their manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:
 
  
restrictions on such products, manufacturers or manufacturing processes;
 
  
restrictions on the labeling or marketing of a product;
 
  
restrictions on product distribution or use;
 
  
requirements to conduct post-marketing studies or clinical trials;
 
  
warning letters or untitled letters;
 
  
withdrawal of the products from the market;
 
  
refusal to approve pending applications or supplements to approved applications that we submit;
 
  
recall of products;
 
  
restrictions on coverage by third-party payors;
 
  
fines, restitution or disgorgement of profits or revenue;
 
  
suspension or withdrawal of marketing approvals, including license revocation;
 
  
refusal to permit the import or export of products;
 
  
product seizure; and
 
  
injunctions or the imposition of civil or criminal penalties.
Our relationships with health care providers, physicians and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other health care laws and regulations, which could expose us to civil, criminal and administrative sanctions, contractual damages, reputational harm and diminished future profits and earnings.
Health care providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any drugs for which we obtain marketing approval. Our future arrangements with third-party payors, health care providers and physicians may expose us to broadly applicable fraud and abuse and other health care laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any drugs for which we obtain marketing approval. These include the following:
 
  
Anti-Kickback Statute
—the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing any remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation or arranging of, any good, facility, item or service, for which payment may be made, in whole or in part, by a federal health care program, such as Medicare and Medicaid;
 
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False Claims Act
—the federal civil and criminal false claims laws impose criminal and civil penalties, including, in some cases, through civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment by a federal health care program or knowingly making a false statement or record material to payment of a false claim or knowingly avoiding, decreasing or concealing an obligation to pay money to the federal government, with potential liability including mandatory treble damages and significant
per-claim
penalties;
 
  
HIPAA
—the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit, among other things, executing a scheme to defraud any health care benefit program or making false statements relating to health care matters, and apply regardless of the payor (e.g., public or private);
 
  
HIPAA and HITECH
—HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations, which impose obligations on HIPAA covered entities and their business associates, including mandatory contractual terms and required implementation of administrative, physical and technical safeguards to maintain the privacy and security of individually identifiable health information;
 
  
Transparency Requirements
—federal transparency laws, including the federal Physician Payments Sunshine Act, require applicable manufacturers of covered drugs to annually report payments and other transfers of value to physicians and teaching hospitals and ownership or investment interests held by physicians and their family members; and
 
  
Analogous State and Foreign Laws
—analogous state and foreign fraud and abuse laws and regulations, such as state anti-kickback and false claims laws, which may be broader than similar federal laws, can apply to claims involving health care items or services regardless of payor, and are enforced by many different federal and state agencies as well as through private actions.
Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and require drug manufacturers to report information related to payments and other transfers of value to physicians and other health care providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not
pre-empted
by HIPAA, thus complicating compliance efforts.
Efforts to ensure that our business arrangements with third parties will comply with applicable health care laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other health care 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/or administrative penalties, damages, fines, individual imprisonment, disgorgement, exclusion of drugs from government funded health care programs, such as Medicare and Medicaid, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of
non-compliance
with these laws and the curtailment or restructuring of our operations. If any of the physicians or other health care providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded health care programs.
The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is also prohibited in the European Union. The provision of benefits or advantages to physicians is governed by the national anti-bribery laws of European Union Member States, such as the U.K. Bribery Act 2010, or the Bribery Act. Infringement of these laws could result in substantial fines and imprisonment.
 
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Payments made to physicians in certain European Union Member States must be publicly disclosed. Moreover, agreements with physicians often must be the subject of prior notification and approval by the physician’s employer, his or her competent professional organization and/or the regulatory authorities of the individual European Union Member States. These requirements are provided in the national laws, industry codes or professional codes of conduct, applicable in the European Union Member States. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.
Compliance with global privacy and data security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and process data globally, and the failure to comply with such requirements could subject us to significant fines and penalties, which may have a material adverse effect on our business, financial condition or results of operations.
The regulatory framework for the collection, use, safeguarding, sharing, transfer and other processing of information worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Globally, virtually every jurisdiction in which we operate has established its own data security and privacy frameworks with which we must comply. For example, the collection, use, disclosure, transfer, or other processing of personal data regarding individuals in the European Union, including personal health data, is subject to the EU General Data Protection Regulation, or the GDPR, which took effect across all member states of the European Economic Area, or EEA, in May 2018. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors. The GDPR increases our obligations with respect to clinical trials conducted in the EEA by expanding the definition of personal data to include coded data and requiring changes to informed consent practices and more detailed notices for clinical trial subjects and investigators. In addition, the GDPR also imposes strict rules on the transfer of personal data to countries outside the European Union, including the United States, and, as a result, increases the scrutiny that clinical trial sites located in the EEA should apply to transfers of personal data from such sites to countries that are considered to lack an adequate level of data protection, such as the United States. The GDPR also permits data protection authorities to require destruction of improperly gathered or used personal information and or impose substantial fines for violations of the GDPR, which can be up to four percent of global revenues or 20 million Euros, whichever is greater and it also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. In addition, the GDPR provides that European Union member states may make their own further laws and regulations limiting the processing of personal data, including genetic, biometric or health data.
Similar actions are either in place or under way in the United States. There are a broad variety of data protection laws that are applicable to our activities, and a wide range of enforcement agencies at both the state and federal levels that can review companies for privacy and data security concerns based on general consumer protection laws. The Federal Trade Commission and state Attorneys General all are aggressive in reviewing privacy and data security protections for consumers. New laws also are being considered at both the state and federal levels. For example, the California Consumer Privacy Act—which went into effect on January 1, 2020—is creating similar risks and obligations as those created by GDPR, though the Act does exempt certain information collected as part of a clinical trial subject to the Federal Policy for the Protection of Human Subjects (the Common Rule). Many other states are considering similar legislation. A broad range of legislative measures also have been introduced at the federal level. Accordingly, failure to comply with federal and state laws (both those currently in effect and future legislation) regarding privacy and security of personal information could expose us to fines and penalties under such laws. There also is the threat of consumer class actions related to these laws and the overall protection of personal data. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our reputation and our business.
 
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Given the breadth and depth of changes in data protection obligations, preparing for and complying with these requirements is rigorous and time intensive and requires significant resources and a review of our technologies, systems and practices, as well as those of any third-party collaborators, service providers, contractors or consultants that process or transfer personal data collected in the European Union. The GDPR and other changes in laws or regulations associated with the enhanced protection of certain types of sensitive data, such as healthcare data or other personal information from our clinical trials, could require us to change our business practices and put in place additional compliance mechanisms, may interrupt or delay our development, regulatory and commercialization activities and increase our cost of doing business, and could lead to government enforcement actions, private litigation and significant fines and penalties against us and could have a material adverse effect on our business, financial condition or results of operations.
Current and future legislation may increase the difficulty and cost for us and any future collaborators to obtain marketing approval of and commercialize our product candidates and affect the prices we, or they, may obtain.
In the United States and some foreign jurisdictions, there have been and continue to be a number of legislative and regulatory changes and proposed changes regarding the health care 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 future collaborators, to profitably sell any products for which we, or they, obtain marketing approval. We expect that current laws, as well as other health care 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 future collaborators, may receive for any approved products.
In March 2010, President Obama signed into law the ACA. Among the provisions of the ACA of importance to our business, including, without limitation, our ability to commercialize and the prices we may obtain for any of our product candidates, are the following:
 
  
an annual,
non-deductible
fee on any entity that manufactures or imports specified branded prescription drugs and biologic products;
 
  
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;
 
  
expansion of federal health care fraud and abuse laws, including the civil False Claims Act and the federal Anti-Kickback Statute, new government investigative powers and enhanced penalties for noncompliance;
 
  
a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50%
point-of-sale
discounts off negotiated prices;
 
  
extension of manufacturers’ Medicaid rebate liability;
 
  
expansion of eligibility criteria for Medicaid programs;
 
  
expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
 
  
new requirements to report certain financial arrangements with physicians and teaching hospitals;
 
  
a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; 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.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. These changes include the Budget Control Act of 2011, which, among other things, led to aggregate reductions to
 
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Medicare payments to providers of 2% per fiscal year starting in 2013 and that, due to subsequent legislative amendments to the statute, will stay in effect through 2029. The CARES Act and other
COVID-19
relief legislation suspended the 2% Medicare sequester from May 1, 2020 through March 3, 2021, and extended the sequester by one year, through 2030. The American Taxpayer Relief Act of 2012 reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws and any new health care reform measures may result in additional reductions in Medicare and other health care funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used. Further, there have been several recent U.S. congressional inquiries and proposed state and federal legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products.
Since enactment of the ACA, there have been, and continue to be, numerous legal challenges and Congressional actions to repeal and replace provisions of the law. For example, with enactment of the Tax Cuts and Jobs Act of 2017, which was signed by President Trump on December 22, 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, will become effective in 2019. Additionally, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the
ACA-mandated
“Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminates the health insurer tax. Further, the Bipartisan Budget Act of 2018, among other things, amended the ACA, effective January 1, 2019, to increase from 50 to 70 percent the
point-of-sale
discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” The Congress may consider other legislation to replace elements of the ACA during the next Congressional session.
We expect that these health care reforms, as well as other health care reform measures that may be adopted in the future, may result in additional reductions in Medicare, Medicaid and other health care funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure on the price that we receive for any approved product and/or the level of reimbursement physicians receive for administering any approved product we might bring to market. Reductions in reimbursement levels may negatively impact the prices we receive or the frequency with which our products are prescribed or administered. Any reduction in reimbursement from Medicare, Medicaid or other government programs may result in a similar reduction in payments from private payors.
The Trump Administration also took executive actions to undermine or delay implementation of the ACA. President Trump signed two Executive Orders designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. One Executive Order directs federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. The second Executive Order terminates the cost-sharing subsidies that reimburse insurers under the ACA. Several state Attorneys General filed suit to stop the Administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. In addition, CMS has recently proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces.
Further, on December 14, 2018, a U.S. District Court judge in the Northern District of Texas ruled that the individual mandate portion of the ACA is an essential and inseverable feature of the ACA, and therefore because the mandate was repealed as part of the Tax Cuts and Jobs Act, the remaining provisions of the ACA are invalid
 
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as well. On December 18, 2019, the Court of Appeals for the Fifth Circuit affirmed the lower court’s ruling that the individual mandate portion of the ACA is unconstitutional. On January 21, 2020, the U.S. Supreme Court declined to review this decision on an expedited basis, but on March 3, 2020, the Court agreed to hear the case through its normal procedures. The Supreme Court heard oral argument in this case on November 10, 2020, and a decision is expected sometime this year. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results.
The cost of prescription pharmaceuticals has also been the subject of considerable discussion in the United States. To date, there have been several recent U.S. Congressional inquiries and proposed and enacted state and federal legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products.
In addition, on July 24, 2020, President Trump issued four executive orders intended to lower the costs of prescription drug products. Several of these orders are reflected in recently promulgated regulations, and one of these regulations is currently subject to a nationwide preliminary injunction. It remains to be seen whether these orders and resulting regulations will remain in force during the Biden Administration.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.
Finally, legislative and regulatory proposals have also been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us and any future collaborators to more stringent product labeling and post-marketing testing and other requirements.
Governments outside of the United States tend to impose strict price controls, which may adversely affect our revenues from the sales of drugs and vaccines, if any.
In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals and vaccines is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug or vaccine. To obtain reimbursement or pricing approval in some countries, we, or our future collaborators, may be required to conduct a clinical trial that compares the cost-effectiveness of our drug or vaccine to other available therapies. If reimbursement of our drugs or vaccines is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be materially harmed.
 
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We are subject to anti-corruption laws, as well as export control laws, customs laws, sanctions laws and other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures and legal expenses, which could adversely affect our business, results of operations and financial condition.
Our operations are subject to anti-corruption laws, including the FCPA, the Bribery Act, and other anti-corruption laws that apply in countries where we do business and may do business in the future. The FCPA, the Bribery Act, and these other laws generally prohibit us, our officers and our employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. We may in the future operate in jurisdictions that pose a high risk of potential FCPA or Bribery Act violations, and we may participate in collaborations and relationships with third parties whose actions could potentially subject us to liability under the FCPA, the Bribery Act, or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.
We are also subject to other laws and regulations governing our international operations, including regulations administered by the governments of the United States, United Kingdom, and authorities in the European Union, including applicable export control regulations, economic sanctions on countries and persons, customs requirements and currency exchange regulations, which we collectively refer to as Trade Control Laws.
There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the FCPA, the Bribery Act, or other legal requirements, including Trade Control Laws. If we are not in compliance with the FCPA, the Bribery Act, and other anti-corruption laws or Trade Control Laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions. Likewise, any investigation of any potential violations of the FCPA, the Bribery Act, other anti-corruption laws or Trade Control Laws by U.S., U.K. or other authorities could also have an adverse impact on our reputation, our business, results of operations and financial condition.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could significantly harm our business.
We 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 may also produce hazardous waste products. Although we contract with third parties for the disposal of these materials and waste products, we cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting from the use or disposal of our 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.
We maintain workers’ compensation insurance to cover costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, but 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 addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current or future environmental laws and regulations may impair our research, development or production efforts, which could adversely affect our business, financial condition, results of operations or prospects. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties or other sanctions.
 
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Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
Risks Related to Ownership of Our Common Stock
Our executive officers, directors and principal stockholders maintain the ability to control all matters submitted to stockholders for approval.
We believe our executive officers, directors and stockholders which own more than 5% of our outstanding common stock, in the aggregate, beneficially own more than a majority of our capital stock. We also have one stockholder who holds approximately 24% of our outstanding common stock. If these stockholders were to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and business affairs. For example, these persons, if they act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire or result in management of our company that other stockholders disagree with.
A substantial number of shares of our common stock may be sold into the market in the near future, including pursuant to our Sales Agreement with Jefferies or our universal shelf registration statement, which could result in dilution to our stockholders and/or cause the market price of our common stock to drop significantly, even if our business is performing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time, subject to certain restrictions under U.S. securities laws. A significant number of our total outstanding shares are restricted from resale but may be sold into the market in the near future. Moreover, holders of a substantial number of shares of our common stock have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.
In July 2020, we issued and sold 4,884,434 shares of common stock to an affiliate of Sanofi, or the Sanofi Investor, in connection with the Second Sanofi Amendment. We registered these shares on a registration statement in August 2020, covering the resale by the Sanofi Investor of the common stock purchased in the private placement and have agreed to keep the registration statement effective until the date the shares covered by the registration statement have been sold or can be sold without restriction pursuant to Rule 144 of the Securities Act of 1933, as amended, or the Securities Act. The Sanofi Investor will not, and will cause its
 
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affiliates not to, sell or transfer the shares without our prior written approval, subject to specified conditions, until January 2022. In June 2020, we completed a public offering in which we issued and sold 5,681,819 shares of common stock and a stockholder sold 6,824,992 shares of common stock registered under our universal shelf registration statement. Furthermore, we have registered an aggregate of 14,042,632 shares of our common stock on Form
S-8
to be issued to our employees under certain employee benefit plans. Registered shares can be freely sold in the public market, subject only to volume limitations applicable to affiliates.
We currently have on file with the SEC a universal shelf registration statement which allows us to offer and sell an indeterminate amount of registered common stock, preferred stock, debt securities, warrants and/or units from time to time pursuant to one or more offerings at prices and terms to be determined at the time of sale. We are party to an Open Market Sale Agreement
SM
, or Sales Agreement, with Jefferies LLC, or Jefferies, pursuant to which, from time to time, we may offer and sell through Jefferies up to $100.0 million of common stock pursuant to one or more “at the market” offerings. Through December 31, 2020, pursuant to the Sales Agreement, we had issued and sold an aggregate of 2,863,163 shares of our common stock, for gross proceeds of $37.9 million, before deducting commissions of $1.1 million and other offering expenses of $0.2 million. In the future, $62.1 million of our common stock remain available to be sold pursuant to the Sales Agreement. Sales of a substantial number of shares of our common stock, or the perception in the market that holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.
Sales of substantial amounts of shares of our common stock or other securities our stockholders, by Jefferies pursuant to the Sales Agreement, under our universal shelf registration statement or otherwise could also dilute our stockholders.
If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock could decline.
The trading market for our common stock will rely, in part, on the research and reports that industry or financial analysts publish about us or our business. There can be no assurance that existing analysts will continue to cover us or that new analysts will begin to cover us. There is also no assurance that any covering analyst will provide favorable coverage. A lack of research coverage or adverse coverage may negatively impact the market price of our common stock. In addition, if one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.
The price of our common stock is volatile and may fluctuate substantially, which could result in substantial losses for purchasers of our common stock.
Our stock price is volatile. The stock market in general, and the market for biopharmaceutical companies in particular, has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price for our common stock may be influenced by many factors, including:
 
  
results of preclinical studies and clinical trials of our product candidates or those of our competitors;
 
  
public announcements about the scientific community’s evolving understanding of the
COVID-19
pandemic and the potential effectiveness of vaccines, treatments, public health measures and other approaches to addressing the disease;
 
  
the success of competitive products or technologies;
 
  
commencement or termination of collaborations;
 
  
regulatory or legal developments in the United States and other countries;
 
  
developments or disputes concerning patent applications, issued patents or other proprietary rights;
 
  
the recruitment or departure of key personnel;
 
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the level of expenses related to any of our product candidates or clinical development programs;
 
  
the results of our efforts to discover, develop, acquire or
in-license
additional product candidates;
 
  
actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
 
  
variations in our financial results or those of companies that are perceived to be similar to us;
 
  
changes in the structure of health care payment systems;
 
  
market conditions in the pharmaceutical and biotechnology sectors;
 
  
the entry into significant acquisitions, strategic partnerships or divestitures by us or our competitors;
 
  
significant sales of our common stock, including sales by our directors, executive officers or 5% stockholders;
 
  
general economic, industry and market conditions, such as the impact of the
COVID-19
pandemic on our industry and market conditions; and
 
  
the other factors described in this “Risk Factors” section.
If any of the foregoing matters were to occur, or if our operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation often has been instituted against that company. Such litigation, if instituted against us, could cause us to incur substantial costs to defend such claims and divert management’s attention and resources, which could seriously harm our business, financial condition, results of operations and prospects.
We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and requirements.
As a public company, and particularly as we ceased to be an emerging growth company, or EGC, as of December 31, 2020, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and rules subsequently implemented by the SEC and the Nasdaq Stock Market have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. In addition, as we ceased to be an EGC, we are now required to comply with auditor attestation requirements, increased disclosure obligations and other reporting requirements, which has increased our costs for the 2021 fiscal year. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, is designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404
 
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of the Sarbanes-Oxley Act, or Section 404, or any subsequent testing by our independent registered public accounting firm may reveal deficiencies in our internal control over financial reporting that are deemed to be significant deficiencies or material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.
Pursuant to Section 404, we are required to furnish a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404, we are engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we continue to dedicate internal resources, continue to engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
Provisions in our certificate of incorporation and bylaws and under Delaware law could make an acquisition of us, 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 certificate of incorporation and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions also could 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 not all members of the board are elected at one time;
 
  
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 the board;
 
  
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 effected 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 stockholder rights plan, or
so-called
“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 certain provisions of our certificate of incorporation or bylaws.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding
 
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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.
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty owed by our directors, officers, other employees or stockholders to us or our stockholders, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law or as to which the Delaware General Corporation Law confers jurisdiction on the Court of Chancery of the State of Delaware, or any action asserting a claim arising pursuant to our certificate of incorporation or our bylaws or governed by the internal affairs doctrine. These choice of forum provisions will not apply to suits brought to enforce a duty or liability created by the Securities Act, the Exchange Act of 1934, as amended, or any other claim for which federal courts have exclusive jurisdiction. This provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, other employees or other stockholders, which may discourage such lawsuits against us and our directors, officers, other employees or other stockholders. Alternatively, if a court were to find this provision in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future, and investors seeking cash dividends should not purchase shares of our common stock.
General Risk Factors
Changes in tax laws or in their implementation or interpretation may adversely affect our business and financial condition.
Recent changes in tax law may adversely affect our business or financial condition. On December 22, 2017, the U.S. government enacted the Tax Act, which significantly reformed the Code. The Tax Act, among other things, contained significant changes to corporate taxation, including a reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, the limitation of the tax deduction for net interest expense to 30% of adjusted taxable income (except for certain small businesses), the limitation of the deduction for net operating losses arising in taxable years beginning after December 31, 2017 to 80% of current year taxable income and elimination of net operating loss carrybacks for losses arising in taxable years ending after December 31, 2017 (though any such net operating losses may be carried forward indefinitely), the allowance of immediate deductions for certain new investments instead of deductions for depreciation expense over time, and the modification or repeal of many business deductions and credits.
As part of Congress’s response to the
COVID-19
pandemic, the Families First Coronavirus Response Act, or FFCR Act, was enacted on March 18, 2020, and the CARES Act was enacted on March 27, 2020. Both contain numerous tax provisions. In particular, the CARES Act retroactively and temporarily (for taxable years beginning before January 1, 2021) suspends application of the
80%-of-income
limitation on the use of net
 
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operating losses, which was enacted as part of the Tax Act. It also provides that net operating losses arising in any taxable year beginning after December 31, 2017, and before January 1, 2021 are generally eligible to be carried back up to five years. The CARES Act also temporarily (for taxable years beginning in 2019 or 2020) relaxes the limitation of the tax deductibility for net interest expense by increasing the limitation from 30 to 50% of adjusted taxable income.
Regulatory guidance under the Tax Act, the FFCR Act and the CARES Act is and continues to be forthcoming, and such guidance could ultimately increase or lessen impact of these laws on our business and financial condition. It is also possible that Congress will enact additional legislation in connection with the
COVID-19
pandemic, some of which could have an impact on our company. In addition, it is uncertain if and to what extent various states will conform to the Tax Act, the FFCR Act or the CARES Act.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our headquarters consists of office and laboratory space in Lexington, Massachusetts. We occupy approximately 59,000 square feet of space under a
10-year
lease agreement, which we entered into in June 2017. We occupied this leased property in March 2018. This lease expires in April 2028, and we have two five-year options to extend it through April 2038.
In November 2020, we entered into a
10-year
lease agreement for approximately 138,444 square feet of office and laboratory space located in Waltham, Massachusetts. This lease includes an extension option of one period of 10 years. We anticipate occupying this space in the fourth quarter of 2021.
We believe the Lexington headquarters, together with the anticipated relocation to the space in Waltham, will be sufficient to meet our needs for the foreseeable future and that suitable additional space will be available as and when needed.
Item 3. Legal Proceedings.
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not currently subject to any material legal proceedings.
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.
Market for Our Common Stock
Our common stock trades under the symbol “TBIO” on the Nasdaq Global Select Market and has been publicly traded since June 28, 2018.
Holders of Our Common Stock
As of February 24, 2021, there were approximately 50 holders of record of shares of our common stock. This number does not include stockholders for whom shares are held in “nominee” or “street” name.
Dividend Policy
We have never declared nor paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination to declare and pay dividends will be made at the discretion of our board of directors and will depend on then-existing conditions, including our results of operations, financial condition, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.
Equity Compensation Plans
The information required by Item 5 of Part II of this Annual Report on Form
10-K
regarding equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report on
Form 10-K.
Issuer Purchases of Equity Securities
None.
Item 6. Selected Financial Data.
Not applicable.
 
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes appearing at the end of this Annual Report on Form
10-K.
In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and at the end of this report, including those set forth under Item 1A. “Risk Factors” in this Annual Report on Form
10-K.
Objective
The purpose of this Management’s Discussion and Analysis is to better allow our investors to understand and view our company from our management’s perspective. We are providing an overview of our business and strategy, followed by a discussion of our financial condition and results of operations. As further discussed below, our vision is to continue building a leading mRNA product company, leveraging our extensive experience with proprietary mRNA product development, delivery, manufacturing and process development. However, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. We believe that our existing cash, cash equivalents and investments will enable us to fund our operating expenses and capital expenditure requirements through 2023.
Business Overview
We are a clinical-stage messenger RNA, or mRNA, therapeutics company developing a new class of potentially transformative medicines to treat diseases caused by protein or gene dysfunction, or to prevent infectious diseases by generating protective immunity. Using our proprietary mRNA therapeutic platform, or MRT platform, we create mRNA that encodes functional proteins. Our mRNA is designed to be delivered to the target cell where the cell’s own machinery recognizes it and translates it, restoring or augmenting protein function to treat or prevent disease. We believe the mRNA design, delivery and manufacturing capabilities of our MRT platform provide us with the most advanced platform for developing product candidates that deliver mRNA encoding functional proteins for therapeutic uses. We believe our MRT platform is broadly applicable across multiple diseases in which the production of a desirable protein can have a therapeutic effect. We are primarily focused on applying our MRT platform to treat pulmonary diseases caused by insufficient protein production or where production of proteins can modify disease. In addition, we are pursuing discovery efforts in diseases that affect the liver. We are also pursuing the applicability of our MRT platform for the development of mRNA vaccines for infectious diseases under a collaboration with Sanofi Pasteur Inc., or Sanofi, the vaccine global business unit of Sanofi S.A.
We believe MRT5005 is the first clinical-stage mRNA product candidate designed to deliver mRNA encoding fully functional CFTR protein to the lung. We have designed MRT5005 to be inhaled via a handheld nebulizer. Once the inhaled MRT5005 has entered the epithelial cells lining the patient’s lungs, our therapeutic mRNA uses the cells’ own machinery for translation and expression of fully functional CFTR protein, thereby restoring this essential ion channel, which we believe will address the pathology of CF directly. Currently approved CFTR modulating therapies are limited to patients with specific genetic mutations; therefore, there remains a significant unmet medical need for patients with CF who have genetic mutations
non-amenable
to currently approved CFTR modulating therapies. Additionally, patients treated with these current therapies still suffer from a long-term decline in lung function and exacerbations that require hospitalization. MRT5005 is being developed to treat the underlying cause of CF, regardless of the specific genetic mutation, including in patients with limited or no CFTR protein. The U.S. Food and Drug Administration, or FDA, has granted orphan drug designation, fast track designation and rare pediatric disease designation for MRT5005 for the treatment of CF.
We are conducting a Phase 1/2 clinical trial to evaluate the safety and tolerability of single- and multiple-ascending doses of MRT5005. The clinical trial is investigating several groups receiving five once-weekly doses,
 
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as well as a group receiving five daily doses. Percent predicted forced expiratory volume in one second, or ppFEV
1
, which is a well-defined and accepted endpoint measuring lung function, is also being measured at
pre-defined
timepoints throughout the trial. In April 2019, we completed dosing of patients in the originally planned single-ascending dose, or SAD, portion of the Phase 1/2 clinical trial, which included 8, 16 and 24 mg SAD groups, and in July 2019, we reported interim data from the SAD portion of the clinical trial through
one-month
follow up post dosing. MRT5005 was generally well-tolerated at low and
mid-dose
levels with no serious adverse events reported at any dose level. Marked increases in ppFEV
1
were observed after a single dose of MRT5005, primarily at the
mid-dose
level. Based on the analysis of the interim results, we amended the clinical trial protocol to evaluate additional dose levels. We added a 20 mg SAD group and 12 and 20 mg multiple-ascending dose, or MAD, groups; the MAD portion of the clinical trial includes 8, 12, 16 and 20 mg MAD groups. In January 2021, we announced that we completed enrollment and dosing in the dose cohorts comprising the second interim data analysis, including the 8, 12 and 16 mg MAD groups and the 20 mg SAD group. We anticipate reporting interim clinical data from these cohorts early in the second quarter of 2021. The clinical trial continues to enroll and dose in the remaining dose groups, which include a 20 mg MAD group and the daily dosing cohort.
We are leveraging our lung delivery platform and focusing our preclinical research efforts on identifying lead product candidates for a next-generation CF program, as well as beyond CF in additional pulmonary diseases with unmet medical need. Building upon the MRT5005 program’s success to date, we are exploring innovation in the MRT platform including novel lipid nanoparticles, or LNPs, protein engineering and codon optimization approaches and manufacturing process enhancements to identify next-generation CF candidates that can support expansion of our pipeline opportunities. Beyond CF, we have discovery efforts underway to identify lead product candidates in additional pulmonary diseases, including primary ciliary dyskinesia and pulmonary arterial hypertension.
We have also begun to explore ways to apply our mRNA and delivery platform expertise to diseases where the degradation of a protein would lead to therapeutic benefit. We believe that using mRNA to enable the production of a molecule that can help tag a target protein for destruction within the cell may have advantages over other protein degradation approaches, including the ability to reach previously undruggable therapeutic targets and increase target selectivity. Additionally, we are evaluating the potential of delivering mRNA encoding therapeutic antibodies. We have early discovery efforts ongoing in these areas.
Additionally, we are leveraging the broad applicability of our platform through a collaboration with Sanofi to develop infectious disease vaccines using our mRNA technology. In the case of vaccines, the mRNA instructs certain cells in the body to produce an antigen that will induce an immune response to an infectious pathogen. Under the collaboration with Sanofi, we are jointly conducting research and development activities to advance vaccines targeting up to seven infectious disease pathogens. As part of the ongoing vaccine development program, comprehensive
in vivo
studies have been conducted across several infectious disease targets. Multiple development candidates have been evaluated against distinct pathogens, all of which were well tolerated across all species tested. Multiple antigens have been tested with all demonstrating robust neutralization titers. Two of the target pathogens under development are a novel strain of coronavirus named
SARS-CoV-2,
which causes
COVID-19,
and influenza. After evaluation of multiple
COVID-19
vaccine candidates
in vivo
for immunogenicity and neutralizing antibody activity, MRT5500 was selected as the lead candidate for a vaccine against
SARS-CoV-2.
In October 2020, preclinical data was reported demonstrating that MRT5500 induced potent neutralizing antibodies against
SARS-CoV-2
in mice and
non-human
primates, or NHPs. Two doses of MRT5500 in NHPs induced neutralizing antibody levels significantly higher than those observed in a panel of samples from
COVID-19
patients. It was also demonstrated that MRT5500-immunized mice and NHPs exhibited a
Th1-biased
T cell response against
SARS-CoV-2.
Vaccine-associated enhanced respiratory disease, or VAERD, has generally not been reported to be associated with a
Th1-biased
T cell response and therefore these data suggest the potential for a reduced risk for VAERD. A Phase 1/2 clinical trial to evaluate MRT5500 is expected to begin in the first quarter of 2021. For information on risks related to our successful development of a vaccine against
COVID-19,
please see Part I, Item 1A— “Risk Factors – Risks Related to the
COVID-19
 
110

Pandemic,” included elsewhere in this Annual Report on Form
10-K.
For the influenza vaccine program, lead LNP/mRNA formulations are being evaluated in preclinical studies to support a clinical proof of technology trial anticipated to begin
mid-year
2021. Preclinical studies are ongoing for targets against additional viral and bacterial pathogens.
Our vision is to continue building a leading mRNA product company, leveraging our extensive experience with proprietary mRNA product development, delivery, manufacturing and process development. Our proprietary MRT platform has enabled us to focus on direct therapeutic approaches to treat specific genetic diseases with significant unmet medical need. We are primarily focused on applying our MRT platform to treat pulmonary diseases where the production of proteins can modify disease. We are also leveraging our platform’s broad applicability to other diseases, including liver diseases, as well as to preventing disease in the case of infectious disease vaccines. To realize our vision, we plan to advance multiple programs to clinical stage, add new pipeline programs and continue to innovate on the mRNA platform. In order to achieve these goals, we plan to increase our research and development investments, add key
in-house
capabilities, deepen our platform and delivery expertise as well as expand our infrastructure and facility size. We also plan to appropriately invest in manufacturing and commercial capabilities to support continued growth and advancement and our ultimate goal of delivering mRNA medicines to treat or prevent life-threatening or debilitating illnesses.
The successful development of our product candidates will require, among other things, our mRNA manufacturing capabilities. To date, we have established
100-gram
single-batch production with our clinical-stage mRNA therapeutics platform.
Build-out
of a dedicated manufacturing space through a contract manufacturing partner was completed during the third quarter of 2020 and has the potential to accommodate multiple
250-gram
batches per month upon continued investments and third-party supplier arrangements. As it relates to development of a
COVID-19
vaccine, depending on the final human
COVID-19
vaccine dose and timing of
scale-up
activities, we estimate that we could have manufacturing capacity to produce
90-360 million
doses annually. We plan to further expand our mRNA manufacturing capabilities to increase production capacity, and will need to work with raw material and other third-party suppliers to achieve this goal.
Since our inception in 2011, we have devoted substantially all of our focus and financial resources to organizing and staffing our company, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights and conducting discovery, research and development activities for our programs. We do not have any products approved for sale and have not generated any revenue from product sales. Through December 31, 2020, we have funded our operations primarily through sales of equity securities and upfront payments received under a collaboration and license agreement with Sanofi and we have received proceeds of approximately $1.1 billion from such transactions.
We are party to an Open Market Sale Agreement
SM
, or Sales Agreement, with Jefferies LLC, or Jefferies, under which we may issue and sell shares of our common stock, from time to time, having an aggregate offering price of up to $100.0 million. As of December 31, 2020, we have issued and sold 2,863,163 shares of our common stock pursuant to the Sales Agreement, resulting in gross proceeds of $37.9 million, before deducting commissions of $1.1 million and other offering expenses of $0.2 million. In the future, $62.1 million of shares of common stock remain available to be sold pursuant to the Sales Agreement, which sales, if any, would be made under our universal shelf registration statement on Form
S-3,
or the 2020 Shelf.
On June 30, 2020, we issued and sold 5,681,819 shares of our common stock through a public offering under a Registration Statement on Form
S-ASR,
which became automatically effective upon filing on June 24, 2020, at a price per share of $22.00, resulting in gross proceeds of $125.0 million, before deducting underwriting discounts and commissions of $7.5 million and other offering expenses of $0.5 million.
Since our inception, we have incurred significant operating losses. Our ability to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates. Our net losses were $53.8 million and $113.3 million for the years ended
 
111

December 31, 2020 and 2019, respectively. As of December 31, 2020, we had an accumulated deficit of $413.3 million. We expect to continue to incur significant expenses for at least the next several years as we advance our product candidates from discovery through preclinical development and clinical trials and seek regulatory approval. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. We may also incur expenses in connection with the
in-licensing
or acquisition of additional product candidates.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties or grants from organizations and foundations. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential
in-licenses
or acquisitions.
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
As of December 31, 2020, we had cash, cash equivalents and investments of $654.0 million. We believe that our existing cash, cash equivalents and investments will enable us to fund our operating expenses and capital expenditure requirements through 2023.
Sanofi Pasteur Collaboration and Licensing Agreement
In 2018, we entered into a collaboration and license agreement with Sanofi, or the Original Sanofi Agreement, to develop mRNA vaccines for up to five infectious disease pathogens, or the Licensed Fields. On March 26, 2020, we and Sanofi amended the Original Sanofi Agreement, or the First Sanofi Amendment, to include vaccines against
SARS-CoV-2
as an additional Licensed Field, increasing the number of infectious disease pathogens to up to six. On June 22, 2020, we and Sanofi further amended the Original Sanofi Agreement to expand the scope of the collaboration and licenses granted to Sanofi, or the Second Sanofi Amendment, which closed on July 20, 2020, the effective date. The Original Sanofi Agreement, as amended by the First Sanofi Amendment and the Second Sanofi Amendment, is referred to as the Amended Sanofi Agreement.
Pursuant to the Amended Sanofi Agreement, we and Sanofi are jointly conducting research and development activities to advance mRNA vaccines targeting up to seven infectious disease pathogens. The term of the research collaboration expires in June 2022, with an option for Sanofi to extend for one additional year. If Sanofi elects to extend the collaboration, the collaboration may be further expanded to jointly conduct research and development activities to advance mRNA vaccines for up to an additional three infectious disease pathogens, bringing the total to up to ten pathogens.
Under the terms of the Amended Sanofi Agreement, we have granted to Sanofi exclusive, worldwide licenses under applicable patents, patent applications,
know-how
and materials, including those arising under the collaboration, to develop, commercialize and manufacture mRNA vaccines to prevent, treat or cure diseases, disorders or conditions in humans caused by any infectious disease pathogen, with certain specified exceptions.
Pursuant to the Second Sanofi Amendment, Sanofi paid us an additional upfront payment of $300.0 million in August 2020. Additionally, in connection with the execution of the Second Sanofi Amendment, we and an
 
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affiliate of Sanofi, or the Sanofi Investor, entered into a securities purchase agreement, or the Securities Purchase Agreement, for the sale and issuance of 4,884,434 shares of our common stock at a price of $25.59 per share for an aggregate purchase price of approximately $125.0 million. The transaction closed on July 20, 2020.
Business Impact of the
COVID-19
Pandemic
The outbreak of
SARS-CoV-2
and the resulting
COVID-19
pandemic has presented a substantial public health and economic challenge around the world and continues to affect our employees, patients, communities and business operations, as well as economies and financial markets worldwide. In 2020, we progressed certain of our preclinical programs, specifically in therapeutics for pulmonary diseases and in vaccine development under our collaboration with Sanofi, as further discussed herein. However, as a consequence of the
COVID-19
pandemic, we announced that enrollment and dosing in the ongoing Phase 1/2 clinical trial in patients with CF was paused in April 2020 and then resumed in September 2020. The full extent to which the
COVID-19
pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning
COVID-19,
the actions taken in an effort to contain it or to potentially treat or vaccinate against
COVID-19
and the economic impact on local, regional, national and international markets. Management actively monitors this situation and the possible effects on our financial condition, liquidity, operations, suppliers, industry and workforce. For additional information on risks posed by the
COVID-19
pandemic, please see Part I, Item 1A— “Risk Factors—Risks Related to the
COVID-19
Pandemic,” included elsewhere in this Annual Report on Form
10-K.
Components of Our Results of Operations
Revenue from Product Sales
To date, we have not generated any revenue from product sales, and we do not expect to generate any revenue from the sale of products in the near future. If our development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales.
Collaboration Revenue
Since 2018, we have recognized revenue relating to the Amended Sanofi Agreement. Under revenue recognition guidance, we account for: (i) the license we conveyed to Sanofi with respect to the Licensed Fields, (ii) the licensed
know-how
to be conveyed to Sanofi with respect to the Licensed Fields, (iii) our obligations to perform research and development on the Licensed Fields, (iv) our obligation to transfer licensed materials to Sanofi, (v) our obligation to manufacture and supply certain
non-clinical
and clinical mRNA vaccines and materials containing mRNA until we transfer such manufacturing capabilities to Sanofi and (vi) the technology and process transfer as a single performance obligation. We recognize revenue using the
cost-to-cost
input method, which we believe best depicts the transfer of control to the customer. Under the
cost-to-cost
input method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue is recorded as a percentage of the estimated transaction price based on the extent of progress towards completion. We recognize adjustments in revenue under the cumulative
catch-up
method. Under this method, the impact of this adjustment on revenue recorded to date is recognized in the period the adjustment is identified.
 
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Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred. These expenses include:
 
  
employee-related expenses, including salaries, related benefits and stock-based compensation expense for employees engaged in research and development functions;
 
  
expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with third parties, such as consultants and contract research organizations, or CROs;
 
  
the cost of manufacturing drug products for use in our preclinical studies and clinical trials, including under agreements with third parties, such as consultants and contract manufacturing organizations, or CMOs;
 
  
laboratory supplies;
 
  
facilities, depreciation and other expenses, which include direct or allocated expenses for rent and maintenance of facilities and insurance;
 
  
costs to fulfill our obligations under our collaboration with Sanofi;
 
  
costs related to compliance with regulatory requirements; and
 
  
payments made under third-party licensing agreements.
We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense when the services have been performed or the goods have been delivered, or when it is no longer expected that the goods will be delivered or the services rendered. Upfront payments, milestone payments (other than those deemed contingent consideration in a business combination) and annual maintenance fees under license agreements are expensed in the period in which they are incurred.
Our direct research and development expenses are tracked on a
program-by-program
basis and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and central laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include costs of laboratory supplies incurred for each program as well as fees incurred under license agreements. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to conduct our research and discovery and to manage our preclinical development, process development, manufacturing and clinical development activities.
 
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The table below summarizes our direct research and development expenses incurred by program:
 
   
Year Ended December 31,
 
   
      2020      
   
      2019      
 
   
(in thousands)
 
Vaccine program
  $30,576   $1,930 
MRT5005 program
   16,219    30,203 
Discovery program
   12,740    8,123 
MRT5201 program
   —      6,226 
Oligonucleotide program
   —      202 
Unallocated research and development expenses
   50,094    29,685 
  
 
 
   
 
 
 
Total research and development expenses
  $109,629   $76,369 
  
 
 
   
 
 
 
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will increase substantially over the next several years as we conduct our clinical trials of MRT5005 for the treatment of patients with CF; expand our manufacturing capabilities; conduct research and development activities to advance mRNA vaccine candidates and develop an mRNA vaccine platform under the Amended Sanofi Agreement; prepare regulatory filings for our product candidates; continue to discover and develop additional product candidates; and potentially advance product candidates from our discovery program into later stages of clinical development. We expect to continue to devote a substantial portion of our resources to our discovery program for the foreseeable future.
In September 2019, we discontinued the development of MRT5201. We have not invested any additional funds in this program and we have reallocated all resources previously dedicated to the ornithine transcarbamylase, or OTC, deficiency program to our other programs.
The successful development and commercialization of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:
 
  
the timing and progress of preclinical and clinical development activities, including delays resulting from the
COVID-19
pandemic;
 
  
the number and scope of preclinical and clinical programs we decide to pursue;
 
  
our ability to maintain our current research and development programs and to establish new ones;
 
  
establishing an appropriate safety profile with investigational new drug, or IND, enabling studies;
 
  
successful patient enrollment in, and the initiation and completion of, clinical trials;
 
  
the successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;
 
  
the receipt of regulatory approvals from applicable regulatory authorities;
 
  
the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;
 
  
the success of our collaboration with Sanofi;
 
  
our ability to establish new licensing or collaboration arrangements;
 
  
the performance of our future collaborators, if any;
 
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establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
 
  
development and timely delivery of commercial-grade drug formulations that can be used in our clinical trials and for commercial launch;
 
  
obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
 
  
launching commercial sales of our product candidates, if approved, whether alone or in collaboration with others; and
 
  
maintaining a continued acceptable safety profile of the product candidates following approval.
Any changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. If the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials, such as the delay in enrollment and dosing in our ongoing Phase 1/2 clinical trial with CF as a consequence of the
COVID-19
pandemic, which has resumed, we could be required to expend significant additional financial resources and time to complete clinical development of that product candidate. We may never obtain regulatory approval for any of our product candidates. Drug commercialization will take several years and millions of dollars in development costs.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, related benefits and stock-based compensation expense for personnel in executive, finance and administrative functions. General and administrative expenses also include facilities, depreciation and other expenses, which include direct or allocated expenses for rent and maintenance of facilities and insurance, as well as professional fees for legal, patent, consulting, recruiting fees, investor and public relations, accounting and audit services.
We anticipate that our general and administrative expenses will increase over the next several years as we anticipate increased accounting, audit, legal, regulatory, compliance, director and officer insurance and investor and public relations costs associated with being a public company.
Change in Fair Value of Contingent Consideration
In connection with our acquisition of the messenger RNA therapeutic platform, or MRT Program, from Shire Human Genetic Therapies, Inc., or Shire, a subsidiary of Takeda Pharmaceutical Company Ltd., we recognized contingent consideration liabilities for future potential milestone and earnout payment obligations. The contingent consideration was initially recorded at fair value on the acquisition date and is subsequently remeasured to fair value at each reporting date. Any changes in the fair value of the contingent consideration liabilities are recognized as operating income or expenses.
Impairment of Intangible Asset
In connection with our acquisition of the MRT Program, we recognized indefinite-lived
in-process
research and development, or IPR&D, which is not subject to amortization, but is tested annually for impairment or more frequently if there are indicators of impairment. Following the impairment test, if the fair value of the indefinite-lived IPR&D is less than its carrying amount, an impairment charge is recognized in the consolidated statements of operations.
 
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Other Income, Net
Other Income, Net
Other income, net primarily consists of income recognized in connection with our investments in money market funds, U.S. treasuries and U.S. government agency bonds.
Benefit from Income Taxes
We recognized an income tax benefit of $0 and $0.5 million during the years ended December 31, 2020 and 2019, respectively. The income tax benefit recognized during the year ended December 31, 2019 resulted from a reduction in the deferred tax liabilities recorded as part of our acquisition of the MRT Program.
As of December 31, 2020, we had U.S. federal net operating loss carryforwards of $239.3 million, of which $116.1 million will, if not utilized, begin to expire in 2031. As of December 31, 2020, we had U.S. state net operating loss carryforwards of $227.6 million, which will, if not utilized, begin to expire in 2031. As of December 31, 2020, we also had U.S. federal and state research and development tax credit carryforwards of $7.0 million and $4.3 million, respectively, which will, if not utilized, begin to expire in 2032 and 2028, respectively, and orphan drug tax credit carryforwards of $17.4 million, which begin to expire in 2037. We also have state investment tax credit carryforwards of $0.8 million, which will, if not utilized, begin to expire in 2020. As of December 31, 2020, we recorded a full valuation allowance against our net deferred tax assets.
Results of Operations
Comparison of the Years Ended December 31, 2020 and 2019
The following table summarizes our results of operations for the years ended December 31, 2020 and 2019:
 
   
Year Ended December 31,
   
Change
 
   
2020
   
2019
 
   
(in thousands)
 
Collaboration revenue
  $138,811   $7,804   $131,007 
Operating expenses:
      
Research and development
   109,629    76,369    33,260 
General and administrative
   35,922    28,632    7,290 
Change in fair value of contingent consideration
   48,575    13    48,562 
Impairment of intangible asset
   —      18,559    (18,559
  
 
 
   
 
 
   
 
 
 
Total operating expenses
   194,126    123,573    70,553 
  
 
 
   
 
 
   
 
 
 
Loss from operations
   (55,315   (115,769   60,454 
Other income, net
   1,528    1,990    (462
  
 
 
   
 
 
   
 
 
 
Loss before benefit from income taxes
   (53,787   (113,779   59,992 
Benefit from income taxes
   —      486    (486
  
 
 
   
 
 
   
 
 
 
Net loss
  $(53,787  $(113,293  $59,506 
  
 
 
   
 
 
   
 
 
 
Collaboration Revenue
Collaboration revenue was $138.8 million and $7.8 million for the years ended December 31, 2020 and 2019, respectively, which was derived from the Sanofi collaboration. The increase of $131.0 million was primarily related to increased activities for the vaccine program as well as a $37.3 million cumulative
catch-up
of revenue primarily resulting from the Second Sanofi Amendment and the related increase in the transaction price during the year ended December 31, 2020 compared to the same period in 2019. See “—Components of Our Results of Operations—Collaboration Revenue” above.
 
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Research and Development Expenses
 
   
Year Ended December 31,
   
Change
 
   
        2020        
   
        2019        
 
   
(in thousands)
 
Direct external research and development expenses by program:
      
Vaccine program
  $30,576   $1,930   $28,646 
MRT5005 program
   16,219    30,203    (13,984
Discovery program
   12,740    8,123    4,617 
MRT5201 program
   —      6,226    (6,226
Oligonucleotide program
   —      202    (202
Unallocated research and development expenses:
      
Personnel related (including stock-based compensation)
   27,242    18,652    8,590 
Other
   22,852    11,033    11,819 
  
 
 
   
 
 
   
 
 
 
Total research and development expenses
  $109,629   $76,369   $33,260 
  
 
 
   
 
 
   
 
 
 
Research and development expenses were $109.6 million for the year ended December 31, 2020, compared to $76.4 million for the year ended December 31, 2019. The increase of $33.3 million was primarily due to continued development of our vaccine program associated with the Sanofi collaboration and our discovery program, as well as an increase in personnel-related costs, partially offset by a decrease in expenses related to our MRT5005 and MRT5201 programs.
Direct external expenses of our vaccine program increased by $28.6 million during the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to increased activities associated with the Sanofi collaboration.
Direct external expenses of our MRT5005 program decreased by $14.0 million during the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to decreased manufacturing and clinical trial costs. Expenses in the year ended December 31, 2019 included manufacturing costs in preparation of our Phase 1/2 clinical trial of MRT5005 for the treatment of patients with CF, for which there were no comparable expenses in the same period in 2020. The decrease in clinical trial costs in the year ended December 31, 2020 compared to the same period in 2019 was due to a pause in enrollment and dosing in our ongoing Phase 1/2 clinical trial in patients with CF as a consequence of the
COVID-19
pandemic.
Direct external expenses of our discovery program increased by $4.6 million during the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to increased costs related to our ongoing exploratory research and discovery efforts to identify next-generation CF candidates and identify lead product candidates in additional pulmonary diseases.
Direct external expenses of our MRT5201 program decreased by $6.2 million during the year ended December 31, 2020 compared to the year ended December 31, 2019 due to the decision in 2019 to discontinue the development this program.
Unallocated research and development expenses increased by $20.4 million during the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase of $8.6 million in personnel-related costs was primarily related to an increase in headcount in the year ended December 31, 2020 compared to the same period in 2019, as well as an increase in stock-based compensation expense, which included a modification of stock options in connection with the resignation of our former Executive Vice President and Founder during 2020. The increase of $11.8 million in other unallocated research and development expenses was due to an increase of $5.5 million in occupancy costs, an increase of $4.5 million in amortization expense related to the definite-lived MRT intangible asset and an increase of $2.2 million primarily due to costs related to entering into the Second Sanofi Agreement, partially offset by a decrease of $0.6 million in professional fees.
 
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General and Administrative Expenses
General and administrative expenses were $35.9 million for the year ended December 31, 2020, compared to $28.6 million for the year ended December 31, 2019. The increase of $7.3 million was due to an increase of $3.7 million in personnel-related costs primarily due to an increase in stock-based compensation expense, which included a modification of options in connection with the departure of our former Chief Financial Officer during 2020, an increase of $2.7 million in professional fees primarily consisting of increases in recruiting fees and legal and consulting costs as a result of entering into the Second Sanofi Amendment, and an increase of $0.5 million in insurance premiums.
Change in Fair Value of Contingent Consideration
During the years ended December 31, 2020 and 2019, we recognized operating expenses of $48.6 million and less than $0.1 million, respectively, for changes in the fair value of the contingent consideration liabilities we recorded in connection with our acquisition of the MRT Program in December 2016. The contingent consideration liabilities relate to future potential milestone and earnout payment obligations. The expense recognized during the year ended December 31, 2020 was attributed primarily to an increase in the fair value of the contingent consideration liability for future earnout payments that could become due. This increase was primarily due to the time value of money due to the passage of time and a decrease in the discount rate.
Impairment of Intangible Asset
In September 2019, discontinued the development of MRT5201. We determined this was an indicator of impairment and, as a result, retested the indefinite-lived IPR&D related to the OTC deficiency program for impairment. We determined that there was no residual value to the indefinite-lived IPR&D related to the OTC deficiency program and, as a result, in the year ended December 31, 2019, we recognized an impairment charge of $18.6 million representing the entire value of the indefinite-lived IPR&D related to the OTC deficiency program.
Benefit from Income Taxes
During the years ended December 31, 2020 and 2019, we recognized income tax benefits of $0 and $0.5 million, respectively. The income tax benefit recognized for the year ended December 31, 2019 resulted from a reduction in the deferred tax liabilities recorded as part of our acquisition of the MRT Program.
Liquidity and Capital Resources
Since our inception through December 31, 2020, we have not generated any revenue from product sales, have generated collaboration revenue only from the Amended Sanofi Agreement and have incurred significant operating losses and negative cash flows from our operations. We have not yet commercialized any of our product candidates, and we do not expect to generate revenue from sales of any product candidates for several years, if at all. See “—Funding Requirements” below and Note 1 to the consolidated financial statements appearing at the end of this Annual Report on Form
10-K
for a further discussion of our liquidity.
Through December 31, 2020, we have funded our operations primarily through sales of equity securities and upfront payments received under the Amended Sanofi Agreement and we have received proceeds of approximately $1.1 billion from such transactions.
On March 13, 2020, we filed a universal shelf registration statement on Form
S-3
with the SEC, or the 2020 Shelf, to register for sale from time to time up to $350.0 million of our common stock, preferred stock, debt securities, warrants and/or units in one or more offerings (File
No. 333-237159).
This registration statement was declared effective on May 4, 2020.
 
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We are party to the Sales Agreement with Jefferies, under which we may issue and sell shares of our common stock, from time to time, having an aggregate offering price of up to $100.0 million. Sales of common stock through Jefferies may be made by any method that is deemed an “at the market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. Jefferies has agreed to use its commercially reasonable efforts consistent with its normal trading and sales practices to sell shares of our common stock based upon our instructions. We are not obligated to make any sales of our common stock under the Sales Agreement. As of December 31, 2020, we have issued and sold 2,863,163 shares of our common stock, resulting in gross proceeds of $37.9 million, before deducting commissions of $1.1 million and other offering expenses of $0.2 million. In the future, $62.1 million of shares of common stock remain available to be sold pursuant to the Sales Agreement, which sales, if any, would be made under the 2020 Shelf.
On June 24, 2020, we filed a registration statement on Form
S-3ASR,
which became automatically effective upon filing with the SEC (File
No. 333-239405),
referred to as the June 2020 Registration Statement. The June 2020 Registration Statement registered for sale from time to time common stock, preferred stock, debt securities, warrants and/or units in one or more offerings. On June 30, 2020, we issued and sold 5,681,819 shares of common stock and a stockholder sold 6,824,992 shares of common stock through a public offering pursuant to the June 2020 Registration Statement. The price to the public was $22.00 per share, resulting in gross proceeds to us of $125.0 million, before deducting underwriting discounts and commissions of $7.5 million and other offering expenses of $0.5 million. We did not receive any proceeds from the sales of shares of common stock by the stockholder.
Pursuant to the Second Sanofi Amendment, Sanofi paid us an additional upfront payment of $300.0 million in August 2020. Additionally, in connection with the execution of the Second Sanofi Amendment, we and the Sanofi Investor entered into the Securities Purchase Agreement for the sale and issuance of 4,884,434 shares of our common stock at a price of $25.59 per share for an aggregate purchase price of approximately $125.0 million. The transaction closed on July 20, 2020.
Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented:
 
   
Year Ended December 31,
 
   
2020
   
2019
 
   
(in thousands)
 
Net cash provided by (used in) operating activities
  $236,316   $(82,162
Net cash used in investing activities
   (215,122   (18,186
Net cash provided by financing activities
   240,129    129,654 
  
 
 
   
 
 
 
Net increase in cash, cash equivalents and restricted cash
  $261,323   $29,306 
  
 
 
   
 
 
 
Operating Activities
During the year ended December 31, 2020, operating activities provided $236.3 million of cash, resulting from net cash provided by changes in our operating assets and liabilities of $214.6 million and net
non-cash
charges of $75.5 million, partially offset by our net loss of $53.8 million. Net cash provided by changes in our operating assets and liabilities consisted of a $252.9 million increase in deferred revenue as a result of cash received under the Second Sanofi Amendment and a $6.4 million increase in accrued expenses, partially offset by a $22.0 million increase in collaboration receivables, a $10.1 million increase in long-term prepaid rent, a $6.6 million decrease in accounts payable and a $6.3 million increase in prepaid expenses and other assets. Net
non-cash
charges for the year ended December 31, 2020 primarily consisted of a $48.6 million increase in the change in the fair value of contingent consideration which was primarily due to the time value of money due to the passage of time and a decrease in the discount rate, a $17.6 million charge to stock-based compensation expense and a $9.3 million charge for depreciation and amortization expense.
 
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During the year ended December 31, 2019, operating activities used $82.2 million of cash, resulting from our net loss of $113.3 million and net cash used in changes in our operating assets and liabilities of $3.0 million, partially offset by net
non-cash
charges of $34.2 million. Net cash used in changes in our operating assets and liabilities consisted primarily of a $5.7 million increase in prepaid expenses and other assets, a $3.8 million increase in short-term collaboration receivables, a $2.8 million increase in long-term prepaid rent and a $1.1 million decrease in deferred revenue, partially offset by a $9.9 million increase in accounts payable. Net
non-cash
charges for the year ended December 31, 2019 primarily consisted of an impairment charge of $18.6 million representing the entire value of the indefinite-lived IPR&D related to the OTC deficiency program resulting from our decision to discontinue the development of MRT5201 and $11.3 million in stock-based compensation expense.
Investing Activities
During the year ended December 31, 2020, net cash used in investing activities was $215.1 million, consisting of $339.4 million of purchases of investments and $6.5 million of purchases of property and equipment, partially offset by $130.8 million of sales and maturities of investments.
During the year ended December 31, 2019, net cash used in investing activities was $18.2 million, consisting of $174.3 million of purchases of short-term investments and $3.5 million of purchases of property and equipment, partially offset by $159.6 million of sales and maturities of short-term investments.
Financing Activities
During the year ended December 31, 2020, net cash provided by financing activities was $240.1 million, consisting of net cash proceeds of $153.6 million from public offerings of our common stock, $73.8 million in proceeds, excluding the premium paid in consideration for common stock of $51.2 million, from the Securities Purchase Agreement entered into with the Sanofi Investor and $12.4 million in proceeds from option exercises.
During the year ended December 31, 2019, net cash provided by financing activities was $129.7 million, consisting of net cash proceeds of $44.1 million from a private placement of our common stock, net cash proceeds of $84.0 million from a public offering of our common stock and $1.5 million in proceeds from option exercises.
Funding Requirements
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue ongoing and initiate new clinical trials of and seek marketing approval for our product candidates. In addition, we expect to incur additional costs associated with operating as a public company. Our expenses will also increase if, and as, we:
 
  
continue the clinical development of MRT5005;
 
  
continue the development of mRNA vaccine candidates against infectious diseases, including MRT5500, the lead vaccine candidate against
SARS-CoV-2;
 
  
leverage our programs to advance our other product candidates into preclinical and clinical development;
 
  
seek regulatory approvals for any product candidates that successfully complete clinical trials;
 
  
seek to discover and develop additional product candidates;
 
  
expand our manufacturing, operational, financial and management systems;
 
  
increase personnel, including personnel to support our research, clinical development, manufacturing and commercialization efforts and our operations as a public company;
 
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maintain, expand and protect our intellectual property portfolio;
 
  
acquire or
in-license
other product candidates and technologies;
 
  
incur additional legal, accounting and other expenses in operating as a public company; and
 
  
establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval and intend to commercialize on our own or jointly.
We believe that our existing cash, cash equivalents and investments of $654.0 million as of December 31, 2020 will enable us to fund our operating expenses and capital expenditure requirements through 2023. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.
We will need to raise additional capital or incur indebtedness to continue to fund our operations in the future. Our ability to raise additional funds will depend on financial, economic and market conditions, many of which are outside of our control, and we may be unable to raise financing when needed, or on terms favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves, which could adversely affect our business prospects, and we may be unable to continue our operations. Because of numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements. Factors that may affect our planned future capital requirements and accelerate our need for additional working capital include the following:
 
  
the impacts of the
COVID-19
pandemic and our response to it;
 
  
the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical studies and clinical trials;
 
  
the success of our collaboration with Sanofi;
 
  
the costs, timing and outcome of regulatory review of our product candidates;
 
  
the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
 
  
the costs of manufacturing commercial-grade products and sufficient inventory to support commercial launch;
 
  
the ability to receive additional
non-dilutive
funding, including grants from organizations and foundations;
 
  
the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;
 
  
the cost and timing of hiring new employees to support our continued growth;
 
  
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
 
  
the ability to establish and maintain collaborations on favorable terms, if at all;
 
  
the extent to which we acquire or
in-license
other product candidates and technologies; and
 
  
the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future product candidates, if any.
A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that
 
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product candidate. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties and grants from organizations and foundations. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders may be materially diluted, and the terms of such securities could include liquidation or other preferences that could adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. In addition, debt financing would result in increased fixed payment obligations.
If we raise funds through collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties, 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.
Cash Requirements from Contractual and Other Obligations
Operating Leases Commitments
Real Estate Leases
On November 3, 2020, or the Lease Commencement Date, we entered into a
ten-year
lease agreement for approximately 138,444 square feet of office and laboratory space located at 200 West Street in Waltham, Massachusetts. The lease agreement includes an extension option of one period of 10 years. The lease includes a work agreement to perform a
build-out
arrangement, with a construction period from March 2021 to December 2021. The landlord has agreed to provide tenant improvement allowances of $26.3 million, plus an additional tenant allowance of up to $15 per square foot, should we elect to use those. We expect to spend between $9.0 million and $11.0 million on the construction of lessor assets, which represents the cost of the project that exceeds the tenant allowances. Initial base rent, which commences 12 months after the Lease Commencement Date, shall be $5.7��million for the first year and approximately $8.0 million for the second year and thereafter shall be subject to a 3% annual increase. In December 2020, in connection with this lease agreement, we issued a letter of credit collateralized by cash deposits of $3.9 million.
In June 2017, we entered into an operating lease for office and laboratory space at our headquarters in Lexington, Massachusetts. We occupy approximately 59,000 square feet of space under a
10-year
lease agreement expiring in April 2028. We occupied this property in March 2018. Monthly lease payments include base rent charges of $0.2 million, which are subject to a 3% annual increase each year. In June 2017, in connection with this lease agreement, we issued a letter of credit collateralized by cash deposits of $1.0 million.
Suite Retention Agreements
In September 2019, we entered into a suite retention and development agreement with Albany Molecular Research, Inc., or AMRI, under which a series of cleanroom suites, or the Suites, were built at AMRI’s manufacturing facility in accordance with our objectives, or the AMRI Agreement. The Suites are for the exclusive use by us and any of our collaboration partners for the manufacture of our product candidates during the term of the AMRI Agreement. The AMRI Agreement continues for five years after the
build-out
is completed, or the Initial Term. We have the right to extend the Initial Term for an additional three-year term at prevailing commercially reasonable rates to be agreed between us and AMRI. Under the AMRI Agreement, we will finance $6.0 million of the costs of the
build-out,
or the
Build-Out
Costs. If
Build-Out
Costs exceed $6.0 million, we and AMRI will share overage costs equally, up to $11.0 million, and we will be responsible for
 
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any amounts exceeding $11.0 million. As of December 31, 2020, we have paid $13.9 million related to the
Build-Out
Costs. We anticipate making additional payments of $3.1 million related to the final
Build-Out
Costs by the second quarter 2021. Upon the
build-out
completion as of August 31, 2020, we began paying monthly fees of $1.0 million, which are subject to a 3% increase on January 1 of each calendar year following the first anniversary of the
build-out
completion. Our aggregate monthly payment obligations under the AMRI Agreement during the Initial Term, assuming AMRI implements the 3% annual increase as permitted under the AMRI Agreement, would be approximately $63.2 million.
In October 2020, we entered into a suite retention agreement with Azzur
Cleanrooms-on-Demand—Burlington,
LLC, or Azzur, under which we will lease two exclusive cleanroom suites in the Burlington Massachusetts facility. The lease term is 24 months, commencing on July 1, 2021, with the option to extend the term with three months’ notice prior to the termination date. Upon commencement, we will pay monthly fees of $0.4 million, which are subject to a 4% increase on July 1, 2022. As of December 31, 2020, our commitment under this agreement is a total of $8.8 million through June 2023.
Purchase Commitment
We are a party to a master supply agreement with Roche Diagnostics Corporation, or Roche, pursuant to which Roche will custom manufacture certain products for us. The agreement requires us to purchase from Roche specified manufactured products and the related raw materials in an amount equal to the greater of (i) quantities of raw materials in our annual forecast to be purchased or (ii) 80% of our demand for products as the same or similar type. This agreement expires on December 31, 2024. As of December 31, 2020, our purchase commitments under the agreement totaled $14.0 million, with $3.5 million committed as payments each year from 2021 to 2024.
Research Commitment
In September 2019, we entered into a research agreement with the Massachusetts Institute of Technology, or MIT, pursuant to which we are obligated to reimburse MIT up to $4.1 million for specified direct and indirect costs to be incurred from January 2020 through December 2022 for specified research activities conducted for us. As of December 31, 2020, we had paid MIT $1.7 million towards the total committed amount, with $1.4 million committed as payments each year from 2021 to 2022. This agreement expires in December 2022 and may be extended thereafter by mutual agreement of the parties.
License Agreement Obligations
We are party to an exclusive patent license agreement with MIT, or the MIT License Agreement, pursuant to which we are obligated to make annual license maintenance payments to MIT, payable on January 1 of each calendar year, of up to $0.2 million, which may be credited against royalties subsequently due on net sales of licensed products earned in the same calendar year, as further described below.
Contingent Milestone and Royalty Payments
Under various licensing and related agreements to which we are a party, we may be required to make milestone and earnout payments and to pay royalties and other amounts to third parties.
Such contingent obligations are described below.
Under the Shire Agreement, as amended, we are obligated to make milestone payments to Shire of up to $60.0 million in the aggregate upon the occurrence of specified commercial milestones, including upon the first commercial sale of an MRT Product for the treatment of CF and upon the achievement of a specified level of annual net sales with respect to an MRT Product. We are also obligated to make additional milestone payments of $10.0 million for each
non-CF
MRT Product upon the first commercial sale of a
non-CF
MRT Product;
 
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provided that such milestone payments will only be due once for any two
non-CF
MRT Products that contain the same MRT compounds or once per
non-CF
MRT Product that is a vaccine developed under our collaboration with Sanofi. Under the Shire Agreement, we are also obligated to pay a quarterly earnout payment of a
mid-single-digit
percentage of net sales of each MRT Product. The earnout period, which is determined on a
product-by-product
and
country-by-country
basis, will begin on the date of the first commercial sale of such MRT Product in such country and will end on the later of (1) 10 years after such first commercial sale and (2) the expiration of the last valid claim of the patent rights acquired from Shire or derived from patent rights or
know-how
acquired from Shire covering such MRT Product in such country.
Under the MIT License Agreement, we are obligated to make milestone payments to MIT aggregating up to $1.375 million upon the achievement of specified clinical and regulatory milestones with respect to each licensed product and $1.250 million upon our first commercial sale of each licensed product, and to pay royalties of a low single-digit percentage to MIT based on our, and any of our affiliates’ and sublicensees’, net sales of licensed products. As a result of the Amended Sanofi Agreement, we will be required to pay MIT a portion of the $300.0 million upfront payment and a portion of the premium payment in consideration for the common stock purchased under the Securities Purchase Agreement as well as future option and milestone payments that we may receive. The amount payable to MIT is currently being negotiated between us and MIT and the final amount payable to MIT is unknown at this time. The amounts that we may owe to MIT will depend upon the relative value of the patents we licensed from MIT and sublicensed to Sanofi as compared to the other rights that we licensed to Sanofi. The determination of the relative value of such rights is subject to a process described in our license agreement with MIT.
Under the Amended Sanofi Agreement, we and Sanofi have agreed to collaborate to perform certain research and development activities to advance mRNA vaccines and mRNA vaccine platform development. The term of the research collaboration expires in June 2022 with an option for Sanofi to extend for one additional year. Under the Amended Sanofi Agreement, if we commercialize any product covered by a Sanofi patent right, we will be required to pay to Sanofi a royalty of a low single-digit percentage. The amount, timing and likelihood of such payments are not known.
In connection with the Amended Sanofi Agreement, we and Sanofi also entered into a supply agreement with an effective date of December 20, 2019, governing the terms of the supply of products by us to Sanofi, or the Supply Agreement. Pursuant to the Supply Agreement, we have agreed to use commercially reasonable efforts to manufacture and supply Sanofi with
non-clinical
and clinical supply of products and other research and development materials in certain Licensed Fields, as set forth in the Amended Sanofi Agreement.
We have entered into contracts in the normal course of business with CROs, CMOs and other third parties for preclinical research studies and testing, clinical trials and manufacturing services. These contracts do not contain any minimum purchase commitments and are cancelable by us upon prior notice. Payments due upon cancellation consist only of payments for services provided and expenses incurred, including
non-cancelable
obligations of our service providers, up to the date of cancellation.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates—which also would have been reasonable—could have been used. On an ongoing basis, we evaluate our estimates and judgments, including those described in greater detail below. We base our estimates on historical experience, known trends and events
 
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and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing at the end of this Annual Report on Form
10-K,
we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Accrued Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a
pre-determined
schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of these estimates with the service providers and make adjustments, if necessary. Examples of estimated accrued research and development expenses include fees paid to:
 
  
vendors in connection with preclinical development activities;
 
  
CROs and investigative sites in connection with preclinical studies and clinical trials; and
 
  
CMOs in connection with the production of preclinical and clinical trial materials.
We base our expenses related to external research and development services on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CMOs and CROs that supply, conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.
Revenue Recognition
The terms of our collaboration agreements may include consideration such as
non-refundable
license fees, funding of research and development services, payments due upon the achievement of clinical and preclinical performance-based development milestones, regulatory milestones, manufacturing services, sales-based milestones and royalties on product sales.
We recognize revenue under Accounting Standards Codification, or ASC, 606,
Revenue from Contracts with Customers, or ASC 606
, which applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. ASC 606 provides a five-step framework whereby revenue is recognized when control of promised goods or services
 
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is transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of the new revenue standard, we perform the following five steps: (i) identify the promised goods or services in the contract; (ii) determine whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measure the transaction price, including the constraint on variable consideration; (iv) allocate the transaction price to the performance obligations; and (v) recognize revenue when (or as) we satisfy each performance obligation. We only apply the five-step model to contracts when collectability of the consideration to which we are entitled in exchange for the goods or services we transfer to the customer is determined to be probable. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess whether the goods or services promised within each contract are distinct and, therefore, represent a separate performance obligation. Goods and services that are determined not to be distinct are combined with other promised goods and services until a distinct bundle is identified. We then allocate the transaction price (the amount of consideration we expect to be entitled to from a customer in exchange for the promised goods or services) to each performance obligation and recognize the associated revenue when (or as) each performance obligation is satisfied. Our estimate of the transaction price for each contract includes all variable consideration to which we expect to be entitled.
We recognize the transaction price allocated to upfront license payments as revenue upon delivery of the license to the customer and resulting ability of the customer to use and benefit from the license, if the license is determined to be distinct from the other performance obligations identified in the contract. If the license is considered to not be distinct from other performance obligations, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied (i) at a point in time, but only for licenses determined to be distinct from other performance obligations in the contract, or (ii) over time; and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from license payments. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.
For each collaboration that includes development milestone payments, we evaluate whether it is probable that the consideration associated with each milestone will not be subject to a significant reversal in the cumulative amount of revenue recognized. Amounts that meet this threshold are included in the transaction price using the most likely amount method, whereas amounts that do not meet this threshold are considered constrained and excluded from the transaction price until they meet this threshold. Milestones tied to regulatory approval, and therefore not within our control, are considered constrained until such approval is received. Upfront and ongoing development milestones per our collaboration agreements are not subject to refund if the development activities are not successful. At the end of each subsequent reporting period, we
re-evaluate
the probability of a significant reversal of the cumulative revenue recognized for the milestones, and, if necessary, adjust the estimate of the overall transaction price. Any such adjustments are recorded on a cumulative
catch-up
basis, which would affect revenues from collaborators in the period of adjustment. We exclude sales-based milestone payments and royalties from the transaction price until the sale occurs (or, if later, until the underlying performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied), because the license to our intellectual property is deemed to be the predominant item to which the royalties relate as it is the primary driver of value.
ASC 606 requires us to allocate the arrangement consideration on a relative standalone selling price basis for each performance obligation after determining the transaction price of the contract and identifying the performance obligations to which that amount should be allocated. The relative standalone selling price is defined in ASC 606 as the price at which an entity would sell a promised good or service separately to a customer. If other observable transactions in which we have sold the same performance obligation separately are not available, we are required to estimate the standalone selling price of each performance obligation. Key assumptions to determine the standalone selling price may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success.
 
127

Whenever we determine that a contract should be accounted for as a combined performance obligation, which is recognized over time, we will utilize the
cost-to-cost
input method. Revenue will be recognized over time using the
cost-to-cost
input method, based on the total estimated costs to fulfill the obligations. We will recognize revenue as services are being delivered. Significant management judgment is required in determining the estimate of total costs required under an arrangement and the period over which we are expected to complete our performance obligations under an arrangement.
We evaluate our collaborative agreements for proper classification in the consolidated statements of operations based on the nature of the underlying activity. Transactions between collaborators recorded in our consolidated statements of operations are recorded on either a gross or net basis, depending on the characteristics of the collaborative relationship.
For revenue generating arrangements where we, as a vendor, provide consideration to a licensor or collaborator, as a customer, we apply the accounting standard that governs such transactions. This standard addresses the accounting for revenue arrangements where both the vendor and the customer make cash payments to each other for services and/or products. A payment to a customer is presumed to be a reduction of the transaction price unless we receive an identifiable benefit for the payment and we can reasonably estimate the fair value of the benefit received. Payments to a customer that are deemed a reduction of the transaction price are recorded first as a reduction of revenue, to the extent of both cumulative revenue recorded to date and probable future revenues, which include any unamortized deferred revenue balances, under all arrangements with such customer, and then as an expense. Payments that are not deemed to be a reduction of the transaction price are recorded as an expense.
Consideration that does not meet the requirements to satisfy the above revenue recognition criteria is a contract liability and is recorded as deferred revenue in the consolidated balance sheets. Although we follow detailed guidelines in measuring revenue, certain judgments affect the application of our revenue policy. For example, in connection with the Amended Sanofi Agreement, we have recorded short-term and long-term deferred revenue on our consolidated balance sheets based on our best estimate of when such revenue will be recognized. Short-term deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months. Amounts that we expect will not be recognized within the next 12 months are classified as long-term deferred revenue.
The estimate of deferred revenue also reflects management’s estimate of the periods of our involvement in certain of our collaborations. Our performance obligations under these collaborations consist of participation on steering committees and the performance of other research and development services. In certain instances, the timing of satisfying these obligations can be difficult to estimate. Accordingly, our estimates may change in the future. Such changes to estimates would result in a change in revenue recognition amounts. If these estimates and judgments change over the course of these agreements, it may affect the timing and amount of revenue that we will recognize and record in future periods.
Under ASC 606, we will recognize revenue and record a receivable when we fulfill our performance obligations under the Amended Sanofi Agreement. When no further performance obligation is required to be satisfied, we will recognize revenue for the portion satisfied and record a receivable. Amounts are recorded as short-term collaboration receivables when our right to consideration is unconditional. A contract liability is recognized when a customer prepays consideration or owes prepayment to an entity according to a contract. We do not assess whether a contract has a significant financing component if the expectation at contract inception is that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that we would have recognized is one year or less or the amount is immaterial.
 
128

Valuation of Contingent Consideration
Contingent consideration reflected on our consolidated balance sheets consists of liabilities for potential milestone and earnout payment obligations recorded in connection with our acquisition of the MRT Program in December 2016. Contingent consideration is initially recognized at fair value at the acquisition date and is subsequently remeasured to fair value at each reporting date, with changes recorded in our consolidated statements of operations. Significant judgment is required in estimating fair value. Our estimates of fair value are based upon assumptions we believed to be reasonable, but which are inherently uncertain and, as a result, actual results may differ materially from estimates.
The fair value of the contingent consideration related to the potential future milestone and earnout payments was estimated by us on the acquisition date and is estimated by us at each reporting date using a discounted cash flow analysis based on various assumptions, including the probability of achieving specified events, discount rates and the period of time until the earnout payments are payable and the conditions triggering the milestone payments are met.
Impairment of
In-Process
Research and Development
IPR&D reflected on our consolidated balance sheets includes indefinite-lived intangible assets recorded in connection with our acquisition of the MRT Program in December 2016. Indefinite-lived IPR&D is not subject to amortization, but is tested annually for impairment or more frequently if there are indicators of impairment. We test our indefinite-lived IPR&D annually for impairment on October 1st. In testing indefinite-lived IPR&D for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that its fair value is less than its carrying amount, or we can perform a quantitative impairment analysis to determine the fair value of the indefinite-lived IPR&D without performing a qualitative assessment. Qualitative factors that we consider include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If we choose to first assess qualitative factors and we determine that it is more likely than not that the fair value of the indefinite-lived IPR&D is less than its carrying amount, we would then determine the fair value of the indefinite-lived IPR&D. Under either approach, if the fair value of the indefinite-lived IPR&D is less than its carrying amount, an impairment charge would be recognized for the difference between the fair value and the carrying amount in the consolidated statements of operations. Significant judgment is required in testing IPR&D for impairment, and changes in estimates and assumptions could materially affect the determination of whether impairment exists and, if so, the amount of that impairment.
In September 2019, we discontinued development of MRT5201, which was an indicator of impairment, and, as a result, we retested the indefinite-lived IPR&D related to the OTC deficiency program for impairment. We have not invested any additional funds in this program and have reallocated all resources previously dedicated to the OTC deficiency program to other programs within the company. We determined that there was no residual value to the indefinite-lived IPR&D related to the OTC deficiency program and, as a result, we recorded an impairment charge of $18.6 million during the year ended December 31, 2019, representing the entire value of the indefinite-lived IPR&D related to the OTC deficiency program. During the year ended December 31, 2020, we did not recognize any impairment charges related to our definite-lived IPR&D.
Impairment of Goodwill
Goodwill reflected on our consolidated balance sheets consists of an intangible asset recorded in connection with our acquisition of the MRT Program in December 2016. Goodwill is not subject to amortization, but is tested annually for impairment or more frequently if there are indicators of impairment. We test our goodwill annually for impairment on October 1st. We have determined that there is a single reporting unit for purposes of testing goodwill for impairment.
 
129

We have the option to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. If we elect this option and determine, as a result of the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required; otherwise, no further testing is required. Among other relevant events and circumstances that affect the fair value of reporting units, we consider individual factors, such as microeconomic conditions, changes in the industry and the markets in which we operate as well as historical and expected future financial performance. Alternatively, we may elect to not first assess qualitative factors and instead immediately perform the quantitative impairment test.
In 2020, we elected to early adopt guidance issued by the Financial Accounting Standards Board that simplifies the test for goodwill impairment. This guidance removed Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment charge is now recognized for the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill.
During the years ended December 31, 2020 and 2019, we did not recognize any impairment charges related to goodwill.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing at the end of this Annual Report on Form
10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company, as defined in Rule
12b-2
under the Securities Exchange Act of 1934, as amended, for this reporting period and are not required to provide the information required under this item.
Item 8. Financial Statements and Supplementary Data.
The financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those financial statements is found in Item 15 of Part IV of this Annual Report on Form
10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain “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, that are designed to ensure that information required to be disclosed in the 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. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, 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 benefits of possible controls and procedures relative to their costs.
 
130

Our management, with the participation of our Chief Executive Officer who serves as our principal executive officer and our principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020. Based on such evaluation, our Chief Executive Officer has concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2020.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules
13a-15(f)
and
15d-15(f)
under the Exchange Act). Our internal control over financial reporting is a process designed under the supervision of our principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Management evaluated the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (the 2013 Framework). Management, under the supervision and with the participation of our Chief Executive Officer who serves as our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. Based on this assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2020 based on those criteria.
The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included in this Annual Report on Form
10-K
beginning on page
F-2.
Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting (as defined in Rules
13a-15(f)
and
15d-15(f)
under the Exchange Act) during the fiscal quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
 
131

PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item 10 is incorporated by reference to the information that will be contained in our definitive proxy statement to be filed with the SEC with respect to our 2021 Annual Meeting of Stockholders, which we intend to file no later than 120 days after the end of our fiscal year ended December 31, 2020.
Item 11. Executive Compensation.
The information required by this Item 11 is incorporated by reference to the information that will be contained in our definitive proxy statement to be filed with the SEC with respect to our 2021 Annual Meeting of Stockholders, which we intend to file no later than 120 days after the end of our fiscal year ended December 31, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item 12 is incorporated by reference to the information that will be contained in our definitive proxy statement to be filed with the SEC with respect to our 2021 Annual Meeting of Stockholders, which we intend to file no later than 120 days after the end of our fiscal year ended December 31, 2020.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item 13 is incorporated by reference to the information that will be contained in our definitive proxy statement to be filed with the SEC with respect to our 2021 Annual Meeting of Stockholders, which we intend to file no later than 120 days after the end of our fiscal year ended December 31, 2020.
Item 14. Principal Accounting Fees and Services.
The information required by this Item 14 is incorporated by reference to the information that will be contained in our definitive proxy statement to be filed with the SEC with respect to our 2021 Annual Meeting of Stockholders, which we intend to file no later than 120 days after the end of our fiscal year ended December 31, 2020.
 
132

PART IV
Item 15. Exhibits, Financial Statement Schedules.
(1) Financial Statements
The following documents are included on pages
F-1
through
F-40
attached hereto and are filed as part of this Annual Report on Form
10-K.
 
   F-2 
   F-6 
   F-7 
   F-8 
   F-9 
   F-10 
   F-11 
(2) Financial Statement Schedules:
All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto.
(3) Exhibits.
The following is a list of exhibits filed as part of this Annual Report on Form
10-K.
 
     
Incorporation by Reference
   
Exhibit
Number
 
Description
  
Form
  
Date of Filing
  
Exhibit
Number
  
Filed
Herewith
    2.1+† Asset Purchase Agreement, by and between the Registrant and Shire Human Genetic Therapies, Inc. dated as of December 22, 2016  S-1^  June 1, 2018  2.1  
    3.1 Restated Certificate of Incorporation of Translate Bio, Inc.  8-K^^  July 2, 2018  3.1  
    3.2 Amended and Restated Bylaws of Translate Bio, Inc.  8-K^^  July 2, 2018  3.2  
    4.1 Specimen Stock Certificate evidencing shares of common stock  S-1^  June 1, 2018  4.1  
    4.2 Description of Registrant’s Securities  10-K  March 12, 2020  4.2  
  10.1 Amended and Restated Registration Rights Agreement, by and among the Registrant and the other parties thereto, dated as of December 22, 2016  S-1^  June 1, 2018  10.1  
  10.2+ Exclusive Patent License Agreement between the Massachusetts Institute of Technology and Shire AG, dated as of November 1, 2013, as amended  S-1^  June 1, 2018  10.2  
  10.3* Form of Indemnification Agreement with directors and executive officers  S-1^  June 1, 2018  10.3  
  10.4* 2016 Stock Incentive Plan, as amended  S-1^  June 1, 2018  10.4  
 
133

     
Incorporation by Reference
   
Exhibit
Number
 
Description
  
Form
  
Date of Filing
  
Exhibit
Number
  
Filed
Herewith
  10.5* Form of Incentive Stock Option Agreement under the 2016 Stock Incentive Plan  S-1^  June 1, 2018  10.5  
  10.6* Form of Nonstatutory Stock Option Agreement under the 2016 Stock Incentive Plan  S-1^  June 1, 2018  10.6  
  10.7* 2018 Equity Incentive Plan  S-1/A^  June 12, 2018  10.7  
  10.8* Form of Stock Option Agreement under the 2018 Equity Incentive Plan (Single Trigger Acceleration)  S-1^  June 1, 2018  10.8  
  10.9* Form of Stock Option Agreement under the 2018 Equity Incentive Plan (Double Trigger Acceleration)  S-1^  June 1, 2018  10.9  
  10.10* 2018 Employee Stock Purchase Plan  S-1^  June 1, 2018  10.10  
  10.11* 2021 Inducement Stock Incentive Plan      X  
  10.12* Form of Stock Option Agreement under the 2021 Inducement Stock Incentive Plan (No Acceleration)      X  
  10.13* Form of Stock Option Agreement under the 2021 Inducement Stock Incentive Plan (Double Trigger Acceleration)      X  
  10.14* Form of Stock Option Agreement under the 2021 Inducement Stock Incentive Plan (Single Trigger Acceleration)      X  
  10.15* Letter Agreement, dated October 31, 2014, by and between the Registrant and Ronald C. Renaud, Jr.  S-1^  June 1, 2018  10.11  
  10.16* Amendment to Letter Agreement, dated March 11, 2020, by and between the Registrant and Ronald C. Renaud, Jr.  10-K  March 12, 2020  10.12  
  10.17 Lease Agreement, dated June 29, 2017, by and between Translate Bio MA, Inc. and ARE-MA Region No. 8, LLC  S-1^  June 1, 2018  10.14  
  10.18 Indenture of Lease, dated November 3, 2020, by and between the Registrant and Boston Properties Limited Partnership      X  
  10.19* Consulting Agreement, dated June 1, 2012, as amended, by and between the Registrant and Daniel S. Lynch  S-1^  June 1, 2018  10.15  
  10.20* Consulting Agreement, dated July 1, 2016, by and between the Registrant and Owen Hughes  S-1^  June 1, 2018  10.16  
  10.21* Amended and Restated Employment Agreement, dated March 11, 2020, by and between the Registrant and John R. Schroer  10-K^^  March 12, 2020  10.17  
  10.22* Separation Agreement, dated December 27, 2020, by and between the Registrant and John R. Schroer      X  
 
134

     
Incorporation by Reference
   
Exhibit
Number
 
Description
  
Form
  
Date of Filing
  
Exhibit
Number
  
Filed
Herewith
  10.23* Amended and Restated Employment Agreement, dated March 11, 2020, by and between the Registrant and Richard Wooster  10-K^^  March 12, 2020  10.18  
  10.24* Translate Bio, Inc. Director Compensation Policy  S-1/A^  June 12, 2018  10.19  
  10.25+ Collaboration and License Agreement, dated June 8, 2018, by and between Translate Bio MA, Inc. and Sanofi Pasteur Inc.  S-1/A^  June 12, 2018  10.20  
  10.26# First Amendment to the Collaboration and License Agreement, dated March 26, 2020, by and between Translate Bio MA, Inc. and Sanofi Pasteur, Inc.  10-Q^^  May 7, 2020  10.1  
  10.27# Second Amendment to the Collaboration and License Agreement, dated June 22, 2020, by and between Translate Bio MA, Inc. and Sanofi Pasteur, Inc.  10-Q^^  August 6, 2020  10.1  
  10.28 Securities Purchase Agreement, dated June 22, 2020, by and between the Registrant and Sanofi, a French corporation  10-Q^^  August 6, 2020  10.2  
  10.29 Registration Rights Agreement, dated July 20, 2020, by and between the Registrant and Sanofi, a French corporation  10-Q^^  August 6, 2020  10.3  
  10.30# Supply Agreement, dated June 22, 2020, by and between Translate Bio MA, Inc. and Sanofi Pasteur, Inc.  10-Q^^  August 6, 2020  10.4  
  10.31# Third Amendment to Exclusive Patent License Agreement, dated June 12, 2020, between the Massachusetts Institute of Technology and Shire AG, dated as of November 1, 2013, as amended  10-Q^^  August 6, 2020  10.5  
  10.32+ First Amendment to Asset Purchase Agreement, by and between the Registrant and Shire Human Genetic Therapies, Inc., dated as of June 7, 2018  S-1/A^  June 12, 2018  10.21  
  10.33# Suite Retention and Development Agreement, dated September 9, 2019, by and between Albany Molecular Research, Inc. and the Registrant  10-Q^^  November 6,
2019
  10.1  
  10.34# First Amendment, dated September 22, 2020 to Suite Retention and Development Agreement, dated September 9, 2019, by and between Albany Molecular Research, Inc. and the Registrant  10-Q^^  November 5,
2020
  10.1  
  21.1 List of Subsidiaries        X
  23.1 Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm        X
  31.1 Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002        X
 
135

     
Incorporation by Reference
   
Exhibit
Number
 
Description
  
Form
  
Date of Filing
  
Exhibit
Number
  
Filed
Herewith
  32.1 Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002        X
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        
104 Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)        
 
*
Indicates management contract or compensatory plan
^
SEC File
No. 333-225368
^^
SEC File
No. 001-38550
+
Confidential treatment has been granted as to certain portions, which portions have been omitted and filed separately with the U.S. Securities and Exchange Commission.
Pursuant to Item 601(b)(2) of
Regulation S-K, the
Registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the Asset Purchase Agreement to the Securities and Exchange Commission upon request.
#
Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation
S-K.
Item 16. Form
10-K
Summary.
None.
 
136

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized
.
 
 
TRANSLATE BIO, INC.
Date: March 1, 2021 
By:
 
 
/s/ Ronald C. Renaud, Jr.
  
Ronald C. Renaud, Jr.
  
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
 
Signature
 
Title
 
Date
/s/ Ronald C. Renaud, Jr.
Ronald C. Renaud, Jr.
 President and Chief Executive Officer, Director (Principal Executive Officer and Principal Financial Officer) March 1, 2021
/s/ Robert D. Prentiss
Robert D. Prentiss
 Vice President, Corporate Controller and Treasurer (Principal Accounting Officer) March 1, 2021
/s/ Daniel S. Lynch
Daniel S. Lynch
 Chairman of the Board March 1, 2021
/s/ Daniella Beckman
Daniella Beckman
 Director March 1, 2021
/s/ George Demetri, M.D.
George Demetri, M.D.
 Director March 1, 2021
/s/ Jean-François Formela, M.D.
Jean-François Formela, M.D.
 Director March 1, 2021
/s/ Owen Hughes
Owen Hughes
 Director March 1, 2021
/s/ Robert J. Meyer, M.D.
Robert J. Meyer, M.D.
 Director March 1, 2021
/s/ Robert M. Plenge, M.D., Ph.D.
Robert M. Plenge, M.D., Ph.D.
 Director March 1, 2021
 
137


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Translate Bio, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Translate Bio, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, of comprehensive loss, of stockholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control—Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control—Integrated Framework
(2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
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
 
F-2

includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’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. Also, 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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Fair Value of Contingent Consideration
As described in Notes 2 and 5 to the consolidated financial statements, contingent consideration is recorded at fair value on the acquisition date and is revalued each reporting period, with changes in the fair value recognized within the consolidated statement of operations. As of and for the year ended December 31, 2020, management recorded a contingent consideration liability of $152.2 million and expense of $48.6 million. To determine the fair value of the contingent consideration liability, management prepared a discounted cash flow analysis based on various assumptions, including the amount and timing of cash flows, the probability of achieving specified events, discount rate, the period of time until the earnout payments are payable and the conditions triggering the milestone payments are met.
The principal considerations for our determination that performing procedures relating to the fair value of contingent consideration is a critical audit matter are (i) the significant judgment by management when estimating the fair value of contingent consideration, including a high degree of estimation uncertainty in evaluating the amount and timing of cashflows, the probability of achieving specified events, the discount rate, the period of time until the earnout payments are payable, and the conditions triggering when the milestone payments are met, (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate the fair value of contingent consideration, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s estimation of the fair value of contingent consideration, including controls over the review of the valuation methodology and assumptions used to estimate the fair value. These procedures also included, among others (i) testing management’s process for developing the fair value estimate; (ii) evaluating the reasonableness of the valuation model and assumptions used by management related to the amount and timing of cash flows, the probability of achieving specified events, discount rate, the period of time until the earnout payments are payable, and the conditions triggering when the milestone payments are met. Evaluating these assumptions used involved evaluating their consistency with the agreements associated with the
 
F-3

transaction, external industry and market data, and the stage of product development. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of management’s valuation model and evaluating the reasonableness of the assumptions used in the model.
Revenue recognition—Sanofi Collaboration and License Agreement
As described in Notes 2 and 3 to the consolidated financial statements, the Company recognized revenue of $138.8 million from a collaboration and license agreement with Sanofi. The Company recognized revenue using the
cost-to-cost
input method, which management believes best depicts the transfer of control to the customer. Under the
cost-to-cost
input method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue is recorded as a percentage of the estimated transaction price based on the extent of progress towards completion. The calculation of the total estimated costs to fulfill the performance obligation includes costs associated with employees, development, manufacturing, and
out-of-pocket
costs expected to be paid to third parties. Significant management judgment is required in determining the estimate of total costs required under the arrangement and the period over which the Company is expected to complete its performance obligation.
The principal considerations for our determination that performing procedures relating to revenue recognition under the Sanofi collaboration and license agreement is a critical audit matter are the significant judgment by management when determining the total estimated costs to complete the performance obligation, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating audit evidence related to management’s assumptions related to the estimation of total forecasted employee, development, manufacturing, and
out-of-pocket
costs paid to third parties.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the costs incurred to date and controls over the inputs and assumptions used to estimate the total effort required to complete the performance obligation. These procedures also included, among others (i) evaluating and testing management’s process for determining the estimate of total costs to complete the performance obligation, which included evaluating the reasonableness of significant assumptions related to the estimate of total forecasted employee, development, manufacturing, and
out-of-pocket
costs paid to third parties, and (ii) testing, on a sample basis, the actual costs incurred to date. Evaluating the reasonableness of the assumptions used involved assessing management’s ability to reasonably estimate costs to complete the performance obligations by (i) evaluating the appropriateness of changes to management’s estimates of total costs to complete; and (ii) performing a comparison of management’s prior period cost estimates to actual costs incurred and approved.
Indefinite-lived
In-process
Research and Development Intangible Asset Impairment Assessment
As described in Notes 2 and 4 to the consolidated financial statements, the Company’s consolidated indefinite-lived
in-process
research and development (IPR&D) intangible asset balance was $42.3 million as of December 31, 2020. Management performs an impairment test as of October 1 of each year, or more frequently if there are indicators of impairment. If the fair value of the indefinite-lived IPR&D intangible asset is less than its carrying amount, an impairment charge is recognized in the consolidated statements of operations. To determine the fair value of the indefinite-lived IPR&D intangible asset, management prepared a discounted cash flow analysis based on various assumptions, including the amount and timing of future cash flows, probability of technical success, and discount rate.
The principal considerations for our determination that performing procedures relating to the indefinite-lived IPR&D intangible asset impairment assessment is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the indefinite-lived IPR&D; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant
 
F-4

assumptions related to the amount and timing of future cash flows, probability of technical success and discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s indefinite-lived IPR&D intangible asset impairment assessment, including controls over the fair value estimate of the indefinite-lived IPR&D intangible asset, review of the valuation methodology and assumptions used to estimate the fair value. These procedures also included, among others (i) testing management’s process for developing the fair value estimate; and (ii) evaluating the reasonableness of the discounted cash flow analysis and assumptions related to the amount and timing of future cash flows, probability of technical success, and discount rate. Evaluating management’s assumptions related to the amount and timing of future cash flows, probability of technical success and discount rate involved evaluating whether the assumptions used by management were reasonable considering their consistency with data from external sources and the stage of product development. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of management’s discounted cash flow analysis and evaluating the reasonableness of the assumptions used in the models.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 1, 2021
We have served as the Company’s auditor since 2015.
 
F-5

TRANSLATE BIO, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
 
   
December 31,
2020
  
December 31,
2019
 
Assets
         
Current assets:
         
Cash and cash equivalents
  $342,027  $84,580 
Investments
   312,001   104,098 
Collaboration receivables
   26,598   4,596 
Prepaid expenses and other current assets
   11,741   9,391 
Restricted cash
   4,826   950 
          
Total current assets
   697,193   203,615 
Property and equipment, net
   15,372   12,539 
Right-of-use
assets, net
   72,957   10,400 
Goodwill
   21,359   21,359 
Intangible assets, net
   79,127   85,536 
Other assets
   3,928   2,752 
          
Total assets
  $889,936  $336,201 
          
Liabilities and Stockholders’ Equity
         
Current liabilities:
         
Accounts payable
  $8,839  $15,968 
Accrued expenses
   13,202   7,072 
Current portion of deferred revenue
   67,563   18,100 
Current portion of operating lease liability
   11,733   530 
          
Total current liabilities
   101,337   41,670 
Contingent consideration
   152,230   103,655 
Deferred revenue, net of current portion
   228,659   25,256 
Operating lease liability, net of current portion
   50,953   12,084 
          
Total liabilities
   533,179   182,665 
          
Commitments and contingencies (Notes 3 and 13)
   0   0 
Stockholders’ equity:
         
Preferred stock, $0.001 par value; 10,000,000 shares authorized as of December 31, 2020 and 2019; 0
 s
hares issued and outstanding as of December 31, 2020 and 2019
   0—   0— 
Common stock, $0.001 par value; 200,000,000 shares authorized as of December 31, 2020 and 2019; 75,029,625 shares and 60,022,067 shares issued and outstanding as of December 31, 2020 and 2019, respectively
   75   60 
Additional
paid-in
capital
   769,965   512,231 
Accumulated deficit
   (413,283  (359,496
Accumulated other comprehensive income
   —     741 
          
Total stockholders’ equity
   356,757   153,536 
          
Total liabilities and stockholders’ equity
  $889,936  $336,201 
          
The accompanying notes are an integral part of these consolidated financial statements.
 
F-
6

TRANSLATE BIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
 
   
Year Ended December 31,
 
   
2020
  
2019
 
Collaboration revenue
  $138,811  $7,804 
Operating expenses:
         
Research and development
   109,629   76,369 
General and administrative
   35,922   28,632 
Change in fair value of contingent consideration
   48,575   13 
Impairment of intangible asset
   —     18,559 
          
Total operating expenses
   194,126   123,573 
          
Loss from operations
   (55,315  (115,769
Other income, net
   1,528   1,990 
          
Loss before benefit from income taxes
   (53,787  (113,779
Benefit from income taxes
   —     486 
          
Net loss
  $(53,787 $(113,293
          
Net loss per share—basic and diluted
  $(0.80 $(2.20
          
Weighted average common shares outstanding—basic and diluted
   67,520,886   51,445,539 
          
The accompanying notes are an integral part of these consolidated financial statements.
 
F-
7

TRANSLATE BIO, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
 
   
Year Ended December 31,
 
   
2020
  
2019
 
Net loss
  $(53,787 $(113,293
Other comprehensive loss:
         
Unrealized gains (losses) on
available-for-sale
securities, net of tax of $0
   (741  545 
          
Comprehensive loss
  $(54,528 $(112,748
          
The accompanying notes are an integral part of these consolidated financial statements.
 
F-
8

TRANSLATE BIO, INC.
CONSOLIDATED STATEMENTS STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
 
  
 
Common Stock
  
Additional

Paid-in

Capital
  
Accumulated

Deficit
  
Accumulated

Other

Comprehensive

Income
  
Total

Stockholders’

Equity
 
 
Shares
  
Amount
 
Balances at December 31, 2018
   45,139,955  $45   $371,257  $(246,203 $196  $125,295 
Issuance of common stock in connection with private placement, net of placement agent fees and offering costs
   5,582,940   6    44,128   —     —     44,134 
Issuance of common stock in connection with public offering, net of underwriting discounts and commissions and offering costs
   9,000,000   9    84,002   —     —     84,011 
Issuance of common stock in connection with a former employee letter agreement
   67,406   —      847   —     —     847 
Forfeited restricted common stock
   (1,783  —      (2  —     —     (2
Exercise of stock options
   233,549   —      1,512   —     —     1,512 
Stock-based compensation expense
   —     —      10,487   —     —     10,487 
Unrealized gains on
available-for-sale
securities
   —     —      —     —     545   545 
Net loss
   —     —      —     (113,293  —     (113,293
                           
Balances at December 31, 2019
   60,022,067   60    512,231   (359,496  741   153,536 
Issuance of common stock in connection with public offerings, net of underwriting discounts and commissions and offering costs
   8,544,982   9    153,602   —     —     153,611 
Issuance of common stock in connection with Securities Purchase Agreement
   4,884,434   5    73,749   —     —     73,754 
Exercise of stock options
   1,551,178   1    12,397   —     —     12,398 
Issuance of common stock under
 employee
 
stock purchase plan
   26,964   —      366   —     —     366 
Stock-based compensation expense
   —     —      17,620   —     —     17,620 
Unrealized losses on
available-for-sale
securities
   —     —      —     —     (741  (741
Net loss
   —     —      —     (53,787  —     (53,787
                           
Balances at December 31, 2020
   75,029,625  $75   $769,965  $(413,283 $—    $356,757 
                           
The accompanying notes are an integral part of these consolidated financial statements.
 
F-
9

TRANSLATE BIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
   
Year Ended December 31,
 
   
2020
  
2019
 
Cash flows from operating activities:
         
Net loss
  $(53,787 $(113,293
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
         
Depreciation and amortization expense
   9,270   4,732 
Stock-based compensation expense
   17,620   11,334 
Impairment of intangible asset
   —     18,559 
Change in fair value of contingent consideration
   48,575   13 
Deferred income tax benefit
   —     (486
Changes in operating assets and liabilities:
         
Collaboration receivables
   (22,002  (3,763
Prepaid expenses and other assets
   (6,278  (5,743
Right-of-use
assets
   4,315   484 
Long-term prepaid rent
   (10,058  (2,752
Accounts payable
   (6,572  9,928 
Accrued expenses
   6,358   257 
Lease liability
   (3,991  (375
Deferred revenue
   252,866   (1,057
          
Net cash provided by (used in) operating activities
   236,316   (82,162
          
Cash flows from investing activities:
         
Purchases of investments
   (339,410  (174,271
Sales and maturities of investments
   130,765   159,622 
Purchases of property and equipment
   (6,477  (3,537
          
Net cash used in investing activities
   (215,122  (18,186
          
Cash flows from financing activities:
         
Proceeds from public offerings, net of underwriting discounts and commissions
   154,292   84,600 
Payments of public offering costs
   (681  (589
Proceeds from Securities Purchase Agreement
   73,754   —   
Proceeds from private placement, net of placement agent fees
   —     44,608 
Payments of private placement offering costs
   —     (477
Proceeds from option exercises
   12,398   1,512 
Proceeds from issuance of common stock under
employee
stock purchase plan
   366   —   
          
Net cash provided by financing activities
   240,129   129,654 
          
Net increase in cash, cash equivalents and restricted cash:
   261,323   29,306 
Cash, cash equivalents and restricted cash at beginning of period
   85,530   56,224 
          
Cash, cash equivalents and restricted cash at end of period
  $346,853  $85,530 
          
Cash, cash equivalents and restricted cash at end of period:
         
Cash and cash equivalents
  $342,027  $84,580 
Restricted cash
   4,826   950 
          
Total cash, cash equivalents and restricted cash at end of period
  $346,853  $85,530 
          
Supplemental disclosure of
non-cash
investing and financing activities:
         
Purchases of property and equipment included in accounts payable and accrued expenses
  $406  $1,189 
Issuance of common stock in connection with a former employee letter agreement
  $—    $847 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-
10

TRANSLATE BIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of the Business and Basis of Presentation
Translate Bio, Inc. (the “Company”) is a clinical-stage messenger RNA (“mRNA”) therapeutics company developing a new class of potentially transformative medicines to treat diseases caused by protein or gene dysfunction, or to prevent infectious diseases by generating protective immunity. Using its proprietary mRNA therapeutic platform (“MRT platform”), the Company creates mRNA that encodes functional proteins. The Company’s mRNA is designed to be delivered to the target cell where the cell’s own machinery recognizes it and translates it, restoring or augmenting protein function to treat or prevent disease. The Company is primarily focused on applying its MRT platform to treat pulmonary diseases caused by insufficient protein production or where production of proteins can modify disease. In addition, the Company is also pursuing discovery efforts in diseases that affect the liver. The Company is also pursuing the applicability of its MRT platform for the development of mRNA vaccines for infectious diseases under a collaboration with Sanofi Pasteur Inc. (“Sanofi”), the vaccines global business unit of Sanofi S.A.
The outbreak of a novel strain of coronavirus named
SARS-CoV-2,
which causes
COVID-19,
and the resulting
COVID-19
pandemic has presented a substantial public health and economic challenge around the world and continues to affect the Company’s employees, patients, communities and business operations, as well as economies and financial markets worldwide. In 2020, the Company progressed certain of its preclinical programs, specifically in therapeutics for pulmonary diseases and in vaccine development under its collaboration with Sanofi, as further discussed below. However, as a consequence of the
COVID-19
pandemic, we announced that enrollment and dosing in the Company’s ongoing Phase 1/2 clinical trial in patients with cystic fibrosis (“CF”) was paused in April 2020 and then resumed in September 2020. The full extent to which the
COVID-19
pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning
COVID-19,
the actions taken in an effort to contain it or to potentially treat or vaccinate against
COVID-19
and the economic impact on local, regional, national and international markets. The Company actively monitors this situation and the possible effects on its financial condition, liquidity, operations, suppliers, industry and workforce.
The Company is developing MRT5005 for the treatment of CF. The Company is conducting a Phase 1/2 clinical trial to evaluate the safety and tolerability of single- and multiple-ascending doses of MRT5005. The clinical trial is investigating several groups receiving five once-weekly doses, as well as a group receiving five daily doses. In April 2019, the Company completed dosing of all patients in the originally planned single-ascending dose (“SAD”) portion of the Phase 1/2 clinical trial and in July 2019, the Company reported interim data from the SAD portion of the clinical trial through
one-month
follow up post dosing. In January 2021, the Company announced that it completed enrollment and dosing in the dose cohorts comprising the second interim data analysis. The Company anticipates reporting interim clinical data from these cohorts early in the second quarter of 2021.
The Company is leveraging its lung delivery platform and focusing its preclinical research efforts on identifying lead product candidates for a next-generation CF program, as well as beyond CF in additional pulmonary diseases with unmet medical needs, including primary ciliary dyskinesia and pulmonary arterial hypertension.
The Company has a collaboration with Sanofi to develop infectious disease vaccines using the Company’s mRNA technology. Under the collaboration, the Company and Sanofi are jointly conducting research and development activities to advance mRNA vaccines targeting up to seven infectious disease pathogens (see Note 3). Two of the target pathogens under development are
SARS-CoV-2
and influenza. MRT5500 has been selected
 
F-1
1

as the lead candidate for a vaccine against
SARS-CoV-2.
A Phase 1/2 clinical trial to evaluate MRT5500 is expected to begin in the first quarter of 2021. For the influenza vaccine program, lead lipid nanoparticle/mRNA formulations are being evaluated in preclinical studies to support a clinical proof of technology trial anticipated to begin
mid-
y
ear
2021.
The Company is subject to risks common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology,
 
compliance with government regulations and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its 2 wholly owned subsidiaries, Translate Bio MA, Inc. and Translate Bio Securities Corporation, from their date of incorporation. All intercompany accounts and transactions have been
eliminated in consolidation.
The Company’s financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. Through December 31, 2020, the Company has funded its operations primarily through sales of equity securities and upfront payments received under a collaboration and license agreement with Sanofi. The Company has incurred recurring losses and cash outflows from operations since its inception, including net losses of $53.8 million and $113.3 million for the years ended December 31, 2020 and 2019, respectively. In addition, the Company had an accumulated deficit of $413.3 million as of December 31, 2020. The Company expects to continue to generate operating losses for the foreseeable future.
As of
March
 
1
, 2021, the date of issuance of these consolidated financial statements, the Company expects that its cash, cash equivalents and investments of $654.0 million as of December 31, 2020 will be sufficient to fund its operating expenses and capital expenditure requirements through 2023. The future viability of the Company beyond that point is dependent on the Company’s ability to raise additional capital to finance its operations.
Sales of Common Stock
On March 13, 2020, the Company filed a universal shelf registration statement on Form
S-3
with the SEC (the “2020 Shelf”) to register for sale from time to time up to $350.0 million of common stock, preferred stock, debt securities, warrants and/or units in one or more offerings (File
No. 333-237159).
This registration statement was declared effective on May 4, 2020.
The Company is party to an Open Market Sale Agreement
SM
(the “Sales Agreement”) with Jefferies LLC (“Jefferies”) under which the Company may issue and sell shares of common stock, from time to time, having an aggregate offering price of up to $100.0 million. As of December 31, 2020, the Company has issued and sold an aggregate of 2,863,163 shares of its common stock pursuant to the Sales Agreement, resulting in gross proceeds of $37.9 million, before deducting commissions of $1.1 million and other offering expenses of $0.2 million. In the future, $62.1 million of shares of common stock remain available to be sold pursuant to the Sales Agreement, which sales, if any, would be made under the 2020 Shelf.
On June 24, 2020, the Company filed a registration statement on Form
S-3ASR,
which became automatically effective upon filing with the SEC (File
No. 333-239405)
(the “June 2020 Registration
F-12
Statement”). The June 2020 Registration Statement registered for sale from time to time common stock,
preferred
stock, debt securities, warrants and/or units in one or more offerings. On June 30, 2020, the Company issued and sold 5,681,819 shares of common stock through a public offering pursuant to the June 2020 Registration Statement. The price to the public was $22.00 per share, resulting in gross proceeds to the Company of $125.0 million, before deducting underwriting discounts and commissions of $7.5 million and other offering expenses of $0.5 million.
Sanofi Pasteur Collaboration and Licensing Agreement
In 2018, the Company entered into a collaboration and license agreement with Sanofi (the “Original Sanofi Agreement”) to develop mRNA vaccines for up to five infectious disease pathogens (the “Licensed Fields”). On March 26, 2020, the Company and Sanofi amended the Original Sanofi Agreement (the “First Sanofi Amendment”) to include vaccines against
SARS-CoV-2
as an additional Licensed Field, increasing the number of infectious disease pathogens to up to 6. On June 22, 2020, the Company and Sanofi further amended the Original Sanofi Agreement to expand the scope of the collaboration and licenses granted to Sanofi (the “Second Sanofi Amendment”) (see Note 3). The Original Sanofi Agreement, as amended by the First Sanofi Amendment and the Second Sanofi Amendment, is referred to as the “Amended Sanofi Agreement.”
Pursuant to the Amended Sanofi Agreement, the Company and Sanofi are jointly
conducting
research and development activities to advance mRNA vaccines targeting up to 7 infectious disease pathogens. The term of the research collaboration expires in June 2022 with an option for Sanofi to extend for one additional year. If Sanofi elects to extend the collaboration, the collaboration may be further expanded to jointly conduct research and development activities to advance mRNA vaccines for up to an additional 3 infectious disease pathogens, bringing the total to up to 10
pathogens.
Under the terms of the Amended Sanofi Agreement, the
Company
has granted to Sanofi exclusive, worldwide licenses under applicable patents, patent applications,
know-how
and materials, including those arising under the collaboration, to develop, commercialize and manufacture mRNA vaccines to prevent, treat or cure diseases, disorders or conditions in humans caused by any infectious disease pathogen, with certain specified exceptions.
Pursuant to the Second Sanofi Amendment, Sanofi paid the Company an additional
upfront
payment of $300.0 million in August 2020. Additionally, in connection with the execution of the Second Sanofi Amendment, the Company and an affiliate of Sanofi (the “Sanofi Investor”) entered into a securities purchase agreement (the “Secur
i
ties Purchase Agreement”) for the sale and issuance of 4,884,434 shares of the Company’s common stock to the Sanofi Investor at a price of $25.59 per share for an aggregate purchase price of approximately $125.0 million. The closing of the transaction contemplated by the Securities Purchase Agreement was consummated on July 20, 2020 (see Note 3).
2. Summary of Significant Accounting Policies

Use of Estimates
The preparation of the Company’s consolidated
financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual for research and development expenses, the revenue recognized from collaboration agreements, the valuation of stock-based awards, the valuation of assets acquired and liabilities assumed in business combinations, and the impairment of identifiable intangible assets and goodwill. The Company has made estimates of the impact of
 
COVID-19
 
within its financial statements and have determined them to be
 
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immaterial. There may be changes to those estimates in future
periods
. Estimates are
periodically
reviewed in light of
changes
in circumstances, facts and experience. Changes in
estimates
are recorded in the period in which they become known. Actual results could differ from those estimates.
Cash and Cash Equivalents
All highly liquid investments purchased with an original maturity date of three months or less at the date of purchase are considered to be cash equivalents. Cash equivalents consisted of money market funds as of December 31, 2020 and 2019.
Investments
Available-for-sale
 
securities consist of investments with original maturities greater than 90 days at acquisition date. The Company has classified its investments with maturities beyond one year as short term, based on their highly liquid nature and because such
 
available-for-sale
 
securities represent the investment of cash that is available for current operations.
The Company’s debt security investments are classified as
 
available-for-sale
 
and are carried at fair value, with the unrealized gains and losses reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity (deficit). Realized gains and losses and declines in value determined to be other than temporary are based on the specific identification method and are included as a component of other income (expense), net in the consolidated statements of operations.
The Company evaluates its investments with unrealized losses for other-than-temporary impairment. When assessing investments for other-than-temporary declines in value, the Company considers such factors as, among other things, how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions in general. If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary,” the Company reduces the investment to fair value through a charge to the statement of operations. No such adjustments were necessary during the periods
presented
.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents as well as investments. Cash, cash equivalents and investments consist of demand deposits, money market funds, U.S. treasuries and U.S. government agency bonds. The Company generally maintains balances in various operating accounts with financial institutions that management believes to be of high credit quality, in amounts that may exceed federally insured limits. The Company has not experienced any losses related to its cash, cash equivalents and investments and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
Restricted Cash
In connection with its operating lease commitments, the Company issued letters of credit collateralized by cash deposits that are classified as restricted cash in the consolidated balance sheets. Restricted cash amounts have been classified as current assets based on the release dates of the restrictions under the letters of credit, which occur annually.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful lives of each asset.
 
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Estimated useful lives are periodically assessed to determine if changes are appropriate. Upon
retirement
or sale, the related cost and
accumulated
depreciation and amortization are removed from the accounts and any resulting gain or loss is included in the consolidated statements of operations. Repair and maintenance costs are expensed as incurred. The estimated useful lives of the Company’s property and equipment are as follows:
 
   
Estimated Useful Life
Laboratory equipment
  5 years
Computer equipment
  3 years
Office equipment
  5 years
Leasehold improvements
  Shorter of lease term or 10 years
Costs for capital assets not yet placed into service are capitalized as
construction-in-progress
and depreciated or
amortized
in accordance with the above useful lives once placed into service.
Property and equipment are tested for recoverability whenever events or changes in business
circumstances
indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate an asset group for recoverability, the Company compares the forecasted undiscounted cash flows expected to result from the use and eventual disposition of the asset group to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use and eventual disposition of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows using market participant assumptions. The Company did not record any material impairment losses on property and equipment during the years ended December 31, 2020 and 2019.
Leases
The Company adopted Accounting Standards Codification (“ASC”) Topic 842, Leases (ASC 842), using a modified retrospective approach, as of January 1, 2019, with no restatement of prior periods or cumulative adjustment to retained earnings. The Company elected the package of practical expedients, which permits the Company not to reassess under the new standards for prior conclusions about lease identification, lease classification and initial direct costs. The Company did not apply the hindsight practical expedient when determining the lease term for existing leases and assessing impairment of expired or
existing
leases. The Company elected the practical expedient for short-term leases and does not apply the recognition requirements to leases with a term of 12 months or less and recognizes those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. The Company elected the practical expedient to not separate lease and
 
non-lease
 
components for real estate leases. The Company elected to utilize its incremental borrowing rate based on the remaining lease term as of the date of adoption.
The Company accounts for a contract as a lease when it has the right to control the asset for a period of time while obtaining substantially all of the asset’s economic benefits. The Company determines if an arrangement is a lease or contains an embedded lease at inception. For arrangements that meet the definition of a lease, the Company determines the initial classification and measurement of its operating
 
right-of-use
 
(“ROU”) asset and operating lease liability at the lease commencement date and thereafter if modified. The lease term includes any renewal options that the Company is reasonably assured to exercise. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its estimated secured incremental borrowing rate for that lease term.
In addition to rent, the leases may require the Company to pay additional amounts for taxes, insurance, maintenance, and other expenses, which are generally referred to as
 
non-lease
 
components. The Company
 
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has elected to not separate lease and
 
non-lease
 
components. Only the fixed costs for lease components and their associated
 
non-lease
 
components are accounted for as a single lease component and recognized as part of a ROU asset and liability. Rent expense is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in operating expenses in the consolidated statements of operations.
Revenue Recognition
The terms of the Company’s collaboration agreements may include consideration such as
non-refundable
license fees, funding of research and development services, payments due upon the achievement of clinical and preclinical performance-based development milestones, regulatory milestones, manufacturing services, sales-based milestones and royalties on product sales.
The Company had no revenue prior to the Amended Sanofi Agreement, therefore the adoption of ASC 606,
Revenue from Contracts with Customers
, (“ASC 606”), described further in Note 3 under the heading “Accounting under ASC 606”, had no impact to the Company. ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance contracts, financial instruments, guarantees and nonmonetary exchanges. ASC 606 provides a five-step framework whereby revenue is recognized when control of promised goods or services is transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the promised goods or services in the contract; (ii) determine whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measure the transaction price, including the constraint on variable consideration; (iv) allocate the transaction price to the performance obligations; and (v) recognize revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when collectability of the consideration to which the Company is entitled in exchange for the goods or services the Company transfers to the customer is determined to be probable. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses whether the goods or services promised within each contract are distinct and, therefore, represent a separate performance obligation. Goods and services that are determined not to be distinct are combined with other promised goods and services until a distinct bundle is identified. The Company then allocates the transaction price (the amount of consideration the Company expects to be entitled to from a customer in exchange for the promised goods or services) to each performance obligation and recognizes the associated revenue when (or as) each performance obligation is satisfied. The Company’s estimate of the transaction price for each contract includes all variable consideration to which the Company expects to be entitled and will not result in a significant reversal of revenue when the uncertainty with the variable consideration is resolved.
The Company recognizes the
transaction
price allocated to upfront license payments as revenue upon delivery of the license to the customer and resulting ability of the customer to use and benefit from the license, if the license is determined to be distinct from the other performance obligations identified in the contract. If the license is considered to not be distinct from other performance obligations, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied (i) at a point in time, but only for licenses determined to be distinct from other performance obligations in the contract, or (ii) over time, and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from license payments. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
The Amended Sanofi Agreement entitles the Company to additional payments upon the achievement of performance-based milestones. These milestones are generally categorized into three types: development milestones, generally based on the advancement of the Company’s pipeline and initiation of clinical trials; regulatory milestones, generally based on the submission, filing or approval of regulatory applications such as a
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new drug application in the United States; and sales-based milestones, generally based on meeting specific thresholds of sales in certain geographic areas. The Company is also eligible to receive from Sanofi tiered royalty payments on worldwide net sales of mRNA vaccines. For each collaboration that includes development milestone payments, the Company evaluates whether it is probable that the consideration associated with each milestone will not be subject to a significant reversal in the cumulative amount of revenue recognized. Amounts that meet this threshold are included in the transaction price using the most likely amount method, whereas amounts that do not meet this threshold are considered constrained and excluded from the transaction price until they meet this threshold. Milestones tied to regulatory approval, and therefore not within the Company’s control, are considered constrained until such approval is received. Upfront and ongoing development milestones per the collaboration agreements are not subject to refund if the development activities are not successful. At the end of each subsequent reporting period, the Company
re-evaluates
the probability of a significant reversal of the cumulative revenue recognized for the milestones, and, if necessary, adjusts the estimate of the overall transaction price. Any such adjustments are recorded on a cumulative
catch-up
basis, which would affect revenues from collaborators in the period of adjustment. The Company may enter into an agreement that includes sales-based milestone payments and royalties in exchange for a license of intellectual property. The Company considers the underlying facts and circumstances of these agreements, noting whether the future payments are contingent upon future sales and whether they are dependent on a third party’s ability to successfully commercialize a product using the licensed intellectual property. The Company also considers whether the license is the only, or predominant, item to which the milestone payments and royalties relate. If the Company concludes the license is the predominant item in the agreement, therefore the primary driver of value, the Company excludes sales-based milestone payments and royalties from the transaction price until the sale occurs (or, if later, until the underlying performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied). Currently, the Company has not recognized any royalty revenue resulting from the Amended Sanofi Agreement.
ASC 606 requires the Company to allocate the arrangement consideration on a relative standalone selling price basis for each performance obligation after determining the transaction price of the contract and identifying the performance obligations to which that amount should be allocated. The relative standalone selling price is defined in ASC 606 as the price at which an entity would sell a promised good or service separately to a customer. If other observable transactions in which the Company has sold the same performance obligation separately are not available, the Company is required to estimate the standalone selling price of each performance obligation. Key assumptions to determine the standalone selling price may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success.
Whenever the Company determines that a contract should be accounted for as a combined performance obligation, which is recognized over time, it will utilize the
cost-to-cost
input method. Revenue will be recognized over time using the
cost-to-cost
input method, based on the total estimated costs to fulfill the obligations. The Company will recognize revenue as services are delivered. Significant management judgment is required in determining the estimate of total costs required under an arrangement and the period over which the Company is expected to complete its performance obligations under an arrangement.
The Company evaluates its collaborative agreements for proper classification in the consolidated statements of operations based on the nature of the underlying activity. Transactions between collaborators recorded in the Company’s consolidated statements of operations are recorded on either a gross or net basis, depending on the characteristics of the collaborative relationship.
For revenue generating arrangements where the
Company
, as a vendor, provides consideration to a licensor or collaborator, as a customer, the Company applies the accounting standard that governs such transactions. This standard addresses the accounting for revenue arrangements where both the vendor and the customer make cash payments to each other for services and/or products. A payment to a customer is presumed to be a reduction of the transaction price unless the Company receives an identifiable benefit for the payment and it can reasonably
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estimate the fair value of the benefit received. Payments to a customer that are deemed a reduction of the transaction price are recorded first as a reduction of revenue, to the extent of both cumulative revenue recorded to date and probable future revenues, which include any unamortized deferred revenue balances, under all arrangements with such customer, and then as an expense. Payments that are not deemed to be a reduction of the transaction price are recorded as an expense.
Consideration that does not meet the requirements to satisfy the above revenue recognition criteria is a contract liability and is recorded as deferred revenue in the consolidated balance sheets. Although the Company follows detailed guidelines in measuring revenue, certain judgments affect the application of its revenue policy. For example, in connection with the Amended Sanofi Agreement, the Company has recorded short-term and long-term deferred revenue on its consolidated balance sheets based on the Company’s best estimate of when such revenue will be recognized. Short-term deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months. Amounts that the Company expects will not be recognized within the next 12 months are classified as long-term deferred revenue.
The estimate of deferred revenue also reflects management’s estimate of the periods of the Company’s involvement in certain of its collaborations. The Company’s performance obligations under these collaborations consist of participation on steering committees and the performance of other research and development services. In certain instances, the timing of satisfying these obligations can be difficult to estimate. Accordingly, the Company’s estimates may change in the future. Such changes to estimates would result in a change in revenue recognition amounts. If these estimates and judgments change over the course of these agreements, it may affect the timing and amount of revenue that the Company will recognize and record in future periods. At December 31, 2020, the Company had short-term and long-term deferred revenue of $67.6 million and $228.7 million, respectively, related to the Sanofi collaboration.
Under ASC 606, the Company will recognize revenue and
record
a receivable when it fulfills its performance obligations under the Sanofi Agreement. When no further performance obligation is required to be satisfied, the Company will recognize revenue for the portion satisfied and record a receivable. Amounts are recorded as short-term collaboration receivables when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that the Company would have recognized is one year or less or the amount is immaterial. At December 31, 2020, the Company has not capitalized any costs to obtain any of its contracts.
In-Process
Research and Development
The fair value of
in-process
research and development (“IPR&D”) acquired through a business combination is capitalized as an indefinite-lived intangible asset until the completion or abandonment of the related research and development activities. When the related research and development is completed or a change in circumstance occurs th
a
t defines the useful life, the asset is reclassified to a definite-lived asset and amortized over its estimated useful life. When a change between these classes occurs, the Company will perform an impairment test.
The fair value of an IPR&D intangible asset is typically determined using a discounted cash flow analysis based on various assumptions, including the amount and timing of future cash flows and the probability of technical success. The net cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams.
Indefinite-lived IPR&D is not subject to amortization, but is tested annually for impairment or more frequently if there are indicators of impairment. The Company tests its indefinite-lived IPR&D annually for
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impairment on October 1st. In testing indefinite-lived IPR&D for impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that its fair value is less than its carrying amount, or the Company can perform a quantitative impairment analysis to determine the fair value of the indefinite-lived IPR&D without performing a qualitative assessment. Qualitative factors that the Company considers include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If the Company chooses to first assess qualitative factors and the Company determines that it is more likely than not that the fair value of the indefinite-lived IPR&D is less than its carrying amount, the Company would then determine the fair value of the indefinite-lived IPR&D. Under either approach, if the fair value of the indefinite-lived IPR&D is less than its carrying amount, an impairment charge is recognized in the consolidated statements of operations.
Definite-lived IPR&D is recorded at fair value and amortized over the greater of economic consumption or on a straight-line basis over its estimated useful life. Definite-lived IPR&D is tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. If an impairment review is performed to evaluate an asset group for recoverability, the Company compares the forecasted undiscounted cash flows expected to result from the use and eventual disposition of the asset group to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use and eventual disposition of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows using market participant assumptions.
Goodwill
Goodwill represents the excess of the fair value of the consideration transferred over the fair
value
of the net tangible and identifiable intangible assets acquired in a business combination. Goodwill is not subject to amortization, but is tested annually for impairment or more frequently if there are indicators of impairment. The Company tests its goodwill annually for impairment on October 1st. The Company has determined that there is a single reporting unit for purposes of testing goodwill for impairment.
In testing goodwill for impairment, the Company has the option to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. If the Company elects this option and determine, as a result of the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required; otherwise, no further testing is required. Among other relevant events and circumstances that affect the fair value of reporting units, the Company considers individual factors, such as microeconomic conditions, changes in the industry and the markets in which it operates as well as historical and expected future financial performance. Alternatively, the Company may elect to not first assess qualitative factors and instead immediately perform the quantitative impairment test.
In 2020, the Company elected to early adopt
guidance
issued by the Financial Accounting Standards Board (“FASB”) that simplifies the test for goodwill impairment. This guidance removed Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment charge is now recognized for the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill.
Fair Value Measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable
 
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inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
 
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