美國
證券交易委員會
華盛頓特區20549
形式
(Mark一）
根據1934年《證券交易法》第13或15（d）條的季度報告 |
截至季度
或
根據1934年《證券交易所法》第13或15（d）條提交的過渡報告 |
對於到的過渡期
委員會文件號：
（註冊人章程中指定的確切名稱）
（州或其他司法管轄區 成立或組織） |
（國稅局僱主 |
（主要行政辦公室地址） |
(Zip代碼） |
註冊人的電話號碼，包括地區代碼：（
（以前的姓名或以前的地址，如果自上次報告以來發生了變化）
根據該法第12（b）條登記的證券：
每個班級的標題 |
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交易 符號 |
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註冊的每個交易所的名稱 |
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(The納斯達克全球市場） |
通過勾選標記標明註冊人是否（1）在過去12個月內（或在註冊人被要求提交此類報告的較短期限內）提交了1934年證券交易法第13或15（d）條要求提交的所有報告，以及（2）在過去90天內是否遵守此類提交要求。
通過勾選標記檢查註冊人是否已在過去12個月內（或在註冊人被要求提交此類文件的較短期限內）以電子方式提交了根據S-t法規第405條（本章第232.405條）要求提交的所有交互數據文件。
通過複選標記來確定註冊人是大型加速申報人、加速申報人、非加速申報人、小型報告公司還是新興成長型公司。請參閱《交易法》第120亿.2條規則中「大型加速備案人」、「加速備案人」、「小型報告公司」和「新興成長型公司」的定義。
大型加速文件夾 |
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☐ |
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加速編報公司 |
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☐ |
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☒ |
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小型上市公司 |
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新興成長型公司 |
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如果是新興成長型公司，請通過勾選標記表明註冊人是否選擇不利用延長的過渡期來遵守根據《交易法》第13（a）條規定的任何新的或修訂的財務會計準則。
通過勾選標記檢查註冊人是否是空殼公司（定義見《交易法》第120亿.2條）。 是的 沒有
截至2024年11月7日，註冊人已d
目錄表
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頁面 |
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第一部分. |
4 |
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項目1. |
4 |
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4 |
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5 |
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6 |
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8 |
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9 |
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項目2. |
25 |
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項目3. |
36 |
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項目4. |
36 |
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第二部分. |
38 |
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項目1. |
38 |
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項目1A. |
38 |
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項目2. |
88 |
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項目3. |
88 |
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項目4. |
88 |
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項目5. |
88 |
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項目6. |
90 |
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91 |
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關於前瞻性陳述的警告
這份Form 10-Q季度報告包含符合1995年美國私人證券訴訟改革法案、1933年修訂的證券法第27A條和1934年修訂的證券交易法第21E條的前瞻性陳述，涉及重大風險和不確定因素。除有關歷史事實的陳述外，本Form 10-Q季度報告中包含的所有陳述，包括有關我們的戰略、未來運營、未來財務狀況、未來收入、預計成本、前景、計劃、管理目標和預期市場增長的陳述，均屬前瞻性陳述。「預期」、「相信」、「考慮」、「繼續」、「可能」、「估計」、「預期」、「打算」、「可能」、「可能」、「計劃」、「潛在」、「預測」、「項目」、「應該」、「目標」、「將會」、「將會」以及類似的表述旨在識別前瞻性陳述，儘管並不是所有的前瞻性陳述都包含這些識別詞語。
本10-Q表格季度報告中的前瞻性陳述包括（除其他外）有關：
我們可能無法真正實現前瞻性陳述中披露的計劃、意圖或預期，您不應過度依賴我們的前瞻性陳述。實際結果或事件可能與我們在前瞻性陳述中披露的計劃、意圖和預期存在重大差異。我們在本10-Q表格季度報告中納入了重要因素，特別是在下文的「風險因素摘要」和第二部分第1A項「風險因素」中，我們認爲這些因素可能導致實際結果或事件與我們做出的前瞻性陳述存在重大差異。我們的前瞻性陳述並不反映我們未來可能進行的任何收購、合併、處置、合資企業或投資的潛在影響。
1
您應該閱讀本10-Q表格季度報告以及我們在此引用的並已完整提交或通過引用納入的文件，並理解我們的實際未來結果可能與我們的預期存在重大差異。本季度報告（Form 10-Q）中包含的前瞻性陳述於本季度報告（Form 10-Q）之日做出，我們不承擔任何更新任何前瞻性陳述的義務，無論是由於新信息、未來事件還是其他原因，適用法律要求的除外。
風險因素摘要
我們的業務面臨許多風險和不確定性，包括下文進一步詳細討論的風險。這些風險包括以下風險：
2
3
第一部分-財務信息
項目1.簡明合併財務報表（未經審計）
攀登生物公司
凝聚康固資產負債表
(In千，份額和每股金額除外）
(未經審計)
資產 |
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2024年9月30日 |
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2023年12月31日 |
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流動資產： |
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現金及現金等價物 |
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$ |
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$ |
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短期有價證券 |
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預付費用和其他流動資產 |
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流動資產總額 |
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$ |
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$ |
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經營租賃使用權資產 |
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長期有價證券 |
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其他長期資產 |
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總資產 |
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$ |
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$ |
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負債和股東權益 |
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流動負債： |
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應付賬款 |
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應計費用和其他流動負債 |
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應計費用、關聯方 |
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經營租賃負債 |
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流動負債總額 |
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$ |
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$ |
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經營租賃負債，扣除流動部分 |
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其他長期負債 |
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總負債 |
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$ |
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$ |
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股東權益 |
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普通股，美元 |
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額外實收資本 |
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累計其他綜合收益（損失） |
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( |
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累計赤字 |
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( |
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( |
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股東權益總額 |
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$ |
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$ |
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負債和股東權益總額 |
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$ |
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$ |
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隨附的附註是該等簡明綜合財務報表的組成部分。
4
攀登生物公司
濃縮合並St運營和綜合損失的估計
(In千，份額和每股金額除外）
(未經審計)
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截至9月30日的三個月， |
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截至9月30日的九個月， |
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2024 |
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2023 |
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2024 |
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2023 |
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運營費用： |
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收購在中研發、關聯方 |
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$ |
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$ |
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$ |
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$ |
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研發 |
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研發、關聯方 |
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一般及行政 |
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總運營費用 |
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運營虧損 |
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( |
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( |
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( |
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( |
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其他收入(支出)： |
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外幣收益（損失） |
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( |
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其他淨收入 |
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其他收入(費用)合計 |
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淨虧損 |
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$ |
( |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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每股淨虧損，基本和稀釋 |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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用於計算每股淨虧損（基本和稀釋）的加權平均已發行股份數 |
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綜合損失： |
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淨虧損 |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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其他全面虧損： |
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未實現投資收益，扣除稅款美元 |
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全面虧損 |
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$ |
( |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
隨附的附註是該等簡明綜合財務報表的組成部分。
5
攀登生物公司
簡明綜合損益表 股東權益
(In數千人，股份金額除外）
(未經審計)
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普通股 |
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股份 |
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量 |
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借記資本公積 |
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累計其他綜合收益（損失） |
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累計赤字 |
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股東權益總額 |
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截至2023年12月31日餘額 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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限制性股票獎勵和單位的歸屬 |
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— |
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— |
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— |
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— |
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— |
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股票期權的行使 |
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— |
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— |
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— |
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股票補償 |
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— |
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— |
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— |
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— |
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其他全面收益 |
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— |
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— |
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— |
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— |
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淨虧損 |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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截至2024年3月31日的餘額 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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限制性股票獎勵和單位的歸屬 |
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— |
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— |
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— |
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— |
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— |
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股票期權的行使 |
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— |
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— |
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— |
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股票補償 |
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— |
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— |
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— |
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— |
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以私募方式發行普通股，扣除發行成本美元 |
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— |
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— |
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發行普通股以收購關聯方在製品研發 |
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— |
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— |
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淨虧損 |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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截至2024年6月30日餘額 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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限制性股票獎勵和單位的歸屬 |
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— |
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— |
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— |
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— |
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— |
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股票期權的行使 |
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— |
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— |
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— |
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股票補償 |
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— |
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— |
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— |
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— |
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其他全面收益 |
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— |
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— |
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— |
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— |
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淨虧損 |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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截至2024年9月30日餘額 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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6
攀登生物公司
簡明合併股東權益報表
(In數千人，股份金額除外）
(未經審計)
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普通股 |
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股份 |
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量 |
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借記資本公積 |
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累計其他綜合收益（損失） |
|
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累計赤字 |
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股東權益總額 |
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截至2022年12月31日餘額 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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限制性股票獎勵的歸屬 |
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— |
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— |
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— |
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— |
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股票期權的行使 |
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股票補償 |
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— |
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— |
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— |
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— |
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其他全面收益 |
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— |
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— |
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— |
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— |
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淨虧損 |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
截至2023年3月31日的餘額 |
|
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|
$ |
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|
$ |
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$ |
( |
) |
|
$ |
( |
) |
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$ |
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限制性股票獎勵和單位的歸屬 |
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— |
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— |
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— |
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— |
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— |
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股票期權的行使 |
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— |
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— |
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— |
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股票補償 |
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— |
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— |
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— |
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— |
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其他全面收益 |
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— |
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— |
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— |
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— |
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淨虧損 |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
截至2023年6月30日餘額 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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||||
限制性股票獎勵和單位的歸屬 |
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— |
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— |
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— |
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— |
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— |
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股票期權的行使 |
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— |
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— |
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— |
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股票補償 |
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— |
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— |
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— |
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— |
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||
其他全面收益 |
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— |
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— |
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— |
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— |
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||
淨虧損 |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
截至2023年9月30日餘額 |
|
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$ |
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|
$ |
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
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||||
隨附的附註是該等簡明綜合財務報表的組成部分。
7
攀登生物公司
簡明綜合 現金流量表
(In數千）
(未經審計)
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截至9月30日的九個月， |
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2024 |
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2023 |
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經營活動產生的現金流量： |
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淨虧損 |
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$ |
( |
) |
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$ |
( |
) |
將淨虧損與經營活動中使用的淨現金進行調節的調整： |
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股票補償 |
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使用權資產減損 |
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非現金經營租賃費用 |
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投資折扣和溢價攤銷，淨額 |
|
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( |
) |
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( |
) |
正在進行的研發、關聯方 |
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重新計量帶來的外幣收益 |
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( |
) |
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( |
) |
經營資產和負債變化： |
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預付費用和其他資產 |
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長期資產 |
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應付賬款 |
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( |
) |
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( |
) |
應計負債、關聯方 |
|
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( |
) |
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應計負債 |
|
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( |
) |
|
經營租賃負債 |
|
|
( |
) |
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|
( |
) |
長期負債 |
|
|
( |
) |
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|
|
經營活動所用現金淨額 |
|
$ |
( |
) |
|
$ |
( |
) |
投資活動產生的現金流量： |
|
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||
發放與資產收購相關的承諾貸款 |
|
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( |
) |
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與資產收購相關支付的現金，扣除收購現金 |
|
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( |
) |
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購買有價證券 |
|
|
( |
) |
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|
( |
) |
有價證券到期收益 |
|
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|
||
投資活動提供的淨現金（用於） |
|
$ |
( |
) |
|
$ |
|
|
融資活動產生的現金流量： |
|
|
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|
|
|
||
私募發行普通股的收益，扣除發行成本 |
|
|
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|
||
行使股票期權的收益 |
|
|
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|
||
融資活動提供的現金淨額 |
|
$ |
|
|
$ |
|
||
匯率變動對現金及現金等價物的影響 |
|
|
|
|
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|
||
現金和現金等價物淨變化 |
|
$ |
|
|
$ |
|
||
年初現金及現金等值物 |
|
|
|
|
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|
||
期末現金及現金等價物 |
|
$ |
|
|
$ |
|
||
現金經營活動補充披露： |
|
|
|
|
|
|
||
爲租賃支付的現金計入經營現金流出 |
|
$ |
|
|
$ |
|
||
非現金投資和融資活動補充披露： |
|
|
|
|
|
|
||
發行普通股以換取在過程中的研發 |
|
$ |
|
|
$ |
|
||
與資產收購相關的承諾貸款的結算 |
|
$ |
|
|
$ |
|
||
爲換取租賃負債而獲得的使用權資產 |
|
$ |
|
|
$ |
|
||
隨附的附註是該等簡明綜合財務報表的組成部分。
8
攀登生物公司
濃縮康索註釋已登記的財務報表
(未經審計)
1.重要會計政策的組織說明和彙總
組織
攀登生物公司(The Company)前身爲Eliem治療公司(Eliem)，是一家臨床階段的生物技術公司，專注於爲免疫介導性疾病患者開發治療方法。該公司的主要候選產品Budoprutug(以前稱爲TNT119)是一種抗CD19的單抗，已經顯示出b細胞耗盡，有潛力治療廣泛的b細胞介導的疾病，包括原發膜性腎病(PMN)、免疫性血小板減少症(ITP)和系統性紅斑狼瘡(SLE)。該公司於2018年10月18日在特拉華州註冊成立，並於2024年10月將公司總部遷至馬薩諸塞州。
2024年6月27日，公司完成了對Tenet Medicines，Inc.的收購(收購)。關於收購的完成，公司發行並出售了
2024年第三季度，該公司將重點從開發神經元興奮性障礙的治療藥物轉向免疫介導性疾病。由於這一轉變，本公司停止了在英國(英國)的業務。並與七個英國人分開員工。
列報依據和合並原則
隨附的公司及其全資子公司的中期簡明綜合財務報表是按照美國公認會計原則(美國公認會計原則)和美國證券交易委員會(美國證券交易委員會)關於Form 10-Q季度報告的規則和規定編制的。所有公司間交易和餘額都已在合併中沖銷。
截至2024年9月30日的簡明綜合資產負債表以及截至2024年9月30日和2023年9月30日的三個月和九個月的簡明綜合經營和全面虧損表、簡明綜合現金流量表和簡明綜合股東權益表未經審計。截至2023年12月31日的綜合資產負債表是從截至2023年12月31日和截至2023年12月31日的年度經審計的財務報表得出的，但不包括美國公認會計准則要求的所有披露。未經審核的中期簡明財務報表乃根據截至2023年12月31日及截至2023年12月31日止年度的經審核年度財務報表編制，管理層認爲該等中期簡明財務報表反映本公司截至2024年9月30日的財務狀況、截至2024年及2023年9月30日止三個月及九個月的簡明經營業績及截至2024年9月30日及2023年9月30日止九個月的現金流量所需的所有調整，僅包括正常經常性調整。這些報告中披露的與截至2024年9月30日和2023年9月30日的三個月和九個月相關的財務數據和其他信息也未經審計。截至2024年9月30日的三個月和九個月的簡明綜合運營結果不一定表明截至2024年12月31日的全年預期結果或任何其他時期。這些中期簡明綜合財務報表應與公司經審計的綜合財務報表一起閱讀，這些報表包括在公司於2024年3月28日提交給美國證券交易委員會的10-k表格年度報告中。
流動性
自成立以來，該公司經歷了經常性的運營虧損，並從運營中產生了負現金流。該公司的累計虧損爲$
公司估計的可用現金、現金等值物和有價證券 $
9
該公司可能通過股權發行、債務融資、合作、戰略聯盟以及營銷、分銷或許可安排，爲未來的現金需求提供資金。此外，公司可能會繼續依賴資本市場籌集資金。不能保證該公司未來能夠以可接受的條款籌集足夠的資金，或者根本不能保證。
預算的使用
根據美國公認會計原則編制中期簡明綜合財務報表時，管理層需要做出影響報告金額和披露的估計和假設。因此，實際結果可能與這些估計不同。關鍵的管理估計包括與研究和開發費用應計、可收回的研究和開發稅收抵免以及基於股票的獎勵的估值有關的估計。本公司根據歷史經驗和其他因素持續評估其估計和假設，並在事實和情況需要時調整這些估計和假設。實際結果可能與這些估計不同。
信用風險集中
可能使公司面臨集中信用風險的金融工具主要包括現金、現金等價物和有價證券。該公司的現金由美國的兩家金融機構持有。以及英國(英國)的一家金融機構。本公司認爲，除了與商業銀行關係相關的正常信用風險之外，它不會受到異常信用風險的影響。公司在美國和英國的存款。可能分別超過聯邦存託保險公司和金融服務補償計劃的保險限額。截至2024年9月30日，該公司擁有貨幣市場基金和有價證券的投資，這些基金和有價證券在第三方託管人的單獨帳戶中持有。該公司制定了有關信用評級和到期日的指導方針，旨在保障本金餘額和維持流動性。至2024年9月30日，且於本申請日期，本公司並未在該等投資上出現任何虧損。
風險和不確定性
該公司受到生物技術行業早期公司常見的風險和不確定因素的影響，這些風險和不確定因素包括但不限於競爭對手對新技術創新的開發、對專有技術的保護、對關鍵人員的依賴、對單一來源供應商和合作者的依賴、原材料的可獲得性、公司候選產品和工藝的專利性以及Budoprutug或公司可能開發的任何候選產品的臨床療效和安全性、遵守政府法規以及獲得額外融資以資助運營的需要。Budoprutug或該公司可能開發的任何候選產品在商業化之前將需要大量額外的研究和開發工作，包括廣泛的臨床前研究、臨床試驗和監管批准。這些努力將需要大量額外資本、適當的人員基礎設施以及廣泛的遵守和報告。
細分市場
經營部門被確定爲企業的組成部分，其獨立的離散財務信息可供首席運營決策者(CODM)評估。公司的首席運營官是其首席執行官，他審查財務信息和某些經營指標，主要是爲了就如何分配資源和衡量公司的業績做出決定。管理層已確定該公司作爲一個單一的運營和可報告部門運營。該公司的CODM在綜合的基礎上評估財務信息。由於公司的運營方式
公允價值計量
在資產負債表中按公允價值經常性記錄的資產和負債根據與用於計量其公允價值的投入相關的判斷水平進行分類。公允價值被定義爲一項資產將收到的交換價格或將支付的退出價格，以在計量日在市場參與者之間有序交易中轉移該資產或負債的本金或最有利市場的負債。用於計量公允價值的估值技術必須最大限度地利用可觀察到的投入，最大限度地減少使用不可觀察到的投入。本公司以三級架構計量公允價值，在計量公允價值時，評估方法中使用的投入優先順序如下：
10
在確定公允價值時，本公司採用報價市場價格或估值技術，最大限度地利用可觀察到的投入，儘可能減少使用不可觀察到的投入，並在評估公允價值時考慮交易對手信用風險。
有幾個
公司的公允價值計量2024年9月30日和2023年12月31日情況如下(單位：千)：
|
|
2024年9月30日 |
|
|||||||||
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1級 |
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2級 |
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平衡 |
|
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資產： |
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|||
現金等價物： |
|
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|||
貨幣市場基金 |
|
$ |
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$ |
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$ |
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|||
美國國債 |
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現金等值物總額 |
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有價證券： |
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美國國債 |
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公司債券 |
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有價證券總數 |
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總資產 |
|
$ |
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$ |
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$ |
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2023年12月31日 |
|
|||||||||
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1級 |
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2級 |
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平衡 |
|
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資產： |
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|||
現金等價物： |
|
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|||
貨幣市場基金 |
|
$ |
|
|
$ |
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$ |
|
|||
有價證券： |
|
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|
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|||
美國國債 |
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美國政府機構債務證券 |
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有價證券總數 |
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|||
總資產 |
|
$ |
|
|
$ |
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|
$ |
|
|||
重要會計政策摘要
資產收購
根據主題805中的指導，企業合併在財務會計準則委員會(FASB)的會計準則編纂(ASC)中，本公司評估資產及相關負債的收購和其他類似交易，以評估交易是否應計入業務合併或資產收購，方法是首先應用篩選測試，以確定收購的總資產的公允價值是否基本上全部集中在單一可識別資產或一組類似可識別資產中。如果符合篩選測試，該交易將作爲資產收購入賬。如果不符合篩選測試，則需要進一步確定公司是否已獲得能夠創建滿足業務要求的輸出的輸入和流程。本公司根據收購實體的成本按相對公允價值確認淨資產，從而對資產收購進行會計處理。商譽不在資產收購中確認；任何超過收購淨資產公允價值的額外對價都將分配給基於相對公允價值假設的非貨幣可識別資產和負債。在未來沒有其他用途的情況下，在資產收購中獲得的正在進行的研究和開發將計入費用。
11
本公司對未來的付款進行會計處理，例如在這類資產收購中實現某些監管、開發或銷售里程碑時的付款，當基本里程碑實現時。在監管機構批准後向第三方支付的里程碑付款，如果被視爲未來有替代用途，則可作爲無形資產資本化，並在相關產品的估計剩餘使用壽命內攤銷。
本公司截至2023年12月31日止年度的10-k表格年度報告所載綜合財務報表附註2所述的公司重大會計政策並無其他重大修訂。
最近採用的會計公告
2020年8月，FASB發佈了會計準則更新(ASU)第2020-06號(ASU 2020-06)，債務--可轉換債務和其他期權(分主題470-20)和衍生工具和套期保值--實體自有股權的合同(分主題815-40)--實體自有股權的可轉換工具和合同的會計。該標準通過取消當前GAAP所要求的主要分離模型，簡化了可轉換工具的會計處理。因此，更多的可轉換債務工具將作爲單一負債工具報告，不會單獨覈算嵌入的轉換功能。ASU 2020-06取消了股權合同有資格獲得衍生品範圍例外所需的某些結算條件，這將允許更多股權合同有資格獲得資格。該標準還簡化了某些領域的稀釋後每股淨收益的計算。對於非上市公司，此更新的生效日期爲2023年12月15日之後的會計年度，包括其中的過渡期。允許在2020年12月15日之後的財政年度以及其間的過渡期內儘早採用。本公司於2024年1月1日採用ASU 2020-06，對其合併財務報表沒有重大影響。
近期尚未採用的會計公告
2023年11月，FASB發佈了ASU 2023-07號(ASU 2023-07)，分部報告(主題280)：改進可報告分部披露這項規定要求(其中包括)：(I)定期向CODM提供幷包括在一個分部的已報告損益計量中的有關重大分部支出的更多披露；(Ii)按可報告分部披露ASU 2023-07中定義的其他分部項目的金額和構成說明；及(Iii)按年度和中期基準報告有關每個應報告分部的損益和資產的披露。ASU 2023-07的規定在2023年12月15日之後的財政年度和2024年12月15日之後的財政年度內的過渡期內有效。該公司預計ASU 2023-07將要求在其合併財務報表的附註中進行額外的披露，這些附註將包括在截至2024年12月31日的會計年度的Form 10-k年度報告中。
2023年12月，FASB發佈了ASU 2023-09號(ASU 2023-09)，所得稅(主題740)：改進所得稅披露，除其他事項外，對公共企業實體要求如下：(I)加強披露稅率調節中包括的特定類別的對賬項目，以及滿足某些定性和數量閾值的任何這些項目的補充信息；(Ii)披露稅率調節中披露的每個單獨調節項目的性質、影響和潛在原因，以及在不明顯的情況下對其進行分類所使用的判斷；以及(Iii)加強披露已支付的所得稅，包括聯邦、州和外國稅，以及超過某個數量門檻的個別司法管轄區的所得稅。ASU 2023-09的修訂取消了披露資產負債表日後12個月未確認稅收優惠合理可能變化的性質和估計範圍的要求。對於非上市公司，此更新的生效日期爲2025年12月15日之後的財年；允許提前採用。該公司預計ASU 2023-09將要求在其合併財務報表的附註中進行額外的披露。
除了在此披露的截至2024年9月30日的9個月外，最近發佈的會計準則沒有其他重大更新。儘管財務會計準則委員會還發布或提議了其他幾項新的會計聲明，但本公司不認爲這些會計聲明中的任何一項已經或將對其財務狀況或經營業績產生實質性影響。
12
2. 資產收購和與關聯方的私募
背景
本公司與本公司、特拉華州公司及本公司全資附屬公司(臨時附屬公司)Tango Merge Sub，Inc.、特拉華州Tenet Medicines，Inc.(Tenet)(特拉華州一家臨時附屬公司)及僅以Tenet股權持有人代表身份訂立的(I)於2024年4月10日生效的合併及重組協議(收購協議)(收購協議)，規定本公司透過將臨時附屬公司合併爲Tenet而收購Tenet，而Tenet仍作爲本公司的全資附屬公司繼續存在，(Ii)日期爲4月10日的證券購買協議。2024年(SECU本公司與數名認可機構投資者(管道投資者)(包括與RA Capital Management，L.P.(RA Capital Management)有關聯的基金)之間的投資協議)，據此，本公司同意於是次私募中向管道投資者發行及出售合共
2024年6月27日，公司完成根據收購協議的條款收購Tenet。Tenet是一傢俬人的發展階段生物技術公司，在收購完成之前由RA資本管理公司的附屬基金持有多數股權。緊接收購及私募完成前，RA Capital Management實益擁有約
在收購生效時，由於收購，在Tenet普通股持有人沒有采取任何行動的情況下，(I)Tenet普通股的所有已發行和流通股，以及(Ii)Tenet普通股的所有可轉換爲普通股的證券均已轉換爲以下權利：
陳述的基礎
根據ASC主題805，企業合併本公司首先評估初步篩選測試，以確定收購Tenet的總資產的公允價值是否基本上全部集中在一項資產或一組類似資產中。本公司的結論是，Tenet收購的總資產的公允價值幾乎全部集中在與Budoprutug資產(IPR&D)相關的正在進行的研究和開發中。因此，該公司將此次收購作爲資產收購入賬。根據資產收購會計方法，資產收購的成本反映轉移的對價，(I)按相對公允價值分配給收購的資產和承擔的負債，(Ii)沒有記錄商譽，(Iii)所有直接交易成本計入轉移的總對價。
如下文進一步說明的，分配給知識產權研究與開發的對價轉移金額爲#美元
轉讓代價
總對價的公允價值約爲美元
股權對價 |
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已存貸款的結算 |
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直接交易成本 |
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總對價 |
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13
購進價格分配
以下是根據公司收購的淨資產的公允價值分配的收購對價(單位：千)：
收購的資產 |
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中國正在進行研究和開發 |
$ |
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*現金和現金等價物 |
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*預付費用和其他流動資產 |
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購置資產總額 |
$ |
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承擔的負債 |
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*應付賬款 |
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( |
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**應付賬款，關聯方 |
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*應計費用和其他流動負債 |
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**應計費用，關聯方 |
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( |
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承擔負債總額 |
$ |
( |
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取得的淨資產 |
$ |
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3.投資
投資包括以下可供出售證券（以千計）：
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2024年9月30日 |
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攤餘成本 |
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未實現損失 |
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現金等價物 |
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美國國債 |
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$ |
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現金等值物總額 |
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$ |
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短期有價證券： |
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美國國債 |
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短期有價證券總額 |
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$ |
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長期有價證券： |
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美國國債 |
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公司債券 |
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長期有價證券總額 |
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$ |
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2023年12月31日 |
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攤銷成本 |
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未實現虧損 |
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未實現收益 |
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估計的公平 |
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短期有價證券： |
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美國國債 |
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$ |
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$ |
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$ |
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美國政府機構債務證券 |
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短期有價證券總額 |
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$ |
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$ |
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$ |
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該公司所有被指定爲短期有價證券的美國國債、公司債券和美國政府機構債務證券的合同到期日均等於或小於各自資產負債表日期的一年。被指定爲長期有價證券的證券的合同到期日距離各自的資產負債表日期超過一年。
截至2024年9月30日和2023年12月31日，公司可供出售證券的未實現虧損不是實質性的，是由於經濟環境導致的市值和利率波動造成的。本公司的結論是，截至2024年9月30日和2023年12月31日，沒有必要計提信貸損失準備金，因爲市值下降是由於市場狀況的變化，而不是信貸質量的變化，管理層既不打算出售，也不更有可能要求本公司在收回其成本基礎或恢復公允價值之前出售這些投資。在列報期間內，可供出售證券並無重大已實現損益。
爲了確認和計量減值，本公司不計入其可供出售債務證券的公允價值和攤銷成本基礎中的應計利息，也不計量應計應收利息的預期信貸損失準備。應計應收利息在債券發行人違約或預期違約時，通過已實現投資淨收益(虧損)予以註銷。本公司在簡明綜合資產負債表中列報預付費用和其他流動資產中的應計應收利息餘額。與有價證券有關的應計應收利息$
15
對持續未實現虧損頭寸不到12個月的投資包括以下內容（以千計）：
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2024年9月30日 |
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2023年12月31日 |
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公平值 |
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公平值 |
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公司債券 |
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$ |
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$ |
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美國國債 |
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美國政府機構債務證券 |
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可供出售證券總額 |
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$ |
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$ |
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4.某些資產負債表帳戶
預付費用和其他流動資產
預付費用和其他流動資產包括以下內容（以千計）：
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2024年9月30日 |
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2023年12月31日 |
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預付研發按金和費用 |
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$ |
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$ |
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應收投資利息 |
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預付費用 |
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其他資產 |
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可收回的研發稅收抵免 |
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預付費用和其他流動資產總額 |
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$ |
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$ |
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應計費用和其他流動負債
應計費用和其他流動負債包括以下內容（以千計）：
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2024年9月30日 |
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2023年12月31日 |
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其他應計費用 |
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$ |
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$ |
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應計工資單費用 |
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應計重組費用 |
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應計研發費用 |
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其他流動負債 |
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應計費用總額 |
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$ |
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$ |
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5.關聯方交易
作爲收購的結果，以下遺留的Tenet協議實際上成爲了公司的協議。
與Sera Services，Inc.簽訂的服務協議。
2023年11月，Tenet與Sera Medicines，LLC(Sera Medicines)的全資子公司Sera Services，Inc.(Sera Services)簽訂了一項協議(Sera Services協議)，該協議隨後在收購完成時根據法律規定轉讓給本公司，根據該協議，Sera Services向本公司提供研究和其他服務。Sera Medicines是一家由RA Capital Management控制的實體。斯蒂芬·托馬斯博士是該公司的現任董事會成員，擁有Sera Medicines的少數股權，也是該公司的董事會成員。
根據SERA服務協議的條款，公司對SERA服務公司用於公司項目的人員時間按完全負擔的成本進行補償。此外，公司還按成本向Sera Services報銷所發生的任何分包商費用。該公司按月向SERA服務公司支付所提供的服務和產生的費用的欠款。SERA服務協議的期限爲兩年，並將在其週年紀念日自動續簽，以獲得額外的一年期限。公司可以提前30天通知Sera服務公司終止《Sera服務協議》。該公司支付了大約 $
16
與Blackbird Clinical，Inc.的服務協議
Tenet是與Blackbird Clinical，Inc.簽訂的服務協議的一方。（Blackbird），由RA Capital Management控制的實體（Blackbird服務協議）。根據Blackbird服務協議的條款，Blackbird向Tenet提供與其臨床試驗相關的諮詢服務，包括研究策略、臨床運營和患者運營。截至2024年9月30日的三個月和九個月，公司支付了約美元
請參閱注2， 資產收購和與關聯方的私募，在該等中期簡明綜合財務報表中列出額外的關聯方交易。
6.許可協議
作爲收購的結果，以下遺留的Tenet協議實際上成爲了公司的協議。
Acelyrin資產購買協議
2024年1月11日，Tenet與Acelyrin，Inc.(Acelyrin)和WH2，LLC簽訂了一項資產購買協議(資產購買協議)，該協議隨後在收購完成時通過法律實施轉讓給公司，規定收購Acelyrin與Budoprutug相關的某些資產(轉讓的資產)，包括某些轉讓合同。根據這些轉讓合同，公司(I)獲得某些專利、專有技術和其他知識產權的全球許可(有權再許可)，以開發、製造、使用和商業化用於任何非腫瘤學適應症的Budoprutug，以及(Ii)承擔Acelyrin的某些責任，這些責任源於(1)政府當局的行動或與Budoprutug有關的通知，(2)根據資產購買協議轉讓給本公司的合同，以及(3)本公司對轉讓資產的所有權、租賃或運營。
此外，本公司繼承了CRH協議(定義見下文)及ProBioGen協議(定義見下文)項下的權利及義務，包括財務責任。作爲本公司根據資產購買協議獲得的許可證及其他權利的代價，本公司有責任(I)支付總額最高達$
本公司有義務以商業上合理的努力在美國至少將一種產品商業化，並實現資產購買協議中規定的特定開發、監管和商業里程碑。如果Acelyrin聲稱公司未能在指定的時間段內履行一項或多項此類盡職調查義務，並且通過爭議解決程序最終確定了該未履行義務，則Acelyrin有權按此類轉讓資產的當時公平市價回購轉讓資產，作爲Acelyrin對此類違規行爲的唯一和唯一補救措施。
如果在特定期限內，公司收到第三方的真誠要約或提議，要求出售、轉讓或以其他方式剝離轉讓資產或產品的全部或基本上所有權利，或向該第三方授予獨家許可或獨家再許可，以根據規定的條款開發和商業化產品，則在與任何第三方就此類交易進行任何討論或談判之前，公司應向Acelyrin提供書面通知，說明該意向或收到提議。Acelyrin有權在一段特定的時間內與本公司就此類產品權利的銷售、轉讓或授予達成最終協議的條款進行談判。如果Acelyrin沒有行使其談判權或雙方無法就最終協議的條款達成一致，本公司有權在符合特定條件的情況下與第三方就此類交易進行談判或達成協議。
在資產購買協議截止日期後的一段特定時間內，公司不得招攬、誘使或試圖誘使Acelyrin的任何員工成爲公司的員工或獨立承包商。如果公司在此期間僱用或聘用了Acelyrin的員工，公司有義務向Acelyrin支付一定的款項。
本公司不得出售、轉讓或轉讓開發或商業化產品的全部或幾乎所有權利，除非作爲出售、轉讓或轉讓的條件，買方、受讓人或受讓人(視情況而定)以書面形式承擔本公司在資產購買協議中就適用產品承擔的所有義務。
17
截至2024年9月30日，本公司尚未確認資產購買協議下的里程碑付款，因爲基本里程碑尚未實現，也未被評估爲可能。
CRH協議
就資產購買協議而言，Tenet於2024年1月獲轉讓與癌症研究技術有限公司(CRH)的許可協議，而就該等轉讓，Tenet與CRH訂立經修訂及重述的許可協議(CRH協議)，該協議其後於收購完成時按法律運作轉讓予本公司。CRH協議根據某些技術、專利和材料授予本公司全球獨家許可(非獨家授權給本公司的特定專利權和材料除外)，以研究、開發、測試、製造或銷售與Budoprutug相關的某些許可產品，用於除腫瘤適應症以外的所有治療用途。在獲得CRH事先書面同意的情況下，公司被允許根據這些許可證授予再許可。
CRH代表自己和慈善公司英國癌症研究公司，在特許權利和公司擁有或控制的某些知識產權中保留全球性、全額、永久和不可撤銷的權利，這些權利是開發特許產品所必需的，並在行使許可或爲非商業、非臨床科學研究目的開發任何特許產品或開發任何特許產品或產品特定前景知識產權的過程中使用、構思或產生。
本公司有義務使用商業上合理的努力，在雙方商定的發展計劃規定的時間內開展所有活動。該公司還有義務開發至少一種具有自身免疫適應症的特許產品，併爲特許產品尋求全球監管授權。公司必須盡商業上合理的努力，在每個指定的主要市場上儘快將每種特許產品商業化，並在這些市場上獲得監管部門的授權。此外，該公司必須通過英國提供授權產品。並與相關監管當局談判，在特許產品在香港其他地方提供的特定時間內，通過英格蘭和威爾士的國家衛生服務提供每一種特許產品。如果公司未能履行其中一項或多項盡職調查義務，並且在指定的治癒期限內未得到補救，CRH有權終止與相關許可產品有關的CRH協議。
本公司有義務在生效日期的每一週年向CRH支付五位數的中位數費用。公司有義務支付最高達GB的總金額
CRH協議將在該地區的每個國家保持有效，直到公司在該國家支付特許權使用費的義務期滿爲止。如果另一方的實質性違約在規定的治癒期限內沒有得到補救，或者如果另一方破產，任何一方都可以終止CRH協議。如果本公司或本公司的一個分許可持有人或關聯公司對經許可的專利提出質疑，或者本公司被菸草公司收購，CRH也有權終止CRH協議。
截至2024年9月30日，本公司尚未確認CRH協議下的里程碑付款，因爲基本里程碑尚未實現，也未被評估爲可能。
ProBioGen協議
根據資產購買協議，Tenet獲分配一份最初由ValenzaBio，Inc.與ProBioGen AG(ProBioGen)於2021年2月訂立的細胞系開發、製造服務及許可協議(ProBioGen協議)，該協議其後於收購完成時按法律規定轉讓予本公司。
ProBioGen協議根據某些專有技術、專利和材料授予該公司非獨家許可，允許其使用應用ProBioGen專有技術的細胞系，進行研究、開發、製造、使用、銷售、要約銷售、進出口。本許可證包括ProBioGen對某些第三方專利權的非排他性再許可，僅限於使用Budoprutug。
18
The Company is obligated to (i) make payments of up to €
If the Company elects to contract ProBioGen to perform certain manufacturing services for budoprutug, the milestone payments would be reduced by €
The ProBioGen Agreement will remain in effect until the services are completed for the service-related component and until the payment obligations expire in connection with the commercial license component. Both parties have the right to terminate the ProBioGen Agreement if the other party becomes insolvent, or materially breaches the ProBioGen Agreement and fails to remedy such default within the specified cure period.
As of September 30, 2024, the Company has not recognized milestone payments under the ProBioGen Agreement as the underlying milestones were not achieved and are not assessed as probable.
7. Commitments and Contingencies
Facility Leases
The Company leases office space in the U.S. under a non-cancelable operating lease and leased office space in Cambridge, U.K. from May 2021 until June 30, 2024.
In November 2021, the Company agreed to lease approximately
In July 2023, the Company entered into a non-cancellable sublease agreement for the Bellevue office space, under the terms of which the Company is entitled to receive $
As of September 30, 2024, the remaining lease term was
For the three months ended September 30, 2024, rent expense was not material. For the three months ended September 30, 2023, the Company incurred $
As of September 30, 2024, the annual future minimum lease payments due under the Company’s non-cancelable operating lease were as follows (in thousands):
|
|
Operating Lease |
|
|
Sublease |
|
|
Net Operating |
|
|||
Year Ending December 31, |
|
Payments |
|
|
Income |
|
|
Lease Payments |
|
|||
2024 (remaining 3 months) |
|
$ |
|
|
|
( |
) |
|
|
|
||
2025 |
|
|
|
|
|
( |
) |
|
|
|
||
Total undiscounted lease payments |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Present value adjustment |
|
|
( |
) |
|
|
|
|
|
|
||
Total operating lease liabilities |
|
$ |
|
|
|
|
|
|
|
|||
19
Legal Proceedings
From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and that such expenditures can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. As of the date of these condensed consolidated financial statements, the Company is not party to any material legal matters or claims.
Indemnification
In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless, and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company intends to enter into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has directors’ and officers’ insurance coverage that reduces its exposure and enables the Company to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is immaterial.
8. Stock-Based Compensation
2019 Plan
In 2019, the Company adopted the 2019 Equity Incentive Plan (the 2019 Plan). The 2019 Plan provided for the Company to grant qualified stock options, non-qualified stock options, and restricted stock awards to employees, non-employee directors and consultants of the Company under terms and provisions established by the Company’s board of directors.
2021 Plan and ESPP
Any shares that are returned under the 2019 Plan as a result of cancellation or forfeiture become available under the 2021 Plan. Further, the number of shares of common stock reserved for issuance under the 2021 Plan automatically increases on January 1 of each year, beginning on January 1, 2022, and continuing through and including January 1, 2031, by
20
As of September 30, 2024,
Stock Options
Awards with vesting conditions under both plans typically include either: (i) vesting
The activity for stock options is as follows:
|
|
Options |
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Weighted |
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Weighted |
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Aggregate |
|
||||
Balance as of December 31, 2023 |
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$ |
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$ |
|
||||
Options granted |
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|
||||
Options expired |
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( |
) |
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Options forfeited |
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( |
) |
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|||
Options exercised |
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( |
) |
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|||
Balance as of September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Vested and expected to vest as of September 30, 2024 |
|
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$ |
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|
|
|
$ |
|
||||
Options exercisable as of September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The aggregate intrinsic value disclosed in the above table is based on the difference between the exercise price of the stock option and the fair value of the Company’s common stock as of the respective period-end dates. The weighted-average grant date fair value of stock options granted during the nine months ended September 30, 2024 and 2023 was $
The Black-Scholes option pricing model for employee and nonemployee stock options incorporates the following assumptions:
The fair value of the Company’s stock option awards was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions for the nine months ended September 30, 2024 and 2023:
|
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Nine Months Ended September 30, |
||
|
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2024 |
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2023 |
Expected term (in years) |
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Expected volatility |
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Risk-free interest rate |
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Expected dividend yield |
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||
21
Restricted Stock
The Company has: (i) restricted stock awards (RSAs) with service conditions that vest
Upon the closing of the Acquisition, the Company granted a total of
The activity for restricted stock awards and units is as follows:
|
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Number of Shares |
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Weighted-Average |
|
||
Unvested at December 31, 2023 |
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$ |
|
||
Granted |
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||
Vested |
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( |
) |
|
|
|
|
Unvested at September 30, 2024 |
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$ |
|
||
The fair value of restricted stock awards and units vested during the nine months ended September 30, 2024 and 2023 was approximately $
Modifications & Accelerations
Certain equity awards are subject to provisions in which the vesting of these awards is automatically accelerated upon the occurrence of events such as an involuntary termination in connection with a reduction in force. Further, in connection with the restructuring plans approved by the Company’s board of directors in February and October 2023 and the U.K. headcount reduction in the third of 2024, the Company modified the terms of certain equity awards for impacted employees including partial or full acceleration of vesting of stock options and restricted stock awards upon separation and extension of exercise periods for stock options post-separation.
As a result of: (i) the contractual acceleration and (ii) the discretionary modification of equity awards in connection with the U.K. headcount reduction in the third quarter of 2024, the Company recorded incremental stock-based compensation expense of $
As part of the restructuring plan in 2023, the Company recorded incremental stock-based compensation expense of $
Stock-Based Compensation
The following table sets forth stock-based compensation expense for stock options, restricted stock awards, and restricted stock units included in the Company’s condensed consolidated statements of operations and comprehensive loss (in thousands):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
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||||||||||
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2024 |
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2023 |
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2024 |
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2023 |
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||||
Research and development expense |
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$ |
|
|
$ |
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$ |
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$ |
|
||||
General and administrative expense |
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||||
Total stock-based compensation expense |
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$ |
|
|
$ |
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|
$ |
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|
$ |
|
||||
22
As of September 30, 2024, there was $
9. Net Loss Per Share
The following table shows the computation of basic and diluted net loss per share (in thousands, except share and per share data):
|
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Three Months Ended September 30, |
|
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Nine Months Ended September 30, |
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||||||||||
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2024 |
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2023 |
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2024 |
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2023 |
|
||||
Net loss |
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted-average number of shares outstanding used to compute net loss per share, basic and diluted |
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|
||||
Net loss per share, basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share for the periods presented because their effect would have been anti-dilutive:
|
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Three and Nine Months Ended September 30, |
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2024 |
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2023 |
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||
Common stock options |
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Unvested restricted stock awards and units |
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Total potentially dilutive shares |
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||
10. Restructuring Costs
In the third quarter of 2024, the Company shifted its focus from developing therapeutics for neuronal excitability disorders to immune-mediated diseases. In connection with this shift, the Company ceased its operations in the United Kingdom (U.K.) and separated from seven U.K. employees.
The Company incurred restructuring costs of $
The activity in the restructuring liability was as follows for the three and nine months ended September 30, 2024 (in thousands):
|
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Restructuring Liability 2024 |
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|
Restructuring liability as of December 31, 2023 |
|
$ |
|
|
Restructuring costs incurred during the period |
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|
Restructuring costs paid during the period |
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( |
) |
Restructuring liability as of March 31, 2024 |
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Restructuring costs incurred during the period |
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|
Restructuring costs paid during the period |
|
|
( |
) |
Restructuring liability as of June 30, 2024 |
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Restructuring costs incurred during the period |
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|
|
Restructuring costs paid during the period |
|
|
( |
) |
Restructuring liability as of September 30, 2024 |
|
$ |
|
|
The remaining restructuring liability as of September 30, 2024 was paid in October 2024.
23
A summary of the restructuring costs recorded in the interim consolidated condensed statement of operations and comprehensive loss for the three and nine months ended September 30, 2024 were as follows (in thousands):
|
Three Months Ended September 30, 2024 |
|
||||||||||
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Severance and Benefits Costs |
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Stock-based Compensation |
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|
Total Restructuring Cost Recorded |
|
|||
General and administrative expense |
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$ |
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|
$ |
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|
$ |
|
|||
Research and development expense |
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|
|
|
|
|
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|
|||
Total restructuring costs |
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$ |
|
|
$ |
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|
$ |
|
|||
|
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|
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|||
|
Nine Months Ended September 30, 2024 |
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||||||||||
|
|
Severance and Benefits Costs |
|
|
Stock-based Compensation |
|
|
Total Restructuring Cost Recorded |
|
|||
General and administrative expense |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Research and development expense |
|
|
|
|
|
|
|
|
|
|||
Total restructuring costs |
|
$ |
|
|
$ |
|
|
$ |
|
|||
On February 7, 2023, the Company’s board of directors approved a restructuring plan to conserve financial resources and better align the Company’s workforce with current business needs. As part of this plan, the Company’s workforce was reduced by approximately
The Company incurred aggregate restructuring costs of $
A summary of the restructuring costs recorded in the interim consolidated condensed statements of operations and comprehensive loss for the three and nine months ended September 30, 2023 were as follows (in thousands):
|
|
Three Months Ended September 30, 2023 |
|
|||||||||||||
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ROU Asset Impairment |
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Severance and Benefits Costs |
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|
Stock-based Compensation |
|
|
Total Restructuring Cost Recorded |
|
||||
General and administrative expense |
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
||||
Total restructuring costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
Nine Months Ended September 30, 2023 |
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|||||||||||||
|
|
ROU Asset Impairment |
|
|
Severance and Benefits Costs |
|
|
Stock-based Compensation |
|
|
Total Restructuring Cost Recorded |
|
||||
General and administrative expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Research and development expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total restructuring costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results and Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2023 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed with the SEC on March 28, 2024. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve substantial risks and uncertainties. As a result of many factors, including those factors set forth in Part II, Item 1A. “Risk Factors” of this Quarterly Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. For further information regarding our forward-looking statements, see “Cautionary Note Regarding Forward-Looking Statements” in this Quarterly Report.
Effective on October 2, 2024, we amended our Amended and Restated Certificate of Incorporation to effect a change of our name from “Eliem Therapeutics, Inc.” to “Climb Bio, Inc.”. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to Climb Bio, Inc. and its wholly owned subsidiaries.
Overview
We are a clinical-stage biotechnology company primarily focused on developing therapeutics for patients with immune-mediated diseases. Our lead product candidate, budoprutug (previously referred to as TNT119), is an anti-CD19 monoclonal antibody that has demonstrated B-cell depletion and has potential to treat a broad range of B-cell mediated diseases, including primary membranous nephropathy (pMN), immune thrombocytopenia (ITP) and systemic lupus erythematosus (SLE). Budoprutug is designed to achieve broad and deep depletion of pathogenic B cells with a favorable tolerability profile and convenient dosing regimen with the potential for subcutaneous administration. We believe this reduction of autoantibodies has the potential to be disease modifying in autoantibody driven diseases, such as pMN, ITP and SLE. In a Phase 1b clinical trial of budoprutug in pMN, 3 out of 5 (or 60%) of patients that received four doses of budoprutug achieved a complete remission of proteinuria, a primary symptom of pMN, and a complete and sustained B-cell depletion was observed in all patients (5/5).
In addition to pMN, we are also developing budoprutug for the treatment of ITP and SLE. In ITP, we believe targeting plasmablasts and plasma cells is likely to decrease the production of autoantibodies, increase platelet count and ameliorate disease. B cell depletion with anti-CD20 targeting monoclonal antibodies (mAbs) whose expression initiates somewhat later and is lost somewhat earlier than anti-CD19, has demonstrated efficacy in ITP disease for some patients in clinical trials by third parties. For those patients who do not respond to anti-CD20 therapy, we believe an anti-CD19 approach, such as budoprutug, may have the ability to further deplete pathogenic CD20-CD19+ cells. In SLE, the underlying pathology involves production of autoantibodies by autoreactive B cells that contribute to inflammation and tissue damage. CD19 is a protein expressed on the surface of these B cells and plays a key role in B cell activation. Because budoprutug is designed to target and deplete CD19-expressing B cells known to produce autoantibodies, we believe budoprutug has the potential to treat SLE.
Based on the results of the Phase 1b clinical trial of budoprutug in pMN and clearance from the U.S. Food and Drug Administration (FDA) of our investigational new drug application (IND) for budoprutug in SLE in October 2024, we plan to initiate a Phase 1b clinical trial of budoprutug for SLE in the first half of 2025. We also plan to initiate a Phase 2 clinical trial of budoprutug for ITP in the first half of 2025, subject to clearance of an IND or clinical trial application (CTA). We are also advancing the subcutaneous formulation of budoprutug, with non-clinical data expected in the first half of 2025. We also plan to advance budoprutug into late phase clinical development for pMN in 2025.
Below is a summary of our clinical development pipeline for budoprutug.
25
Previously, we focused primarily on developing novel therapies for neuronal excitability disorders to address unmet needs in psychiatry, epilepsy, chronic pain, and other disorders of the peripheral and central nervous systems, and our lead program was ETX-123, a Kv7.2/3 potassium channel opener. ETX-123 is designed to harness the efficacy of the Kv7.2/3 channel mechanism while attempting to improve the safety and tolerability relative to earlier molecules, based on our insights into the mechanisms of toxicity and the potency and selectivity profile. In July 2023, we made the determination to pause further development of our Kv7 program, and we continue to evaluate our Kv7 program, including seeking a partner for further development.
On June 27, 2024, we completed our acquisition (the Acquisition) of Tenet Medicines, Inc. (Tenet). In connection with the closing of the Acquisition, we issued and sold 31,238,282 shares of our common stock at a price of $3.84 per share in a private placement (the Private Placement) to several accredited institutional investors. We received aggregate gross proceeds from the Private Placement of approximately $120.0 million, before deducting offering expenses of $0.3 million.
We have incurred significant operating losses since inception, as we have devoted substantially all of our resources to organizing and staffing our company, identifying potential product candidates, business planning, raising capital, undertaking research, executing preclinical studies and clinical development trials, and providing general and administrative support for business activities. We incurred net losses of $8.9 million and $4.0 million for the three months ended September 30, 2024 and 2023, respectively, and $65.5 million and $31.5 million for the nine months ended September 30, 2024 and 2023, respectively. We had an accumulated deficit of $221.5 million and $156.0 million as of September 30, 2024 and December 31, 2023, respectively.
Since our inception, we have primarily funded our operations with an aggregate of $328.0 million in net proceeds from the sale and issuance of shares of our redeemable convertible preferred stock, our initial public offering of our common stock and the sale and issuance of shares in the Private Placement of our common stock that was completed in June 2024. We had cash, cash equivalents and marketable securities of $217.9 million and $106.8 million as of September 30, 2024 and December 31, 2023, respectively. Based on our current operating plan, we estimate that our cash, cash equivalents and marketable securities will be sufficient to fund our planned operations through 2027. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently anticipate, which case we would be required to obtain additional financing, which may not be available to us on acceptable terms, or at all.
Until such time, if ever, as we can generate significant revenue from product sales, we may finance our operations through equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. Adequate funding may not be available when needed or on terms acceptable to us, or at all. If we are unable to raise additional capital as needed, we may have to significantly delay, scale back or discontinue any future development of our product candidates. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide, resulting from increased volatility in the trading prices for shares in the biopharmaceutical industry, or otherwise. If we fail to obtain necessary capital when needed on acceptable terms, or at all, it could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose.
We do not have any products approved for sale and have not generated any revenue from product sales since our inception. Our ability to generate product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of our product candidates, if approved. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities. We expect to continue to incur operating losses for the foreseeable future.
Tenet Acquisition
On June 27, 2024, we acquired 100% of the share capital of Tenet in exchange for 5,560,047 shares of our common stock, valued at $41.9 million, or $7.53 per share. The Acquisition is accounted for as an asset acquisition. The total cost of the asset acquisition was $52.8 million, which also included (i) $5.8 million of direct transaction costs incurred and (ii) $5.0 million related to a loan provided to Tenet prior to the closing of the Acquisition that was effectively settled upon the closing of the Acquisition. We recognized in-process research and development (IPR&D) expense of $51.7 million for the nine months ended September 30, 2024, as the IPR&D was determined to have no future alternative use.
26
Recent Developments
FDA Clearance of IND for Budoprutug in SLE
In October 2024, the FDA cleared our IND allowing the initiation of a Phase 1b open label clinical trial of budoprutug in patients with active lupus. The clinical trial is designed to evaluate the safety and impact of ascending dose regimens on the speed and depth of depletion of circulating B cells, the decline in production of pathogenic autoantibodies, and the nature of B cell subsets that are produced upon recovery of B cells. In addition, patients will be followed for changes in clinical outcomes.
Appointment of Director and Chair of our Board of Directors
On November 8, 2024, our board of directors, upon the recommendation of the nominating and corporate governance committee of our board of directors, appointed Douglas E. Williams, Ph.D., as a director and the chair of our board of directors, effective immediately. Dr. Williams will serve as a director with a term expiring at the 2026 annual meeting of stockholders. Additionally, Dr. Williams has been appointed to serve as the chair of the compensation committee of our board of directors and as a member of the nominating and corporate governance committee of our board of directors, effective immediately.
Provided Budoprutug Development Strategy and Corporate Update at Virtual Investor Event
On October 15, 2024, we hosted a virtual investor event during which we provided an update on our development strategy for budoprutug and presented additional clinical and preclinical data.
Strategy
Our strategic approach to developing budoprutug will consider indications across three opportunity sets, including IgG4-mediated diseases, such as pMN; diseases caused by IgG1-3 that impact a single organ system, such as ITP; and complex systemic diseases, such as SLE. While our initial focus is on developing budoprutug for pMN, ITP and SLE, we believe that there is an opportunity to develop budoprutug for other immune-mediated diseases across both orphan and larger indications.
Clinical Data Updates
In October 2024, we announced additional data from the completed Phase 1b clinical trial of budoprutug for pMN. In particular, we announced the following data for the five patients who received all four doses of budoprutug in the trial:
27
Data from the five patients who received all four doses of budoprutug in the Phase 1b clinical trial of budoprutug for pMN is presented in the figure below.
In October 2024, we also reported that one patient in the Phase 1b clinical trial of budoprutug for complicated minimal change disease who received two induction doses and two maintenance doses of budoprutug achieved sustained depletion of B-cells and remained in remission 18 months after the last infusion of budoprutug.
Preclinical Data Update
To assess whether budoprutug was capable of achieving B-cell depletion in tissues, we developed a transgenic mouse model where mouse CD19 was replaced with human CD19 in a C57BL/6 mouse. These human CD19 transgenic mice, which we refer to as huCD19 mice, were treated once weekly for four weeks with budoprutug at doses ranging from 0.1 mg/kg to 100 mg/kg. Tissue samples were taken seven days post dose and analyzed via flow cytometry for CD20+ B-cell counts in bone marrow, lymph node, and spleen. As shown in the figure below, we observed dose-dependent B-cell depletion in all tissues analyzed at day 28 with greater than 90% depletion of B-cells observed in all tissues analyzed at the highest dose tested. We believe these data lend further support to the advantages of using a CD19-targeted monoclonal antibody to deplete autoantibody secreting cells in tissues, and that this concept is translatable to humans.
Clinical Development Plans for Budoprutug
Based on the results of the Phase 1b clinical trial of budoprutug in pMN and clearance from the FDA of our IND for budoprutug in SLE in October 2024, we plan to initiate a Phase 1b clinical trial of budoprutug for SLE in the first half of 2025. We also plan to initiate a Phase 2 clinical trial of budoprutug for ITP in the first half of 2025, subject to clearance of an IND or CTA. We are also advancing the subcutaneous formulation of budoprutug, with non-clinical data expected in the first half of 2025. We also plan to advance budoprutug into late phase clinical development for pMN in 2025.
28
Components of Operating Results
Operating Expenses
Our operating expenses consist of (i) acquired IPR&D, related party, (ii) research and development expenses, and (iii) general and administrative expenses.
Acquired In-Process Research and Development, Related Party
Our acquired IPR&D expense consists of the relative fair value of the assets acquired and consideration transferred in connection with the Acquisition. As the assets acquired were in the research and development phase and were determined to not have any alternative future use, it was expensed as IPR&D.
Research and Development
Our research and development expenses consist primarily of direct and indirect costs incurred in connection with our discovery efforts, preclinical studies, and clinical trial activities related to our pipeline, including budoprutug and our previous product candidates ETX-123 and ETX-155.
Our direct research and development costs include:
29
Our indirect research and development costs include:
The direct and indirect costs research and development costs were as follows (in thousands):
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Acquired in-process research & development, related party |
$ |
— |
|
|
$ |
— |
|
|
$ |
51,659 |
|
|
$ |
— |
|
Direct costs |
|
2,221 |
|
|
|
1,163 |
|
|
|
2,346 |
|
|
|
5,974 |
|
Indirect costs |
|
4,019 |
|
|
|
2,054 |
|
|
|
6,031 |
|
|
|
8,233 |
|
Research and development tax credits |
|
— |
|
|
|
(341 |
) |
|
|
— |
|
|
|
(1,923 |
) |
Total research and development |
$ |
6,240 |
|
|
$ |
2,876 |
|
|
$ |
60,036 |
|
|
$ |
12,284 |
|
We expense research and development costs as incurred. Non-refundable advance payments for goods and services that will be used over time for research and development are capitalized and recognized as goods are delivered or as the related services are performed.
Given our stage of development and the utilization of our resources across our current and legacy programs, we have not historically tracked our research and development costs by program or indication. Research and development expenses are presented net of refundable research and development tax credits from the U.K. government.
We expect our research and development expenses to increase substantially for the foreseeable future as we conduct our ongoing research and development activities. The process of conducting preclinical studies, acquiring drug product supply, and conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achieving marketing approval for budoprutug or any product candidate we may develop.
The timelines and costs associated with research and development activities are uncertain and can vary significantly among product candidates and development programs due to the inherently unpredictable nature of preclinical and clinical development. We anticipate that we will make determinations as to which indications to pursue in connection with our clinical development of budoprutug or any product candidates we may develop and how much funding to direct to each such indication on an ongoing basis in response to preclinical and clinical results, regulatory developments, and ongoing assessments as to each such indication’s commercial potential. We will need to raise substantial additional capital in the future.
Our future research and development costs may vary significantly based on factors such as:
30
A change in the outcome of any of these variables with respect to the development of budoprutug or any product candidates we may develop could significantly change the costs and timing associated with the development.
General and Administrative
Our general and administrative expenses consist primarily of personnel-related expenses such as salaries, bonuses, benefits, stock-based compensation, and termination benefits, for our personnel in executive, finance and accounting, human resources, business development and other administrative functions. Other significant general and administrative expenses include legal fees relating to intellectual property and corporate matters, professional fees for accounting, audit, regulatory, tax and consulting services, insurance costs, as well as investor and public relations costs.
We expect that our general and administrative expenses will significantly increase in the future as we increase our headcount to support our operations.
Other Income (Expense)
Foreign Currency Gain (Loss)
Our foreign currency gain (loss) consists of foreign exchange losses resulting from remeasurement and foreign currency transactions between the British Pound and the U.S. Dollar.
Interest Income, net
Our interest income consists of interest earned on our cash, cash equivalents and marketable securities and adjustments related to amortization of purchase premiums and accretion of discounts of marketable securities.
Results of Operations
Comparison of the Three Months Ended September 30, 2024 and September 30, 2023
The following table sets forth our results of operations (in thousands):
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
$ |
6,087 |
|
|
$ |
2,876 |
|
|
$ |
3,211 |
|
|
|
111.6 |
% |
Research and development, related party |
|
|
153 |
|
|
|
— |
|
|
|
153 |
|
|
|
100.0 |
% |
General and administrative |
|
|
5,492 |
|
|
|
2,125 |
|
|
|
3,367 |
|
|
|
158.4 |
% |
Total operating expenses |
|
|
11,732 |
|
|
|
5,001 |
|
|
|
6,731 |
|
|
|
134.6 |
% |
Loss from operations |
|
|
(11,732 |
) |
|
|
(5,001 |
) |
|
|
(6,731 |
) |
|
|
134.6 |
% |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency gain (loss) |
|
|
52 |
|
|
|
(228 |
) |
|
|
280 |
|
|
|
(122.8 |
)% |
Interest income, net |
|
|
2,785 |
|
|
|
1,261 |
|
|
|
1,524 |
|
|
|
120.9 |
% |
Total other income (expense) |
|
|
2,837 |
|
|
|
1,033 |
|
|
|
1,804 |
|
|
|
174.6 |
% |
Net loss |
|
$ |
(8,895 |
) |
|
$ |
(3,968 |
) |
|
$ |
(4,927 |
) |
|
|
124.2 |
% |
Operating Expenses
Research and Development and Research and Development, Related Party
Research and development expenses increased 111.6% from $2.9 million for the three months ended September 30, 2023 to $6.1 million for the three months ended September 30, 2024. Research and development expenses, related party increased by $0.2 million for the three months ended September 30, 2024. In total, research and development expenses increased by 117.2% from $2.9 million for the three months ended September 30, 2023 to $6.3 million for the three months ended September 30, 2024. The increase was due to (i) a $2.1 million increase in personnel-related expenses, primarily driven by restructuring costs of $2.7 million, partially offset by a decrease of $0.6 million from reduced headcount, (ii) a $1.0 million increase in direct preclinical and clinical expenses related to the development of budoprutug, and (iii) a $0.3 million decrease in the U.K. refundable research and development tax credits due to the overall reduction in qualifying research and development expense.
31
General and Administrative
General and administrative expenses increased by 158.4% from $2.1 million for the three months ended September 30, 2023 to $5.5 million for the three months ended September 30, 2024. The increase was primarily due to due to (i) a $1.7 million increase in personnel-related expenses, largely driven by an increase of $1.3 million from increased headcount and a $0.4 million increase in restructuring costs and (ii) a $1.7 million increase in other general and administrative expenses, largely due to an increase in legal expenses and consulting fees.
Other Income (Expense)
Foreign Currency Gain (Loss)
Foreign currency gain (loss) increased from a $0.2 million loss for the three months ended September 30, 2023 to a $0.1 million gain for the three months ended September 30, 2024. The increase was driven by favorable changes in foreign currency exchange rates between the British Pound and the U.S. Dollar in the three months ended September 30, 2024.
Interest Income, net
Interest income, net increased from $1.3 million for the three months ended September 30, 2023 to $2.8 million for the three months ended September 30, 2024, which was driven by an increase in investment income from an increase in marketable securities during the three months ended September 30, 2024.
Comparison of the Nine Months Ended September 30, 2024 and September 30, 2023
The following table sets forth our results of operations (in thousands):
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Acquired in-process research and development, related party |
|
$ |
51,659 |
|
|
$ |
— |
|
|
$ |
51,659 |
|
|
|
100 |
% |
Research and development |
|
|
8,224 |
|
|
|
12,284 |
|
|
|
(4,060 |
) |
|
|
(33.1 |
)% |
Research and development, related party |
|
|
153 |
|
|
|
— |
|
|
|
153 |
|
|
|
100.0 |
% |
General and administrative |
|
|
11,073 |
|
|
|
22,869 |
|
|
|
(11,796 |
) |
|
|
(51.6 |
)% |
Total operating expenses |
|
|
71,109 |
|
|
|
35,153 |
|
|
|
35,956 |
|
|
|
102.3 |
% |
Loss from operations |
|
|
(71,109 |
) |
|
|
(35,153 |
) |
|
|
(35,956 |
) |
|
|
102.3 |
% |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency gain |
|
|
17 |
|
|
|
404 |
|
|
|
(387 |
) |
|
|
(95.8 |
)% |
Interest income, net |
|
|
5,611 |
|
|
|
3,271 |
|
|
|
2,340 |
|
|
|
71.5 |
% |
Total other income (expense) |
|
|
5,628 |
|
|
|
3,675 |
|
|
|
1,953 |
|
|
|
53.1 |
% |
Net loss |
|
$ |
(65,481 |
) |
|
$ |
(31,478 |
) |
|
$ |
(34,003 |
) |
|
|
108.0 |
% |
Operating Expenses
Acquired In-Process Research and Development, Related Party
Acquired IPR&D expense, related party was $51.7 million for the nine months ended September 30, 2024. This amount represents the recognition of IPR&D expense from the Acquisition completed on June 27, 2024.
Research and Development
Research and development expenses decreased by 33.1% from $12.3 million for the nine months ended September 30, 2023 to $8.2 million for the nine months ended September 30, 2024. Research and development expenses, related party increased by $0.2 million for the nine months ended September 30, 2024. In total, research and development expenses decreased by 31.8% from $12.3 million for the nine months ended September 30, 2023 to $8.4 million for the nine months ended September 30, 2024. The decrease was due to (i) a $3.8 million decrease in direct clinical and preclinical expenses, primarily due to the pause of ETX-123 in July 2023 and ETX-155 in February 2023, and (ii) a $2.0 million decrease in personnel-related expenses, which was driven by a $2.9 million decrease from reduced headcount, partially offset by an increase in restructuring costs of $0.9 million. This decrease was partially offset by a $1.9 million decrease in the U.K. refundable research and development tax credits due to the overall reduction in qualifying research and development expenses.
32
General and Administrative
General and administrative expenses decreased by 51.6% from $22.9 million for the nine months ended September 30, 2023 to $11.1 million for the nine months ended September 30, 2024. This decrease was due to (i) a $13.5 million reduction in personnel-related expenses, which was driven by a decrease in restructuring costs of $14.1 million, partially offset by an increase of $0.6 million from increased headcount and (ii) a $0.5 million decrease in insurance costs. The decrease was partially offset by a $2.2 million increase in other general and administrative expenses, largely driven by an increase in consulting fees and legal expenses.
Other Income (Expense)
Foreign Currency Gain
Foreign currency gain decreased from a $0.4 million gain for the nine months ended September 30, 2023 to a $17,000 gain for the nine months ended September 30, 2024. The decrease was driven by unfavorable changes in foreign currency exchange rates between the British Pound and the U.S. Dollar in the nine months ended September 30, 2024.
Interest Income net
Interest income, net increased from $3.3 million for the nine months ended September 30, 2023 to $5.6 million for the nine months ended September 30, 2024, which was driven by an increase in investment income from an increase in marketable securities during the nine months ended September 30, 2024.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have primarily funded our operations with an aggregate of $328.0 million in net proceeds from the sale and issuance of shares of our redeemable convertible preferred stock, our initial public offering of our common stock and the sale and issuance of shares of our common stock in the Private Placement. We have not generated any revenue from product sales or otherwise. We have incurred net losses from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. As of September 30, 2024 and December 31, 2023, we had cash, cash equivalents and marketable securities of $217.9 million and $106.8 million, respectively, and an accumulated deficit of $221.5 million and $156.0 million, respectively.
Funding Requirements
We believe our cash, cash equivalents and marketable securities of $217.9 million as of September 30, 2024 will be sufficient to fund our operations through 2027. 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 anticipate that our expenses will increase for the foreseeable future as we continue to advance budoprutug and any product candidates we may develop, expand our corporate infrastructure, and incur costs associated with potential commercialization. We are subject to all of the risks typically related to the development of biopharmaceutical candidates, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business.
Our future funding requirements will depend on many factors, including the following:
33
Furthermore, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development expenditures.
Until such time, if ever, as we can generate substantial revenue from product sales, we may finance our operations through equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed or on favorable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or budoprutug, or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. Our failure to raise capital or enter into such other arrangements when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts, or grant rights to develop and market budoprutug or any product candidates we may develop even if we would otherwise prefer to develop and market such product candidates ourselves.
Cash Flows
The following table summarizes our cash flows (in thousands):
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net cash used in operating activities |
|
$ |
(10,041 |
) |
|
$ |
(19,652 |
) |
Net cash (used in) provided by investing activities |
|
|
(67,683 |
) |
|
|
32,233 |
|
Net cash provided by financing activities |
|
|
130,688 |
|
|
|
553 |
|
Operating activities
For the nine months ended September 30, 2024, net cash used in operating activities was $10.0 million. This consisted primarily of a net loss of $65.5 million, partially offset by total non-cash adjustments of $55.5 million that primarily related to IPR&D and stock-based compensation expense.
For the nine months ended September 30, 2023, net cash used in operating activities was $19.7 million. This consisted primarily of net loss of $31.5 million and changes in our operating assets and liabilities that resulted in a net increase in cash of $2.3 million, primarily related to the receipt of research and development tax credits from the U.K. The decrease in cash was partially offset by total non-cash adjustments of $9.5 million that consisted of stock-based compensation expense of $11.6 million, ROU asset impairment expense of $0.2 million, and non-cash lease expense of $0.3 million, partially offset by accretion of discounts on investments of $2.0 million, and foreign currency gain on remeasurement of $0.6 million
Investing activities
For the nine months ended September 30, 2024, net cash used in investing activities was $67.7 million. This consisted of purchases of $71.8 million of marketable securities, the issuance of a promissory loan of $5.0 million and cash paid of $4.6 million in connection with the Acquisition, partially offset by $13.8 million in proceeds received from maturities of marketable securities.
For the nine months ended September 30, 2023, net cash provided by investing activities was $32.2 million. This consisted of $90.7 million in proceeds received from maturities of marketable securities, primarily offset by purchases of $58.4 million of marketable securities.
34
Financing activities
For the nine months ended September 30, 2024, net cash provided by financing activities was $130.7 million. This consisted of $119.7 million in proceeds received from the issuance of our common stock in the Private Placement and $10.9 million in proceeds from exercises of stock options.
Contractual Commitments and Obligations
In the normal course of business, we enter into contracts with contract research organizations (CROs), contract development and manufacturing organizations (CDMOs), and other third parties for preclinical studies and clinical trials, research and development supplies, and other testing and manufacturing services. These contracts do not contain material minimum purchase commitments and generally provide us with the option to cancel, reschedule and adjust our requirements based on our business needs, prior to the delivery of goods or performance of services. However, it is not possible to predict the maximum potential amount of future payments under these agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each agreement.
Following the Acquisition, we have obligations under an asset purchase agreement and certain license agreements that obligate us to make specified milestone and royalty payments. The payment obligations under these agreements are contingent upon future events, such as our achievement of specified development, regulatory and commercial milestones, or generating product sales. We are unable to estimate the timing or likelihood of achieving these milestones or generating future product sales. See Note 6 in our condensed consolidated financial statements included herein for a discussion of these milestone and royalty obligations.
We also have obligations under a non-cancelable operating lease. See Note 7 in our condensed consolidated financial statements included herein for a discussion of our lease obligations.
Critical Accounting Policies and Estimates
This management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The preparation of our condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and notes to the condensed consolidated financial statements. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions and conditions.
Asset Acquisitions
In accordance with the guidance in Topic 805, Business Combinations, in the Financial Accounting Standards Board’s (the FASB) Accounting Standards Codification (ASC), we evaluate acquisitions of assets and related liabilities and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen test is met, the transaction is accounted for as an asset acquisition. If the screen test is not met, further determination is required as to whether or not we have acquired inputs and processes that have the ability to create outputs which would meet the requirements of a business. We account for an asset acquisition by recognizing net assets based on the cost to the acquiring entity on a relative fair value basis. Goodwill is not recognized in an asset acquisition; any excess consideration transferred over the fair value of the net assets acquired is allocated to the non-monetary identifiable assets and liabilities assumed based on relative fair values. IPR&D acquired in an asset acquisition is expensed provided there is no alternative future use. We account for future payments such as those upon achievement of certain regulatory, development or sales milestones in such asset acquisitions when the underlying milestones are achieved. Milestone payments made to third parties subsequent to regulatory approval may be capitalized as intangible assets, if deemed to have alternative future use, and amortized over the estimated remaining useful life of the related product.
A summary of our critical accounting policies is presented in our audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2023 included in our Annual Report on Form 10-K. There were no other material changes to our critical accounting policies during the nine months ended September 30, 2024.
Recent Accounting Pronouncements
See Note 1 in our condensed consolidated financial statements included herein and see Note 2 to our annual consolidated financial statements included in our Annual Report on Form 10-K.
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Emerging Growth Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act (JOBS Act). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for emerging growth companies include presentation of only two years of audited consolidated financial statements in a registration statement for an initial public offering (IPO), an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to the Sarbanes-Oxley Act, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements. We have elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.
As a result, our consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. We will remain an emerging growth company under the JOBS Act until the earliest of (i) the last day of our first fiscal year in which we have total annual gross revenue of $1.235 billion or more, (ii) the date on which we have issued more than $1.0 billion of non-convertible debt instruments during the previous three fiscal years, (iii) the date on which we are deemed a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding equity securities held by non-affiliates, or (iv) December 31, 2026.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information requested by this item pursuant to Item 305(e) of Regulation S-K.
Item 4. Controls and Procedures
Disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer (our principal executive officer) and chief operating officer (our principal financial officer) or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management, under the supervision and with the participation of our chief executive officer and chief operating officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2024. Based on our evaluation, our chief executive officer and chief operating officer have concluded that our disclosure controls and procedures (as such term is defined in Rule(s) 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of September 30, 2024 because of the material weaknesses in our internal control over financial reporting described below.
Notwithstanding the material weaknesses, management believes the condensed consolidated financial statements as included in Part I of this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented in accordance with generally accepted accounting principles in the United States.
Material Weaknesses in Internal Control Over Financial Reporting
Management identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The material weaknesses are as follows:
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These material weaknesses did not result in a misstatement to the condensed consolidated financial statements. However, these material weaknesses could result in a misstatement of our account balances or disclosures that would result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected.
Remediation Efforts to Address Material Weaknesses
Management has concluded that the material weaknesses in internal control over financial reporting were due to the fact that we were a private company with limited resources when the material weaknesses were identified and did not have the necessary business processes and related internal controls formally designed and implemented, coupled with the appropriate resources with the appropriate level of experience and technical expertise, to oversee our business processes and controls.
We have implemented measures designed to improve internal control over financial reporting to remediate the control deficiencies that led to our material weaknesses. The remediation measures we have taken include:
We believe we have made substantial progress toward achieving the effectiveness of our internal control over financial reporting and disclosure controls and procedures. The actions that have been taken are subject to continued review and testing by management as well as oversight by the audit committee of our board of directors. We will not be able to conclude whether the steps we have taken will fully remediate these material weaknesses in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter to which this Quarterly Report on Form 10-Q relates that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, in the ordinary course of business, we may be involved in various claims, lawsuits and other proceedings. As of the date of filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings.
Item 1A. Risk Factors.
RISK FACTORS
The following information sets forth risk factors that could cause our actual results to differ materially from those contained in forward-looking statements we have made in this Quarterly Report on Form 10-Q and those we may make from time to time. You should carefully consider the risks described below, in addition to the other information contained in this Quarterly Report on Form 10-Q and our other public filings. Our business, financial condition or results of operations could be harmed by any of these risks. The risks and uncertainties described below are not the only ones we face. Additional risks not presently known to us or other factors not perceived by us to present significant risks to our business at this time also may impair our business operations.
Risks Related to our Financial Position and Need for Additional Capital
We have incurred significant losses since our inception and anticipate that we will incur substantial losses for the foreseeable future and may never achieve or maintain profitability.
We are a clinical-stage biotechnology company with a limited operating history. Our efforts are focused primarily on the treatment of unmet needs in immune-mediated diseases, in particular the development of budoprutug. To date, we have not received regulatory approvals for budoprutug or any other product candidate or generated any revenue from the sale of products, and we do not expect to generate any revenue for the foreseeable future. Budoprutug is in early stages of research and development. As a result, we are not profitable, and we have incurred significant operating losses since inception. Our net losses were $65.5 million and $31.5 million for the nine months ended September 30, 2024 and 2023, respectively. We had an accumulated deficit of $221.5 million and $156.0 million as of September 30, 2024 and December 31, 2023, respectively. We expect to continue to incur substantial expenses and operating losses for the foreseeable future as we continue to develop budoprutug and any product candidates we may develop. As a result, we expect to continue to incur significant losses for the foreseeable future as we:
If we are unable to access capital when needed, it could force us to delay, reduce or terminate our product development programs, commercialization efforts, or other operations.
We had cash, cash equivalents and marketable securities of $217.9 million and $106.8 million at September 30, 2024 and December 31, 2023, respectively.
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Based upon our current operating plan and assumptions, we believe that our existing cash, cash equivalents and marketable securities will be sufficient to fund our operations through 2027. 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. In addition, we will need additional capital to advance and expand our research pipeline, conduct preclinical studies and clinical trials, proceed to develop and commercialize any approved products, and explore other pipeline opportunities. Our estimates of the sufficiency of our cash, cash equivalents and marketable securities are based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we expect. Further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned.
Conducting preclinical studies, conducting clinical trials, pursuing regulatory approvals, establishing outsourced manufacturing relationships and successfully manufacturing and commercializing budoprutug or any product candidates we may develop is, and will be, very time-consuming, expensive and an uncertain process that takes years to complete. Our future need for additional funding depends on many factors, including:
We cannot be certain that additional funding will be available on acceptable terms, or at all. Our ability to raise additional capital may be adversely impacted by disruptions to, or continuing volatility in, the credit and financial markets in the United States and worldwide, including increased volatility in the trading prices for shares of public companies in the biopharmaceutical sector, actual and perceived changes in interest rates and inflation, macroeconomic uncertainties, or otherwise. We have no committed source of additional capital and if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of budoprutug or product candidates we may develop or other research and development initiatives.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies, budoprutug or any product candidates we may develop.
Until such time, if ever, as we can generate substantial revenues from product sales, we may need or may seek to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, your ownership interest may be diluted, and the terms of these securities could include liquidation or other preferences and anti-dilution protections that could adversely affect your rights as a common stockholder. In addition, debt financing, if available, may result in fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming stock or declaring dividends, that could adversely impact our ability to conduct our business. Further, securing financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of budoprutug or any product candidates we may develop.
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Additional capital may not be available to us, or even if it is, the cost of such capital may be high. We may be forced to obtain additional capital before reaching clinical or regulatory milestones, when our stock price or trading volume or both are low, or when the general market for life sciences companies is weak. Raising capital under any of these or similar scenarios, if we can raise any at all, may lead to significant dilution to our existing stockholders.
Further, we have issued, and may in the future issue additional, equity securities as consideration for business development transactions, which may also dilute our existing stockholders’ ownership interests. For example, we issued additional shares of our common stock in connection with our acquisition of Tenet Medicines, Inc. (the Acquisition), as well as in the concurrent private placement of shares of our common stock to certain institutional investors.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market budoprutug or any product candidates that we would otherwise prefer to develop and market ourselves.
Drug development is highly uncertain, and if we are unable to successfully develop and commercialize budoprutug or experience significant delays in doing so, our business may be harmed.
Drug development is a highly uncertain undertaking and involves a substantial degree of risk. For example, previously we paused or discontinued the development of all of our product candidates for the treatment of neuronal excitability disorders, including ETX-155 and Kv7, which were still in drug discovery stages, and we may not ever obtain regulatory approval for budoprutug or any product candidates we may develop. In addition, as a company, we have not developed any product candidates for the immune-mediated diseases, and following the closing of the Acquisition, we are focused on the clinical development of our lead product candidate, budoprutug, for primary membranous nephropathy (pMN), immune thrombocytopenia (ITP) and systemic lupus erythematosus (SLE). We also have no prior experience developing biological product candidates. As such, we may encounter delays or difficulties in our efforts to develop and commercialize budoprutug.
To date, we have not initiated or completed a pivotal clinical trial, obtained marketing approval for any product candidate, manufactured a commercial scale product or arranged for a third party to do so on our behalf, or conducted the sales and marketing activities necessary for successful product commercialization. Our short operating history as a company makes any assessment of our future success and viability subject to significant uncertainty. We will encounter risks and difficulties frequently experienced by early-stage biotechnology companies in rapidly evolving fields, and we have not yet demonstrated an ability to successfully overcome such risks and difficulties. If we do not address these risks and difficulties successfully, our business may be harmed.
We currently have no source of product revenue and may never become profitable.
We have never commercialized a product or generated any revenues from commercial product sales, or otherwise, and we may never become profitable. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete. We may never generate the necessary data or results required to obtain marketing approval for budoprutug or any product candidates we may develop or generate revenue from the sale of budoprutug or any products for which we may obtain marketing approval. Our ability to generate revenue from product sales or achieve profitability will depend upon our ability, alone or with any future collaborators, to successfully commercialize budoprutug or any products that we may develop, in-license or acquire in the future. Even if we are able to successfully achieve regulatory approval for budoprutug or any product candidate we may develop, we do not know when budoprutug or any such product candidate will generate revenue from product sales for us, if at all. Our ability to generate revenue from budoprutug or any product candidates we may develop also depend on a number of additional factors, including our or any future collaborators’ ability to:
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In addition, because of the numerous risks and uncertainties associated with pharmaceutical product development, budoprutug or any product candidates we may develop may not advance through development or achieve the endpoints of applicable clinical trials. 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. In addition, our expenses could increase beyond expectations if we decide, or are required by the FDA or foreign regulatory authorities, to perform studies or trials in addition to those that we currently anticipate. Even if we can complete the development and regulatory process for budoprutug or any product candidates we may develop, we anticipate incurring significant costs associated with commercializing any such products.
Even if we can generate revenues from the sale of budoprutug or any product candidates we may develop that may be approved, we may not become profitable and may need to obtain additional funding to continue operations. 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 our operations.
Risks Related to our Business and the Development of our Product Candidates
Our future success is dependent primarily on the regulatory approval and commercialization of budoprutug and any product candidates we may develop.
We do not have any product candidates that have gained regulatory approval, and we are substantially dependent on the success of budoprutug and any product candidates we may develop in the future. As a result, our prospects, including our ability to finance our operations and generate revenue, are substantially dependent on our ability to obtain regulatory approval for budoprutug, and, if approved, to successfully commercialize budoprutug and any product candidates we may develop. We cannot commercialize budoprutug or any product candidates we may develop in the United States without first obtaining regulatory approval for the product from the FDA; similarly, we cannot commercialize budoprutug or any product candidates we may develop outside of the United States without obtaining regulatory approval from comparable foreign regulatory authorities. Under the Prescription Drug User Fee Act, the FDA’s standard review process for a BLA is meant to take 10 months from the date a BLA is accepted for filing, but that process may take longer to complete and FDA approval is never guaranteed. Before obtaining regulatory approvals for the commercial sale of budoprutug or any product candidates we may develop for a target indication, we must demonstrate with substantial evidence gathered in preclinical and well-controlled clinical trials, generally including at least two well-controlled Phase 3 trials, and, with respect to approval in the United States, to the satisfaction of the FDA, that the product candidate is potent, safe and pure for use for that target indication and that the manufacturing facilities, processes and controls are adequate. If budoprutug encounters undesirable safety signals, insufficient efficacy results, development delays, regulatory issues or other problems, our development plans and business would be significantly harmed.
Further, under the Pediatric Research Equity Act, a BLA or supplement to a BLA for certain biological products must contain data to assess the safety, potency and purity of the biological product in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe, potent and pure, unless the sponsor receives a deferral or waiver from the FDA. A deferral may be granted for several reasons, including a finding that the product or therapeutic candidate is ready for approval for use in adults before pediatric trials are complete or that additional safety, potency and purity data need to be collected before the pediatric trials begin.
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The applicable legislation in the European Union also requires sponsors to either conduct clinical trials in a pediatric population in accordance with a Pediatric Investigation Plan approved by the Pediatric Committee of the European Medicines Agency (EMA) or to obtain a waiver or deferral from the conduct of these studies by this Committee. For any product candidates for which we seek regulatory approval in the United States or the European Union, we cannot guarantee that we will be able to obtain a waiver or alternatively complete any required studies and other requirements in a timely manner, or at all, which could result in associated reputational harm and subject us to enforcement action.
Obtaining regulatory approval for marketing of budoprutug or any product candidates we may develop in one country does not ensure we will be able to obtain regulatory approval in other countries, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries.
Even if budoprutug or product candidates we may develop were to successfully obtain approval from the FDA and comparable foreign regulatory authorities, any approval might contain significant limitations related to use restrictions for specified age groups, gender or subpopulation of target indication, warnings, precautions or contraindications, or may be subject to burdensome post-approval study or risk management requirements. If we are unable to obtain regulatory approval for one or more jurisdictions, or any approval contains significant limitations, we may not be able to obtain sufficient funding or generate sufficient revenue to continue the development of budoprutug or any product candidate that we may discover, in-license, develop or acquire. Also, any regulatory approval of budoprutug or any product candidates we may develop, once obtained, may be withdrawn. Furthermore, even if we obtain regulatory approval for budoprutug or any product candidates we may develop, such product’s commercial success will depend on a number of factors, including the following:
Many of these factors are beyond our control. If we, or our potential commercialization collaborators, are unable to successfully commercialize budoprutug or any product candidates we may develop, we may not be able to earn sufficient revenues to continue our business.
Even if budoprutug or any product candidates we may develop receive regulatory approval, they may still face future development and regulatory difficulties.
Even if we obtain regulatory approval for budoprutug or any product candidate we may develop, it would be subject to ongoing requirements by the FDA and comparable foreign regulatory authorities governing the manufacture, quality control, further development, labeling, packaging, storage, distribution, safety surveillance, import, export, advertising, promotion, recordkeeping and reporting of safety and other post-market information. The safety profile of any product will continue to be closely monitored by the FDA and comparable foreign regulatory authorities after approval. If the FDA or comparable foreign regulatory authorities become aware of new safety information after approval of budoprutug or any product candidate, they may require labeling changes or establishment of a Risk Evaluation and Mitigation Strategy (REMS) or similar strategy, impose significant restrictions on a product’s indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance.
In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current good manufacturing practice (cGMP) requirements and other regulations.
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If we or a regulatory agency discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing facility or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing. If we, budoprutug or any product candidates we may develop or the manufacturing facilities for such product candidates, fail to comply with applicable regulatory requirements, a regulatory agency may:
The occurrence of any event or penalty described above may inhibit our ability to commercialize budoprutug or any product candidates we may develop and generate revenue.
The FDA strictly regulates the advertising and promotion of drug products, and drug products may only be marketed or promoted for their FDA approved uses, consistent with the product’s approved labeling. Advertising and promotion of any product candidate that obtains approval in the United States will be heavily scrutinized by the FDA, the Department of Justice, the Office of Inspector General of the U.S. Department of Health and Human Services (HHS) state attorneys general, members of Congress and the public. Violations, including promotion of any products for unapproved or off-label uses, are subject to enforcement letters, inquiries and investigations, and civil, criminal and/or administrative sanctions by the FDA and other enforcement authorities. Additionally, advertising and promotion of any product candidate that obtains approval outside of the United States will be heavily scrutinized by relevant foreign regulatory authorities.
In the United States, engaging in impermissible promotion products for off-label uses can also subject us to false claims litigation under federal and state statutes, which can lead to numerous actions, including civil, criminal and/or administrative penalties and fines and agreements that materially restrict the manner in which we promote or distribute our drug products. These false claims statutes include the federal False Claims Act, which allows the federal government, or any individual relator or whistleblower on behalf of the federal government to bring a lawsuit against a pharmaceutical company alleging submission of false or fraudulent claims, or causing to present such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the government prevails in the lawsuit, the individual relator may share in any fines or settlement funds. Since 2004, these False Claims Act lawsuits against pharmaceutical companies have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements based on certain sales practices promoting off-label drug uses. This growth in litigation has increased the risk that a pharmaceutical company will have to defend a false claim action, pay settlement fines or restitution, agree to comply with burdensome reporting and compliance obligations, and be excluded from the Medicare, Medicaid and other federal and state healthcare programs. If we do not lawfully promote our products once they have received regulatory approval, we may become subject to such litigation and, if we are not successful in defending against such actions, those actions could have a material adverse effect our business, results of operations, financial condition and cash flows and future prospects.
Existing government regulations may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of budoprutug or any product candidates we may develop. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and/or be subject to fines or enhanced government oversight and reporting obligations, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
Our ability to develop and market new drug products may be impacted if litigation challenging the FDA’s approval of another company’s drug product continues.
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In April 2023, the U.S. District Court for the Northern District of Texas invalidated the approval by the FDA of mifepristone, a drug product, which was originally approved in 2000, and whose distribution is governed by various measures adopted under a REMS. The Court of Appeals for the Fifth Circuit declined to order the removal of mifepristone from the market but did hold that plaintiffs were likely to prevail in their claim that changes allowing for expanded access of mifepristone, which the FDA authorized in 2016 and 2021, were arbitrary and capricious. In June 2024, the Supreme Court reversed and remanded that decision after unanimously finding that the plaintiffs (anti-abortion doctors and organizations) did not have standing to bring this legal action against the FDA. On October 11, 2024, the Attorneys General of three states (Missouri, Idaho and Kansas) filed an amended complaint in the district court in Texas challenging the FDA’s actions. Depending on the outcome of this litigation, our ability to develop budoprutug or any product candidates we may develop may be at risk and could be delayed, undermined or subject to protracted litigation.
Finally, we could be adversely affected by several significant administrative law cases decided by the U.S. Supreme Court in 2024. In Loper Bright Enterprises v. Raimondo, for example, the court overruled Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., which for 40 years required federal courts to defer to permissible agency interpretations of statutes that are silent or ambiguous on a particular topic. The Supreme Court stripped federal agencies of this presumptive deference and held that courts must exercise their independent judgment when deciding whether an agency such as FDA acted within its statutory authority under the Administrative Procedure Act (APA). Additionally, in Corner Post, Inc. v. Board of Governors of the Federal Reserve System, the court held that actions to challenge a federal regulation under the APA can be initiated within six years of the date of injury to the plaintiff, rather than the date the rule is finalized. The decision appears to give prospective plaintiffs a personal statute of limitations to challenge longstanding agency regulations. Another decision, Securities and Exchange Commission v. Jarkesy, overturned regulatory agencies’ ability to impose civil penalties in administrative proceedings. These decisions could introduce additional uncertainty into the regulatory process and may result in additional legal challenges to actions taken by federal regulatory agencies, including the FDA and the Centers for Medicare & Medicaid Services (CMS) that we rely on. In addition to potential changes to regulations as a result of legal challenges, these decisions may result in increased regulatory uncertainty and delays and other impacts, any of which could adversely impact our business and operations.
Preliminary, initial, or interim results from clinical trials that we announce, present, or publish from time to time may change as more data and information become available (or are updated based upon audit, validation and verification procedures of the data/information commonly performed for clinical trials) that could result in material changes in the final trial results.
From time to time, we may announce, present or publish preliminary, initial, or interim data or other information from our clinical trials, such as the preliminary data from the Phase 1b clinical trial of budoprutug for the treatment of pMN. Any such data and other results from our clinical trials may materially change as more patient data and information become available. Such data and information may also undergo significant change following subsequent auditing, validation and/or verification procedures that are commonly conducted in clinical trials. Thus, any preliminary, initial, or interim data or other information may not be predictive of final results from the clinical trial and should be viewed with caution until the final data are available. We may also arrive at different conclusions, or other determinations that may qualify such results, once we have received and fully evaluated the additional data. Differences between preliminary, initial or interim results and final results could lead to significantly different interpretations or conclusions of the trial outcomes.
Further, others, including regulatory authorities and collaboration or regional partners, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of budoprutug, the approvability or commercialization of budoprutug, and our business, in general. In addition, the information we choose to publicly disclose regarding a particular clinical trial is based on what is typically extensive information, and investors may not agree with what we determine is material or otherwise appropriate information to publicly disclose.
If the preliminary, initial or interim data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize budoprutug may be harmed, which could significantly harm our reputation, business, results of operations, financial condition and prospects.
Preclinical and clinical development involves a lengthy, complex and expensive process with an uncertain outcome. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and the results of our clinical trials may not satisfy the requirements of the FDA or comparable foreign regulatory authorities.
To obtain the requisite regulatory approvals to commercialize budoprutug or any product candidates we may develop, we must demonstrate through extensive preclinical studies and clinical trials that such product candidates are potent, safe and pure in humans to the satisfaction of FDA. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain.
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In particular, in the United States, the general approach for FDA approval of a new drug is dispositive data from two well-controlled, Phase 3 clinical trials of the relevant drug in the relevant patient population. Phase 3 clinical trials typically involve hundreds to thousands of patients, have significant costs and take years to complete. A product candidate can fail at any stage of testing, even after observing promising signs of activity in earlier preclinical studies or clinical trials, as demonstrated by the failure of ETX-810 to achieve statistically significant separation from placebo on the primary endpoint in either of our Phase 2a clinical trials in diabetic peripheral neuropathic pain or lumbosacral radicular pain. The results of preclinical studies and early clinical trials of budoprutug or any product candidates we may develop may not be predictive of the results of later-stage clinical trials. Initial success in clinical trials may not be indicative of results obtained when such trials are completed. There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through preclinical studies and initial clinical trials.
A number of companies in the biotechnology industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or emergence of unacceptable safety issues, notwithstanding promising results in earlier trials. Most product candidates that commence clinical trials are never approved and there can be no assurance that any of our future clinical trials will ultimately be successful or support further preclinical or clinical development of budoprutug or any product candidates we may develop. Our success is heavily dependent on the progress and outcomes of our planned Phase 2 clinical trial of budoprutug for ITP, our planned Phase 1b clinical trial of budoprutug for SLE, and our late phase clinical development of budoprutug for pMN. In addition, the commencement and rate of completion of preclinical studies and clinical trials may be delayed by many factors, including:
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Any inability to successfully initiate or complete preclinical studies or clinical trials could result in additional costs to us or impair our ability to generate revenue from product sales. Clinical trial delays could also shorten any periods during which our products have patent protection and may allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize budoprutug or any product candidates we may develop and may seriously harm our business.
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. For example, in December 2022, with the passage of the Food and Drug Omnibus Reform Act (FDORA) Congress required sponsors to develop and submit a diversity action plan (DAP) for each Phase 3 clinical trial or any other “pivotal study” of a new drug or biological product. These plans are meant to encourage the enrollment of more diverse patient populations in late-stage clinical trials of FDA-regulated products. In June 2024, as mandated by FDORA, the FDA issued draft guidance outlining the general requirements for DAPs. Unlike most guidance documents issued by the FDA, the DAP guidance when finalized will have the force of law because FDORA specifically dictates that the form and manner for submission of DAPs are specified in FDA guidance.
Further, in January 2022, the new Clinical Trials Regulation (EU) No 536/2014 became effective in the European Union and replaced the prior Clinical Trials Directive 2001/20/EC. This regulation aims at simplifying and streamlining the authorization, conduct and transparency of clinical trials in the European Union. Under the coordinated procedure for the approval of clinical trials, the sponsor of a clinical trial to be conducted in more than one member state of the European Union will only be required to submit a single application for approval. The submission will be made through the Clinical Trials Information System, a clinical trials portal overseen by the EMA and available to clinical trial sponsors, competent authorities of the member states of the European Union and the public.
Further, clinical trials that we may undertake in the future will likely contain endpoints that require subjective assessments and subject us to a substantial risk of “placebo effect”. While a product candidate may show clinical activity or therapeutic benefit, a high placebo effect in a clinical trial will make it difficult to ascertain that benefit or to show a statistically significant effect of the product candidate as compared to the control arm and may ultimately cause a clinical trial to fail.
Moreover, principal investigators for our future clinical trials may serve as scientific advisors or consultants to us and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or comparable foreign regulatory authorities. The FDA or a comparable foreign regulatory authority may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected the interpretation of the study. The FDA or a comparable foreign regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or a comparable foreign regulatory authority, as applicable, and may ultimately lead to the denial of marketing approval of budoprutug or any product candidates we may develop.
Delays in the completion of any preclinical studies or clinical trials of budoprutug or any product candidates we may develop will increase our costs, slow down our product candidate development and approval process and delay or potentially jeopardize our ability to commence product sales and generate product revenue. 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 budoprutug or any product candidates we may develop. Any delays to our preclinical studies or clinical trials that occur as a result could shorten any period during which we may have the exclusive right to commercialize such product candidate, enable our competitors to bring products to market before we do, and significantly reduce the commercial viability of such product candidate. Any of these occurrences may harm our business, financial condition and prospects significantly.
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If we seek to conduct clinical trials in foreign countries or pursue marketing approvals in foreign jurisdictions, we must comply with numerous foreign regulatory requirements governing, among other things, the conduct of clinical trials, manufacturing and marketing authorization, pricing and third-party reimbursement. The foreign regulatory approval process varies among countries and jurisdictions and may include all of the risks associated with FDA approval described above and risks attributable to the satisfaction of local regulations in foreign jurisdictions. Moreover, the time required to obtain approval may differ jurisdiction-to-jurisdiction from that required to obtain FDA approval. Approval by foreign regulatory authorities does not ensure approval by the FDA and, similarly, approval by the FDA does not ensure approval by regulatory authorities outside the United States.
Successful completion of clinical trials is a prerequisite to submitting a marketing application to foreign regulatory authorities or the FDA, for each product candidate and, consequently, the ultimate approval and commercial marketing of any product candidate.
We may experience negative or inconclusive results, or regulators may be unwilling to accept preclinical or clinical data obtained in foreign jurisdictions, which may result in our deciding, or our being required by regulators, to conduct additional clinical studies or trials or abandon some or all of our product development programs, which could harm our business.
In addition, the FDA and other regulatory authorities’ policies with respect to clinical trials may change and additional government regulations may be enacted. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies governing clinical trials, our development plans may be impacted, and our product development costs may increase if we experience delays in testing or marketing approvals. In addition, if we make manufacturing or other changes to budoprutug, we may need to conduct additional studies to bridge such new formulation of budoprutug to earlier versions. For example, we expect we will need to conduct additional non-clinical studies of budoprutug to bridge our new planned formulation of budoprutug to our earlier formulation. We do not know whether any of our clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. We may also decide to change the design or protocol of one or more of our clinical trials, which could result in delays. Significant clinical trial delays with respect to budoprutug could also shorten any periods during which we may have the exclusive right to commercialize budoprutug or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize budoprutug.
Budoprutug or any product candidates we may develop may cause adverse events and/or undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following any marketing approval.
Certain adverse events and undesirable side effects caused by budoprutug or any product candidates we may develop could cause us or regulatory authorities to interrupt, delay or pause clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authorities. If undesirable side effects do occur in our future clinical trials they could cause delay or even discontinuance of further development of budoprutug or any product candidates we may develop, which would impair our ability to generate revenues and would have a material adverse effect on our business, results of operations, financial condition and cash flows and prospects.
As a result of undesirable side effects or further safety issues that we may experience in our clinical trials in the future, we may not receive approval to market budoprutug or any product candidates we may develop, which could prevent us from ever generating revenues or achieving profitability. Results of our trials could reveal an unacceptably high severity and prevalence of side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of, or deny approval of, budoprutug or any product candidates we may develop for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims. Any of these occurrences may have a material adverse effect on our business, results of operations, financial condition and cash flows and prospects.
Additionally, if budoprutug or any product candidates we may develop receives marketing approval, and we, or others, later identify undesirable side effects caused by such product, a number of potentially significant negative consequences could result, including:
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Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved.
If we encounter difficulties enrolling and/or retaining patients in our future clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
If we are able to move budoprutug or any product candidates we may develop to the clinical trial stage, we may not be able to initiate or continue our planned clinical trials on a timely basis or at all if we are unable to recruit and enroll a sufficient number of eligible patients to participate in these trials through completion of such trials as required by the FDA or other comparable foreign regulatory authorities. Patient enrollment is a significant factor in the timing of clinical trials. Our ability to enroll eligible patients may be limited or may result in slower enrollment than we anticipate. There may be limited patient pools from which to draw for clinical studies. The eligibility criteria of our clinical studies will further limit the pool of available study participants as we will require that patients have specific characteristics that we can measure or to assure their disease is either severe enough or not too advanced to include them in a study. Patient enrollment for our future clinical trials may be affected by other factors, including:
In addition, our clinical trials may compete with other clinical trials for product candidates that are in the same therapeutic areas as budoprutug or any product candidates we may develop, and this competition would reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials in such clinical trial site.
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Our inability to enroll enough patients for our clinical trials would result in significant delays or might require us to abandon one or more clinical trials. Delays in patient enrollment may result in increased costs, affect the timing or outcome of the planned clinical trials, product candidate development and approval process and jeopardize our ability to seek and obtain the regulatory approval required to commence product sales and generate revenue, which could prevent completion of these trials, adversely affect our ability to advance the development of budoprutug or any product candidates we may develop, cause the value of our company to decline and limit our ability to obtain additional financing if needed. Furthermore, even if we can enroll enough patients for our clinical trials, we may have difficulty maintaining participation in our clinical trials through the treatment and any follow-up periods.
We are also required to register certain clinical trials and post the results of completed clinical trials on a government-sponsored database, such as www.ClinicalTrials.gov in the United States, within certain time frames. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
We could be subject to product liability lawsuits based on the use of budoprutug or any product candidates we may develop in clinical testing or, if obtained, following any such product’s marketing approval and commercialization. Product liability lawsuits brought against us or any of our future collaborators could divert our resources and attention, require us to cease clinical testing, cause us to incur substantial liabilities or limit commercialization of budoprutug or any product candidates we may develop.
We are exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing, marketing and use of biotechnology products. Currently, we have no products that have been approved for commercial sale; however, the use of budoprutug or any product candidates we may develop by us and any collaborators in clinical trials may expose us to liability claims. We will face an even greater risk if a product candidate is approved by regulatory authorities and introduced commercially. Product liability claims may be brought against us or our partners if any product candidate we develop allegedly causes injury or is found to be otherwise unsuitable for human use during product testing, manufacturing, marketing or sale. Any such product liability claim may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. Such claims could be made by participants enrolled in our clinical trials, patients, health care providers, biotechnology companies, our collaborators or others using, administering or selling any of our future approved products. If we cannot successfully defend ourselves against any such claims, we may incur substantial liabilities or be required to limit commercialization of budoprutug or any product candidates we may develop, if approved. Even successful defense would require significant financial and management resources.
Regardless of the merits or eventual outcome, product liability claims may result in:
Although the clinical trial process is designed to identify and assess potential side effects, clinical development does not always fully characterize the safety and efficacy profile of a new medicine, and it is always possible that a drug, even after regulatory approval, may exhibit unforeseen side effects. If budoprutug or any product candidates we may develop were to cause adverse side effects during clinical trials or after approval, we may be exposed to substantial liabilities. Physicians and patients may not comply with any warnings that identify known potential adverse effects and patients who should not use such product candidate. If budoprutug or any product candidates we may develop are approved for commercial sale, we will be highly dependent upon consumer perceptions of us and the safety and quality of such product. We could be adversely affected if we are subject to negative publicity associated with illness or other adverse effects resulting from physicians’ or patients’ use or misuse of any approved products or any similar products distributed by other companies.
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Although we maintain product liability insurance coverage, including clinical trial liability, this insurance may not fully cover potential liabilities that we may incur. The cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial. We will need to increase our insurance coverage if we commercialize any product that receives regulatory approval. In addition, insurance coverage is becoming increasingly expensive. If we are unable to maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could prevent or inhibit the development and commercial production and sale of budoprutug or any product candidates we may develop, which could harm our business.
We face significant competition in an environment of rapid technological change, and there is a possibility that our competitors may achieve regulatory approval before us or develop therapies that are safer, less expensive or more advanced or effective than us, which may harm our financial condition and our ability to successfully market or commercialize budoprutug or any product candidates we may develop.
The development and commercialization of new drug products is highly competitive. Moreover, the immunology and inflammation field is characterized by rapidly changing technologies, significant competition, and a strong emphasis on intellectual property. We will face competition with respect to budoprutug and any product candidates we may develop from major pharmaceutical companies, specialty pharmaceutical companies, and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies, and other public and private research organizations that conduct research, seek patent protection, and establish collaborative arrangements for development, manufacturing, and commercialization.
There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of the disease indications for which we are developing budoprutug. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely different approaches.
Companies developing biologics and other modalities targeting CD19 for immune-mediated diseases, including naked monoclonal antibodies, include Amgen Inc. (UPLINZA (inebilizumab), which is approved for the treatment of neuromyelitis optica spectrum disorder), bispecific T-cell engagers such as Cullinan Therapeutics, Inc. (CLN-978), and companies developing CD19 bifunctional monoclonal antibodies, including Zenas BioPharma, Inc. (obexelimab).
If we successfully develop and commercialize budoprutug, it will compete with existing therapies and new therapies that may become available in the future that are approved to treat the same diseases for which we may obtain approval for budoprutug. This may include other types of therapies, such as small molecule, chimeric antigen receptor T cells (CAR-T), antibody, and/or protein therapies. Companies developing CD19 CART-T therapies include Cabaletta Bio, Inc. and Kyverna Therapeutics, Inc.
Many of our current or potential competitors, either alone or with their collaboration partners, may have significantly greater financial resources and expertise than we do in research and development, manufacturing, conducting clinical trials, obtaining regulatory approvals, and marketing approved products. Mergers and acquisitions in the pharmaceutical, biotechnology, and gene therapy industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management consultants and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize product candidates that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than budoprutug or that would render budoprutug obsolete or non-competitive. Our competitors also may obtain FDA or other regulatory approval for their product candidates more rapidly than we may obtain approval for budoprutug, which could result in our competitors establishing a strong market position before we are able to enter the market. Additionally, technologies developed by our competitors may render budoprutug uneconomical or obsolete, and we may not be successful in marketing budoprutug against competitors. In addition, as a result of the expiration or successful challenge of our patent rights, we could face more litigation with respect to the validity and/or scope of patents relating to our competitors’ products. The availability of our competitors’ products could limit the demand, and the price we are able to charge, for budoprutug.
Our estimates of market opportunity and forecasts of market growth for budoprutug may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business may not grow at similar rates, or at all.
Our market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates which may not prove to be accurate. We currently focus our research and product development on budoprutug for the treatment of pMN, ITP and SLE. Our understanding of the patient populations with these diseases is based on estimates in published literature.
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These estimates, and our estimates and forecasts relating to size and expected growth based on these estimates, may prove to be incorrect and new studies may reduce the estimated incidence or prevalence of these diseases. The number of patients in the United States and elsewhere may turn out to be lower than expected, patients may not be otherwise amenable to treatment with budoprutug or patients may become increasingly difficult to identify and access. Even if the patient populations meet our size estimates and growth forecasts, our business may not grow at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties.
Our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval, the accepted price for budoprutug, the ability to obtain coverage and reimbursement, the ability to gain market share and whether we own the commercial rights for that territory. If the number of addressable patients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect or the treatment population is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of budoprutug, even if approved.
Further, there are several factors that could contribute to making the actual number of patients who receive budoprutug less than the potentially addressable market. These include the lack of widespread availability of, and limited reimbursement for, new therapies in many underdeveloped markets.
We have no experience in sales, marketing and distribution and may have to enter into agreements with third parties to perform these functions, which could prevent us from successfully commercializing budoprutug or any product candidates we may develop.
We currently have no sales, marketing or distribution capabilities. To commercialize budoprutug or any product candidates we may develop. we must either develop our own sales, marketing and distribution capabilities or make arrangements with third parties to perform these services for us. If we decide to market or distribute budoprutug or any product candidate we may develop on our own, we will have to commit significant resources to developing a marketing and sales force and supporting distribution capabilities. If we decide to enter into arrangements with third parties for performance of these services, we may find that they are not available on terms acceptable to us, or at all. If we are not able to establish and maintain successful arrangements with third parties or build our own sales and marketing infrastructure, we may not be able to commercialize budoprutug, which would adversely affect our business, results of operations, financial condition and cash flows and prospects.
Disruptions at the FDA, the U.S. Securities and Exchange Commission and other government agencies caused by funding shortages or global health concerns 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 FDA have fluctuated in recent years as a result. In addition, government funding of the U.S. Securities and Exchange Commission (SEC) and other government agencies on which our operations may rely, including those that fund research and development activities, are 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, in recent years, including in 2018 and 2019, the U.S. government shut down several times and certain regulatory agencies, such as the FDA and the SEC, 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 to properly capitalize and continue our operations.
In addition, disruptions may result from events similar to the COVID-19 pandemic. During the COVID-19 pandemic, a number of companies announced receipt of complete response letters due to the FDA’s inability to complete required inspections for their applications. In the event of a similar public health emergency in the future, the FDA may not be able to continue at its current pace and review timelines could be extended. Regulatory authorities outside the United States facing similar circumstances may adopt similar restrictions or other policy measures in response to a similar public health emergency and may also experience delays in their regulatory activities.
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Risks Related to Legal and Regulatory Compliance
Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval and commercialize budoprutug or any product candidates we may develop, if and when approved, and may affect the prices we may charge for such product candidates, if and when approved.
The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that could prevent or delay marketing approval of budoprutug or any product candidates we may develop, restrict or regulate post-approval activities and affect our ability to profitably sell any product for which we obtain marketing approval.
In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the Affordable Care Act (ACA) was enacted, which includes measures that have significantly changed the way health care is financed by both governmental and private insurers. There have been executive, judicial and congressional challenges to certain aspects of the ACA. For example, on June 17, 2021, the U.S. Supreme Court dismissed a judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Further, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (IRA) into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025. The IRA also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and through a newly established manufacturer discount program. It is unclear how any additional challenges or future healthcare reform measures of the Biden administration will impact the ACA.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. For example, in August 2011, the Budget Control Act of 2011 was signed into law, which, among other things, included aggregate reductions to Medicare payments to providers of, on average, 2% per fiscal year, effective April 1, 2013, which, due to subsequent legislative amendments including the Infrastructure Investment and Jobs Act and the Consolidated Appropriations Act of 2023, will stay in effect until 2032 unless Congress takes additional action.
Recently, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. presidential executive orders, congressional inquiries and legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for drugs.
On July 9, 2021, President Biden signed Executive Order 14063, which focuses on, among other things, the price of pharmaceuticals. The order directs HHS to create a plan within 45 days to combat “excessive pricing of prescription pharmaceuticals and enhance domestic pharmaceutical supply chains, to reduce the prices paid by the federal government for such pharmaceuticals, and to address the recurrent problem of price gouging.” On September 9, 2021, HHS released its plan to reduce pharmaceutical prices. The key features of that plan are to: (a) make pharmaceutical prices more affordable and equitable for all consumers and throughout the health care system by supporting pharmaceutical price negotiations with manufacturers; (b) improve and promote competition throughout the prescription pharmaceutical industry by supporting market changes that strengthen supply chains, promote biosimilars and generic drugs, and increase transparency; and (c) foster scientific innovation to promote better healthcare and improve health by supporting public and private research and making sure that market incentives promote discovery of valuable and accessible new treatments.
More recently, on August 16, 2022, the IRA was signed into law by President Biden. The new legislation has implications for Medicare Part D, which is a program available to individuals who are entitled to Medicare Part A or enrolled in Medicare Part B to give them the option of paying a monthly premium for outpatient prescription drug coverage. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years.
Specifically, with respect to price negotiations, Congress authorized Medicare to negotiate lower prices for certain costly single-source drug and biologic products that do not have competing generics or biosimilars and are reimbursed under Medicare Part B and Part D. CMS may negotiate prices for ten high-cost drugs paid for by Medicare Part D starting in 2026, followed by 15 additional Medicare Part D drugs in 2027, 15 additional Medicare Part B or Part D drugs in 2028, and 20 additional Medicare Part B or Part D drugs per year in 2029 and beyond.
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This provision applies to drug products that have been approved for at least nine years and biologics that have been licensed for 13 years, but it does not apply to drugs and biologics that have been approved for a single rare disease or condition. Nonetheless, since CMS may establish a maximum price for these products in price negotiations, we would be fully at risk of government action if budoprutug or any products we may develop are the subject of Medicare price negotiations. Given this risk, these provisions of the IRA may also further heighten the risk that we would not be able to achieve the expected return on any product candidate, if approved, or the full value of our patents protecting any such approved drug products if prices are set after any such approved products have been on the market for nine years. The first cycle of negotiations under the IRA’s Medicare Drug Price Negotiation Program commenced in the summer of 2023. On August 15, 2024, the HHS published the results of the first Medicare drug price negotiations for ten selected drugs that treat a range of conditions, including diabetes, chronic kidney disease and rheumatoid arthritis. The prices of these ten drugs will become effective on January 1, 2026. The second cycle of price negotiations under the IRA’s Medicare Drug Price Negotiation Program will commence in the fall of 2024.
Further, the legislation subjects drug manufacturers to civil monetary penalties and a potential excise tax for failing to comply with the legislation by offering a price that is not equal to or less than the negotiated “maximum fair price” under the law or for taking price increases that exceed inflation. The legislation also requires manufacturers to pay rebates for drugs in Medicare Part D whose price increases exceed inflation. The new law also caps Medicare out-of-pocket drug costs at an estimated $4,000 a year in 2024 and, thereafter beginning in 2025, at $2,000 a year.
In addition, the IRA potentially raises legal risks with respect to individuals participating in a Medicare Part D prescription drug plan who may experience a gap in coverage if they required coverage above their initial annual coverage limit before they reached the higher threshold, or “catastrophic period” of the plan. Individuals requiring services exceeding the initial annual coverage limit and below the catastrophic period, must pay 100% of the cost of their prescriptions until they reach the catastrophic period. Among other things, the IRA contains many provisions aimed at reducing this financial burden on individuals by reducing the co-insurance and co-payment costs, expanding eligibility for lower income subsidy plans, and price caps on annual out-of-pocket expenses, each of which could have potential pricing and reporting implications. Accordingly, while it is currently unclear how the IRA will be effectuated, we cannot predict with certainty what impact any federal or state health reforms will have on us, but such changes could impose new or more stringent regulatory requirements on our activities or result in reduced reimbursement for budoprutug, if and when approved, or any products we may develop, any of which could adversely affect our business, results of operations and financial condition.
On June 6, 2023, Merck & Co. filed a lawsuit against the HHS and CMS asserting that, among other things, the IRA’s Medicare Drug Price Negotiation Program constitutes an uncompensated taking in violation of the Fifth Amendment of the Constitution. Subsequently, a number of other parties, including the U.S. Chamber of Commerce, Bristol Myers Squibb Company, the PhRMA, Astellas Pharma US, Inc., Novo Nordisk Inc., Janssen Pharmaceuticals, Inc., Novartis Pharmaceutical Corporation, AstraZeneca L.P. and Boehringer Ingelheim Pharmaceuticals, Inc., also filed lawsuits in various courts with similar constitutional claims against the HHS and CMS. There have been various decisions by the courts considering these cases since they were filed. We expect that litigation involving these and other provisions of the IRA will continue, with unpredictable and uncertain results. Accordingly, while it is currently unclear how the IRA will be effectuated, we cannot predict with certainty what impact any federal or state health reforms will have on us, but such changes could impose new or more stringent regulatory requirements on our activities or result in reduced reimbursement for budoprutug, if and when approved, and any other products we may develop, any of which could adversely affect our business, results of operations and financial condition.
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 healthcare organizations 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 healthcare programs. These measures could reduce the ultimate demand for budoprutug, if and when approved, and any other products we may develop, 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 budoprutug or any product candidates we may develop or additional pricing pressures.
In the European Union, similar political, economic and regulatory developments may affect our ability to profitably commercialize budoprutug, if and when approved, and any other products we may develop. In markets outside of the United States and the European Union, reimbursement and healthcare payment systems vary significantly by country and many countries have instituted price ceilings on specific products and therapies. In many countries, including those of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control and access. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product.
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To obtain reimbursement or pricing approval in some countries, we or our collaborators may be required to conduct a clinical trial that compares the cost-effectiveness of our product to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels, our business could be materially harmed.
We expect that the healthcare reform measures that have been adopted and may be adopted in the future may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product and could seriously harm our future revenues. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products.
Our business operations and current and future relationships with investigators, health care professionals, consultants, third-party payors and customers will be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
Healthcare providers and others play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. Although we do not currently have any products on the market, our operations may be, directly or indirectly through our prescribers, customers and third-party payors, subject to various U.S. federal and state healthcare laws and regulations.
These laws may impact, among other things, our current business operations, including our clinical research activities and proposed sales, marketing and education programs and constrain the business of financial arrangements and relationships with healthcare providers and other parties through which we may market, sell and distribute our products for which we obtain marketing approval. In addition, we may be subject to additional healthcare, statutory and regulatory requirements and enforcement by foreign regulatory authorities in jurisdictions in which we conduct our business. The laws that may affect our ability to operate include:
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Ensuring that our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from U.S. government funded healthcare programs, such as Medicare and Medicaid, or similar programs in other countries or jurisdictions, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits, additional reporting requirements 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 delay, reduction, termination or restructuring of our operations. Further, defending against any such actions can be costly and time-consuming, and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. If any of the physicians or other providers or entities with whom we expect to do business is found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs and imprisonment. If any of the above occur, it could adversely affect our ability to operate our business and our results of operations.
We are subject to stringent and evolving U.S. and foreign laws, regulations, rules, contractual obligations, policies and other obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions; litigation (including class claims) and mass arbitration demands; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; loss of customers or sales; and other adverse business consequences.
We process personal data and other sensitive data (including health data we collect about study or trial participants in connection with our preclinical studies or clinical trials); proprietary and confidential business data; trade secrets; intellectual property; and sensitive third-party data. Our data processing activities subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contracts, and other obligations that govern the processing of personal data by us and on our behalf.
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In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data privacy laws, and consumer protection laws. These privacy laws include, without limitation, the following laws and regulations: Section 5 of the Federal Trade Commission Act, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (HITECH) (which imposes specific requirements relating to the privacy, security and transmission of individually identifiable health information), and the California Consumer Privacy Act of 2018 (CCPA). The CCPA applies to personal information of consumers, business representatives, and employees, and requires businesses to provide specific disclosures in privacy notices and honor requests of California residents to exercise certain privacy rights. The CCPA provides for civil penalties of up to $7,500 per violation and allows private litigants affected by certain data breaches to recover significant statutory damages. Although the CCPA exempts some data processed in the context of clinical trials, the CCPA increases compliance costs and potential liability with respect to other personal data we maintain about California residents. In addition, the CPRA amended the CCPA and expanded the CCPA’s requirements, including by adding a new right for individuals to correct their personal information and establishing a new regulatory agency to implement and enforce the law.
In addition to California, at least 18 other states have passed comprehensive privacy laws similar to the CCPA and CPRA. These laws are either in effect or will go into effect sometime before the end of 2026. Like the CCPA and CPRA, these laws create obligations related to the processing of personal information, as well as special obligations for the processing of “sensitive” data (which includes health data in some cases). Some of the provisions of these laws may apply to our business activities.
There are also states that are strongly considering or have already passed comprehensive privacy laws during the 2024 legislative sessions that will go into effect in 2025 and beyond. Other states will be considering similar laws in the future, and Congress has also been debating passing a federal privacy law. There are also states that are specifically regulating health information that may affect our business. For example, Washington state passed a health privacy law in 2023 that regulates the collection and sharing of health information, and the law also has a private right of action, which further increases the relevant compliance risk. Connecticut and Nevada have also passed similar laws regulating consumer health data, and additional states are considering such legislation. These laws may impact our business activities, including our identification of research subjects, relationships with business partners and ultimately the marketing and distribution of our products.
Outside the United States, an increasing number of laws, regulations, and industry standards apply to data privacy and security. For example, the European Union’s General Data Protection Regulation (EU GDPR) and the equivalent law in the U.K. (UK GDPR) and, together with EU GDPR, the GDPR, impose strict requirements for processing the personal data of individuals, including sensitive data that we may process such as health data. For example, under the GDPR, companies may face temporary or definitive bans on data processing and other corrective actions, as well as fines of up to 20 million euros under the EU GDPR, 17.5 million pounds sterling under the UK GDPR, or, in each case, 4% of annual global revenue, whichever is greater. Further, individuals may initiate litigation related to our processing of their personal data. Additionally, under various privacy laws and other obligations, we may be required to obtain certain consents to process personal data. Our inability or failure to do so could result in adverse consequences.
In the ordinary course of business, we may transfer personal data from Europe and other jurisdictions to the United States or other countries. The European Economic Area (EEA), the U.K. and certain jurisdictions have enacted data localization laws and cross-border personal data transfer laws. In particular, the EEA and the U.K. have significantly restricted the transfer of personal data to the United States and other countries whose privacy laws it believes are inadequate. Other jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer laws. Although there are currently various mechanisms that may be used to transfer personal data from the EEA and U.K. to the United States in compliance with law, such as the EEA standard contractual clauses, the U.K. International Data Transfer Agreement and the EU-U.S. Data Privacy Framework (which allows for transfers for relevant United States-based organizations who self-certify compliance and participate in the Framework), these mechanisms are subject to legal challenges, and there is no assurance that we can satisfy or rely on these measures to lawfully transfer personal data to the United States. If there is no lawful manner for us to transfer personal data from the EEA, the U.K. or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions at significant expense, increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other third parties, and injunctions against our processing or transferring of personal data necessary to operate our business. Additionally, companies that transfer personal data out of the EEA and U.K. to other jurisdictions, particularly to the United States, are subject to increased scrutiny from regulators, individual litigants, and activist groups. Some European regulators have ordered certain companies to suspend or permanently cease certain transfers out of Europe for allegedly violating the EU GDPR’s cross-border data transfer limitations.
We are also bound by contractual obligations related to data privacy and security, and our efforts to comply with such obligations may not be successful. For example, certain privacy laws, such as the GDPR and the CCPA, require our customers to impose specific contractual restrictions on their service providers.
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We publish privacy policies, marketing materials and other statements, such as compliance with certain certifications or self-regulatory principles, regarding data privacy and security. If these policies, materials or statements are found to be deficient, lacking in transparency, deceptive, unfair, or misrepresentative of our practices, we may be subject to investigation, enforcement actions by regulators or other adverse consequences.
Our obligations related to data privacy and security are quickly changing in an increasingly stringent fashion, creating some uncertainty as to the effective future legal framework. Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or in conflict among jurisdictions. Preparation for and compliance with these obligations requires us to devote significant resources. These obligations may necessitate changes to our information technologies, systems, and practices and to those of any third parties that process personal data on our behalf.
Although we try to comply with all applicable data privacy and security obligations, we may at times fail (or be perceived as having failed). Despite our efforts, our personnel or third parties upon whom we rely may fail to comply with such obligations, which could negatively impact our business operations and compliance posture. Moreover, clinical trial subjects about whom we or our potential collaborators obtain information, as well as the third-party providers (such as research institutions) who share this information with us, may contractually limit our ability to use and disclose the information.
If we or the third parties on which we rely fail, or are perceived to have failed, to address or comply with data privacy and security obligations, we could face significant consequences.
These consequences may include, but are not limited to, government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-related claims) and mass arbitration demands; additional reporting requirements and/or oversight; bans on processing personal data; and orders to destroy or not use personal data. Any of these events could have a material adverse effect on our reputation, business, or financial condition, including but not limited to: loss of customers; interruptions or stoppages in our business operations (including our clinical trials); inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize budoprutug or any product candidates we may develop; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or revision or restructuring of our operations.
We may seek certain designations for budoprutug, including Breakthrough Therapy, Fast Track and Priority Review designations in the United States, and PRIME Designation in the European Union, but we might not receive such designations, and even if we do, such designations may not lead to a faster development or regulatory review or approval process.
We may seek certain designations for budoprutug or any product candidates we may develop that could expedite review and approval by the FDA. A Breakthrough Therapy product is defined as a product that is intended, alone or in combination with one or more other products, to treat a serious 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. For products 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.
The FDA may also 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 Fast Track review 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 review product may be effective.
We may also seek a priority review designation for budoprutug or any product candidates we may develop. If the FDA determines that a product candidate offers major advances in treatment or provides a treatment where no adequate therapy exists, the FDA may designate the product candidate for priority review. A priority review designation means that the goal is for the FDA to review an application for marketing approval in six months, rather than the standard review period of 10 months.
These designations are within the discretion of the FDA. Accordingly, even if we believe that budoprutug or any product candidate we may develop meets the criteria for these designations, the FDA may disagree and instead determine not to make such designation. Further, even if we receive a designation, the receipt of such designation for a product candidate may not result in a faster development or regulatory review or approval process compared to product candidates considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if budoprutug or any product candidate we may develop qualifies for these designations, the FDA may later decide that such product candidate no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.
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In the European Union, we may seek PRIME designation for budoprutug or any product candidates we may develop. The PRIME program focuses on product candidates that target conditions for which there exists no satisfactory method of treatment in the European Union, or even if such a method exists, the product candidate may offer a major therapeutic advantage over existing treatments. To be accepted for PRIME designation, a product candidate must meet the eligibility criteria in respect of its major public health interest and therapeutic innovation based on information that is capable of substantiating the claims. The benefits of a PRIME designation include the appointment of a rapporteur of the Committee for Medicinal Products for Human Use to provide continued support and help to build knowledge ahead of a marketing authorization application, early dialogue and scientific advice at key development milestones, and the potential to qualify products for accelerated review, meaning reduction in the review time for an opinion on approvability to be issued earlier in the application process. PRIME designation enables an applicant to request parallel EMA scientific advice and health technology assessment advice to facilitate timely market access. Even if we receive PRIME designation for budoprutug or any product candidate we may develop, the designation may not result in a materially faster development process, review or approval compared to conventional EMA procedures. Further, obtaining PRIME designation does not assure or increase the likelihood of EMA’s grant of a marketing authorization.
Accelerated approval by the FDA, even if granted for budoprutug or any product candidates we may develop, may not lead to a faster development or regulatory review or approval process and it does not increase the likelihood that budoprutug or any product candidates we may develop will receive marketing approval.
We may seek approval of budoprutug or any product candidates we may develop using the FDA’s accelerated approval pathway. A product may be eligible for accelerated approval if it treats a serious or life-threatening condition, generally provides a meaningful advantage over available therapies, and demonstrates an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA or other applicable regulatory agency makes the determination regarding whether a surrogate endpoint is reasonably likely to predict long-term clinical benefit.
Prior to seeking such accelerated approval, we will seek feedback from the FDA and otherwise evaluate our ability to seek and receive such accelerated approval. As a condition of approval, the FDA requires that a sponsor of a product receiving accelerated approval perform an adequate and well-controlled post-marketing confirmatory clinical trial or trials. These confirmatory trials must be completed with due diligence and we may be required to evaluate different or additional endpoints in these post-marketing confirmatory trials. These confirmatory trials may require enrollment of more patients than we currently anticipate and will result in additional costs, which may be greater than the estimated costs we currently anticipate. In addition, the FDA currently requires as a condition for accelerated approval preapproval of promotional materials, which could adversely impact the timing of the commercial launch of the product.
There can be no assurance that the FDA will agree with any proposed surrogate endpoints or that we will decide to pursue or submit a BLA for accelerated approval or any other form of expedited development, review or approval for budoprutug or any product candidates we may develop. Similarly, there can be no assurance that, after feedback from FDA, we will continue to pursue or apply for accelerated approval or any other form of expedited development, review or approval, even if we initially decide to do so. Furthermore, if we decide to submit an application for accelerated approval or under another expedited regulatory designation, there can be no assurance that such submission or application will be accepted or that any expedited review or approval will be granted on a timely basis, or at all.
The FDA may withdraw approval of a product candidate approved under the accelerated approval pathway if, for example, the trial required to verify the predicted clinical benefit of our product candidate fails to verify such benefit or does not demonstrate sufficient clinical benefit to justify the risks associated with the drug. The FDA may also withdraw approval if other evidence demonstrates that our product candidate is not shown to be safe or effective under the conditions of use, we fail to conduct any required post approval trial of our product candidate with due diligence or we disseminate false or misleading promotional materials relating to our product candidate. A failure to obtain accelerated approval or any other form of expedited development, review or approval for budoprutug or any product candidate we may develop, or withdrawal of a product candidate, would result in a longer time period for commercialization of such product candidate, could increase the cost of development of such product candidate and could harm our competitive position in the marketplace.
With passage of the FDORA, in December 2022, Congress modified certain provisions governing accelerated approval of drug and biologic products. Specifically, the new legislation authorized the FDA to: require a sponsor to have its confirmatory clinical trial underway before accelerated approval is awarded and to submit progress reports on its post-approval studies to the FDA every six months until the study is completed. Moreover, the FDORA established expedited procedures authorizing the FDA to withdraw an accelerated approval if certain conditions are met, including where a required confirmatory study fails to verify and describe the predicted clinical benefit or where evidence demonstrates the product is not shown to be safe or effective under the conditions of use.
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The FDA may also use such procedures to withdraw an accelerated approval if a sponsor fails to conduct any required post-approval study of the product with due diligence. The new procedures include the provision of due notice and an explanation for a proposed withdrawal, and opportunities for a meeting with the FDA and a written appeal, among other things. We will need to fully comply with these and other requirements in connection with the development and approval of budoprutug or any product candidates we may develop that qualify for accelerated approval.
More recently, in March 2023, the FDA issued draft guidance that outlines its current thinking and approach to accelerated approval. The FDA indicated that the accelerated approval pathway is commonly used for approval of oncology drugs due to the serious and life-threatening nature of cancer. Although single-arm trials have been commonly used to support accelerated approval, a randomized controlled trial is the preferred approach as it provides a more robust efficacy and safety assessment and allows for direct comparisons to an available therapy. To that end, the FDA outlined considerations for designing, conducting, and analyzing data for trials intended to support accelerated approvals of oncology therapeutics. While this guidance is currently only in draft form and will not be legally binding even when finalized, we will need to consider the FDA’s guidance closely if we seek accelerated approval for any of our products. Accordingly, even if we do receive accelerated approval, we may not experience a faster development or regulatory review or approval process, and receiving accelerated approval does not provide assurance of ultimate full FDA approval.
In the EU, a “conditional” marketing authorization may be granted in cases where all the required safety and efficacy data are not yet available. A conditional marketing authorization is subject to conditions to be fulfilled for generating missing data or ensuring increased safety measures. A conditional marketing authorization is valid for one year and has to be renewed annually until fulfillment of all relevant conditions.
Once the applicable pending studies are provided, a conditional marketing authorization can become a “standard” marketing authorization. However, if the conditions are not fulfilled within the timeframe set by the EMA, the marketing authorization will cease to be renewed.
We have received orphan drug designation for budoprutug for the treatment of MN, but we may be unable to realize the benefits associated with orphan drug designation, including market exclusivity.
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, defined as a disease or condition with a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States when there is no reasonable expectation that the cost of developing and making available the drug or biologic in the United States will be recovered from sales in the United States for that drug or biologic. In order to obtain orphan drug designation, the request must be made before submitting a BLA. In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and user-fee waivers. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
If a product that has orphan drug designation subsequently receives the first FDA approval of that particular product for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including a BLA, to market the same biologic (meaning, a product with the same principal molecular structural features) for the same indication for seven years, except in limited circumstances such as a showing of clinical superiority to the product with orphan drug exclusivity or if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. As a result, even if budoprutug receives orphan exclusivity, the FDA can still approve other biologics that do not have the same principal molecular structural features for use in treating the same indication or disease or the same biologic for a different indication or disease during the exclusivity period. Furthermore, the FDA can waive orphan exclusivity if we are unable to manufacture a sufficient supply of budoprutug or if a subsequent applicant demonstrates clinical superiority over budoprutug.
The FDA granted orphan drug designation to budoprutug for the treatment of pMN. We may seek orphan drug designation for budoprutug in other specific orphan indications in which there is a medically plausible basis for the use of budoprutug but may never receive such designations. In addition, even with orphan drug designation, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan designated indication and may be lost if the FDA later determines that the request for designation was materially defective or if we are unable to assure sufficient quantities of budoprutug to meet the needs of patients with the rare disease or condition, or if a subsequent applicant demonstrates clinical superiority over budoprutug, if approved.
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The FDA and Congress may further reevaluate the Orphan Drug Act and its regulations and policies. This may be particularly true in light of a decision from the Court of Appeals for the 11th Circuit in September 2021 finding that, for the purpose of determining the scope of exclusivity, the term “same disease or condition” means the designated “rare disease or condition” and could not be interpreted by the FDA to mean the “indication or use.” Although there have been legislative proposals to overrule this decision, they have not been enacted into law. On January 23, 2023, the FDA announced that, in matters beyond the scope of that court order, the FDA will continue to apply its existing regulations tying orphan-drug exclusivity to the uses or indications for which the orphan drug was approved.
We do not know if, when, or how the FDA may change the orphan drug regulations and policies in the future or whether Congress will take legislative action, and it is uncertain how any changes might affect our business. Depending on what changes the FDA or Congress may make to orphan drug regulations and policies, our business could be adversely impacted.
If approved, budoprutug or any product candidates we may develop regulated as biologics may face competition from biosimilars approved through an abbreviated regulatory pathway.
The ACA includes a subtitle called the Biologics Price Competition and Innovation Act of 2009 (BPCIA) which created an abbreviated approval pathway for biologic products that are biosimilar to or interchangeable with an FDA-licensed reference biologic 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 licensed 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 licensed. During this 12-year period of regulatory exclusivity, another company may still market a competing version of the reference product if the FDA approves a 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.
In December 2022, Congress clarified through the FDORA, that the FDA may approve multiple first interchangeable biosimilar biological products so long as the products are all approved on the same first day on which such a product is approved as interchangeable with the reference product and the exclusivity period may be shared amongst multiple first interchangeable products. More recently, in October 2023, the FDA issued its first interchangeable exclusivity determination under the BPCIA.
We believe that if budoprutug or any product candidate we may develop that may be approved as a biologic product under a BLA should qualify for the 12-year period of exclusivity. Nonetheless, the approval of biosimilar products referencing budoprutug or any product candidate we may develop would have a material adverse impact on our business due to increased competition and pricing pressures. Moreover, there is a risk that any exclusivity we do receive could be shortened due to congressional action or otherwise, or that the FDA will not consider our products 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.
The extent to which a biosimilar, once licensed, will be substituted for budoprutug or any future reference products in a way that is similar to traditional generic substitution for non-biologic products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. If competitors are able to obtain regulatory approval for biosimilars referencing budoprutug or any product candidate we may develop, such product may become subject to competition from such biosimilars, with the attendant competitive pressure and consequences. The ultimate impact, implementation, and meaning of the BPCIA are subject to uncertainty, and any new regulations, guidance, policies or processes adopted by the FDA to implement the law could have a material adverse effect on the future commercial prospects for budoprutug or any biological product candidates we may develop.
In addition, foreign regulatory authorities may change their approval policies and new regulations may be enacted relating to non-patent exclusivity. For instance, the European Union pharmaceutical legislation is currently undergoing a complete review process, in the context of the Pharmaceutical Strategy for Europe initiative, launched by the European Commission in November 2020. The European Commission’s proposal for revision of several legislative instruments related to medicinal products, which may reduce the duration of regulatory data protection and exclusivity periods for orphan drugs, and revise the eligibility for expedited pathways in addition to other changes, was published on April 26, 2023. On April 10, 2024, the European Parliament adopted a position on the proposal requesting several amendments to the package. The proposed revisions remain to be agreed and adopted by the European Parliament and European Council and the proposals may therefore be substantially revised before adoption, which is not anticipated before early 2026. The revisions may, however, have a significant impact on the pharmaceutical industry and our business in the long term.
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We plan to 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 plan to conduct one or more clinical trials with one or more trial sites that are located outside the United States. The acceptance by the FDA or other regulatory authorities of trial data from clinical trials conducted outside their jurisdiction may be subject to certain conditions or may not be accepted at all. In cases where data from foreign clinical trials are intended to serve as the sole basis for marketing approval in the U.S., the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the U.S. population and U.S. medical practice; (ii) the trials were performed by clinical investigators of recognized competence and pursuant to GCP regulations; and (iii) the data may be considered valid without the need for an on-site inspection by the FDA, or if the FDA considers such inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means.
In addition, even where the foreign trial data are not intended to serve as the sole basis for approval, the FDA will not accept the data as support for an application for marketing approval unless the trial is well-designed and well-conducted in accordance with GCP requirements and the FDA is able to validate the data from the trial through an onsite inspection if deemed necessary. Many foreign regulatory authorities have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA or any comparable foreign regulatory authority will accept data from trials conducted outside of the U.S. or the applicable jurisdiction. If the FDA or any comparable foreign regulatory authority does not accept such data, it would result in the need for additional trials, which could be costly and time-consuming, and which may result in budoprutug or any product candidates we may develop not receiving approval for commercialization in the applicable jurisdiction. Conducting clinical trials outside the U.S. will also expose us to additional risks, including risks associated with:
Our failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing budoprutug or any product candidates we may develop outside the U.S.
If we succeed in developing budoprutug, we intend to market budoprutug in foreign jurisdictions in addition to the U.S. In order to market and sell products in other jurisdictions, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing.
The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the U.S. generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the U.S., we must secure product pricing and reimbursement approvals before regulatory authorities will approve the product for sale in that country. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of budoprutug in certain countries. Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries and regulatory approval in one country does not ensure approval in any other country, while a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory approval process in others. If we fail to obtain approval of budoprutug or any product candidates we may develop by regulatory authorities in another country, we will be unable to commercialize any such product in that country, and the commercial prospects of that product candidate and our business prospects could decline. In addition, failure to obtain regulatory approval in one country or region could adversely affect future regulatory approvals in other countries.
Further, 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 could delay or prevent the introduction of budoprutug or any product candidates we may develop in certain countries.
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In addition, if we fail to obtain the non-U.S. approvals required to market budoprutug or any product candidates we may develop outside the United States or if we fail to comply with applicable non-U.S. regulatory requirements, our target markets will be reduced and our ability to realize the full market potential of such product candidate 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 obtaining marketing authorization in the U.K. as a result of the withdrawal of the U.K. from the European Union, commonly referred to as Brexit. The U.K. is no longer part of the European Single Market and EU Customs Union. As of January 1, 2021, the U.K. Medicines and Healthcare products Regulatory Agency (MHRA) became responsible for supervising medicines and medical devices in Great Britain, comprising England, Scotland and Wales under domestic law, whereas under the terms of the Northern Ireland Protocol, Northern Ireland is currently subject to European Union rules. The U.K. and the European Union have, however, agreed to the Windsor Framework, which fundamentally changes the existing system under the Northern Ireland Protocol, including with respect to the regulation of medicinal products in the U.K. From January 1, 2025 on, the changes introduced by the Windsor Framework will see the MHRA be responsible for approving all medicinal products destined for the U.K. market (i.e., Great Britain and Northern Ireland), and the EMA will no longer have any role in approving medicinal products destined for Northern Ireland. Any delay in obtaining, or an inability to obtain, any marketing authorizations, as a result of Brexit or otherwise, may force us to restrict or delay efforts to seek regulatory approval in the U.K. for budoprutug or any product candidates we may develop, which could significantly and materially harm our business.
Risks Related to the Acquisition of Tenet
We may fail to realize the anticipated benefits of the Acquisition and/or those benefits may take longer to realize than expected.
On June 27, 2024, we completed the Acquisition. Our ability to realize the anticipated benefits of the Acquisition is substantially dependent on our ability to develop and obtain regulatory approval of budoprutug, an anti-CD19 monoclonal antibody with potential to treat a broad range of B-cell mediated diseases. If we fail to obtain positive results from our clinical trials of budoprutug, or we are otherwise unable to obtain regulatory approval of budoprutug on the anticipated timelines or at all, such failure could materially adversely impact our business, financial condition and results of operations, and the market price of our common stock. Further, our ability to realize the anticipated benefits from the Acquisition is substantially dependent on the successful integration of Tenet into our business. The integration process may be disruptive to our business and the expected benefits may not be achieved within the anticipated time frame, or at all, and could be adversely impacted by, among other things, unexpected costs and delays, the loss of key personnel, the loss of key suppliers and/or third parties with whom we do business, and other unanticipated issues. The failure to meet the challenges involved and to realize the anticipated benefits of the Acquisition could adversely affect our business, financial condition and results of operations.
We are involved and may in the future become involved in securities litigation or stockholder derivative litigation in connection with the Acquisition, the related private placement and the other transactions contemplated by the Agreement and Plan of Merger and Reorganization, dated April 10, 2024, by and among our company, Tango Merger Sub, Inc., a Delaware corporation and our wholly owned subsidiary, Tenet, and, solely in his capacity as Tenet equityholder representative, Stephen Thomas (the Acquisition Agreement), and this could divert the attention of our management and harm our business.
Securities litigation or stockholder derivative litigation frequently follows the announcement of certain significant business transactions, such as the sale of a business division or announcement of an acquisition or a business combination transaction.
We are involved and may in the future become involved in this type of litigation in connection with the Acquisition, the related private placement and/or the other transactions contemplated by the Acquisition Agreement, and we may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect our business. For example, as previously disclosed, certain of our purported stockholders sent demand letters and two lawsuits were filed by our purported stockholders, generally alleging that the preliminary proxy statement and/or definitive proxy statement in connection with the Acquisition omitted certain purportedly material information, and sought corrective disclosure to the proxy statement, as well as an assertion of a claim for breach of fiduciary duty against us and our directors. We deny any breach of any duties to our stockholders and believes that no supplemental disclosures were required under applicable law, but there can be no assurance that any of these or other disputes can be resolved favorably or at all.
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Risks Related to our Dependence on Third Parties
We rely, and expect to continue to rely, on third parties to conduct, supervise, and monitor our preclinical studies and clinical trials. If these third parties do not properly and successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval of or commercialize budoprutug or any product candidates we may develop.
We expect to rely on third-party CROs to conduct, supervise, and monitor our future preclinical studies and clinical trials for budoprutug or any product candidates we may develop, and we do not currently plan to independently conduct preclinical studies or future clinical trials of any other potential product candidates. We expect to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators to conduct our future preclinical studies and clinical trials. While we have agreements governing their activities, we have limited influence over their actual performance and control only certain aspects of their activities. The failure of these third parties to successfully carry out their contractual duties or meet expected deadlines could substantially harm our business because we may not obtain marketing approval for or commercialize budoprutug or any product candidates we may develop in a timely manner or at all. Moreover, these agreements might terminate for various reasons, including a failure to perform by the third parties; if we need to enter into alternative arrangements, that will delay our product development activities and harm our business.
Our reliance on these third parties for development activities will reduce our control over these activities. Nevertheless, we are responsible for ensuring that each of our studies and clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on CROs does not relieve us of our regulatory responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial and for ensuring that our preclinical studies are conducted in accordance with good laboratory practice (GLP) as appropriate. Moreover, the FDA and comparable foreign regulatory authorities require us to comply with GCPs for conducting, monitoring, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity, and confidentiality of trial participants are protected. As a clinical trial sponsor, we will also have regulatory requirements that directly apply to us. Regulatory authorities enforce these requirements through periodic inspections of trial sponsors, clinical investigators, and trial sites. If we or any of our CROs fail to comply with applicable GCPs, we or our CROs may be subject to enforcement or other legal actions, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials.
In addition, if and when we have an approved product, we will be required to report certain financial interests of our third-party investigators if these relationships exceed certain financial thresholds or meet other criteria. The FDA and comparable foreign regulatory authorities may question the integrity of the data from those clinical trials conducted by investigators who previously served or currently serve as scientific advisors or consultants to us from time to time and receive cash compensation in connection with such services or otherwise receive compensation from us that could be deemed to impact study outcome, proprietary interests in a product candidate, certain company equity interests or significant payments of other sorts.
We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials complies with GCP regulations. In addition, our clinical trials must be conducted with product candidates that were 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 certain clinical trials and post the results of certain completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within specified time frames. Failure to do so can result in enforcement actions and adverse publicity.
Our CROs may also have relationships with other entities, some of which may be our competitors, for whom they may also be conducting clinical trials or other drug development activities that could harm our competitive position. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to any of our clinical, non-clinical, and preclinical programs.
If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct any of our preclinical studies or clinical trials in accordance with regulatory requirements or our stated protocols, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain, or may be delayed in obtaining, marketing approvals for budoprutug or any product candidates we may develop, and we will not be able to, or may be delayed in our efforts to, successfully commercialize such product candidate, or we or they may be subject to regulatory enforcement actions. As a result, our results of operations and the commercial prospects for such product candidate would be harmed, our costs could increase and our ability to generate revenues could be delayed. To the extent we are unable to successfully identify and manage the performance of third-party service providers in the future, our business may be harmed.
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If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays could occur, which could compromise our ability to meet our desired development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not harm our business.
We contract with third parties for the manufacture of materials and expect to continue to do so for our clinical trials and for commercialization of budoprutug or any product candidates we may develop. This reliance on third parties increases the risk that we will not have sufficient quantities of such materials or that such supply will not be available to us at an acceptable cost or timelines, which could delay, prevent, or impair its development or commercialization efforts.
We do not have any manufacturing facilities. We currently rely and expect to continue to rely on third party manufacturers for the manufacture of budoprutug for nonclinical and clinical testing and for commercial supply of budoprutug, if approved.
We may be unable to establish any agreements with third-party manufacturers or to do so on acceptable terms for one or more of our material needs. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:
Any performance failure on the part of our existing or future manufacturers could delay any potential clinical development or marketing approval. We do not currently have arrangements in place for redundant supply for bulk drug substances. If any one of our current contract manufacturers cannot perform as agreed, we may be required to replace that manufacturer, or we may be forced to manufacture the materials ourselves, for which we may not have the capabilities or resources, or enter into an agreement with a different third-party manufacturer, which we may not be able to do on reasonable terms, if at all. In either scenario, our clinical trial supply could be delayed significantly as we establish alternative supply sources. In some cases, the technical skills required to manufacture budoprutug may be unique or proprietary to the original third-party manufacturer and we may have difficulty, or there may be contractual restrictions prohibiting us from, transferring such skills to a back-up or alternate supplier, or we may be unable to transfer such skills at all. In addition, if we are required to change third-party manufacturers for any reason, we will be required to verify that the new third-party manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations. We will also need to verify, such as through a manufacturing comparability study, that any new manufacturing process will produce budoprutug according to the specifications previously submitted to the FDA or another regulatory authority. The delays associated with the verification of a new third-party manufacturer could negatively affect our ability to develop or commercialize budoprutug in a timely manner or within budget. Furthermore, a third-party manufacturer may possess technology related to the manufacture of budoprutug that such third-party manufacturer owns independently. This would increase our reliance on such third-party manufacturer or require us to obtain a license from such third-party manufacturer in order to have another third-party manufacturer manufacture budoprutug.
In addition, changes in manufacturers often involve changes in manufacturing procedures and processes, which could require that we conduct bridging studies between its prior clinical supply used in its clinical trials and that of any new manufacturer. We may be unsuccessful in demonstrating the comparability of clinical supplies which could require the conduct of additional clinical trials.
Our current and anticipated future dependence upon others for the manufacture of budoprutug may adversely affect our future expenses and our ability to commercialize budoprutug, if we receive marketing approval, on a timely and competitive basis.
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If we or any contract manufacturers and suppliers we engage fail to comply with environmental, health, and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
We and any contract manufacturers and suppliers we engage are subject to numerous federal, state, and local environmental, health, and safety laws, regulations, and permitting requirements, including those governing laboratory procedures; the generation, handling, use, storage, treatment, and disposal of hazardous and regulated materials and wastes; the emission and discharge of hazardous materials into the ground, air, and water; and workplace health and safety. Under certain environmental laws, we could be held responsible for costs relating to any contamination at third-party facilities. We also could incur significant costs associated with civil or criminal fines and penalties. Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our research and product development efforts. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty, and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended, which could have a material adverse effect on our business, results of operations, financial condition, and prospects. In addition, we may incur substantial costs in order to comply with current or future environmental, health, and safety laws, regulations, and permitting requirements. These current or future laws, regulations, and permitting requirements may impair our development, or production efforts. Failure to comply with these laws, regulations, and permitting requirements also may result in substantial fines, penalties, or other sanctions or business disruption, which could have a material adverse effect on our business, results of operations, financial condition, and prospects.
Any third-party contract manufacturers and suppliers we engage will also be subject to these and other environmental, health, and safety laws and regulations. Liabilities they incur pursuant to these laws and regulations could result in significant costs or an interruption in operations, which could have a material adverse effect on our business, results of operations, financial condition, and prospects.
We may not have access to the raw materials and other components necessary for the manufacturing of budoprutug.
We are dependent on third parties for the supply of various materials that are necessary to produce budoprutug for our clinical trials and do not have any supply agreements currently in place. Even if and when we have supply agreements, it is possible that the supply may be reduced or interrupted at any time. In such case, we may not be able to find other suppliers of acceptable materials in appropriate quantities at an acceptable cost. If we lose key suppliers or the supply of materials is diminished or discontinued, it may not be able to continue to develop, manufacture and market budoprutug in a timely and competitive manner. In addition, these materials are subject to stringent manufacturing processes and rigorous testing. Delays in the completion and validation of facilities and manufacturing processes of these materials could adversely affect our ability to complete trials and commercialize our products in a cost-effective and timely manner. If we encounter difficulties in the supply of these materials or other necessary products, or if we are not able to maintain our supply agreements or establish new supply agreements in the future or incur increased production costs as a result of any of the foregoing, our product development and business prospects could be significantly compromised.
We rely significantly upon the information technology systems of our third-party service providers and any failure, inadequacy, interruption or security lapse of those systems could harm our ability to operate our business effectively. We have limited control and oversight over the information security systems and practices of third parties.
In the ordinary course of business, we rely on third parties, including clinical trial sites, CROs, CDMOs and other service providers, to collect, process and maintain personal and other sensitive data on their respective networks for our research and development activities and other business operations. These data include our intellectual property and other proprietary or confidential information relating to our business, as well as personal information relating to our clinical trial participants, employees and contractors, and clinical investigators, study staff and other healthcare professionals. The maintenance of our data by third parties does not absolve us of our responsibility for the security and integrity of this data.
We have limited control and oversight over the information security systems and practices of third parties. Those systems and practices vary widely in sophistication and robustness. We have limited personnel and resources to oversee the information security systems of third parties with whom we work.
Like our information security systems, those of our third-party service providers are vulnerable to compromise, damage, loss or exfiltration from cyber-attacks, computer viruses, unauthorized access and other causes. Our third-party service providers may not anticipate or immediately detect such incidents and the damage caused by such incidents or notify us in a timely or complete manner.
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System failures, data breaches and any unauthorized access, use or disclosure of our information or data maintained by our third-party service providers could lead to similar consequences for us as similar events involving our information technology systems, including compromise of our intellectual property or other sensitive personal or business information, disruptions and delays to our research and development activities and other operations, contractual and regulatory liability, data breach notifications, expenditure of significant costs and resources for remediation and harm to our reputation. Over the past few years, there has been an increasing number of and severity of cyber-attacks, especially ransomware attacks, against the information security systems of companies across the supply chain and other critical infrastructure service providers.
If we are not able to establish future collaborations, we may have to alter some of our future development and commercialization plans.
Our product development programs and the potential commercialization of budoprutug or any product candidates we may develop will require substantial additional capital to fund expenses. We may decide to collaborate for the future development and potential commercialization of budoprutug, or any product candidates we may develop. Furthermore, we may find that our programs require the use of proprietary rights held by third parties, and the growth of our business may depend in part on our ability to acquire, in-license or use these proprietary rights. We will likely have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of any product candidates we may seek to develop with them. We cannot predict the success of any collaboration that we have entered into or will enter into.
We face significant competition in seeking appropriate collaborators, and many more established companies may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, financial resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. 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, the MHRA, or similar foreign regulatory authorities, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under future license agreements from entering into agreements on certain terms with potential collaborators. Collaborations are complex and time consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.
We may not be able to negotiate further collaborations on a timely basis, on acceptable terms, or at all. Even if we are able to obtain a license to intellectual property of interest, we may not be able to secure exclusive rights, in which case others could use the same rights and compete with us. Collaboration partners may not prioritize budoprutug or any product candidates we may develop or otherwise not effectively pursue the development of such product candidates which may delay, reduce or terminate the development of such product candidate, reduce or delay its development program or delay its potential commercialization. Further, if we are unable to successfully obtain rights to required third-party intellectual property rights or maintain the existing intellectual property rights we have, we may have to delay, reduce or terminate the development of such product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. Doing so will likely harm our ability to execute our business plans. If we elect to increase our expenditures to fund 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 budoprutug or any product candidates we may develop or bring them to market and generate product revenue.
Risks Related to Intellectual Property
We rely heavily on certain in-licensed patents and other intellectual property rights in connection with our development of budoprutug and may be required to acquire or license additional patents or other intellectual property rights to continue to develop and commercialize budoprutug.
We rely heavily on patents, know-how and other intellectual property licensed from others. We are party to a license agreement with Cancer Research Technology Limited (CRH) under which we are granted rights to intellectual property that are important to our business.
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Additionally, we may need to acquire or license intellectual property rights from additional third parties in order to continue to develop or commercialize budoprutug. Any future license agreements where we in-licenses intellectual property may impose on us various development, regulatory and/or commercial diligence obligations, payment of milestones and/or royalties and other obligations. If we fail to comply with any of the obligations under such license agreements, including payment terms and diligence terms, the licensors may have the right to terminate these agreements, in which case we may lose important intellectual property rights and we may not be able to develop, manufacture, market or sell budoprutug or may face other penalties under such agreements or be subject to litigation for breach of these agreements. In addition, such a termination could result in the licensor reacquiring the intellectual property rights and subsequently enabling a competitor to access the technology. Any such occurrence could materially adversely affect the value of budoprutug. Termination of license agreements or reduction or elimination of our rights under them may result in us having to negotiate a new or reinstated agreement, which may not be available on equally favorable terms, or at all, which may mean we are unable to develop or commercialize budoprutug. For instance, these licenses may not provide exclusive rights to use the subject 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 budoprutug in the future, such as provisions under the license agreement with CRH prohibiting us from developing budoprutug for oncology indications. In that event, we may be required to expend significant time and resources to redesign our technology or the methods for manufacturing or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis.
Further, the agreements under which we currently license, and may license in the future, intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. Accordingly, material disputes may arise between us and our licensors, regarding intellectual property subject to such license agreement, including those relating to:
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, increase what we believe to be our financial or other obligations under the relevant agreement, or decrease the financial or other benefits it might otherwise receive under the relevant agreement. If material disputes over intellectual property that we have licensed prevent or impair our ability to maintain licensing arrangements on acceptable terms or are insufficient to provide us the necessary rights to use the intellectual property, we may be unable to successfully develop and commercialize budoprutug. If we or any such licensors fail to adequately protect the relevant in-licensed intellectual property, our ability to commercialize budoprutug could suffer. Any material disputes with licensors or any termination of the licenses on which we depend could have a material adverse effect on our business, results of operations, financial condition and prospects.
We have nine pending U.S. provisional patent applications with respect to budoprutug. We can provide no assurance that any of our other current or future patent applications will result in issued patents. If we are unable to obtain, maintain and protect sufficient patent and other intellectual property rights for our product candidates and technology, or if the scope of patent and other intellectual property rights obtained is not sufficiently broad, we may not be able to compete effectively in our market.
Our success depends in significant part on our ability and the ability of our licensors, or future licensors, licensees or collaborators to obtain, maintain, enforce and defend patents and other intellectual property rights with respect to budoprutug or any product candidates we may develop and technology and to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights of others.
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We own nine pending U.S. provisional patent applications with respect to budoprutug, and we can provide no assurance that any of these current patent applications or future patent applications will result in issued patents or that any issued patents will provide us with any competitive advantage. Failure to obtain issued patents could have a material adverse effect on our ability to develop and commercialize budoprutug or any product candidates we may develop. Furthermore, other parties may successfully challenge, invalidate or circumvent our issued patents so that our patent rights do not create an effective competitive barrier or revenue source.
A U.S. provisional patent application is not eligible to become an issued patent until, among other things, we file non-provisional patent application within 12 months of filing of the provisional patent application. With regard to such U.S. provisional patent applications, if we do not timely file any non-provisional patent applications, we may lose our priority dates with respect to our provisional patent applications and any patent protection on the inventions disclosed in our provisional patent applications. While we intend to timely file non-provisional patent applications relating to our provisional patent applications, we cannot predict whether any such patent applications will result in the issuance of patents that provide us with any competitive advantage. If our licensors are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised. If there are material defects in the form, preparation, prosecution, or enforcement of our or our licensors’ patents or patent applications, such patents may be invalid and/or unenforceable, and such applications may never result in valid, enforceable patents. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
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. We may be subject to a third-party pre-issuance submission of prior art to the United States Patent and Trademark Office (USPTO) or become involved in opposition, derivation, revocation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others, or other proceedings in the USPTO or applicable foreign offices that challenge priority of invention or other features of patentability. An adverse determination in any such submission, proceeding or litigation could result in loss of exclusivity or freedom to operate, patent claims being narrowed, invalidated or held unenforceable, in whole or in part, limit the scope or duration of the patent protection of budoprutug or any other product candidates that we may identify, all of which could limit our ability to stop others from using or commercializing similar or identical product candidates or technology to compete directly with us, without payment to us, or result in our inability to manufacture or commercialize product candidates or approved products (if any) without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with us to license, develop or commercialize budoprutug or any product candidates we may develop, or could have a material adverse effect on our ability to raise funds necessary to continue our research programs or clinical trials. Such proceedings also may result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us.
We cannot be certain that the USPTO and courts in the United States or the patent offices and courts in foreign countries will consider the claims in our patents and applications covering budoprutug and any product candidates we may develop as patentable. Method-of-use patents protect the use of a product for the specified method. This type of patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may prescribe these products off-label. Although off-label prescriptions may infringe or contribute to the infringement of method-of-use patents, the practice is common and such infringement is difficult to prevent, including through legal action.
If we cannot obtain or lose patent protection for budoprutug or any product candidates we may develop, it could have a material adverse impact on our business.
Additionally, as a licensee, we rely on third parties to file and prosecute patent applications and maintain patents and otherwise protect the licensed intellectual property under some of our license agreements. For example, under the license agreement with CRH, CRH is responsible for prosecuting and maintaining intellectual property protection for budoprutug in consultation with us. We have not had and do not have primary control over these activities for certain of our in-licensed patents or patent applications and other intellectual property rights. For example, we cannot be certain that such activities by CRH or other licensors will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights.
We have limited control over the manner in which CRH or our other licensors may initiate an infringement proceeding against a third-party infringer of such intellectual property rights, or defend certain intellectual property that may be licensed to us. It is possible that CRH or our other licensors infringement proceeding or defense activities may be less vigorous than if we conduct them ourselves.
We cannot be certain that such activities by third parties have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights.
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Pursuant to the terms of the license agreements with some of our licensors, the licensors may have the right to control enforcement of our licensed patents or defense of any claims asserting the invalidity of these patents and even if we are permitted to pursue such enforcement or defense, we will require the cooperation of our licensors. We cannot be certain that our licensors will allocate sufficient resources or prioritize their or our enforcement of such patents or defense of such claims to protect its interests in the licensed patents. Even if we are not a party to these legal actions, an adverse outcome could harm our business because it might prevent us from continuing to license intellectual property that we may need to operate our business. If any of our licensors or any of our future licensors or future collaborators fail to appropriately prosecute and maintain patent protection for patents covering budoprutug, our ability to develop and commercialize budoprutug may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products.
In addition, even where we have the right to control patent prosecution of patents and patent applications we have acquired or licensed from third parties, we may still be adversely affected or prejudiced by actions or inactions of our licensors and their counsel that took place prior to our assuming control over patent prosecution.
The patent prosecution process is expensive and time-consuming. We and our licensors, and any future licensors, licensees or collaborators, may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we or our licensors will fail to identify patentable aspects of our research and development output in time to obtain patent protection or fail to file patent applications covering inventions made in the course of development and commercialization activities before a competitor or another third party files a patent application covering, or publishes information disclosing, a similar, independently-developed invention. Such competitor’s or other third party’s patent application may pose obstacles to our ability to obtain patent protection or limit the scope of the patent protection we may obtain.
Although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, collaborators, CROs, CDMOs, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. In addition, publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we or our future licensors were the first to make the inventions claimed in our owned or any future licensed patents or pending patent applications, or were the first to file for patent protection of such inventions.
In addition, our technology acquired or licensed from various third parties, including our licensors, may be subject to retained rights. Our licensors often retain certain rights under their agreements with us, including the right to use the underlying technology for use in fields other than the fields licensed to us or for use in noncommercial academic and research use, to publish general scientific findings from research related to the technology, and to make customary scientific and scholarly disclosures of information relating to the technology. It is difficult to monitor whether our licensors limit their use of the technology to these uses, and we could incur substantial expenses to enforce our rights to its licensed technology in the event of misuse by the licensor.
The patent position of biotechnology and pharmaceutical companies generally is uncertain, involves complex legal and factual questions and is the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our and our current or future licensors’ patent rights are uncertain. Our and our future licensors’ pending, and future patent applications may not result in patents being issued that protect our technology or product candidates, in whole or in part, or which effectively exclude others from commercializing competitive technologies and product candidates. The patent examination process may require us or our future licensors to narrow the scope of the claims of our pending and future patent applications, and therefore, even if such patent applications 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 and our licensors’ patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications, and then only to the extent the issued claims cover such technology. Any patents that we hold or license, or may in-license in the future may be challenged, narrowed, circumvented or invalidated by third parties. Consequently, we do not know whether budoprutug or any product candidate we may develop will be protectable or remain protected by valid and enforceable patents. Our competitors or other third parties may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner. Any of the foregoing could impair our competitive position and harm our business.
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The patent protection we obtain for budoprutug or any product candidates we may develop and technologies may be challenged and rendered invalid and/or unenforceable.
Even if our owned patent applications issue as patents, the issuance of any such patents is not conclusive as to their inventorship, scope, validity or enforceability, and such patents or patents we license from third parties, may be challenged, invalidated, narrowed or held to be unenforceable, including in the courts or patent offices in the United States and abroad, or circumvented. We or our licensors may be subject to a third-party preissuance submission of prior art to the USPTO or equivalent foreign bodies, or become involved in opposition, derivation, revocation, re-examination, post-grant and inter partes review or interference proceedings challenging our or our licensors’ patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our or our licensors’ patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. Moreover, we may have to participate in interference or derivation proceedings declared by the USPTO to determine priority or ownership of invention or in post-grant challenge proceedings, such as oppositions in a foreign patent office, that challenge priority of invention or other features of patentability. Such proceedings and any other patent challenges may result in loss of patent rights, loss of exclusivity, loss of priority 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. Such proceedings also may result in substantial costs and require significant time from our scientists and management, even if the eventual outcome is favorable to us. Moreover, there could be public announcements of the results of hearings, motions or other developments related to any of the foregoing proceedings. If securities analysts or investors perceive those results to be negative, it could cause the price of shares of our common stock to decline. Any of the foregoing could harm our business.
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.
Because we will rely on third parties to develop and manufacture budoprutug and any product candidates we may develop, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets. Despite these contractual agreements with third parties, sharing trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may harm our business.
In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development or publication of information by any of our third-party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and harm our business.
We may become involved in lawsuits to protect or enforce our patents, the patents of our licensors or other intellectual property, which could be expensive, time-consuming and unsuccessful, and issued patents covering our technology and product candidates could be found invalid or unenforceable if challenged.
Competitors and other third parties may infringe, misappropriate or otherwise violate our owned and licensed patents or other intellectual property. In addition, our owned and licensed patents may become involved in inventorship or priority disputes. Our pending patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. To counter infringement or other unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents or that our patents are invalid or unenforceable. In a patent infringement proceeding, a court may decide that an owned or licensed patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our owned and licensed patents do not cover the technology. An adverse result in any litigation proceeding could put one or more of our owned or licensed patents at risk of being invalidated, held unenforceable or interpreted narrowly. We may find it impractical or undesirable to enforce our intellectual property against some third parties.
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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, non-enablement or insufficient written description. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during prosecution. Third parties may also raise similar claims before the USPTO or an equivalent foreign body, even outside the context of litigation. Potential proceedings include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in the revocation of, cancellation of, or amendment to our patents in such a way that they no longer cover our technology or any product candidates that we may develop. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on the applicable product candidates or technology covered by the patent rendered invalid or unenforceable. Such a loss of patent protection would harm our business.
Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the ownership or priority of inventions with respect to our patents or patent applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Such licenses may not be available on commercially reasonable terms, or at all, or may be non-exclusive. If we are unable to obtain and maintain such licenses, we may need to cease the development, manufacture and commercialization of one or more of the product candidates we may develop. In addition, if we, our existing licensors or any future licensors are unsuccessful in any inventorship disputes to which we or they are subject, we may lose valuable intellectual property rights, such as exclusive ownership of, or the exclusive right to use, our owned, licensed or any future in-licensed patents. The loss of exclusivity or the narrowing of such patent claims could limit our ability to stop others from using or commercializing similar or identical technology and products. Any of the foregoing could harm our business. Even if we are successful in any of the foregoing disputes, it could result in substantial costs and be a distraction to management and other employees. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation or proceeding.
Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Most of our competitors are larger than we are and have substantially greater resources. They are, therefore, likely to be able to sustain the costs of complex patent litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing, misappropriating or otherwise violating our intellectual property. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims could result in substantial costs and diversion of management resources, which could harm our business. In addition, the uncertainties associated with litigation could compromise our ability to raise the funds necessary to initiate anticipated clinical trials, continue our internal research programs or in-license needed technology or other product candidates. There could also be public announcements of the results of the hearing, motions or other interim proceedings or developments. If securities analysts or investors perceive those results to be negative, it could cause the price of shares of our common stock to decline. Any of the foregoing events could harm our business.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting, maintaining, defending and enforcing patents and other intellectual property rights on budoprutug or any product candidates we may develop in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection or other intellectual property rights to develop their own products and may export otherwise infringing, misappropriating or violating products to territories where we have patent or other intellectual property protection, but enforcement rights are not as strong as those in the United States. These products may compete with budoprutug or any product candidates we may develop, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of some countries do not favor the enforcement of patents and other intellectual property rights, which could make it difficult for us to stop the infringement, misappropriation or other violation of our intellectual property rights generally.
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Proceedings to enforce our intellectual property 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.
Many countries, including EU countries, India, Japan and China, have compulsory licensing laws under which a patent owner may be compelled under specified circumstances to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In those countries, we may have limited remedies if patents are infringed or if we are compelled to grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our 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 develop or license, which could harm our business.
We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent which might adversely affect our ability to develop and market our product candidates.
We cannot guarantee that any of our patent searches or analyses, including the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or thorough, nor can we be certain that we have identified each and every third-party patent and pending patent application in the United States and abroad that is relevant to or necessary for the commercialization of budoprutug or any product candidates we may develop in any jurisdiction. For example, U.S. patent applications filed before November 29, 2000, and certain U.S. patent applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering budoprutug or any product candidates we may develop could have been filed by third parties without our knowledge. Additionally, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover budoprutug or any product candidates or their use. The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market budoprutug. We may incorrectly determine that budoprutug or any product candidates we may develop are not covered by a third-party patent or may incorrectly predict whether a third party’s pending application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and market budoprutug or any product candidates we may develop. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market such product candidates.
If we fail to identify and correctly interpret relevant patents or if we are unable to obtain licenses to relevant patents, we may be subject to infringement claims. We cannot guarantee that we will be able to successfully settle or otherwise resolve such infringement claims. If we fail in any such dispute, in addition to being forced to pay damages, which may be significant, we may be temporarily or permanently prohibited from commercializing any of our product candidates that are held to be infringing. We might, if possible, also be forced to redesign product candidates so that we no longer infringe the third-party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business and could harm our business.
If we fail to comply with our obligations in the agreements under which we license intellectual property rights from our licensors, otherwise experience disruption to our business relationships with our licensors, or we are unable to obtain licenses from other third parties on commercially reasonable terms or fail to comply with our obligations under such agreements, we could lose license rights that our important to our business and our business could be harmed.
We are a party to a number of license agreements under which we are granted rights to intellectual property that are important to our business, and we may enter into additional license agreements in the future for budoprutug or any product candidates we may develop. Our existing license agreements impose on us, and we expect that any future license agreements where we in-licenses intellectual property will impose on us, various development, regulatory and/or commercial diligence obligations, payment of milestones and/or royalties and other obligations. If we fail to comply with our obligations under these agreements, or we are subject to bankruptcy-related proceedings, our licensors may have the right to terminate our licenses, in which case, we would not be able to market products covered by the licenses.
We obtained our right to a number of existing license agreements pursuant to an asset purchase agreement with Acelyrin, Inc., or Acelyrin, which imposes on us various development, regulatory and/or commercial diligence obligations, payment of milestones and/or royalties and other obligations.
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If we fail to comply with our obligations under the asset purchase agreement, Acelyrin may have the right to re-purchase the obtained asset, including our rights to the licenses subject to the asset purchase agreement, in which case, we may not be able to market or develop budoprutug.
We may need to obtain additional licenses from third parties to advance our research or commercialize budoprutug or any product candidates we may develop, and we cannot provide any assurances that third party patents do not exist that might be enforced against budoprutug or such other product candidates in the absence of such a license. The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We may fail to obtain any of these licenses on commercially reasonable terms, if at all. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources to develop or license replacement technology. If we are unable to do so, we may be unable to develop or commercialize budoprutug or any product candidates we may develop, which could materially harm our business and the third parties owning such intellectual property rights could seek either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation. Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. Disputes may arise between us and our licensors regarding intellectual property subject to a license agreement, including:
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 not be able to successfully develop and commercialize budoprutug, which would have a material adverse effect on our business.
Moreover, some of our patents and patent applications in the future may be co-owned with third parties. If we are unable to obtain an exclusive license to any such co-owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors, who could market competing products and technology. In addition, we may need the cooperation of any such co-owners to enforce such patents against third parties, and such cooperation may not be provided to us.
Patent terms may be inadequate to protect our competitive position on budoprutug or any product candidates we may develop for an adequate amount of time.
Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering budoprutug or any product candidates we may develop are obtained, once the patent life has expired for a product candidate, we may be open to competition from competitive medications, including generic medications. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing product candidates similar or identical to ours. In addition, we intend, or understand that our licensors intend, to pursue additional patent protection covering, when possible, compositions, methods of use, methods of manufacture, and dosing and formulations of budoprutug. Any patent that may be issued from our owned pending patent applications is expected to expire in 2045, excluding any patent term adjustment that might be available following the grant of the patent and any patent term extensions that might be available following the grant of marketing authorizations.
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Additionally, the issued patents, or patents that may be issued from the pending patent applications that we exclusively in-licenses from CRH are expected to expire in 2026, excluding any patent term adjustment that might be available following the grant of the patent and any patent term extensions that might be available following the grant of marketing authorizations. In each instance of the above, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to budoprutug.
Depending upon the timing, duration and conditions of any FDA marketing approval of budoprutug or any product candidates we may develop, one or more of our U.S. owned or licensed patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments, and one or more of our foreign owned or licensed patents may be eligible for patent term extension under similar legislation, for example, in the European Union. In the United States, the Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. However, there are no assurances that the FDA or any comparable foreign regulatory authority or national patent office will grant such extensions, in whole or in part. For example, we may not receive an extension if we fail to exercise due diligence during the testing phase or regulatory review process, fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. Only one patent per approved product can be extended, the extension cannot extend the total patent term beyond 14 years from approval, and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for the applicable product candidate will be shortened, and our competitors may obtain approval to market competing products sooner. As a result, our revenue from applicable products could be reduced.
Further, if this occurs, our competitors may take advantage of our investment in development and trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case, and our competitive position and business could be harmed.
Changes in patent law could diminish the value of our patents, thereby impairing our ability to protect our intellectual property for budoprutug or any product candidates we may develop.
Our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the pharmaceutical industry is inherently uncertain, due in part to ongoing changes in the patent laws. Depending on decisions by Congress, the federal courts, and the USPTO and equivalent institutions in other jurisdictions, the laws and regulations governing patents, and interpretation thereof, could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce existing or future patents. For example, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. Therefore, there is increased uncertainty with regard to our ability to obtain patents in the future, as well as uncertainty with respect to the value of patents once obtained.
Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued and licensed patents. Assuming that other requirements for patentability are met, prior to March 2013, in the United States, the first to invent the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act (Leahy-Smith Act) enacted in September 2011, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications are prosecuted and may also affect patent litigation. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO-administered post-grant proceedings, including post-grant review, inter partes review and derivation proceedings. The USPTO recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, particularly the first inventor-to-file provisions. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued or licensed patents, all of which could harm our business.
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Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated if we fail to comply with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other government fees on any patents and patent applications are required to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of a patent. In certain circumstances, we may rely on our licensors to pay these fees. The USPTO and various foreign patent agencies also require compliance with a number of procedural, documentary, fee payment and other similar requirements during the patent application and prosecution process.
Noncompliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official communications within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which non-compliance can result in irrevocable abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If we or our licensors, or any future licensors or collaborators, fail to maintain the patents and patent applications covering budoprutug or any product candidates we may develop, our competitors might be able to enter the market with similar or identical products or technology, which would harm our business.
Third parties may initiate legal proceedings alleging that we are infringing, misappropriating or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could negatively impact the success of our business.
Our commercial success depends upon our ability and the ability of any of our collaborators to develop, manufacture, market and sell budoprutug and any product candidates we may develop and use our proprietary technologies without infringing, misappropriating or otherwise violating the intellectual property and other proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries. We may become party to, or be threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to budoprutug or any product candidates we may develop and technology, including re-examination, interference, post-grant review, inter partes review or derivation proceedings before the USPTO or an equivalent foreign body. Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist in the fields in which we are developing budoprutug. In the event that any of these patents were asserted against us, we believe that we would have defenses against any such action, including that such patents are not valid or that we would be able to replace such technology with alternative, non-infringing technology. However, if any such patents were to be asserted against us and our defenses to such assertion were unsuccessful and such alternative technology was not available or technologically or commercially practical, unless we obtain a license to such patents, we could be liable for damages, which could be significant and include treble damages and attorneys’ fees if we are found to willfully infringe such patents, and we could be precluded from commercializing any product candidates that were ultimately held to infringe such patents. Any potential future legal proceedings relating to these patents could cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. If we are unsuccessful in our challenges to these patents and become subject to litigation or are unable to obtain a license on commercially reasonable terms with respect to these patents, it could harm our business.
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. Even if we believe third-party intellectual property claims are without merit, there is no assurance that a court would find in our favor on questions of infringement, validity, enforceability or priority. A court of competent jurisdiction could hold that third-party patents asserted against us are valid, enforceable and infringed, which could adversely affect our ability to commercialize budoprutug or any product candidates we may develop, and any other product candidates or technologies covered by the asserted third- party patents. 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, misappropriate or otherwise violate a third party’s intellectual property rights, and we are unsuccessful in demonstrating that such rights are invalid or unenforceable, we could be required to obtain a license from such a third party to continue developing and marketing our products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. We could be forced, including by court order, to cease commercializing the infringing technology or product candidates. A finding of infringement could prevent us from commercializing budoprutug or any product candidates we may develop or force us to cease some of our business operations. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties and other fees, redesign our infringing drug or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business. Any of the foregoing events would harm our business.
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We may be subject to claims by third parties asserting that we or our employees have infringed upon, misappropriated or otherwise violated their intellectual property rights, or claiming ownership of what we regard as our own intellectual property.
Many of our employees were previously employed at other biotechnology or pharmaceutical companies. 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 we or these individuals have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s former employer. Litigation may be necessary to defend against these claims.
In addition, we or our future licensors may be subject to claims that former employees, collaborators or other third parties have an interest in our owned, licensed or any future in-licensed patents or other intellectual property as an inventor or co-inventor. While it is our policy to require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact conceives, develops or reduces to practice intellectual property that we regard as our own. Our and their assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.
If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs, delay development of budoprutug and be a distraction to management. Any of the foregoing events would harm our business.
Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise our ability to compete in the marketplace, including compromising our ability to raise the funds necessary to initiate anticipated clinical trials, continue our research programs, license necessary technology from third parties or enter into development collaborations that would help us commercialize budoprutug or any product candidates we may develop, if approved. Any of the foregoing events would harm our business.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
We rely on trade secrets and confidentiality agreements to protect our unpatented know-how, technology and other proprietary information and to maintain our competitive position. Trade secrets and know-how can be difficult to protect. We seek to protect these trade secrets and other proprietary technology, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, licensors, collaborators, CROs, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. We cannot guarantee that we have entered into such agreements with each party that may have or has had access to our trade secrets or proprietary technology and processes. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third party, our competitive position would be harmed. If we or our licensors do not apply for patent protection prior to such publication or if we cannot otherwise maintain the confidentiality of our proprietary technology and other confidential information, then our ability to obtain patent protection or to protect our trade secret information may be jeopardized.
As is common in the biopharmaceutical industry, we engage the services of consultants to assist us in the development of budoprutug. Many of these consultants were previously employed at, or may have previously provided or may be currently providing consulting services to, other biopharmaceutical companies including our competitors or potential competitors.
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We may become subject to claims that we or our consultants inadvertently or otherwise used or disclosed trade secrets or other information proprietary to our consultants’ former employers or their former or current clients. 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, which could adversely affect our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to our management team.
We may not be able to protect and enforce our trademarks and trade names, or build name recognition in our markets of interest thereby harming our competitive position.
We intend to rely on both registered and common law rights for our trademarks. We plan to apply to register these trademarks with the USPTO and may in the future seek to register additional trademarks in the United States and other countries. Our trademark applications may not be allowed for registration in a timely fashion or at all, and our future registered trademarks may not be maintained or enforced. In addition, any registered or unregistered trademarks or trade names that we own or will own may be challenged, infringed, circumvented, declared generic, lapsed or determined to be infringing on or dilutive of other marks. We may not be able to protect our rights in these trademarks and trade names or may be forced to stop using these names, which we need for name recognition by potential partners or customers in our markets of interest. In addition, third parties have filed, and may in the future file, for registration of trademarks similar or identical to our trademarks, thereby impeding our ability to build brand identity and possibly leading to market confusion. If they succeed in registering or developing common law rights in such trademarks, and if we are not successful in challenging such rights, we may not be able to use these trademarks to develop brand recognition of our technologies, products or services. 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.
During the trademark registration process, we may receive Office Actions from the USPTO or from comparable agencies in foreign jurisdictions objecting to the registration of our trademark. Although we would be given an opportunity to respond to those objections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and/or to seek the cancellation of registered trademarks. Opposition or cancellation proceedings may in the future be filed against our trademark applications or registrations, and our trademark applications or registrations may not survive such proceedings. In addition, third parties may file first for our trademarks in certain countries. If they succeed in registering such trademarks, and if we are not successful in challenging such third-party rights, we may not be able to use these trademarks to market our products in those countries. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively, which could harm our business.
Intellectual property rights do not necessarily address all potential threats.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:
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Should any of these events occur, they could harm our business.
Risks Related to our Business Operations and Employee Matters
If we fail to attract and retain management and other key personnel, we may be unable to continue to successfully develop or commercialize our product candidates or otherwise implement our business plan.
Our ability to compete in the highly competitive pharmaceuticals industry depends on our ability to attract and retain highly qualified managerial, scientific, medical, legal, sales and marketing and other personnel. We are highly dependent on recruiting and retaining our management and scientific personnel. The loss of the services of any of these individuals could impede, delay or prevent the successful development of budoprutug or any product candidates we may develop, completion of our planned clinical trials, commercialization of any such product candidates or in-licensing or acquisition of new assets and could negatively impact our ability to successfully implement our business plan. If we lose the services of any of these individuals, we might not be able to find suitable replacements on a timely basis or at all, and our business could be harmed as a result. We might not be able to attract or retain qualified management and other key personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses.
Our employees, independent contractors, consultants, commercial collaborators, principal investigators, CROs and vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.
We are exposed to the risk that our employees, independent contractors, consultants, licensors, commercial collaborators, principal investigators, CROs and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless or negligent conduct or unauthorized activities that violates (1) the laws and regulations of the FDA, the EMA, the MHRA and other similar regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to such authorities, (2) manufacturing standards, (3) federal and state data privacy, security, fraud and abuse and other healthcare laws and regulations in the United States and abroad and (4) laws that require the true, complete and accurate reporting of financial information or data. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Misconduct by these parties could also involve the improper use of individually identifiable information, including information obtained in the course of clinical trials, creating fraudulent data in our preclinical studies or clinical trials or illegal misappropriation of product candidates, which could result in regulatory sanctions and harm our reputation.
We have adopted a code of business conduct and ethics, but it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, including damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, contractual damages, reputational harm and the delay, reduction, termination or restructuring of our operations.
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Any international operations we may have may expose us to business, regulatory, political, operational, financial, pricing and reimbursement risks associated with doing business outside of the United States.
Our business is subject to risks associated with conducting business internationally. Our business strategy incorporates potential international expansion as we seek to conduct clinical trials, obtain regulatory approval for, and commercialize, budoprutug or any product candidates we may develop in patient populations outside the United States. If approved, we may hire sales representatives and conduct physician and patient association outreach activities outside of the United States. Doing business internationally involves a number of risks, including but not limited to:
Any of these factors could harm our future international expansion and operations and, consequently, our results of operations.
We may not be able to utilize a significant portion of our net operating loss carryforwards.
As of December 31, 2023, we had net operating loss (NOL) carryforwards of approximately $13.1 million for federal income tax purposes, $55.5 million for foreign income tax purposes and $8.3 million for state income tax purposes. The federal net operating loss may be used up to 80% of future taxable income while the state and foreign losses may be used to offset up to 100% of future taxable income. The federal net operating loss carryforward can be carried forward indefinitely while the state net operating loss carryforward will begin to expire in varying amounts in 2038. The net operating loss carryforwards subject to expiration could expire unused and be unavailable to offset future income tax liabilities. Under the Tax Cuts and Jobs Act (Tax Act) as modified by the Coronavirus Aid, Relief and Economic Security Act (CARES Act) federal net operating losses incurred in taxable years beginning after December 31, 2017 and in future taxable years may be carried forward indefinitely, but the deductibility of such federal net operating losses in taxable years beginning after December 31, 2020 is limited.
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Separately, under Section 382 of the Internal Revenue Code of 1986, as amended (Internal Revenue Code) and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50 percentage point change, by value, in its equity ownership by certain stockholders over a rolling three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. The completion of our IPO, together with private placements and other transactions that have occurred since our inception, may trigger such an ownership change pursuant to Section 382 of the Internal Revenue Code. We have not completed a Section 382 analysis, and therefore, there can be no assurances that the NOLs carryforward are not already limited. However, we believe a limitation, if any, would have an immaterial impact on our ability to utilize existing NOLs in the future.
In addition, we may experience ownership changes due to subsequent shifts in our stock ownership, some of which are out of our control. If an ownership change occurs and our ability to use our NOL carryforwards is materially limited, it could harm our future operating results by effectively increasing our future tax obligations.
We may seek to grow our business through acquisitions or investments in new or complementary businesses, products or technologies, through the licensing of products or technologies from third parties or other strategic alliances, and the failure to manage acquisitions, investments, licenses or other strategic alliances, or the failure to integrate them with our existing business, could have a material adverse effect on our operating results, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense.
Our success depends on our ability to continually enhance and broaden our product offerings in response to changing clinician and patients’ needs, competitive technologies and market pressures. Accordingly, from time to time we may consider opportunities to acquire, make investments in or license other technologies, products and businesses that may enhance our capabilities, complement our existing products and technologies or expand the breadth of our markets or customer base. Potential and completed acquisitions, strategic investments, licenses and other alliances, including the Acquisition, involve numerous risks, including:
To finance any acquisitions, investments or strategic alliances, we may choose to issue shares of our common stock as consideration, which could dilute the ownership of our stockholders. For example, in June 2024 we issued 5,560,047 shares of our common stock as consideration in connection with the closing of the Acquisition, and we issued 31,238,282 shares of our common in connection with the closing of the related private placement, resulting in the issuance of a total of an additional 36,798,329 shares of our common stock.
If the price of our common stock is low or volatile, we may be unable to consummate any acquisitions, investments or strategic alliances using our common stock as consideration. Additional funds may not be available on terms favorable to us, or at all.
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Risks Related to our Common Stock
The trading price of the shares of our common stock has been and may continue to be volatile, and purchasers of our common stock could incur substantial losses.
Our stock price has been volatile, fluctuating from a high trading price of $29.69 per share in August 2021 to a low trading price of $2.21 in February 2023. The stock market in general and the market for biotechnology companies in particular have also experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price for our common stock may continue to be volatile in the future and may be influenced by many factors, including:
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In the past, stockholders have initiated class action lawsuits against pharmaceutical and biotechnology companies following periods of volatility in the market prices of these companies’ stock, in particular following significant drops in stock price. Such litigation, if instituted against us, could cause us to incur substantial costs and divert management’s attention and resources from our business. In addition, in the current volatile market for biotechnology stocks, in particular where shares are trading below cash balances, certain biotechnology investors have advocated for increases in short-term stockholder value through proposed corporate actions such as financial restructurings, special dividends, stock repurchases, mergers, other business combinations or sales of assets. Any such proposals directed at us could cause us to incur substantial costs and divert management’s attention and resources from our business.
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.
We have broad discretion in the use of our cash, cash equivalents and marketable securities and may not use them effectively.
Our management has broad discretion in the application of our cash, cash equivalents and marketable securities and could use such funds in ways that do not improve our results of operations or enhance the value of our common stock or in ways that our stockholders may not agree with.
The failure by our management to apply these funds effectively could result in financial losses that could cause the price of our common stock to decline and delay the development of budoprutug or any product candidates we may develop. Pending their use, we may invest these funds in a manner that does not produce income or that loses value.
A significant portion of our common stock may be sold into the market, which could cause the market price of our common stock to drop significantly.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. If our stockholders sell, or the market perceives that our stockholders intend to sell, substantial amounts of our common stock in the public market, the market price of our common stock could decline significantly.
We have registered and intend to continue to register all shares of common stock that we may issue under our equity compensation plans. These shares can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates.
Additionally, the holders of an aggregate of 15.7 million shares of our common stock, or their transferees, have rights, subject to some conditions, to require us to file one or more registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. If we were to register the resale of these shares, they could be freely sold in the public market without limitation. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.
In connection with the private placement related to the Acquisition, we entered into a registration rights agreement, pursuant to which we are required to register for resale the shares to be purchased in the private placement and the consideration issued in the Acquisition. Pursuant to this agreement, in July 2024, we filed a registration statement covering the resale of the shares purchased by the purchasers in the private placement and the consideration issued in connection with the Acquisition. In addition, we have agreed to use commercially reasonable efforts to cause such registration statement to become effective as soon as practicable after it is filed with the SEC and to keep such registration statement effective until the date the shares covered by the registration statement have been sold or can be resold without restriction under Rule 144 of the Securities Act.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws, as currently in effect, may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:
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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, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law (DGCL) which generally, subject to certain exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder. Any delay or prevention of a change of control transaction or changes in our management could cause the market price of our common stock to decline.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
Our amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.
In addition, as permitted by Section 145 of the DGCL, our amended and restated bylaws and our indemnification agreements that we have entered into with our directors and officers provide that:
We may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.
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Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders, including affiliates of RA Capital Management L.P., may limit or prevent new investors from influencing significant corporate decisions and also reduces the public float for our common stock, which could make our common stock less attractive to some investors or otherwise harm our stock price.
Based upon our common stock outstanding as of September 30, 2024, our executive officers, directors and current beneficial owners of 5% or more of our common stock, in the aggregate, beneficially own approximately 68.3% of our outstanding common stock. In particular, affiliates of RA Capital Management, L.P., own approximately 46.8% of our outstanding common stock. These stockholders, acting together, are able to significantly influence all matters requiring stockholder approval, including the election and removal of directors and any merger or other significant corporate transaction. The interests of this group of stockholders may not coincide with the interests of other stockholders.
Some of these persons or entities may have interests different than yours. For example, because many of these stockholders purchased their shares at prices substantially below the price at which shares were sold in the IPO and have held their shares for a longer period, they may be more interested in selling our company to an acquirer than other investors, or they may want us to pursue strategies that deviate from the interests of other stockholders.
In addition, as a result of this concentration of ownership, there is a limited number of number of shares of our common stock that are not held by officers, directors and controlling stockholders (which is referred to as our public float), thereby adversely impacting the liquidity of our common stock and potentially depressing the price at which you may be able to sell shares of common stock.
We have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses, or if we identify additional material weaknesses in the future or otherwise fail to maintain effective internal control over financial reporting, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business.
Prior to the completion of the IPO, we were a private company with limited accounting personnel to adequately execute our accounting processes and other supervisory resources with which to address our internal control over financial reporting. In connection with the preparation of our consolidated financial statements for the year ended December 31, 2020, we identified material weaknesses in our internal control over financial reporting, two of which remain unremediated as of September 30, 2024. The unremediated material weaknesses, and our remediation plan, are disclosed in Item 4 of this Quarterly Report on Form 10-Q.
We believe we have made substantial progress toward achieving the effectiveness of our internal control over financial reporting and disclosure controls and procedures. The actions that have been taken are subject to continued review and testing by management as well as oversight by the audit committee of our board of directors. We will not be able to conclude whether the steps we have taken will fully remediate these material weaknesses in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness.
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (Exchange Act), the Sarbanes-Oxley Act and the rules and regulations of the Nasdaq Stock Market. Section 302 of the Sarbanes-Oxley Act requires, among other things, that we report on the effectiveness of our disclosure controls and procedures in our quarterly and annual reports and Section 404 of the Sarbanes-Oxley Act requires that we perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting in our Form 10-K filings.
We cannot assure you that the measures we have taken to date, and are continuing to implement, or any measures we may take in the future, will be sufficient to identify or prevent future material weaknesses. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected. In addition, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting in our first annual report required to be filed with the SEC following the date we are no longer an emerging growth company or a smaller reporting company with less than $100 million in revenue.
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If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If that were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by the Nasdaq Stock Market, the SEC or other regulatory authorities. In addition, our common stock may not be able to remain listed on the Nasdaq Stock Market or any other securities exchange.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware and, to the extent enforceable, the federal district courts of the United States of America as the exclusive forums for substantially all disputes between us and our stockholders, which restricts our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, or employees.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of claims or causes of action under Delaware statutory or common law: any derivative claims or causes of action brought on our behalf; any claims or causes of action asserting a breach of a fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. In addition, our amended and restated certificate of incorporation provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. These choice of forum provisions will not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.
Such provisions are intended to benefit and may be enforced by us, our officers and directors, employees and agents, including the underwriters for any offering giving rise to such complaint and any other professional or entity who has prepared or certified any part of the document underlying the offering and may result in increased costs for stockholders to bring a claim.
We believe these provisions may benefit us by providing increased consistency in the application of Delaware law and federal securities laws by chancellors and judges, as applicable, particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. These choice of forum provisions 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, or other employees, which may discourage lawsuits with respect to such claims or make such lawsuits more costly for stockholders, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions, and there can be no assurance that such provisions will be enforced by a court in those other jurisdictions. If a court were to find either choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.
General Risk Factors
If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business or our market, our stock price and trading volume could decline.
The trading market for our common stock may be influenced by the research and reports that equity research analysts publish about us and our business. We currently have limited equity analyst coverage, and such a lack of research coverage may adversely affect the market price of our common stock. For instance, lack of regular coverage may result in demand for our stock to decrease, which in turn could cause our stock price or trading volume to decline. In the event we do have equity research analyst coverage, we will not have any control over the analysts or the content and opinions included in their reports. The price of our stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research.
Unfavorable global economic conditions could adversely affect our business, financial condition, stock price, and results of operations.
The global credit and financial markets have experienced extreme volatility and disruptions (including as a result of actual or perceived changes in interest rates, inflation and macroeconomic uncertainties), which has included severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, high inflation, uncertainty about economic stability, and increases in unemployment rates.
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The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict, including the conflict between Russia and Ukraine and Israel and Hamas, terrorism, or other geopolitical events. Sanctions imposed by the U.S. and other countries in response to such conflicts, may also continue to adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. A severe or prolonged economic downturn could result in a variety of risks to our business, including a decrease in the demand for our drug candidates and in our ability to raise additional capital when needed on acceptable terms, if at all. In addition, current inflationary trends in the global economy may impact salaries and wages, costs of goods and transportation expenses, among other things, and recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures may create market and economic instability. We cannot anticipate all of the ways in which the foregoing, and the current economic climate and financial market conditions generally, could adversely impact our business.
If our information technology systems or data, or those of third parties upon which we rely, such as CROs, are or were compromised or interrupted, we could experience adverse consequences resulting from such compromise or interruption, including but not limited to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; loss of customers or sales; and other adverse consequences.
In the ordinary course of our business, we may collect, store, use, transmit, disclose, or otherwise process proprietary, confidential, and sensitive data, including personal data (such as health-related data), intellectual property, and trade secrets.
Cyberattacks, malicious internet-based activity, online and offline fraud, and other similar activities threaten the confidentiality, integrity and availability of our data and information technology systems, and those of the third parties upon which we rely. Such threats are prevalent and continue to increase, and are becoming increasingly difficult to detect. These threats come from a variety of sources.
In addition to traditional computer “hackers,” threat actors, “hacktivists”, organized criminal threat actors, personnel (such as through theft or misuse), sophisticated nation-states, and nation-state-supported actors now engage in attacks. Some actors now engage and are expected to continue to engage in cyber-attacks, including without limitation nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities.
During times of war and other major conflicts, we, and the third parties upon which we rely, may be vulnerable to a heightened risk of these attacks, including retaliatory cyber-attacks, that could materially disrupt our systems and operations, supply chain, and harm our business.
We and the third parties upon which we rely, such as CROs, may be subject to a variety of evolving threats, including but not limited to social-engineering attacks (including through deep fakes, which may become increasingly more difficult to identify as fake, and phishing attacks), malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), denial-of-service attacks (such as credential stuffing), credential harvesting, personnel misconduct or error, ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, adware, telecommunications failures, geopolitical developments, earthquakes, fires, floods, and other similar threats. Ransomware attacks are becoming increasingly prevalent and severe and can lead to significant interruptions in our operations, loss of data and income, reputational harm, and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments.
We also rely upon third-party service providers and technologies to operate critical business systems to process confidential information and personal data in a variety of contexts, including, without limitation, third-party providers of cloud-based infrastructure, encryption and authentication technology, employee email and other functions. Our ability to monitor these third parties’ cybersecurity practices is limited, and these third parties may not have adequate information security measures in place. We may share or receive sensitive data with or from third parties, and if they experience a security incident or other interruption, we could experience adverse consequences. Similarly, supply-chain attacks have increased in frequency and severity, and we cannot guarantee that third parties and infrastructure in our supply chain or our third-party partners’ supply chains have not been affected. While we may be entitled to damages if our third-party service providers fail to satisfy their privacy or security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such award.
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Our remote workforce poses increased risks to our information technology systems and data, as more of our personnel work from home, utilizing network connections outside our premises. Future business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies. Furthermore, we may discover security issues that were not found during due diligence of such acquired or integrated entities, and it may be difficult to integrate companies into our information technology environment and security program.
Any of the previously identified or similar threats could cause a security incident or other interruption. A security incident or other interruption could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to our data or our information technology systems, or those of the third parties upon whom we rely. If such an event were to occur, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed, ongoing or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties for the manufacture of budoprutug and to conduct clinical trials, and similar events relating to their computer systems could also harm our business.
We may expend significant resources or modify our business activities (including future clinical trial activities) to protect against security incidents. Certain data privacy and security obligations may require us to implement and maintain specific security measures, industry-standard or reasonable security measures to protect our information technology systems and data. While we have implemented security measures designed to protect against security incidents, there can be no assurance that these measures will be effective. We take steps to detect and remediate vulnerabilities but we may be unable in the future to detect and remediate vulnerabilities because such threats and techniques change frequently, are often sophisticated in nature, and therefore may not be detected until after a security incident has occurred. These vulnerabilities therefore may pose material risks to our business. Further, we may experience delays in developing and deploying remedial measures designed to address any such identified vulnerabilities.
Applicable data privacy and security obligations may require us to notify relevant stakeholders of security incidents. Such disclosures are costly, and the disclosures or the failure to comply with such requirements could lead to adverse consequences. If we (or a third party upon whom we rely) experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences. These consequences may include: government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing data (including personal data); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary expenditures; interruptions in our operations (including availability of data); financial loss; and other similar harms.
Security incidents and attendant consequences may cause delays in the development of budoprutug or any product candidates we may develop and negatively impact our ability to grow and operate our business.
Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations. We cannot be sure that our insurance coverage will be adequate or sufficient of protect us from or to mitigate liabilities arising out of our privacy and security practices, that such coverage will continue to be available on commercially reasonable terms or at all, or that such coverage will pay future claims. In addition to experiencing a security incident, third parties may gather, collect, or infer sensitive information about us from public sources, data brokers, or other means that reveals competitively sensitive details about our organization and could be used to undermine our competitive advantage or market position.
We are an “emerging growth company” and a “smaller reporting company,” and as a result of the reduced reporting requirements applicable to “emerging growth companies” and “smaller reporting companies,” our common stock may be less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an “emerging growth company,” we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We may take advantage of these exemptions until we are no longer an “emerging growth company.” We could be an “emerging growth company” until December 31, 2026, although circumstances could cause us to lose that status earlier, including if the aggregate market value of our common stock held by non-affiliates exceeds $700 million as of any June 30 (the end of our second fiscal quarter) before that time, in which case we would no longer be an “emerging growth company” as of the following December 31 (our fiscal year-end).
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We are also a “smaller reporting company,” as defined in the Exchange Act. Even after we no longer qualify as an “emerging growth company,” we may still qualify as a “smaller reporting company,” which would allow us to continue to take advantage of many of the same exemptions from disclosure requirements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and the price of our common stock may be more volatile.
We may be unable to maintain adequate insurance coverage.
We presently have general liability, workers’ compensation, directors’ and officers’ and product liability insurance coverage. Although we believe we will be able to maintain such coverage for a reasonable cost and obtain any additional coverages that our business may require, no assurances can be made that we will be able to do so.
Changes in tax laws or regulations that are applied adversely to us may seriously harm our business.
New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could affect the tax treatment of any of our future domestic and foreign earnings. Any new taxes could adversely affect our domestic and international business operations, and our business and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Securities
We did not sell any securities during the three months ended September 30, 2024 that were not registered under the Securities Act of 1933, as amended (the Securities Act) and that have not otherwise been described in a Current Report on Form 8-K.
Use of Proceeds
On August 9, 2021, our Registration Statement on Form S-1, as amended (File No. 333-257980), was declared effective in connection with our initial public offering (IPO). The aggregate net proceeds from our IPO were $83.1 million. We intend to use the proceeds from our IPO to advance our development pipeline, business development activities, working capital and other general corporate purposes.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Director and Officer Trading Arrangements
On
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The following individuals entered into a
None of our directors or officers
Resignation of Director
On November 7, 2024, Liam Ratcliffe, M.D., Ph.D., notified us of his decision to resign as a member of our board of directors, which resignation was effective on November 8, 2024 (the Effective Date). With the resignation, Dr. Ratcliffe also resigned as Chair of the compensation committee of our board of directors and as a member of the nominating and corporate governance committee of our board of directors. Dr. Ratcliffe informed us that his resignation was not related to any disagreement with our company on any matter relating to our operations, policies or practices.
Appointment of Director and Chair of Board
On the Effective Date, our board of directors, upon the recommendation of the nominating and corporate governance committee of our board of directors, appointed Douglas E. Williams, Ph.D., as a director to serve until our 2026 annual meeting of stockholders and thereafter until his successor has been duly appointed and qualified or until his earlier death, resignation or removal. As of the Effective Date, Dr. Williams will also serve as the chair of our board of directors, as the chair of the compensation committee of our board of directors, and as a member of the nominating and corporate governance committee of our board of directors.
Dr. Williams will receive compensation for his service as a non-employee director in accordance with our non-employee director compensation program, which is described in the definitive proxy statement for our 2024 annual meeting of stockholders that was filed with the SEC on June 4, 2024, including a grant to him on November 11, 2024 (the Grant Date) of an option to purchase 26,291 shares of our common stock at an exercise price equal to $4.06 per share, the closing price of our common stock on the Grant Date, which option will vest (i) with respect to 20,000 shares underlying the option, in equal monthly installments from November 8, 2024 (the Vesting Commencement Date) until the third anniversary of the Vesting Commencement Date, and (ii) with respect to 6,291 shares underlying the option, on the earlier of (a) June 26, 2025 or (b) the day immediately prior to our 2025 annual meeting of stockholders, in each case, subject to his continued service. Dr. Williams will also be entitled to receive annual cash retainers for his service as a director, plus additional cash compensation for his service as the chair of our board of directors, as the chair of our compensation committee, and as a member of our nominating and corporate governance committee, and annual equity grants in accordance with our non-employee director compensation program.
There are no arrangements or understandings between Dr. Williams and other persons pursuant to which he was appointed as a director. Dr. Williams has no family relationships with any of our directors or executive officers. There are no related-party transactions and no proposed transactions between Dr. Williams or us that would require disclosure under Item 404(a) of Regulation S-K.
In connection with his appointment as a director, Dr. Williams will enter into an indemnification agreement with us, pursuant to which we may be required, among other things, to indemnify Dr. Williams for certain expenses (including attorneys’ fees), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by Dr. Williams in any action or proceeding arising out of his service to and activities on behalf of our company.
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Item 6. Exhibits.
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Incorporated by Reference |
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Exhibit Number |
Description of Exhibit |
Form |
File No. |
Exhibit |
Filing Date |
2.1 |
8-K |
001-40708 |
2.1 |
4/11/2024 |
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3.1* |
Amended and Restated Certificate of Incorporation, as amended, of the Registrant |
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3.2 |
8-K |
001-40708 |
3.2 |
10/2/2024 |
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4.2 |
S-1 |
333-257980 |
4.1 |
8/2/2021 |
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4.3 |
S-1 |
333-257980 |
10.1 |
7/16/2021 |
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10.1* |
Consulting Agreement, dated June 27, 2024, between the Registrant and Stephen Thomas. |
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10.2* |
Amendment to Consulting Agreement, dated November 1, 2024, between Registrant and Stephen Thomas |
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10.3 |
Offer Letter, dated July 31, 2024 between the Registrant and Brett Kaplan, M.D. |
8-K |
001-40708 |
10.1 |
8/26/2024 |
10.4 |
8-K |
001-40708 |
10.1 |
8/27/2024 |
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31.1* |
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31.2* |
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32.1* |
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32.2* |
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101.INS |
Inline XBRL Instance Document – the instance document does not appear in the Interactive File because XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
Inline XBRL Taxonomy Extension Scheme Document |
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101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Climb Bio, Inc. |
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Date: November 12, 2024 |
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By: |
/s/ Aoife Brennan |
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Aoife Brennan, M.B., Ch.B. |
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President and Chief Executive Officer (Principal Executive Officer) |
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Climb Bio, Inc. |
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Date: November 12, 2024 |
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By: |
/s/ Brett Kaplan |
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Brett Kaplan, M.D. |
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Chief Operating Officer (Principal Financial Officer) |
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