ITEM 1A. RISK FACTORS
Our
business, financial condition, financial results, and future growth prospects are subject to a number of risks and uncertainties, including
those set forth below. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition,
financial results, and future growth prospects. Additional risks and uncertainties that are not currently known to us or that we do not
currently believe to be material may also negatively affect our business, financial condition, financial results, and future growth prospects.
RISK
FACTOR SUMMARY
Our
business is subject to numerous risks and uncertainties, including those described in Item 1A “Risk Factors.” These risks
include, but are not limited to the following:
● Our quarterly operating results may fluctuate significantly.
Risks
related to the discovery and development of our product candidates
Our
cell and gene therapy product candidates are based on proprietary methodologies, which makes it difficult to predict the time
and cost of product candidate development and subsequently obtaining regulatory approval. Only a few gene therapy products have been
approved in the U.S. and the EU.
We
have concentrated our therapeutic product research and development efforts on our cell and gene therapy platform, and our future
success depends on the successful development of this therapeutic approach. There can be no assurance that any development problems we
experience in the future related to our gene and cell therapy platform will not cause significant delays or unanticipated costs, or that
such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and commercial-scale
manufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical studies
or commercializing our products on a timely or profitable basis, if at all.
In
addition, the clinical study requirements of the FDA, the EMA, and other regulatory agencies and the criteria these regulators use to
determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use
and market of the potential products. The regulatory approval process for novel product candidates such as ours can be more expensive
and take longer than for other, better known or more extensively studied pharmaceutical or other product candidates. Given that only
a few gene therapy products have been approved in the Western world, it is not possible to predict how long it will take or how much
it will cost to obtain regulatory approvals for our product candidates in the United States, the EU or other jurisdictions. Approvals
by the EMA and the European Commission may not be indicative of what the FDA may require for approval.
Regulatory
requirements governing cell and gene therapy products have evolved and may continue to change in the future. For example, the
FDA has established the OTAT within CBER to consolidate the review of gene therapy and related products, and the Cellular, Tissue and
Gene Therapies Advisory Committee to advise CBER on its review.
Regulatory
requirements in the United States and in other jurisdictions governing gene therapy products have changed frequently and will continue
to change in the future as scientific knowledge is acquired. The FDA and EMA have each expressed interest in further regulating gene
therapy. For example, the FDA has established the Office Tissues and Advanced Therapies within CBER to consolidate the review of gene
therapy and related products, and the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on its review. Over the last
few years, FDA, through CBER, has provided significant guidance regarding the development of gene therapies. Additionally, the EMA advocates
a risk-based approach to the development of a gene therapy product. Agencies at both the federal and state level in the United States,
as well as the U.S. congressional committees and other governments or governing agencies, have also expressed interest in further regulating
the biotechnology industry. Such action may delay or prevent commercialization of some, or all, of our product candidates. These regulatory
review agencies, committees and advisory groups and the new requirements and guidelines they promulgate may lengthen the regulatory review
process, require us to perform additional or larger studies, increase our development costs, lead to changes in regulatory positions
and interpretations, delay or prevent approval and commercialization of these treatment candidates or lead to significant post-approval
studies, limitations, or restrictions. As we advance our product candidates, we will be required to consult with these regulatory and
advisory groups and comply with applicable requirements and guidelines. If we fail to do so, we may be required to delay or discontinue
development of our product candidates. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary
to bring a potential product to market could decrease our ability to generate sufficient product revenue to maintain our business.
We
may encounter substantial delays in our clinical studies, such as clinical holds, or we may fail to demonstrate safety and efficacy to
the satisfaction of applicable regulatory authorities.
Before
obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical studies
to demonstrate the safety, purity and potency, and efficacy, of the product candidates in humans. Clinical testing is expensive, time-consuming,
and uncertain as to outcome. This is especially true for rare and/or complicated diseases. We cannot guarantee that any clinical studies
will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical studies can occur at any stage of
testing.
The
results of preclinical studies, preliminary study results, and early clinical trials of our product candidates may not be predictive
of the results of later-stage clinical trials or the ultimately completed trial. Product candidates in later stages of clinical trials
may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials.
Preclinical and early clinical studies may also reveal unfavorable product candidate characteristics, including safety concerns. We may
also experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive
marketing approval or commercialize our product candidates, including:
Delays
in launching clinical trials resulting from FDA or other regulatory actions, such as a clinical hold letter, would delay the commercialization
of our product candidates and our ability to generate revenue, which would have an adverse effect on our business. For example, in September
2019, we received a clinical hold letter in connection with our Phase 3 clinical trial for EB-101 stating that the FDA would not provide
approval for us to begin our planned Phase 3 clinical trial for EB-101 until we submitted additional data points on transport stability
of EB-101 to clinical sites. Although the FDA removed the clinical hold in December 2019 and provided clearance for us to proceed with
our planned Phase 3 clinical trial, we may encounter similar delays in our clinical studies in the future.
Significant
delays relating to any preclinical or clinical trials also could shorten any periods during which we may have the exclusive right to
commercialize our product candidates or allow our competitors to bring products to market before we do. This may prevent us from receiving
marketing approvals and impair our ability to successfully commercialize our product candidates. If any of the foregoing were to occur,
our business, financial condition, results of operations, and prospects will be materially harmed.
We
may find it difficult to enroll patients in our clinical studies, which could delay or prevent clinical studies of our product candidates.
Identifying
and qualifying patients to participate in clinical studies of our product candidates is critical to our success. The timing of our clinical
studies depends on the speed at which we can recruit eligible patients to participate in testing our product candidates. We have experienced
delays in some of our clinical studies due to the ultra-rare nature of the diseases we aim to treat, and we may experience similar delays
in the future. If patients are unwilling to participate in our cell and gene therapy studies because of negative publicity from
adverse events in the biotechnology or gene therapy industries or for other reasons, including competitive clinical studies for similar
patient populations, the timeline for recruiting patients, conducting studies, and obtaining regulatory approval of potential products
may be delayed. These delays could result in increased costs, delays in advancing our product development, delays in testing the effectiveness
of our technology or termination of the clinical studies altogether.
We
may not be able to identify, recruit or enroll a sufficient number of patients, or those with required or desired characteristics to
achieve diversity in a study, to complete our clinical studies in a timely manner. Patient enrollment is affected by factors including:
● severity of the disease under investigation;
● design of the study protocol;
● size and nature of the patient population;
● eligibility criteria for and design of the study in question;
● proximity and availability of clinical study sites for prospective patients;
● availability of competing therapies and clinical studies;
● efforts to facilitate timely enrollment in clinical studies;
● ability to compensate patients for their time and effort;
● inability to obtain or maintain patient informed consents;
● patient referral practices of physicians; and
● ability to monitor patients adequately during and after treatment.
We
also plan to seek initial marketing approval in the European Union in addition to the U.S. Our ability to successfully initiate, enroll
and complete a clinical study in any foreign country is subject to additional risks unique to conducting business in foreign countries,
such as different standards for the conduct of clinical studies; different laws, medical standards, and regulatory requirements; and
the ability to establish or manage relationships with treatment centers, contract research organizations and physicians.
If
we have difficulty enrolling a sufficient number of patients to conduct our clinical studies as planned our development costs may increase,
the time for completion of clinical trials may increase, we may need to delay, limit or terminate ongoing or planned clinical studies,
any of which would have an adverse effect on our business.
Our
products or product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory
approval or commercialization.
Undesirable
side effects caused by our products or product candidates, including adverse events associated with our product candidates, could interrupt,
delay, or halt clinical trials and could result in the denial of regulatory approval or more limited approvals by the FDA, EMA or other
regulatory authorities for any or all targeted indications, or the inclusion of unfavorable information in our product labeling, such
as limitations on the indicated uses or populations for which the products may be marketed or distributed, a label with significant safety
warnings, including boxed warnings, contraindications, and precautions, a label without statements necessary or desirable for successful
commercialization, or may result in requirements for costly post-marketing testing and surveillance, or other requirements, including
REMS, to monitor the safety or efficacy of the products. These could in turn prevent us from commercializing our products or product
candidates and generating revenues from their sale.
In
addition, if we or others identify undesirable side effects caused by our product candidates after receipt of marketing approval, the
regulatory authorities may require the addition of restrictive labeling statements. Regulatory authorities may withdraw their approval
of the product. We also may be required to change the way the product is administered or conduct additional clinical trials. Any of these
events could prevent us from achieving or maintaining market acceptance of the affected products or product candidate or could substantially
increase the costs and expenses of commercializing the products or product candidate, which in turn could delay or prevent us from generating
significant revenues from its sale or adversely affect our reputation.
Even
if we complete the necessary preclinical and clinical studies, we cannot predict when or if we will obtain regulatory approval to commercialize
a product candidate or the approval may be for a narrower indication than we expect.
We
cannot commercialize a product until the appropriate regulatory authorities have reviewed and approved the product candidate. Even if
our product candidates demonstrate safety and efficacy in clinical studies, the regulatory agencies may not complete their review processes
in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee or
other regulatory advisory group or authority recommends non-approval or restrictions on approval. In addition, we may experience delays
or rejections based on additional government regulation from future legislation or administrative action, or changes in regulatory agency
policy during the period of product development, clinical studies, and the review process. Regulatory agencies also may approve a treatment
candidate for fewer or more limited indications, populations, or uses than requested or may grant approval subject to the performance
of post-marketing studies, surveillance, or other requirements. In addition, regulatory agencies may not approve the labeling claims
that are necessary or desirable for the successful commercialization of our treatment candidates, or may require significant safety warnings,
including black box warnings, contraindications, and precautions. For example, the development of our product candidates for pediatric
use is an important part of our current business strategy, and if we are unable to obtain regulatory approval for the desired age ranges,
our business may suffer.
We
have received and may apply for additional designations intended to facilitate or encourage product candidate development. We may not
receive any such designations or be able to maintain them. Moreover, any such designations may not lead to faster development or regulatory
review or approval and it does not increase the likelihood that our product candidates will receive marketing approval.
Our
product candidates have received regulatory designations including breakthrough therapy designation, RMAT designation, fast track designation,
and rare pediatric disease designation from the FDA. In the future and as appropriate, we may seek additional product designations. Receipt
of such a designation is within the discretion of the FDA. Even if we believe one of our product candidates meets the criteria for a
designation, the FDA may disagree. In any event, the receipt of such a designation for a product candidate may not result in a faster
development process, review, or approval compared to product candidates considered for approval under conventional FDA procedures and
does not assure ultimate marketing approval by the FDA. In addition, the FDA may later decide that the product candidates no longer meet
the designation conditions, in which case any granted designations may be revoked. Finally, specifically with respect to our rare pediatric
disease designations, if we are not able to obtain FDA approval of our designated product candidates before the statute sunsets, we would
not be eligible to receive priority review vouchers.
Certain
of our product candidates have received orphan drug designation from the FDA, there is no guarantee that we will be able to maintain
this designation, receive this designation for any of our other product candidates, or receive or maintain any corresponding benefits,
including periods of exclusivity.
While
orphan drug designation provides certain advantages, it neither shortens the development time or regulatory review time of a product
candidate nor gives the product candidate any advantage in the regulatory review or approval process. Generally, if a product candidate
with orphan drug designation subsequently receives marketing approval before another product considered by the FDA or comparable foreign
regulatory authorities to be the same, for the same orphan indication, the product is entitled to a period of marketing exclusivity,
which precludes the FDA or comparable foreign regulatory authorities from approving another marketing application for the same drug or
biologic for the same indication for seven years. We may not be able to obtain any future orphan drug designations that we apply for,
orphan drug designations do not guarantee that we will be able to successfully develop our product candidates, and there is no guarantee
that we will be able to maintain any orphan drug designations that we receive. For instance, orphan drug designation may be revoked if
the FDA finds that the request for designation contained an untrue statement of material fact or omitted material information, or if
the FDA finds that the product candidate was not eligible for designation at the time of the submission of the request. Moreover, we
may ultimately not receive any period of regulatory exclusivity if our product candidates are approved. For instance, we may not receive
orphan product regulatory exclusivity if the indication for which we receive FDA approval is broader than the designation. Orphan exclusivity
may also be lost for the same reasons that the designation may be lost. Orphan exclusivity may further be lost if we are unable to assure
a sufficient quantity of the product to meet the needs of patients with the rare disease or condition.
Even
if we obtain orphan exclusivity for any of our current or future product candidates, that exclusivity may not effectively protect the
product from competition as different products can be approved for the same condition or products that are the same as ours can be approved
for different conditions. Even after an orphan product is approved, the FDA or comparable foreign regulatory authorities can also subsequently
approve a product containing the same principal molecular features for the same condition if the FDA concludes that the later product
is clinically superior. The FDA may further grant orphan drug designation to multiple sponsors for the same compound or active molecule
and for the same indication. If another sponsor receives FDA or comparable foreign regulatory authority approval for such product before
we do, we would be prevented from launching our product for the orphan indication for a period of at least seven years unless we can
demonstrate clinical superiority. FDA’s thinking around sameness with respect to gene therapies, and thus the circumstances when
clinical superiority would need to be shown, is evolving. While the agency has issued a guidance on the topic, certain decisions may
need to be made on a case by case basis, given the novelty of the technology. Moreover, third-party payors may reimburse for products
off-label even if not indicated for the orphan condition.
Even
if we obtain regulatory approval for a product candidate, our products will remain subject to regulatory scrutiny.
Even
if we obtain regulatory approval in a jurisdiction, regulatory authorities may still impose significant restrictions on the indicated
uses or marketing of our product candidates or impose ongoing requirements for potentially costly post-approval studies, post-market
surveillance or patient or drug restrictions. Moreover, the FDA and comparable foreign regulatory authorities will continue to closely
monitor the safety profile of any product even after approval, including gene therapy specific requirements for long term follow up.
Additionally, the holder of an approved BLA is obligated to monitor and report adverse events and any failure of a product to meet the
specifications in the BLA. The holder of an approved BLA must also submit new or supplemental applications and obtain FDA approval for
certain changes to the approved product, product labeling or manufacturing process. Advertising and promotional materials must comply
with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws.
In
addition, product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections
by the FDA and other regulatory authorities for compliance with cGMP and adherence to commitments made in the BLA. If we or a regulatory
agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or that the
product is less effective than previously thought, or problems with the facility where the product is manufactured, a regulatory agency
may impose restrictions relative to that product or the manufacturing facility, including requiring recall or withdrawal of the product
from the market or suspension of manufacturing.
If
we fail to comply with applicable regulatory requirements following approval of any of our product candidates or during product development,
or if we later discovery previously unknown safety, efficacy, or manufacturing issues, the following may result:
● issuance of corrective information;
● modifications on the way the product is administered;
● modifications on promotional pieces;
● suspension or withdrawal of regulatory approval;
● suspension or termination of any ongoing clinical studies;
● seizure, detention, or recall of product;
● refusal to permit the import or export of our products; or
Any
government investigation of alleged violations of law could require us to expend significant time and resources in response and could
generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize our product
candidates and generate revenues.
The
FDA’s policies may change, and additional government regulations may be enacted, that could prevent, limit or delay regulatory
approval of our product candidates, that could limit the marketability of our product candidates, or that could impose additional regulatory
obligations on us. For example, a change in administration in the U.S. may result in new, revised, postponed or frozen regulatory requirements
and associated compliance obligations. Changes in medical practice and standard of care may also impact the marketability of our product
candidates. If we are slow or unable to adapt to changes in existing requirements, standards of care, 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
be subject to regulatory enforcement action.
Should
any of the above actions take place, they could adversely affect our ability to achieve or sustain profitability. Further, the cost of
compliance with post-approval regulations may have a negative effect on our operating results and financial condition.
The
COVID-19 pandemic and efforts to reduce its spread have affected our operations and impacted worldwide economic conditions, and could
have a material effect on our operations, business and financial condition.
Over
the past two years, the COVID-19 pandemic has resulted in intermittent shutdowns of non-essential businesses throughout the world. The
impact of the COVID-19 pandemic has also resulted in social, economic, and labor instability in the countries in which we, or the third
parties with whom we engage, operate. At various times, the COVID-19 pandemic has substantially burdened healthcare systems worldwide,
sometimes delaying enrollment in and progression of clinical trials. Required inspections and reviews by regulatory agencies have also
been delayed at times due to the focus of resources on COVID-19, as well as travel and other restrictions. For example, our Phase 3 VIITALTM
clinical trial was temporarily paused in March 2020 due to the COVID-19 pandemic and the restrictions established by our clinical
trial site at Stanford University in Palo Alto, California, but resumed in June 2020. Significant delays in the timing of our clinical
trials and in regulatory reviews could adversely affect our ability to commercialize our product candidates.
We
may experience disruptions from COVID-19 that impact our business, supply chain, manufacturing operations, clinical trials, and pre-clinical
studies, including:
● the need to postpone, modify, suspend, or terminate clinical trials;
● patients may withdraw from clinical trials;
● delays or difficulties in enrolling patients in our clinical trials;
● delays or difficulties in manufacturing clinical drug material;
The
ultimate impact of the COVID-19 pandemic remains uncertain and subject to change. Due to the potential impact of the COVID-19 outbreak
on clinical trials, drug development, and manufacturing, the FDA issued guidance concerning how sponsors and investigators may address
these challenges, as well as guidance specific to gene therapies and comparable foreign regulatory authorities have done likewise. This
guidance recommended that gene therapy manufacturers perform a risk assessment to identify, evaluate, and mitigate factors that may allow
for the transmission of the SARS-CoV-2 virus. The FDA specifically recommended that manufacturers consider areas, such as donor assessments,
cellular and tissue source materials, manufacturing processes, manufacturing facility controls, product and material testing, and the
number of individuals who may receive the product. Per the guidance, risk assessment and mitigation strategies should be submitted to
the FDA.
The
COVID-19 pandemic may also continue to result in changes in laws and regulations. For example, in March 2020, the U.S. Congress passed
the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which includes various provisions regarding FDA drug
shortage reporting requirements, as well as provisions regarding supply chain security, such as risk management plan requirements, and
the promotion of supply chain redundancy and domestic manufacturing. This and any future changes in law may require that we change our
internal processes and procedures to ensure continued compliance. These changes could have a material impact on our ability to access
the capital markets as needed and on our operations and business, and those of the third parties on which we rely.
Risks
related to manufacturing
We
could experience production problems in our manufacturing facilities that result in delays in our development or commercialization programs
or otherwise adversely affect our business.
We
are susceptible to production interruptions that may impede our ability to manufacture cell and gene therapy products and produce
an adequate product supply to support clinical trials and potentially future commercialization. Several factors could cause production
interruptions, including equipment malfunctions, facility contamination, raw material shortages or contamination, natural disasters,
public health emergencies such as the COVID-19 pandemic, disruption in utility services, human error, or disruptions in the operations
of our suppliers. Our products and product candidates are biologic drugs requiring processing steps that are more complex than those
required for most chemical pharmaceuticals. We characterize our processes and products, and perform testing to ensure the safety, quality
and efficacy of each product produced. While we take significant measures to fully understand and characterize each product, the steps
we take may not be sufficient to ensure that a given lot will perform in the intended manner.
There
are several risks specific to the manufacturing process for EB-101 which require close attention. As an autologous product there are
challenges associated with viability of biopsies as an incoming material. Due to variables such as the fragility of RDEB skin and site
of the biopsy, initiation of autologous keratinocyte growth and expansion can be challenging or may be extended beyond the scheduled
timing. Another concern during manufacturing is the slowing of cell proliferation, resulting in extended manufacturing time. If pre-release
criteria are not met, the production process must be stopped and a new biopsy must be obtained. If release criteria are out of range,
epidermal sheets must be discarded and the manufacturing process must be repeated.
We
currently do not have a backup manufacturer to supply clinical trial material for EB-101. An alternative manufacturer would need to be
qualified, through regulatory filings, which could result in delays to our clinical trial timeline. The regulatory authorities also may
require additional clinical trials if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve
substantial costs and could result in a delay in our desired clinical and commercial timelines.
Accordingly,
we employ multiple steps to control our manufacturing process to assure that the products or product candidate is made strictly and consistently
in compliance with the process. Problems with the manufacturing process, including even minor deviations from the normal process, could
result in product defects or manufacturing failures that result in lot failures, product recalls, product liability claims, or insufficient
inventory. We may encounter problems achieving adequate quantities and quality of clinical grade materials that meet FDA, EU or other
applicable standards or specifications with consistent and acceptable production yields and costs. In addition, the FDA, EMA and other
foreign regulatory authorities may require us to submit samples of any lot of any approved product together with the protocols showing
the results of applicable tests at any time. Under some circumstances, the FDA, EMA or other foreign regulatory authorities may require
that we not distribute a lot until the agency authorizes its release. Slight deviations in the manufacturing process, including those
affecting quality attributes and stability, may result in unacceptable changes in the product that could result in lot failures or product
recalls for approved and marketed products.
Lot
failures or product recalls could cause us to delay product launches or clinical trials, which could be costly to us and otherwise harm
our business, financial condition, results of operations and prospects. We also may encounter problems hiring and retaining the experienced
scientific, quality control and manufacturing personnel needed to operate our manufacturing process, which could result in delays in
our production or difficulties in maintaining compliance with applicable regulatory requirements. Any problems in our manufacturing process
or facilities could make us a less attractive collaborator for potential partners, including larger pharmaceutical companies and academic
research institutions, which could limit our access to additional attractive development programs. Problems in our manufacturing process
including in internal and external facilities providing supply necessary for manufacturing or challenges with procuring supplies, such
as due to global trade policies, also could restrict our ability to meet clinical trial supply demand, and eventually market demand for
any product candidates for which we may receive marketing approval. Disruptions in our manufacturing process may delay or disrupt our
commercialization efforts.
If
we or any of our vendors, contract laboratories or suppliers are found to be out of compliance with cGMP, we may experience delays or
disruptions in manufacturing while we implement corrective actions or work with these third parties to remedy the violation or while
we work to identify suitable replacement vendors, contract laboratories or suppliers.
To
obtain regulatory approval for commercial manufacturing, we will need to continue to ensure that all of our processes, methods and equipment
are compliant with cGMP and perform extensive audits of vendors, contract laboratories and suppliers. The cGMP requirements govern quality
control of the manufacturing process and documentation policies and procedures. Complying with cGMP requires us to expend time, money
and effort in production, record keeping and quality control to assure that the product meets applicable specifications and other requirements.
If we fail to comply with these requirements, we would be subject to possible regulatory action and may not be permitted to sell any
products that we may develop.
We
may rely on third parties to conduct aspects of our product manufacturing, and these third parties may not perform satisfactorily. We
may rely on third parties to produce certain materials for our product candidates and, therefore, we can control only certain aspects
of their activities.
We
and our third-party suppliers, laboratories, and manufacturers may be unable to comply with our specifications, cGMP requirements and
with other FDA, state, and foreign regulatory requirements. Poor control of production processes can lead to the introduction of adventitious
agents or other contaminants, or to inadvertent changes in the properties or stability of a product candidate that may not be detectable
in final product testing. If we or our contract manufacturers cannot successfully manufacture material that conforms to our specifications
and the strict regulatory requirements of the FDA or other regulatory authorities, they will not be able to secure or maintain regulatory
approval for their manufacturing facilities. Any such deviations may also require remedial measures that may be costly and/or time-consuming
for us or a third party to implement and may include the temporary or permanent suspension of a clinical trial or commercial sales or
the temporary or permanent closure of a facility. Any such remedial measures imposed upon or by us or third parties with whom we contract
could materially harm our business. Any delays in obtaining products or product candidates that comply with the applicable regulatory
requirements may result in delays to clinical trials, product approvals, and commercialization. It may also require that we conduct additional
studies.
We
have manufacturing agreements with third parties that provide for, among other things, production of product candidates for our current
and future early stage clinical trials. Under certain circumstances, the other party is entitled to terminate its arrangement with us.
If we need to enter into alternative arrangements, it could delay our product development activities. Our reliance on third parties for
certain manufacturing activities will reduce our control over these activities but will not relieve us of our responsibility to ensure
compliance with all required regulations. If a third party does not successfully carry out its contractual duties, meet expected deadlines
or manufacture our product candidates in accordance with regulatory requirements, or if there are disagreements between us and any such
third party, we will not be able to complete, or may be delayed in completing, the preclinical studies required to support future IND
submissions and the clinical trials required for approval of our product candidates. In such instances, we may need to enter into an
appropriate replacement third-party relationship, which may not be readily available or on acceptable terms, which would cause additional
delay or increased expense prior to the approval of our product candidates and would thereby have a material adverse effect on our business,
financial condition, results of operations and prospects.
In
addition, if the FDA or a comparable foreign regulatory authority does not approve our or a third party’s facilities for the manufacture
of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities,
which would significantly impact our ability to develop, obtain and maintain regulatory approval for or market our product candidates,
if approved. Any new manufacturers would need to either obtain or develop the necessary manufacturing know-how, and obtain the necessary
equipment and materials, which may take substantial time and investment. We must also receive FDA approval for the use of any new manufacturers
for commercial supply. We may not succeed in our efforts to establish manufacturing relationships or other alternative arrangements for
any of our product candidates, components, and programs. For example, our product candidates may compete with other products and product
candidates for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and
that are both capable of manufacturing for us and willing to do so.
The
manufacture of biologic products requires significant expertise and capital investment, including the development of advanced manufacturing
techniques and process controls. Manufacturers of therapeutics often encounter difficulties in production, particularly in scaling up
initial production. These problems include difficulties with production costs and yields, quality control, including stability of the
product candidate and quality assurance testing, shortages of qualified personnel, and compliance with strictly enforced federal, state,
and foreign regulations. If we or our manufacturers were to encounter any of these difficulties and were unable to perform as agreed,
our ability to provide product candidates to patients in our clinical trials and for commercial use, if approved, would be jeopardized.
Our
reliance on these third parties entails risks to which we would not be subject if we manufactured the product candidates ourselves, including:
● reduced control for certain aspects of manufacturing activities;
● reliance on the third party for regulatory compliance and quality assurance;
Any
of these events could lead to clinical trial delays or failure to obtain regulatory approval or impact our ability to successfully commercialize
future product candidates. Some of these events could be the basis for FDA action or action of equivalent competent authorities in foreign
jurisdictions, including injunction, recall, seizure or total or partial suspension of product manufacturing. Failure to comply with
ongoing regulatory requirements could cause us to suspend production or put in place costly or time-consuming remedial measures.
If
any inspection or audit by regulatory authorities identifies a failure to comply with applicable regulations, or if a violation of product
specifications or applicable regulations occurs independent of such an inspection or audit, the relevant regulatory authority may require
remedial measures that may be costly or time-consuming to implement and that may include the temporary or permanent suspension of a clinical
trial or commercial sales or the temporary or permanent closure of a manufacturing facility.
Regulatory
authorities may inspect or audit the manufacturing facilities for our products and product candidates at any time. Any such remedial
measures imposed upon us could materially harm our business, financial condition, results of operations and prospects. If we fail to
comply with applicable cGMP regulations, FDA and foreign regulatory authorities could impose regulatory sanctions including, among other
things, refusal to approve a pending application for a new product candidate or suspension or revocation of a pre-existing approval.
Such an occurrence may cause our business, financial condition, results of operations and prospects to be materially harmed. Additionally,
if supply from our facility is interrupted, there could be a significant disruption in commercial supply of any of our product candidates
for which we obtain marketing approval, and in clinical supply for our product candidates.
If
we, our collaborators, or any third-party manufacturers 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 harm our business.
We,
our collaborators, and any third-party manufacturers we engage are subject to numerous environmental, health and safety laws and regulations,
including those governing laboratory procedures and the generation, handling, use, storage, treatment, manufacture, transportation and
disposal of, and exposure to, hazardous materials and wastes, as well as laws and regulations relating to occupational health and safety.
Our operations involve the use of hazardous and flammable materials, including chemicals and biologic materials. Our operations also
produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot
eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of
hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur
significant costs associated with civil or criminal fines and penalties.
Although
we maintain general liability insurance and workers’ compensation insurance for certain costs and expenses that we may incur due
to injuries to our employees resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide
adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may
be asserted against us in connection with our storage or disposal of biologic and hazardous materials.
In
addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations,
which have tended to become more stringent over time. These current or future laws and regulations may impair our research, development,
or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions
or liabilities, which could harm our business, financial condition, results of operations and prospects.
Risks
related to our reliance on third-parties
We
expect to rely on third parties to conduct some or all aspects of our viral vector production, drug product manufacturing, research and
preclinical, and clinical testing, and these third parties may not perform satisfactorily.
We
do not expect to independently conduct all aspects of our viral vector production, drug product manufacturing and distribution, research
and preclinical, and clinical testing. We currently rely, and expect to continue to rely, on third parties with respect to these matters.
In some cases, these third parties are academic, research or similar institutions that may not apply the same quality control protocols
utilized in certain commercial settings.
Our
reliance on these third parties for research and development activities reduces our control over these activities but does not relieve
us of our responsibility to ensure compliance with all required regulations and study protocols. For example, for product candidates
that we develop and commercialize on our own, we remain responsible for ensuring that each of our IND-enabling studies and clinical studies
are conducted in accordance with the study plan and protocols, and that our viral vectors and drug products are manufactured in accordance
with GMP as applied in the relevant jurisdictions. We must also ensure that our preclinical trials are conducted in accordance with GLPs,
as appropriate. Moreover, the FDA and comparable foreign regulatory authorities require us to comply with GCPs for conducting, 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. Regulatory authorities enforce these requirements through periodic
inspections. If we or any of our third-party service providers fail to comply with applicable regulatory requirements, we or they may
be subject to enforcement or other legal actions, the data generated in our trials or manufacturing development may be deemed unreliable,
and the FDA or comparable foreign regulatory authorities may require us to perform additional studies and manufacturing development.
If these third parties do not successfully carry out their contractual duties, meet expected deadlines, conduct our studies in accordance
with regulatory requirements or our stated study plans and protocols, or manufacture our viral vectors and drug products in accordance
with cGMP, or if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to
adhere to our protocols, regulatory requirements or for other reasons, we will not be able to complete, or may be delayed in completing,
the preclinical and clinical studies and manufacturing process validation activities required to support future IND, MAA and BLA submissions
and approval of our product candidates.
Any
of these third parties may terminate their engagements with us at any time. If we need to enter into alternative arrangements, it could
delay our product development activities. Any of these events could lead to clinical study delays or failure to obtain regulatory approval
or impact our ability to successfully commercialize future products. Some of these events could be the basis for FDA action, including
injunction, recall, seizure or total or partial suspension of production.
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 rely on third parties to manufacture our vectors and our product candidates, and because we collaborate with various organizations
and academic institutions on the advancement of our cell and gene therapy platform, 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 the contractual provisions employed
when working with third parties, the need to share 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 have a material adverse effect
on our business.
In
addition, these agreements typically restrict the ability of our collaborators, advisors, employees, and consultants to publish data
potentially relating to our trade secrets. Our academic collaborators typically have rights to publish data, provided that we are notified
in advance and may delay publication for a specified time in order to secure our intellectual property rights arising from the collaboration.
In other cases, publication rights are controlled exclusively by us, although in some cases we may share these rights with other parties.
We also conduct joint research and development programs that may require us to share trade secrets under the terms of our research and
development partnerships or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discover our trade
secrets, either through breach of these agreements, independent development or publication of information including our trade secrets
in cases where we do not have proprietary or otherwise protected rights at the time of publication. A competitor’s discovery of
our trade secrets would impair our competitive position and have an adverse impact on our business.
Risks
associated with commercializing our product candidates
Our
drug candidates are subject to the risks of failure inherent in the development of pharmaceutical products based on new technologies,
and our failure to develop safe and commercially viable drugs would severely limit our ability to become profitable or to achieve significant
revenues.
We
may be unable to successfully commercialize our product candidates if some or all of our product candidates are found to be unsafe or
ineffective or otherwise fail to meet applicable regulatory standards or receive necessary regulatory clearances. Additionally, our product
candidates may be deemed too difficult to develop into commercially viable drugs. We may encounter difficulty in manufacturing or marketing
our product candidates on a large scale, and proprietary rights of third parties may preclude us from marketing our drug candidates.
Moreover, competitors may be able to market superior or equivalent drugs successfully. Failure to successfully commercialize our product
candidates would have a material adverse effect on our business.
We
may be unable to successfully develop, market, or commercialize our products or our product candidates without establishing new relationships
and maintaining current relationships and our ability to successfully commercialize, and market our product candidates could be limited
if a number of these existing relationships are terminated.
Our
strategy for the research, development and commercialization of our potential pharmaceutical products may require us to enter into various
arrangements with corporate and academic collaborators, licensors, licensees and others, in addition to our existing relationships with
other parties. Specifically, we may seek to joint venture, sublicense or enter into other marketing arrangements with parties that have
an established marketing capability, or we may choose to pursue the commercialization of such products on our own. We may, however, be
unable to establish such additional collaborative arrangements, license agreements, or marketing agreements as we may deem necessary
to develop, commercialize and market our potential pharmaceutical products on acceptable terms. Furthermore, since we maintain and establish
arrangements or relationships with third parties, our business may depend upon the successful performance by these third parties of their
responsibilities under those arrangements and relationships. If we are unwilling or unable to perform our obligations under any license
or collaboration arrangement, a third party may have the right to terminate such arrangement with us.
We
are subject to extensive governmental regulation, which increases our cost of doing business and may affect our ability to commercialize
any new products that we may develop.
The
FDA and comparable agencies in foreign countries impose substantial requirements upon the introduction of pharmaceutical products through
lengthy and detailed laboratory, preclinical and clinical testing procedures and other costly and time-consuming procedures to establish
safety and efficacy. All of our drugs and drug candidates require receipt and maintenance of governmental approvals for commercialization.
Preclinical and clinical trials and manufacturing of our drug candidates will be subject to the rigorous testing and approval processes
of the FDA and corresponding foreign regulatory authorities. Satisfaction of these requirements typically takes a significant number
of years and can vary substantially based upon the type, complexity, and novelty of the product.
Due
to the time-consuming and uncertain nature of the drug candidate development process and the governmental approval process described
above, we cannot be certain when we, independently or with our collaborative partners, might submit a BLA for FDA or other regulatory
review. Further, our ability to commence and/or complete development projects will be subject to our ability to raise enough funds to
pay for the development costs of these projects. Government regulation also affects the manufacturing and marketing of pharmaceutical
products. Government regulations may delay marketing of our potential drugs for a considerable or indefinite period of time, impose costly
procedural requirements upon our activities and furnish a competitive advantage to larger companies or companies more experienced in
regulatory affairs. Delays in obtaining governmental regulatory approval could adversely affect our marketing as well as our ability
to generate significant revenues from commercial sales.
Our
drug candidates may not receive FDA or other regulatory approvals on a timely basis or at all. Moreover, if regulatory approval of a
drug candidate is granted, such approval may impose limitations on the indicated use for which such drug may be marketed. Even if we
obtain initial regulatory approvals for our drug candidates, our drugs and our manufacturing facilities would be subject to continual
review and periodic inspection, and later discovery of previously unknown problems with a drug, manufacturer or facility may result in
restrictions on the marketing or manufacture of such drug, including withdrawal of the drug from the market. The FDA and other regulatory
authorities stringently apply regulatory standards and failure to comply with regulatory standards can, among other things, result in
fines, denial or withdrawal of regulatory approvals, product recalls or seizures, operating restrictions, and criminal prosecution.
We
may incur substantial product liability expenses due to the use or misuse of our products for which we may be unable to obtain insurance
coverage.
Our
business exposes us to potential liability risks that are inherent in the testing, manufacturing, and marketing of pharmaceutical products.
These risks will expand with respect to our drug candidates, if any, that receive regulatory approval for commercial sale and we may
face substantial liability for damages in the event of adverse side effects, including injury or death, or product defects identified
with any of our products that are used in clinical tests or marketed to the public. Product liability actions can also have regulatory
consequences, including the withdrawal of clinical trial participants and potential termination of clinical trial sites or entire clinical
programs, and the initiation of investigations, and enforcement actions by regulators, product recalls, withdrawals, revocation of approvals,
or labeling, marketing, or promotional restrictions.
Product
liability insurance for the biotechnology industry is generally expensive, if available at all, and as a result, we may be unable to
obtain insurance coverage at acceptable costs or in a sufficient amount in the future, if at all. We may be unable to satisfy any claims
for which we may be held liable as a result of the use or misuse of products which we developed, manufactured, or sold and any such product
liability claim could adversely affect our business, operating results, or financial condition.
Intense
competition may limit our ability to successfully develop and market commercial products.
The
biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. Our
competitors in the U.S. and elsewhere are numerous and include, among others, major multinational pharmaceutical and chemical companies,
specialized biotechnology firms and universities and other research institutions. Many of our competitors have and employ greater financial
and other resources, including larger research and development, marketing, and manufacturing organizations. As a result, our competitors
may successfully develop technologies and drugs that are more effective or less costly than any that we are developing, which could render
our technology and future products obsolete and noncompetitive.
In
addition, some of our competitors have greater experience than we do in conducting preclinical and clinical trials and obtaining FDA
and other regulatory approvals. Accordingly, our competitors may succeed in obtaining FDA or other regulatory approvals for drug candidates
more rapidly than we can. Companies that complete clinical trials, obtain required regulatory agency approvals, and commence commercial
sale of their drugs before their competitors may achieve a significant competitive advantage. Drugs resulting from our research and development
efforts or from our joint efforts with collaborative partners therefore may not be commercially competitive with our competitors’
existing products or products under development.
Our
products and product candidates may face competition sooner than anticipated.
Our
products and product candidates may face competition from other products that are the same as or similar to ours. If the FDA or comparable
foreign regulatory authorities approve biosimilar versions of our products or product candidates, or such authorities do not grant our
products appropriate or anticipated periods of regulatory exclusivity, the sales of our products could be adversely affected. Moreover,
even if we receive periods of regulatory exclusivity, that exclusivity may not adequately protect us from biosimilar or other product
competition. There may also be changes in regulatory exclusivity policies. For example, there have been efforts to decrease the biologic
period of exclusivity to a shorter timeframe. Future proposed budgets, international trade agreements and other arrangements or proposals
may affect periods of exclusivity. If another company pursues approval of a product that is biosimilar to any biologic product for which
we receive FDA approval, we may need to pursue costly and time-consuming patent infringement actions, which may include certain statutorily
specified regulatory steps before an infringement action may be brought. Biosimilar applicants may also be able to bring an action for
declaratory judgment concerning our patents, requiring that we spend time and money defending the action.
Our
ability to successfully develop and commercialize our drug candidates will substantially depend upon the availability of reimbursement
funds for the costs of the resulting drugs and related treatments.
Market
acceptance and sales of our product candidates may depend on coverage and reimbursement policies and health care reform measures. Decisions
about formulary coverage as well as levels at which government authorities and third-party payors, such as private health insurers and
health maintenance organizations, reimburse patients for the price they pay for our products as well as levels at which these payors
pay directly for our products, where applicable, could affect whether we are able to commercialize these products. We cannot be sure
that reimbursement will be available for any of these products. Also, we cannot be sure that coverage or reimbursement amounts will not
reduce the demand for, or the price of, our products. We have not commenced efforts to have our product candidates reimbursed by government
or third-party payors. If coverage and reimbursement are not available or are available only at limited levels, we may not be able to
commercialize our products. In recent years, officials have made numerous proposals to change the health care system in the U.S. These
proposals include measures that would limit or prohibit payments for certain medical treatments or subject the pricing of drugs to government
control. In addition, in many foreign countries, particularly the countries of the European Union, the pricing of prescription drugs
is subject to government control. If our products are or become subject to government regulation that limits or prohibits payment for
our products, or that subjects the price of our products to governmental control, we may not be able to generate revenue, attain profitability
or commercialize our products.
As
a result of legislative proposals and the trend towards managed health care in the U.S., third-party payors are increasingly attempting
to contain health care costs by limiting both coverage and the level of reimbursement of new drugs. They may also impose strict prior
authorization requirements and/or refuse to provide any coverage of uses of approved products for medical indications other than those
for which the FDA has granted market approvals. As a result, significant uncertainty exists as to whether and how much third-party payors