10-K

eq-10k_20201231.htm

10-K

eq-10k_20201231.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2020

Commission File Number 001-38692

EQUILLIUM, INC.

(Exact name of registrant as specified in its Charter)

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (858) 412-5302

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol Name of each exchange on which registered

Common Stock, par value $0.0001 per share EQ The Nasdaq Global Market

Securities registered pursuant to 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☒ Smaller reporting company ☒

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2020 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $18.8 million based on the closing price of the registrant’s common stock on June 30, 2020 of $2.95 per share, as reported by the Nasdaq Global Market.

As of March 19, 2021, there were 29,040,270 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K incorporates by reference certain information from the registrant’s definitive Proxy Statement for its 2021 annual meeting of shareholders, which the registrant intends to file pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year end of December 31, 2020. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part of this Form 10-K.

Table of Contents

Page

PART I 5

Item 1. Business 5

Item 1A. Risk Factors 40

Item 1B. Unresolved Staff Comments 88

Item 2. Properties 88

Item 3. Legal Proceedings 88

Item 4. Mine Safety Disclosures 88

Item 6. Selected Financial Data 89

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 100

Item 8. Financial Statements and Supplementary Data 100

Item 9A. Controls and Procedures 100

Item 9B. Other Information 100

Item 10. Directors, Executive Officers and Corporate Governance 101

Item 11. Executive Compensation 101

Item 14. Principal Accounting Fees and Services 101

Item 15. Exhibits, Financial Statement Schedules 102

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Risk Factors,”“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

• our ability to successfully commercialize itolizumab (EQ001);

• the rate and degree of market acceptance of itolizumab (EQ001);

• regulatory developments in the United States;

• our ability to attract and retain key scientific or management personnel;

In some cases, you can identify these statements by terms such as “anticipate,”“believe,”“could,”“estimate,”“expects,”“intend,”“may,”“plan,”“potential,”“predict,”“project,”“should,”“will,”“would” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes. These forward-looking statements reflect our management’s beliefs, opinions and views with respect to future events and are based on estimates, assumptions and information available to us as of the date of this Annual Report on Form 10-K, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and are subject to risks and uncertainties. We discuss many of these risks in greater detail under the

heading “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

You should carefully read this Annual Report on Form 10-K and the documents that we reference herein and have filed as exhibits to the Annual Report on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this Annual Report on Form 10-K by these cautionary statements.

Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I

Item 1. Business.

Overview

We are a clinical-stage biotechnology company leveraging deep understanding of immunobiology to develop products to treat severe autoimmune and inflammatory, or immuno-inflammatory, disorders with high unmet medical need. Our initial product candidate, itolizumab (EQ001), is a clinical-stage, first-in-class monoclonal antibody that selectively targets the novel immune checkpoint receptor CD6. CD6 plays a central role in the modulation of effector T cell, or Teff cell, activity and trafficking. Activated Teff cells drive a number of immuno-inflammatory diseases across therapeutic areas including transplant science, systemic autoimmunity, pulmonary, neurologic, gastrointestinal, renal, vascular, ophthalmic and dermatologic disorders. Therefore, we believe itolizumab (EQ001) may have broad therapeutic utility in treating a large and diverse set of severe immuno-inflammatory diseases.

T cell mediated diseases

Our pipeline is focused on developing itolizumab (EQ001) as a potential best-in-class, disease modifying treatment for multiple severe immuno-inflammatory disorders. We currently have active clinical development programs for itolizumab (EQ001) for the treatment of acute graft-versus-host disease, or aGVHD, lupus/lupus nephritis, and uncontrolled asthma.

Our Investigational New Drug application, or IND, with the U.S. Food and Drug Administration, or FDA, for aGVHD was accepted in July 2018. The FDA granted itolizumab (EQ001) Fast Track designation for the treatment of aGVHD in December 2018 and Orphan Drug designations for both the prevention and treatment of aGVHD in February 2019. In March 2019, we initiated the EQUATE study, a Phase 1b/2 clinical trial of itolizumab (EQ001) for the treatment of aGVHD. In August 2020, the EQUATE study was amended to (a) expand the eligibility criteria to include patients with Grade II aGVHD who have more severe disease as indicated by elevations in Magic Algorithm Probability biomarkers, which predict a greater severity of aGVHD and (b) extend the dosing window of itolizumab (EQ001) from three to seven days after first administration of steroid treatment. In August 2020, we reported positive interim data from the first two cohorts of the Phase 1b part of this trial, and in November 2020, we reported positive interim data through the third dosing cohort. In November 2020, we expanded enrollment in the second and third cohorts in order to collect additional clinical data at those two dosing levels. In February 2021, we submitted a protocol amendment to the FDA to allow for further expansion of enrollment of additional patients until we initiate the next phase of development in aGVHD.

In June 2019, we initiated the EQUIP study, a Phase 1b clinical trial for the treatment of uncontrolled asthma. That study is enrolling patients in Australia and New Zealand.

In July 2019, our IND for lupus/lupus nephritis was accepted by the FDA, and we initiated the EQUALISE study, a Phase 1b proof-of-concept multiple ascending dose clinical trial for the treatment of lupus nephritis in September 2019. The FDA granted itolizumab (EQ001) Fast Track designation for the treatment of lupus nephritis in December 2019. The first part of the EQUALISE study is focused on evaluating the safety of itolizumab in patients with systemic lupus erythematosus, or SLE, followed by a second part in lupus nephritis patients where, in addition to safety, potential clinical activity of itolizumab (EQ001) will be assessed. In September 2020, our EQUALISE study was amended to test doses up to 3.2 mg/kg in lupus nephritis patients, allow for a longer duration of treatment up to 26 weeks, and to change the design to an open-label study.

The following chart summarizes the status of our current clinical development of itolizumab (EQ001).

We have ongoing translational biology programs to assess the therapeutic utility of itolizumab (EQ001) in additional indications where CD6 and its ligand, activated leukocyte cell adhesion molecule (ALCAM), play an important role in the pathogenesis of T cell mediated diseases. Our selection of current and future indications is driven by our analysis of the scientific, translational, clinical and commercial rationale for advancing itolizumab (EQ001) into further development.

We acquired rights to itolizumab (EQ001) for the territories of the United States and Canada in May 2017 pursuant to a collaboration and license agreement with Biocon SA (subsequently assigned to Biocon Limited, or together, Biocon). In December 2019, we expanded our rights to itolizumab (EQ001) to include the territories of Australia and New Zealand pursuant to an amendment to that agreement. In August 2019, we entered into a letter agreement with Biocon that grants us exclusive rights to negotiate licensing rights with third parties to develop and commercialize itolizumab (EQ001) in select major markets outside of North America. This letter agreement allows us to represent itolizumab (EQ001) more broadly commercially and participate in value that may be created with strategic partners across geographies.

Our collaboration with Biocon includes an exclusive supply agreement for clinical and commercial drug product of itolizumab (EQ001). Biocon currently manufactures itolizumab (EQ001) at commercial scale in a facility in India regulated by the FDA.

Strategy

Our goal is to become a leading, fully-integrated biotechnology company focused on therapies for severe immuno-inflammatory disorders. To achieve our goal, we intend to:

Understanding the Basis of Our Approach: The Role of CD6 in Autoimmunity

The role of the immune system is to defend the body against foreign organisms and cells, including cancerous cells, and in doing so must distinguish accurately between self- and non-self entities, a process called tolerance. Autoimmunity is an immune response directed against the body’s own healthy cells and tissues, and is the underlying process in many inflammatory diseases. Autoimmunity results from a loss of tolerance caused in part by an imbalance in the relationship between Teff and regulatory T cells, or Treg cells, see Figure 1.

Figure 1: Autoimmunity is a balancing act. Treg cells play an important role in preventing Teff cells targeting of self-antigens that can lead to autoimmunity and tissue destruction.

Immune checkpoints are critical regulators of immune activation pathways and can be either co-stimulatory (activating) or co-inhibitory (inhibiting). These pathways are crucial for maintaining immune balance and preventing autoimmunity. Immune checkpoints have been targeted for the treatment of cancers, where blockade of co-inhibitory signals results in an increased immune response against tumor cells, and such approaches have resulted in the approval of several novel therapeutics. We believe co-stimulatory checkpoints are attractive drug targets for the treatment of immuno-inflammatory diseases and more recently they have become a focus of development in immuno-inflammation. However, identifying checkpoints that allow for the selective modulation of Teff cell activity while preserving Treg cell activity in order to promote tolerance has proven challenging.

CD6 is a novel, tightly-regulated, co-stimulatory receptor that plays an integral role in modulating T cell activation, proliferation, differentiation and trafficking. CD6 serves as a key checkpoint in regulating Teff cells that are central to autoimmune responses. Preclinical and clinical studies have shown that blockade of CD6 co-stimulation leads to selective inhibition of pathogenic Teff cell activity and trafficking, while preserving the important regulatory function of Treg cells. Such studies and new insights into the underlying biology highlight CD6 as a resurgent target for the treatment of multiple immuno-inflammatory diseases.

CD6 is predominantly expressed on T helper cells, or Th cells, and regulates T cell responses. Once activated, naïve Th cells become Teff cells and carry out specialized immune functions depending on their specific phenotype such as Th1, Th2 and Th17 cells. The expression levels of CD6 are increased on Teff cells and are associated with autoreactivity in cells, leading to autoimmunity. Conversely, the lower or no expression of CD6 on Treg cells suggests that CD6 is not required for their regulatory function. See Figure 2.

Figure 2: CD6 expression is associated with T cell function. CD6high T cells have increased pathogenic potential with increased proliferative capacity, secretion of proinflammatory cytokines and are associated with allo- and autoreactivity, i.e., autoimmunity. CD6low/- T cells have decreased pathogenic potential with decreased proliferative capacity, increased secretion of anti-inflammatory cytokines and are associated with immune regulation, i.e., tolerance.

Activated leukocyte cell adhesion molecule, or ALCAM, is a ligand of CD6 that is expressed on hematopoietic tissues such as antigen-presenting cells, where it is important for immune synapse formation and optimal co-stimulation. Binding of ALCAM to domain-3 of CD6 leads to the downstream activation of several mitogen activated protein kinase pathways related to T cell activation, proliferation, differentiation and survival. See Figure 3.

Studies have shown that co-stimulation of CD6 by ALCAM enhances T cell activation and resulted in a five-fold increase in IL-2 receptor mediated Teff cell proliferation. Moreover, CD6 co-stimulation promotes a preferentially pro-inflammatory response and increased secretion of Teff cytokines IFN-γ, TNF-α and IL-6. Additionally, CD6 co-stimulation leads to increased expression and activation of validated targets for the treatment of immuno-inflammatory disease, including signal transducer and activator of transcription 3, or STAT3, and retinoid acid-related orphan receptor, or RORγt, the master transcriptional regulator of Th17 cells. This results in increased expression of IL-23R and high levels of IL-17, both markers of pathogenic Th17 cell activity and resistance to steroid treatment, which is a first-line therapy in many immuno-inflammatory diseases. Th17 cells play an especially important role in autoimmunity: Th17 and Treg cells are reciprocally regulated and thus an increase in Th17 cells and associated cytokines leads to suppression of Treg cell activity and loss of tolerance. Studies have shown that co-stimulation through CD6 is superior to CD28 co-stimulation in driving Th17 cell development and thus represents an attractive target for the treatment of immuno-inflammatory diseases, especially those resistant or refractory to steroid treatment.

ALCAM is also expressed on non-hematopoietic tissues such as the vascular endothelium, blood-brain barrier, skin, lung, kidney and gut, where it selectively facilitates the trafficking of T cells expressing CD6. Studies have shown that, in the presence of the pro-inflammatory cytokine IFN-γ, the expression of ALCAM is increased on a number of cell types, suggesting an important dual role for the CD6-ALCAM pathway in autoimmune and inflammatory responses.

Figure 3: CD6 co-stimulation drives pathogenic T cell development and activity. Co-stimulation occurs through the binding of ALCAM to domain-3 of CD6, leading to synergistic activation resulting in a five-fold increase in IL-2 receptor mediated Teff cell proliferation. Co-stimulation through CD6 promotes a pro-inflammatory response including the activation of pSTAT3 and RORγt resulting in increased expression of IL-23R and pathogenic secretion of several Teff pro-inflammatory cytokines. ALCAM expressed on tissues such as the skin, lung, gut, blood-brain-barrier and kidney, selectively facilitates the trafficking of Teff cells expressing CD6. Notably, Th17 cells (that are steroid insensitive) and associated cytokines suppress Treg cell activity leading to a high Th17:Treg ratio characteristic of chronic autoimmunity.

Modulation of Teff Cell Activity with Itolizumab (EQ001)

Itolizumab (EQ001) is a humanized antibody that selectively binds to human CD6 and inhibits the interaction of CD6 with its ligand ALCAM, preventing co-stimulation, and thereby reducing Teff cell activity and trafficking. Preclinical studies of itolizumab (EQ001) have shown that blockade of CD6 leads to a reduction in Teff cell proliferation and downregulation of several important pathways that contribute to Teff cell development such as Th1, Th2 and Th17 cells. Critically, CD6 blockade leads to the downregulation of important cellular pathways that control inflammation, including STAT3 and RORγt. The

downregulation of these pathways is accompanied by decreased secretion of the pro-inflammatory Teff cytokines IFN-γ, TNF-α, IL-6 and IL-17.

Additionally, inhibiting the binding of ALCAM to CD6, either by anti-CD6 monoclonal antibodies or by deletion of the gene expressing CD6, modulates lymphocyte trafficking and results in reduced Teff cell infiltration into inflamed tissues. Based on its broad multi-modal mechanism, we believe itolizumab (EQ001) has the potential to treat multiple immuno-inflammatory diseases, including those that are resistant or refractory to existing therapies. See Figure 4.

Figure 4: Blockade of CD6 by itolizumab (EQ001) inhibits Teff cell activation, proliferation, differentiation and trafficking. Itolizumab (EQ001) selectively binds to domain-1 of CD6 and inhibits the interaction of ALCAM, preventing co-stimulation and thereby reducing Teff cell proliferation. Blockade of CD6 downregulates pSTAT and RORγt resulting in reduced expression of IL-23R and secretion of pro-inflammatory Teff cytokines IFN-γ, TNF-α, IL-6 and IL-17. Additionally, inhibiting the binding of ALCAM to CD6, reduces lymphocyte trafficking into inflamed tissues such as the skin, lung, gut, blood-brain-barrier and kidney. Reduction in the number and activity of Th17 cells inhibiting the Tregcells restores immune balance and promotes immune tolerance.

Experimental Evidence for Targeting CD6 in Immuno-Inflammation

We are leveraging our deep understanding of immunobiology and translational biology program to assess the importance of the CD6-ALCAM pathway in disease pathogenesis and therapeutic utility of CD6 blockade using well-characterized model systems and human tissues. As a leader in the field of CD6 immunobiology, our objective is to inform selection of indications in specific disease areas that are likely to respond to the targeting of the CD6-ALCAM pathway by itolizumab (EQ001).

The role of CD6 in pathogenic Teff cell development has been independently validated in vivo both genetically and pharmacologically in a number of published experimental models of Th1, Th2 and Th17 immuno-inflammation.

In addition to such published, independent studies, we have demonstrated the activity of itolizumab (EQ001) (or anti-CD6D1, its mouse surrogate anti-CD6 antibody) in a number of disease models. Described below are findings from studies in models of several key immuno-inflammatory disease areas, including GVHD, inflammatory bowel disease, SLE, and glomerulonephritis, which illustrate blockade of CD6 inhibiting pathogenic T cell activity. We believe the results of these published studies and our internal translational program support our approach in targeting the CD6-ALCAM pathway in the treatment of immuno-inflammation.

Pre-Clinical Data Indicates Treatment with Itolizumab (EQ001) Attenuates Immune Responses Associated with GVHD

GVHD is a multisystem disease commonly associated with hematopoietic stem cell transplants in which transplanted donor lymphocytes attack host tissues. GVHD is predominantly driven by T cells that express high levels of CD6. Prior clinical studies have implicated cells expressing CD6 in the development of GVHD, suggesting that CD6 is a highly relevant target to this disease.

We tested itolizumab (EQ001) in a humanized xenograft mouse model of GVHD generated by injection of human peripheral blood mononuclear cells into an NSG mouse, which is an immunodeficient mouse. In this well-characterized, gold standard model, disease is aggressively driven by a human T cell response against host tissue. The severity of disease is assessed by

survival, weight loss, prevalence of human cells in peripheral blood and trafficking of human cells into tissues. Itolizumab (EQ001) can be assessed in this model because human T cells are present. In the model, we tested a high dose of itolizumab (EQ001) (300μg), a low dose of itolizumab (EQ001) (60μg), and as comparator controls, two CTLA4-Ig based modulators of CD28 co-stimulation, Nulojix (belatacept) and Orencia (abatacept), which are both FDA-approved drugs that also target activated Teff cells.

Treatment with both high and low dose itolizumab (EQ001) resulted in no deaths by Day 35 compared to the 90% mortality seen in vehicle treated control animals. This is a direct result of inhibition of human T cell proliferation and infiltration into tissues. Animals treated with itolizumab (EQ001) demonstrated a profound reduction in human T cells at Days 10 and 35 with a prevalence of 0.2% (both days), whereas vehicle treated animals exhibited a prevalence of 17.5% human T cells by Day 10. The ability of itolizumab (EQ001) to prevent T cell establishment compared highly favorably to both Nulojix and Orencia.

Itolizumab (EQ001) was similarly able to control ongoing GVHD disease that was initiated before the start of treatment with itolizumab (EQ001). Treatment with itolizumab (EQ001) starting 5 days after disease initiation resulted in an ~50% reduction in mortality and significant decrease in weight loss compared to vehicle control animals. These results were matched by decreases in peripheral T cell prevalence compared to vehicle control animals demonstrating the potential for the use of itolizumab (EQ001) as a prophylactic and therapeutic approach to managing GVHD.

Treatment with Anti-CD6 Antibody Inhibits Immune Responses Associated with Inflammatory Bowel Disease

Inflammatory bowel disease, or IBD, such as Crohn’s disease and ulcerative colitis, is characterized by chronic inflammation resulting from persistent activation and infiltration of immune cells in the gut. Activated Teff cells, such as Th1 and Th17, which express CD6, are associated with IBD and its severity. Data from human genetic studies have demonstrated an association between CD6 and the development and severity of IBD. Translational data demonstrates that ALCAM expression is increased in intestinal mucosa of IBD patients and correlates with an increased infiltration of CD6+ Th1/Th17 T cells and disease severity. Additionally, increased IFN-γ and IL-17A expression in IBD patients is associated with CD6+ Teff cells. Inhibition of Teff cells, such as Th1 and Th17 cells, have been shown to reduce IBD disease severity and progression, confirming the relevance of the CD6-ALCAM pathway in this disease.

The 2,4,6-trinitrobenzenesulfonic acid, or TNBS, model is a standard model of IBD that is driven by Th1 and Th17 cell responses. Exposure to TNBS leads to inflammation, diarrhea, tissue destruction and shortening of the colon. In this model, we tested blockade of CD6 using anti-CD6D1, which binds to the same CD6 domain-1 in mice that itolizumab (EQ001) binds on human CD6. As comparator controls, separate groups of mice were treated with either anti-IL-12p40 (a therapeutic mechanism of action similar to Stelara, an FDA-approved therapy for Crohn’s disease), dexamethasone or vehicle. Blockade of CD6 inhibits the TNBS-induced immune response as exhibited by decreases in serum and tissue pro-inflammatory cytokines. This is accompanied by statistically significant decreases in inflammation-mediated colon shrinkage, histological measures of necrosis, edema and mucosal inflammation, and diarrhea/loose stool. The results of anti-CD6D1 treatment were comparable to high dose anti-IL-12p40 treatment, another inhibitor of the Th1 and Th17 cell pathways. Results of this model are relevant not only to IBD but also other immuno-inflammatory gut conditions, including GVHD.

Treatment with Anti-CD6 Antibody Inhibits Renal Inflammation

Recent evidence has demonstrated that Teff cells specifically play a crucial role in the pathogenesis of both SLE and lupus nephritis by mediating tissue damage and the production of autoantibodies via promotion of B cell maturation and activity. Multiple Teff cells, Th1, Th2, Th17 as well as CD8 T cells, have all been implicated in the immune pathogenesis of both SLE and lupus nephritis. However, Th17 cells are emerging as key targets. High levels of IL‐17 predict poor histopathological outcome after immunosuppressive therapy in patients with lupus nephritis. Elevated levels of Th17 cells are accompanied by a decrease in Treg cells, suggesting that loss of this functional immune balance may be involved in the pathogenesis of renal damage in SLE patients.

To test the effect of CD6 blockade in an extensively tested model of SLE and lupus nephritis, we utilized the MRL/MpJ-Faslpr/2J mouse strain. This strain develops spontaneous systemic autoimmunity with many similarities to human SLE and lupus nephritis disease and is routinely used in SLE/lupus nephritis research. Analogous to SLE patients, mice develop systemic autoimmunity, hyperactive T and B cells, autoantibodies against nuclear antigens, glomerulonephritis, and additional SLE manifestations including arthritis, cerebritis, skin rash, and vasculitis. In this model, we tested anti-CD6D1 antibody, isotype control, vehicle or cyclophosphamide (similar mechanism as Cytoxan).

Blockade of CD6 using anti-mCD6D1 reduced mortality due to systemic autoimmunity. Both proteinuria and the ratio of urine albumin and creatinine at termination (more accurate measure of kidney function) were significantly reduced, indicating better kidney function compared to controls. This was matched by decreased numbers of infiltrating T cells in the kidney, including effector/memory and activated CD4 and CD8 T cells, which are thought to play a pathogenic role in this model as well as human

lupus nephritis disease. Tissue damage as measured by renal pathology and skin lesions were significantly decreased similarly to cyclophosphamide, which is one of the few effective, albeit relatively toxic, treatments for lupus nephritis.

To further examine the role of CD6 blockade specifically on renal inflammation associated lupus nephritis, we utilized a well-characterized model of acute glomerulonephritis that is commonly used to study lupus nephritis. The nephrotoxic serum nephritis, or NTN, model exhibits glomerulonephritis that is mechanistically and histologically similar to that observed with lupus nephritis and, consequently, the NTN model is commonly used to test pharmacologic agents for this specific complication of SLE. Similar to the MRL/MpJ-Faslpr/2J model of SLE (described above), we tested anti-CD6D1 antibody, isotype control, vehicle or cyclophosphamide (similar mechanism as Cytoxan).

Anti-mCD6D1 treated mice maintained significantly lower proteinuria compared to isotype and vehicle control mice. At termination, the albumin creatinine ratios were significantly lower in anti-mCD6D1 treated mice. Furthermore, blood urea nitrogen, a second measure of kidney function in serum, was decreased, suggesting that CD6 blockade protected kidney function in this model. The improvement in kidney function was associated with a decrease in immune cell infiltration, with fewer infiltrating total lymphocytes (CD45+), CD11b+ myeloid cells, inflammatory macrophages, neutrophils, and T cells in the kidney. T cells play an important role in the pathogenesis of nephritis and kidney damage. Importantly, the prevalence of activated CD4 T cells (CD25+ CD69+) was also diminished. The reduction in infiltrating immune cells was accompanied by a decrease in inflammatory cytokines in the kidney. Decreases in both inflammatory cytokines and infiltrating immune cells resulted in improvements in renal pathology.

Itolizumab: Clinically Validated in the Treatment of Immuno-Inflammatory Diseases

Itolizumab has shown activity in clinical trials in patients with rheumatoid arthritis, psoriasis and COVID-19. Biocon has completed four clinical studies of itolizumab in India for the treatment of rheumatoid arthritis, chronic plaque psoriasis, and cytokine release syndrome, or CRS, in COVID-19 patients with moderate to severe acute respiratory distress syndrome, or ARDS, evaluating dose levels ranging from 0.2 mg/kg to 1.6 mg/kg. An overview of these clinical studies is presented in Table 1.

Table 1: Overview of the Biocon clinical development program of itolizumab

The Phase 3 TREAT-PLAQ trial was a randomized, double-blind, placebo controlled, multi-arm, multi-dose, one-way crossover design studying 223 psoriasis patients. Results from this trial demonstrated that itolizumab had a favorable safety and tolerability profile and durable efficacy as measured by psoriasis area and severity index, or PASI. The primary end point was the proportion of patients with at least 75% improvement in PASI score, or PASI 75, at Week 12.

In Arm A patients received itolizumab at 0.4 mg/kg weekly for the first four weeks, then 1.6 mg/kg every two weeks until Week 12; in Arm B patients received at 1.6 mg/kg every two weeks until Week 12. At Week 12 only 2.3% of patients receiving placebo achieved PASI 75 compared to 27.0% and 36.4% of patients achieving PASI 75 by Week 12 in Arms A (p value = 0.0172) and B (p value = 0.0043), respectively. At Week 12, patients in the placebo arm crossed over to treatment with itolizumab. Following Week 28, patients that responded to itolizumab (those that reached PASI 75) were re-randomized to one of two groups, either cessation of drug (n =40) or maintenance therapy (n = 39, with 1.6 mg/kg of drug given every 3 months). Prior itolizumab treatment produced a durable effect in patients that were no longer given drug, with 53% of patients maintaining PASI 75 and 75% at PASI 50. 67% of patients that continued itolizumab treatment had maintained PASI 75 scores, while 85% maintained PASI 50. Histologically, skin biopsy data show that treatment with itolizumab statistically significantly reduces the trafficking of T cells into the dermis and this is consistent with observed reduced severity of disease and therapeutic mechanism. See Figure 5.

Figure 5: Itolizumab, brand name ALZUMAb, an approved treatment for psoriasis in India. (A) The proportion of patients who achieved a PASI 75 response at each visit until Week 28. (B) Treatment with ALZUMAb statistically significantly reduces the trafficking of T cells into the dermis. Compared to Visit 1, at Visit 16 there were statistically significantly fewer T cells in the dermis, as shown by CD3 labeling, a pan T cell marker. (C) Histogram shows the mean T cell count in the dermis was statistically significantly reduced in Week 12 and Week 28, compared to Week 0, which was consistent with the observed reduced severity of disease. ****p<0.0001.

Psoriasis is a chronic immuno-inflammatory disease characterized by inflammation and aberrant hyperproliferation of keratinocytes. The pathogenesis of psoriasis is complex and numerous components of the immune system play a role, including Th17 cells and associated cytokines, most notably IL-17. The underlying pathophysiology of different immuno-inflammatory diseases can vary substantially, and therefore drugs that operate by different mechanisms can demonstrate diverging levels of efficacy in each condition. For example, the PASI 75 scores achieved at three months by subjects treated with itolizumab (36%) in its pivotal trial in psoriasis were in line with Enbrel (46-47%), an effective psoriasis drug, but they were less than the newly approved anti-IL-17 agents such as Cosentyx (66-82%). We believe the explanation for this result is that while Th17 cells play a role in psoriasis, there are also non-T cell mediators that contribute to disease pathogenesis, suggesting that psoriasis may not be an ideal indication for this therapeutic approach. Based on published clinical trial data from multiple studies that were not conducted on a head-to-head basis, it appears that itolizumab has demonstrated superior PASI 75 scores in psoriasis compared to modulation of CD28 co-stimulation using Orencia (16.4%), which is approved for the treatment of psoriatic and rheumatoid arthritis. Also, a recent meta-analysis comparing efficacy across trials indicated that Orencia demonstrated superior efficacy in ACR 50 scores, a common clinical test for determining improvement in a person’s rheumatoid arthritis, than Cosentyx in certain populations of psoriatic arthritis patients. These observations illustrate the importance of matching disease pathology and therapeutic mechanism in order to optimize therapeutic benefit.

Itolizumab was well tolerated by the patients in the Phase 3 TREAT-PLAQ trial, with infusion reactions and related events, which are expected for an antibody infusion, as the main adverse events, or AEs, attributed to itolizumab. The incidence of infusion reactions dropped sharply after the first few infusions. Itolizumab did not appear to increase the rate of infections compared to placebo, and the incidence of severe adverse events, or SAEs, was low (a total of five SAEs were reported). SAEs included exfoliative dermatitis (widespread redness and peeling of the skin), erythrodermic (severe) psoriasis, infusion-related

reaction, adjustment disorder with anxiety, and bacterial arthritis. No SAEs led to discontinuation or reduction of drug dosage. See Table 2 for a summary of AEs seen during the Phase 3 trial.

Table 2. Adverse events that occurred in >5% of subjects in either itolizumab treatment arm, placebo arm, or overall in the trial.

Itolizumab Placebo

Weeks 1-12 n (%) n (%)

Infusion Reaction (acute) 33 (18.3%) 1 (2.3%)

Pruritus (itching) 5 (2.8%) 3 (7.0%)

Itolizumab

Infusion Reaction (acute) 38 (17.0%)

Pyrexia (fever) 19 (8.5%)

An examination of lymphocyte counts in the study noted a mild decrease in the mean absolute lymphocyte count, or ALC, in the two itolizumab treatment arms at the initiation of treatment during the placebo controlled portion of the study (weeks 1-12). The decrease that was observed tended to occur after the first dose. See Figure 6. These observed changes were not associated with an increase in secondary infection.

Figure 6: Lymphocyte counts in the peripheral blood of psoriasis patients during treatment with itolizumab. Graphs depict mean ALC (+/- standard deviation) of each treatment group during the first 12 weeks following initiation of treatment. The treatment regimen of each group is specified beneath the respective graph. Groups A and B, which received itolizumab, exhibited a modest decrease in ALC after the first dose but not subsequent doses.

On the basis of the Phase 3 TREAT-PLAQ trial, itolizumab was approved in India in 2012 for the treatment of moderate to severe plaque psoriasis and is marketed by Biocon under the brand name ALZUMAb. More recently in July 2020, based on the results of a Phase 2 study conducted by Biocon, the Drugs Controller General of India, or DCGI, granted restricted emergency use approval of itolizumab in India for the treatment of CRS in COVID-19 patients with moderate to severe ARDS.

In addition to the aforementioned clinical trials conducted by Biocon in India, itolizumab has also been studied in clinical trials in Cuba in patients with rheumatoid arthritis, psoriasis, Type 1 diabetes, and COVID-19. Centro de Immunologia Molecular has been granted regulatory approval in Cuba for itolizumab to be used in patients with rheumatoid arthritis and psoriasis as well as

emergency use approval in patients with COVID-19. India and Cuba are the only jurisdictions where itolizumab is currently approved or marketed.

Post-market safety surveillance of ALZUMAb has collected non-serious reports, primarily involving the dermatologic system organ class that have included rash, acne, urticaria, increased pruritus (itching) and increased psoriasis. Serious reports have included infusion reaction, type 1 hypersensitivity, diarrhea and urticaria (hives). Through the date of this filing, there has been no change in the assessed benefit-risk profile of itolizumab.

Itolizumab (EQ001) Product Development

ALZUMAb is produced in an NS0 cell line and is currently available only in an intravenous, or IV, formulation. Itolizumab (EQ001) contains the identical monoclonal antibody sequence produced in a Chinese hamster ovary, or CHO, cell line and may be administered by IV or via subcutaneous injection, or SC. CHO cell lines are the industry-standard antibody therapeutic production system. In September 2020, the DCGI granted approval of itolizumab produced in a CHO cell line, marketed in India under the brand name ALZUMAb-L, or ALZUMAb Lyophilized, for the treatment of plaque psoriasis, as well as emergency use authorization of ALZUMAb-L for the treatment of CRS in COVID-19 patients with moderate to severe ARDS. Moving forward, Biocon is planning on transitioning their marketing and commercialization efforts from ALZUMAb to ALZUMAb-L. Itolizumab (EQ001) and ALZUMAb-L are different drug product names for the same formulation.

Itolizumab (EQ001) is manufactured by Biocon at commercial scale in an FDA regulated manufacturing facility in India. Biocon has generated data demonstrating the analytical biocomparability of itolizumab (EQ001)/ALZUMAb-L and ALZUMAb using industry-standard physicochemical and biofunctional characterization methods.

Itolizumab (EQ001) Phase 1 Clinical Trial in Healthy Subjects

Biocon conducted a Phase 1 clinical trial of itolizumab (EQ001) in 37 healthy subjects that was completed in Australia in the fourth quarter of 2017. The study was conducted in two stages, with the first stage designed to assess the safety, tolerability, PK, PD, and immunogenicity of ascending single doses of itolizumab (EQ001) SC, and the second stage designed to compare the PK of itolizumab (EQ001) IV to ALZUMAb and determine the absolute bioavailability of itolizumab (EQ001) SC.

Stage 1 was a randomized, double-blind, placebo controlled, ascending single dose evaluation of itolizumab (EQ001) SC. Thirty-two subjects completed Stage 1: 24 subjects (six per cohort) were administered itolizumab (EQ001) SC in single doses of 0.8 mg/kg, 1.6mg/kg, 2.4 mg/kg, or 3.2 mg/kg, and eight subjects were administered placebo. Serum concentrations of itolizumab (EQ001) were measurable at Day 57, and the mean half-life ranged from 532 hours to 616 hours across dose cohorts. The PK for exposure following itolizumab (EQ001) SC administration were dose proportional, with the peak serum

concentration generally achieved within 168 hours after dosing for most subjects. Saturation of CD6 receptors by itolizumab (EQ001) was seen at all dose levels. During Stage 1, a transient decrease in T cells expressing CD4, and to a lesser extent CD8, here observed, as well as a two- to three-times increase in the proportion of Treg cells.

The administration of single doses of itolizumab (EQ001) SC in Stage 1 was found to be well tolerated, with a low incidence (2/24) of low titer anti-drug antibodies. There were no SAEs, dose limiting toxicities, or DLTs, or study drug discontinuations reported. No clinically meaningful changes in physical examinations or vital signs was observed, whereas transient decreases in lymphocyte counts without clinical consequences were seen in 11/24 (46%) subjects. There were five subjects who experienced grade 3 treatment emergent adverse events, or TEAEs, of lymphocyte count decreases (two subjects each in the 1.6 mg/kg and 3.2 mg/kg dose cohorts and one subject in the 2.4 mg/kg dose cohort). Mild to moderate injection site reactions were observed in 15/24 (63%) of the patients. The other most common TEAEs with itolizumab (EQ001) SC were headache in 7/24 (29%), urticaria (hives) in 4/24 (17%), and pyrexia (fever) in 3/24 (13%) of the subjects. In general, observed AEs were transient, mild to moderate in severity, were not dose dependent, and most were consistent with those observed in prior clinical experience with ALZUMAb.

Stage 2 was a comparability study of the PK of itolizumab (EQ001) IV, and ALZUMAb, and the absolute bioavailability of itolizumab (EQ001) SC. The trial featured a randomized, single-blind, parallel group design for the comparability component, and an open-label design for the absolute bioavailability component. Seven subjects enrolled in the study and received single doses of 0.4 mg/kg (one subject each itolizumab (EQ001) SC, itolizumab (EQ001) IV, ALZUMAb, and placebo) and 0.8 mg/kg (one subject each itolizumab (EQ001) SC, itolizumab (EQ001) IV, and ALZUMAb); five subjects completed the study, and one subject each that received itolizumab (EQ001) IV and ALZUMAb in the 0.8 mg/kg group discontinued dosing early due to AEs (one subject experienced persistent cough and dizziness; one subject experienced nausea). The infusion of single doses of both itolizumab (EQ001) IV and ALZUMAb was associated with the development of transient, reversible, grade 2 to 3 decreases in lymphocyte counts in the healthy subjects. As a result, Stage 2 of the trial was terminated early following the enrollment of seven subjects, yielding limited overall safety data and insufficient PK data for evaluation. There were no SAEs reported. No other clinically meaningful abnormalities or trends were noted in clinical chemistry, hematology, and urinalysis parameters. Similar to Stage 1, a transient decrease in T cells expressing CD4, and to a lesser extent CD8, a two- to three-times increase in the proportion of Treg cells, and saturation of CD6 receptors were observed across itolizumab (EQ001) and ALZUMAb cohorts.

While similar decreases in lymphocyte counts have not been reported with ALZUMAb previously, the timing of hematologic assessments in prior clinical studies may not have occurred at sufficiently early time-points to detect this transient response. Additionally, ALZUMAb had previously only been dosed in patients with active autoimmune disease and not healthy subjects. Importantly, the magnitude and kinetics of lymphocyte decreases were similar for itolizumab (EQ001) IV and ALZUMAb in Stage 2, while administration of itolizumab (EQ001) SC demonstrated milder decreases in lymphocyte counts, which would be expected based on the different PK properties of SC versus IV formulations. Furthermore, ALZUMAb had been well tolerated with demonstrated safety and clinical activity in three clinical studies in India in patients with rheumatoid arthritis and chronic plaque psoriasis, with a total of 333 patients exposed to ALZUMAb to date in clinical trials at doses ranging from 0.2 mg/kg to 1.6 mg/kg over a period of four years. Therefore, we believe the transient decreases in lymphocyte counts seen in the Phase 1 clinical trial in healthy subjects represents a PD property of both itolizumab (EQ001) and ALZUMAb that will be monitored going forward, and the results of the Phase 1 clinical trial support the advancement of itolizumab (EQ001) SC and IV into further clinical development in patients with immuno-inflammatory disease.

Our Initial Clinical Indications

We are currently developing itolizumab (EQ001) for the treatment of aGVHD, lupus/lupus nephritis, and uncontrolled asthma. We have three open INDs with the FDA for the use of itolizumab (EQ001) in the treatment of aGVHD, lupus/lupus nephritis, and COVID-19. We initiated the EQUATE study for the treatment of aGVHD in March 2019, the EQUALISE study in patients with SLE and lupus nephritis in September 2019, and the EQUIP study in patients with uncontrolled asthma in June 2019. In November 2020, we announced that due to the rapidly evolving COVID-19 vaccine and treatment landscape, we elected not to initiate the EQUINOX Phase 3 clinical trial to evaluate itolizumab (EQ001) in hospitalized COVID-19 patients. We continue to evaluate additional indications for future development.

Graft-Versus-Host Disease Market Overview

GVHD is a multisystem disorder that is a common complication of allogeneic hematopoietic stem cell transplants, or allo-HSCT, caused by the transplanted immune system, more specifically Teff cells, recognizing and attacking the recipient’s body. GVHD is the leading cause of non-relapse mortality in patients receiving an allo-HSCT. The risk of GVHD limits the number and type of patients receiving HSCT and we believe that a therapy that can attenuate GVHD risk could significantly expand the patient population eligible for allo-HSCT.

According to the Center for International Blood & Marrow Transplant Research and other published reports, there were approximately 10,000 allo-HSCT’s expected to have been performed in the United States in 2020 and the number of procedures has grown at an average annual growth rate of approximately 4% since 2007. Approximately 30-70% of HSCT recipients develop aGVHD. Five year survival for patients that respond to first-line treatment with corticosteroids has been reported to be as low as 53% while in steroid refractory aGVHD, the overall 5 year survival has been reported to be as low as 5%.We estimate that the incidence of aGVHD in 2020 was approximately 5,800 patients and the total prevalence of GVHD was approximately 16,000 patients. We estimate that by the year 2030, the annual incidence of aGVHD could be up to 7,000 patients and the total prevalence of GVHD could be up to 20,000 patients.

Rationale for Itolizumab (EQ001) for the Treatment of GVHD

Third-party Clinical Experience with Targeting CD6 in GVHD

Clinical evidence to support the rationale of treating GVHD with itolizumab (EQ001) comes from previously-reported third-party clinical experience with CD6 expressing T cell depletion in patients receiving bone marrow transplants for hematologic malignancies where it has been demonstrated that using an anti-CD6 monoclonal antibody to deplete T cells from donor bone marrow or lymphocyte infusions has the potential to prevent aGVHD. In a study evaluating the clinical effects of selective in vitro CD6 expressing T cell depletion of donor allogeneic bone marrow using a monoclonal antibody to CD6 and rabbit complement, Soiffer et al. reported that in vitro T cell depletion with an anti-CD6 monoclonal antibody effectively reduced the incidence of both acute and chronic GVHD after allogeneic bone marrow transplant without compromising engraftment.

Subsequent studies further confirmed the feasibility of CD6 expressing T cell depletion in patients undergoing allogeneic bone marrow transplantation from human leukocyte antigen identical related and unrelated donors. In these studies, CD6 expressing depletion of the donor stem cell product was the sole method for GVHD prophylaxis. The low incidence of aGVHD reported in patients receiving allogeneic bone marrow treated with anti-CD6 monoclonal antibodies was attributed to the early appearance of a population of peripheral CD3 expressing T lymphocytes with a CD6-negative phenotype, which showed diminished reactivity to allogeneic stimulation in mixed lymphocyte reaction assays. Although the above described approach is one of ex vivo CD6 expressing T cell depletion, we believe that it further supports the role of CD6 expressing T cells in aGVHD pathogenesis and validates CD6 as a potentially important target for modulation for the treatment of GVHD.

Itolizumab (EQ001) Selectively Targets GVHD Pathogenesis

There is a high unmet medical need for a safe, effective and targeted treatment of GVHD. We believe itolizumab (EQ001) has the potential to be a best-in-class treatment for aGVHD based on its ability to target the underlying biology of GVHD in a highly selective way. Further, this approach is also promising as we consider future development in the prevention of GVHD and the treatment of cGVHD.

It is well established that Th17 cells, driven by pSTAT3 signaling, play a role in the pathogenesis of aGVHD, and studies have shown that pSTAT3 was significantly increased in T cells of GVHD patients. In aGVHD, additional studies have reported that Th17 cells and IL-17 serum levels were significantly elevated in patients at onset compared with HSCT patients without aGVHD. As the disease progresses, Th17 cells traffic from the peripheral blood into GVHD target tissues where they trigger damage. Furthermore, the expansion of Th17 cells in the early phase of aGVHD plays a role in the transition to cGVHD. In GVHD patients, studies have shown a high Th17:Treg ratio suggesting a loss of tolerance. Notably the increased number of circulating Th17 cells was accompanied by a decrease in Treg cells, suggesting a loss of Teff cell regulation. Such regulatory mechanisms are crucial for eliminating alloreactive T cell activity, thus preventing sustained autoimmune responses and tissue destruction in GVHD.

We believe itolizumab (EQ001) can selectively target elements of the underlying pathogenesis of aGVHD by: a) inhibiting Teff cells proliferation; b) downregulating the STAT3 pathway associated with development of pathogenic Th17 cells driving GVHD pathogenesis; c) inhibiting trafficking of Teff cells into GVHD target tissues preventing further inflammation and organ damage; and d) reducing the Th17:Treg ratio associated with the development of GVHD and thereby promoting tolerance.

Development Plan in GVHD

In the first quarter of 2019, we initiated the EQUATE study, a Phase 1b/2 clinical trial that is expected to enroll approximately 84 patients in order to evaluate the safety, tolerability, PK and clinical activity of itolizumab (EQ001) in newly diagnosed aGVHD patients. All patients are administered itolizumab (EQ001) as a first-line therapy concomitant with steroid use upon first presentation of aGVHD.

The Phase 1b part of the trial is an open-label study that is enrolling up to 24 adult patients with Grade III-IV aGVHD. Following completion of the initial 3-by-3 cohort, a protocol amendment expanded enrollment to patients withGrade II aGVHD and Ann Arbor scores of 2 or 3, which allowed the inclusion of subjects with Grade II aGVHD with a higher risk of mortality and poor outcomes. We also expanded the allowable steroid dosing window prior to initiation of itolizumab (EQ001) fromwithin 72 hours to within 7 days. The dosing construct consists of successive cohorts of three to six patients treated with multiple ascending doses of itolizumab (EQ001) ranging from 0.4 mg/kg up to as high as potentially 2.4 mg/kg. The primary objective of this part of the trial is to assess the safety and tolerability of itolizumab (EQ001) and to determine the optimal dose. Secondary objectives include assessing pharmacological activity of itolizumab (EQ001). Once an optimal dose is determined, and if the observed safety, tolerability, and pharmacological activity of itolizumab (EQ001) warrant, we will pursue advancing the development of itolizumab (EQ001) into later stage clinical development. An overview of the design of the Phase 1b part of the EQUATE study is presented in Figure 7.

Figure 7: Overview of the EQUATE study design

In November 2020, we reported positive interim results from the ongoing Phase 1b portion of the clinical trial. The overall response rate across the first three dose cohorts was 80%, and seven of eight patients responding achieved a CR and one patient achieved a VGPR by Day 29. Responses observed have been rapid and durable, with a majority of patients achieving a CR within the first 15 days and maintaining responses through Day 85. To date, adverse events reported with the clinical trial have been consistent with the safety profile previously reported for itolizumab and those common in the aGVHD patient population. In review of the totality of safety, efficacy and pharmacodynamic data, the independent data monitoring committee has recommended to expand cohorts 2 and 3 (0.8 and 1.6 mg/kg dose, respectively) and proceed with enrollment. We plan on reporting topline data across all completed cohorts from the Phase 1b portion of the clinical trial during the first half of 2021.

The current design of the Phase 2 part of the EQUATE study is a randomized, double-blind, placebo-controlled study of up to 60 additional patients with Grade II-IV aGVHD, randomized in a 2:1 ratio with 40 patients on active treatment of itolizumab (EQ001) and 20 patients on placebo. The primary objective of the Phase 2 part of the trial is to assess the clinical activity of itolizumab (EQ001) and secondary objectives include further characterizing safety and tolerability. The sample size, design, and potential registrational sufficiency of this next trial may be subject to change depending on what is learned from the remaining Phase 1b clinical trial and based on additional discussions with regulatory agencies.

Itolizumab (EQ001) has been granted Fast Track designation for the treatment of aGVHD and Orphan Drug designations for both the prevention and treatment of aGVHD by the FDA.

Lupus Market Overview

SLE is a heterogeneous, multisystem, autoimmune disease characterized by the presence of multiple autoantibodies and deposition of immune complexes in various tissues. Based on publicly available sources, we estimate that SLE impacts between 250,000 and 322,000 people in the United States.

Lupus nephritis is the most frequent, serious manifestation of SLE occurring in up to 30-60% of SLE patients. It is estimated there are over 100,000 patients living with lupus nephritis in the United States; despite the significant number of people affected, there are currently only two FDA-approved drugs for this condition.

Current Therapies for Lupus Nephritis and their Limitations

Current standard-of-care therapy for the most aggressive type of lupus nephritis, called proliferative lupus nephritis or Class III or IV lupus nephritis, consists of broad-based immunosuppressive drugs, such as prednisolone, mycophenolate mofetil, or MMF, and cyclophosphamide, which come with significant toxicities. Lupus nephritis is predominantly a disease of young women, and these drugs carry with them a number of toxicities that are particularly problematic for this population including weight gain, edema, moon face, infection risk, diabetes, and infertility.

While these therapies have improved 5-year survival for lupus nephritis patients, as many as 50-75% of patients are refractory to treatment and those that respond will likely relapse within 5 years. In those patients who are refractory or relapse after initial treatment with induction therapy, there is no consensus or strong evidence to support what treatments may be effective. The prognosis for patients with proliferative lupus nephritis remains poor and up to 40% of patients will progress to end-stage renal disease, or ESRD, requiring dialysis or kidney transplant. Overall, the available options are quite limited for lupus nephritis patients, particularly those that are refractory or relapse to standard induction therapy. Recently, two new therapies have been approved for lupus nephritis. GlaxoSmithKline’s Benlysta, which was approved for lupus nephritis in December 2020, targets BLyS and inhibits the stimulation of autoreactive B-cells. Aurinia Pharmaceuticals, Inc.’s LupkynisTM, which was approved in January 2021, is a calcineurin inhibitor that blocks IL-2 expression and inhibits autoreactive T-cells. Despite those recent approvals, there remains a significant need for new therapies that are more effective, can maintain a durable response, and carry a better safety profile. Given the high unmet medical need, we will focus our approach initially on lupus nephritis patients.

Rationale for Itolizumab (EQ001) for the Treatment of Lupus Nephritis

Itolizumab (EQ001) Selectively Targets Teff Cells That Play a Central Role in the Pathogenesis of Lupus Nephritis

Lupus nephritis is a devastating disease that affects roughly half of the patients with SLE; patients with lupus nephritis have a substantially increased risk for ESRD and death. Despite the presence of autoantibody formation and inflammatory cytokines in SLE and lupus nephritis, B-cell-directed and single cytokine targeted therapies have largely failed in clinical development. More recent evidence has demonstrated that Teff cells play a central role in the pathogenesis of both SLE and lupus nephritis in that they mediate tissue damage and also enhance the production of autoantibodies by promoting B cell differentiation, proliferation and maturation. Multiple Teff cells/cytokines, such Th1/IFN-γ, Th2/IL-4 and Th17/IL-17, have all been implicated in the immunopathogenesis of both SLE and lupus nephritis, highlighting the complex nature of the disease. However, Th17 cells are emerging as key targets as it has been demonstrated that high levels of IL-17 predict poor histopathological outcome after immunosuppressive therapy in patients with lupus nephritis. Elevated levels of Th17 cells are accompanied by a decrease of Treg cells, suggesting that loss of this functional immune balance may be involved in the pathogenesis of renal damage in SLE patients. Therefore, targeting Teff cells, or molecules that modulate Teff cell activity, while preserving Treg activity could prove to be a successful therapeutic strategy for patients with SLE and lupus nephritis.

We believe the unique mechanism of action of itolizumab (EQ001) can selectively target elements of the underlying pathogenesis of lupus nephritis by: a) inhibiting multiple pathogenic Teffcells and cytokine secretion; b) inhibiting trafficking of Teff cells into kidney tissues; and c) reducing the Th17:Treg ratio associated with lupus nephritis.

Translational Research Supporting Itolizumab (EQ001) in Lupus Nephritis

Given the central role that Teff cells play in the immunopathogenesis of SLE and lupus nephritis, we believe itolizumab (EQ001), which has been shown to block the CD6-ALCAM pathway and inhibit both the activity as well as trafficking of Teff cells into tissues, represents a promising therapeutic approach in this disease. To support this hypothesis, data from preclinical experiments in animal models of SLE and glomerulonephritis demonstrated that treatment with an anti-CD6 mAb lowers pro-inflammatory cytokines and improves disease activity, proteinuria, and renal function. In addition, validation for targeting the CD6-ALCAM pathway with itolizumab (EQ001) in lupus nephritis is bolstered by translational research findings in human tissue. An analysis of kidney biopsy specimens from patients with lupus nephritis demonstrates increased expression of CD6 on infiltrating T cells as well as high levels of expression of ALCAM on antigen presenting cells (e.g. macrophages) as well as renal resident cells across multiple compartments of the kidney.

Research conducted at the University of Houston, supported by a Target Identification in Lupus Grant from the Lupus Research Alliance, has shown that patients with active lupus nephritis have substantial elevations in urinary ALCAM and that ALCAM levels in the urine track with disease activity. See Figure 8. These data further highlight the potentially important pathogenic role of the CD6-ALCAM pathway in patients with lupus nephritis.

In addition to target validation, this research on urinary biomarkers may also have important implications in how we develop itolizumab (EQ001) in lupus nephritis. The ease and scalability of using urine as a non-invasive liquid biopsy of the kidney provides us an opportunity to potentially change the way we identify and treat patients with lupus nephritis. A biomarker-guided treatment approach using real-time urinary testing of the CD6-ALCAM pathway to determine the right patients for therapy, guide treatment, and monitor the disease has the potential to increase the chance of advancing a targeted therapeutic to drug approval and significantly improve patient care. Specifically, elevations in urinary biomarkers, such as soluble ALCAM or CD6, could be used to identify patients most likely to respond to (itolizumab) EQ001. An evaluation of these biomarkers will be an important part of the development program and forms the initial basis for exploring a personalized medicine biomarker strategy with itolizumab (EQ001).

Development Plan in Lupus Nephritis

Itolizumab (EQ001) has been granted Fast Track designation by the FDA for the treatment of lupus nephritis. In September 2019, we initiated a Phase 1b dose-escalating study of itolizumab (EQ001) administered subcutaneously in SLE and lupus nephritis patients. The study, called the EQUALISE study, is comprised of two parts. The first part is focused on evaluating the safety and tolerability of itolizumab (EQ001) in patients with SLE followed by a second part in lupus nephritis patients where, in addition to safety and tolerability, potential clinical activity of itolizumab (EQ001) will be assessed based on proteinuria levels and SLEDAI-2K scores. In March 2020, as a result of impacts and risks associated with the global pandemic caused by COVID-19, we decided to pause enrollment of our EQUALISE study, and in July 2020, we announced that patient enrollment in this trial had resumed. The second part of the EQUALISE study is focusing on patients with active proliferative lupus nephritis who have had an inadequate response to existing induction regiments and other therapies. In addition to evaluating the renal response to therapy, we are also capturing improvements in overall SLE disease activity across other organ systems and measuring a number of standard disease activity biomarkers in both patients with SLE without nephritis and patients with lupus nephritis. An overview of the design of the EQUALISE study is presented in Figure 9.

Figure 9: Overview of the EQUALISE study design

Beyond these typical measures, we may also include the co-development and validation of a diagnostic biomarker related to the CD6-ALCAM pathway and other urinary biomarkers as part of the study, with focus on generating initial data to support the strategy of developing a companion diagnostic to identify lupus nephritis patients most likely to respond to itolizumab (EQ001).

Including biomarker development in early stage clinical trials can guide us on how best to use urinary biomarkers in later stages of clinical development and provides a basis for future regulatory interactions for defining a roadmap for the co-development of a companion diagnostic. As such, we believe our approach is differentiated from other programs in development.

Asthma Market Overview

Asthma is a heterogeneous disease characterized by different Teff cell subtypes and other innate immune cells driving both allergic and autoimmune mechanisms, leading to chronic airway inflammation. Classically, asthma has been defined by two distinct immune phenotypes. There is eosinophilic asthma, characterized by high levels of eosinophils and production of immunoglobulin E, or IgE, driven predominantly by high levels of Th2 Teff cells and cytokines such as IL-4, IL-5 and IL-13, or Th2-high. There is also non-eosinophilic asthma, characterized by low to no eosinophils and evidence suggests that other Teff cells and cytokines such as Th17 and IL-17, or non-Th2, play a role here. While biomarkers such as fractional exhaled nitric oxide (FeNO), or blood eosinophil counts may identify allergic/eosinophilic inflammation for a subset of Th2-high asthma patients, there is no effective biomarker for non-Th2 asthma, which is mostly characterized by treating clinicians by the absence of the above markers. Further complicating this issue is that many patients may have the presence of both Th2 and Th 17 effector cells, or Th2-low, contributing to the immunopathogenesis of their asthma. Studies have demonstrated that Th2 and Th17 cells are reciprocally regulated and as a result, if a drug only downregulates Th2-mediated inflammation, then a patient may experience increased inflammation caused by Th17 cells, and vice versa. This may explain why many patients with this disease are refractory to both steroids and the current biologics targeting eosinophils or Th2-mediated pathways. Therefore, a therapy with a broad mechanism targeting multiple Teff cell or cytokines may be required to adequately address this dynamic and heterogeneous disease.

Based on publicly available sources, we estimate that asthma impacts approximately 26 million individuals in the United States. Of these, 5–10%, or approximately 1.3–2.6 million individuals, suffer from severe disease. We estimate that 50% of the severe asthma population, or 0.6–1.3 million individuals, are uncontrolled with standard-of-care therapies such as long-acting beta-agonists and high-dose corticosteroids. We estimate that 50–60% of the uncontrolled severe asthma population fall within the non-eosinophilic Th2-low/non-Th2 subtype. We also estimate that 40-50% of the uncontrolled severe asthma population fall within the eosinophilic (Th2-high) subtype; these patients may initially respond to treatment with steroids and recently approved biologic therapies which target eosinophils, IgE or Th2-pathways.

Current Therapies for Uncontrolled Moderate to Severe or Severe Asthma and Their Limitations

Recently, several biologic therapies that specifically target IgE or Th2-mediated cytokines have been approved by the FDA for the treatment of uncontrolled moderate to severe or severe asthma. While these therapies have been effective for certain patients with Th2-high inflammation they have had a minimal impact in patients with Th2-low/non-Th2 inflammation as characterized by low levels of eosinophils, or lack thereof.

Genentech Inc.’s XOLAIR® (omalizumab), is an anti-IgE approved for the treatment of moderate to severe persistent allergic asthma that is not controlled by inhaled corticosteroids. Other recently approved biologic therapies that are directed against IL-5 or the IL-5 receptor, which together mediate eosinophil development and inflammation of the airways, include NUCALA® (mepolizumab), marketed by GlaxoSmithKline plc, CINQAIR® (reslizumab), marketed by Teva Pharmaceutical Industries Limited and FASENRA® (benralizumab), marketed by AstraZeneca plc.

In addition, Regeneron Pharmaceuticals, Inc. and Sanofi-Aventis U.S. LLC received approval for DUPIXENT® dupilimab, an anti-IL-4 receptor antibody, as an add-on maintenance treatment in patients with moderate to severe asthma aged 12 years and older with an eosinophilic phenotype or with oral corticosteroid dependent asthma.

Rationale for itolizumab (EQ001) for the Treatment of Uncontrolled Asthma

Itolizumab (EQ001) Selectively Targets Both Th2-mediated and Non-Th2-mediated Inflammation in Asthma Pathogenesis

There remains high unmet medical need for safe, effective and targeted treatments for patients with uncontrolled asthma, especially for those with non-eosinophilic asthma for which there are currently no FDA-approved treatments. Given the limited nature of existing biomarkers coupled with the reciprocally regulated nature of the disease, we believe there remains an unmet need for a treatment that can cover the full spectrum of uncontrolled asthma patients including Th2-high and non-Th2 asthma.

While eosinophilic asthma is associated with Th2-mediated inflammation, non-eosinophilic asthma is associated with Th2 and/or Th17-mediated inflammation. Preclinical data demonstrates that modulating the CD6-ALCAM pathway can broadly inhibit the activity and trafficking of both Th2 and Th17 Teff cells reducing levels of pathogenic cytokines such as IL-4, IL-5, IL-13 and IL-17.

We believe the unique mechanism of action of itolizumab (EQ001) can selectively target elements of the underlying pathogenesis of both eosinophilic (Th2-high) and non-eosinophilic (Th2-low and non-Th2) severe asthma by: a) inhibiting both Th2 and Th17 cell proliferation and cytokine secretion; b) inhibiting trafficking of Th2 and Th17 cells into lung tissues; and c) reducing the Th2 or Th17:Treg ratios associated with severe asthma. See Figure 10.

Figure 10: Th17 cells expressing CD6 drive severe refractory asthma. Current approved therapeutic approaches target downstream signaling of Th2-mediated inflammation characterized by high levels of eosinophils and are largely ineffective in patients with Th2-low or non-Th2-mediated inflammation characterized by low levels of eosinophils. We believe the upstream mechanism of itolizumab (EQ001) can uniquely address both the Th2- and Th17-mediated inflammation driving severe asthma pathogenesis.

Translational Research Program Supporting Itolizumab (EQ001) in Uncontrolled Asthma

To further validate the use of itolizumab (EQ001) in uncontrolled asthma, we have an ongoing translational research program assessing the role of the CD6-ALCAM pathway in severe asthma patients. Preliminary findings derived from analysis of gene expression datasets support the presence of increased levels of CD6+, CD4 T cells, and ALCAM expression in the lungs of severe asthma patients. Gene expression in cells collected from the lungs of non-asthma, steroid-sensitive moderate asthma, and steroid-insensitive severe asthma patients, suggest that CD6 is significantly elevated in severe asthma, likely due to increases in CD4 T cells as supported by higher CD4 gene expression. A subset of these CD4 T cells are believed to be Th17 cells as the severe asthma patients also demonstrated significantly higher levels of the Th17 cytokines such as IL-17A and IL-17F. Interestingly, the ligand of CD6, ALCAM, may also be implicated in severe asthma. Analysis of gene expression in lung tissue from a separate set of patients suggests higher expression of the ALCAM within the airway of patients who have died from asthma, establishing the presence of the necessary components of the CD6 pathway in asthmatic lungs.

Development Plan in Uncontrolled Moderate to Severe Asthma

We initiated the EQUIP study for the treatment of uncontrolled moderate to severe asthma in June 2019. In March 2020, as a result of impacts and risks associated with the current global pandemic caused by COVID-19, we decided to pause enrollment of the EQUIP study, and in July 2020, we announced that patient enrollment in this trial had resumed. The study is enrolling uncontrolled moderate to severe asthma patients regardless of baseline eosinophil level. Itolizumab (EQ001) is administered subcutaneously in this study and a number of dose levels are being examined using a sequential dose escalation study design. The study objectives include an assessment of safety, PK/PD markers, and early evaluation of clinical efficacy parameters. Despite our best efforts, enrollment during the pandemic continues to be challenging due to patients’ high-risk status for COVID-19 and a decrease in asthma exacerbations because of stay-at-home and social distancing measures. We have amended the current protocol to assess primarily safety measures and we expect to report topline data from the EQUIP study in the second half of 2021. An overview of the design of the EQUIP study is presented in Figure 11.

Figure 11: Overview of the EQUIP study design

Partnerships

Collaboration and License Agreement with Biocon

In May 2017, we entered into a collaboration and license agreement with Biocon, as amended in September 2018, April 2019, and December 2019, or the Biocon License, pursuant to which Biocon granted us an exclusive license to develop, make, have made, use, sell, have sold, offer for sale, import and otherwise exploit itolizumab and any pharmaceutical composition or preparation containing or comprising itolizumab that uses Biocon technology or Biocon know-how, or collectively, a Biocon Product, in the United States, Canada, Australia and New Zealand, or the Equillium Territory. However, unless we achieve certain regulatory and development milestones within a specific time period, the licensed rights, other than development rights, are limited to the fields of orphan indications and the treatment of conditions related to asthma and lupus. We also have the right to sublicense through multiple tiers to third parties, provided such sublicenses comply with the terms of the Biocon License and

we provide Biocon a copy of each sublicense agreement within 30 days of execution. If we grant a third party a sublicense of our rights to develop and commercialize Biocon Products in Australia or New Zealand, we will be required to pay Biocon a high double-digit percentage of any upfront payment we receive from such sublicensee for such sublicense, as well as a high double-digit percentage of any additional payments we receive from such sublicensee for such sublicense, including but not limited to royalty payments on net sales of Biocon Products by such sublicensee. Under the Biocon License, we granted back to Biocon a license to use our technology and know-how related to itolizumab and Biocon Products in certain countries outside of the Equillium Territory.

In consideration of the rights granted to us by Biocon, we issued to Biocon 2,316,134 shares of common stock. In addition, we are obligated to pay Biocon up to an aggregate of $30 million in regulatory milestone payments upon the achievement of certain regulatory approvals and up to an aggregate of $565 million in sales milestone payments upon the achievement of first commercial sale of product and specified levels of product sales. We are also required to pay royalties on tiers of aggregate annual net sales of Biocon Products by us, our affiliates and our sublicensees in the United States and Canada at percentages from the mid-single digits to sub-teen double digits and on tiers of aggregate annual net sales of Biocon Products by us and our affiliates (but not our sublicensees) in Australia and New Zealand, in each case, subject to adjustments in certain circumstances. Biocon is also required to pay us royalties at comparable percentages for sales of itolizumab outside of the Equillium Territory if the approvals in such geographies included or referenced our data, including data from certain of our clinical trials, subject to adjustments in certain circumstances. Under the Biocon License, net sales are calculated on a country-by-country basis and are subject to adjustments, including whether the Biocon Product is sold in the form of a combination product.

The Biocon License will continue until the expiration of all royalty obligations, unless terminated earlier. We are obligated to pay royalties on a product-by-product and country-by-country basis from the first commercial sale of a Biocon Product in a country until the latest of ten years from the first commercial sale of such Biocon Product in such country, the expiration of regulatory exclusivity for such Biocon Product in such country, and the expiration of the last-to-expire Biocon patent covering such Biocon Product in such country. We may terminate the Biocon License unilaterally, with or without reason, upon 120 days’ prior written notice and either party may terminate the Biocon License in the event of the other party’s material breach of the Biocon License that remains uncured for 90 days after receipt of notice from the non-breaching party. Upon termination by us unilaterally or by Biocon for our material breach, Biocon will retain its license to use our intellectual property related to itolizumab and Biocon Products in certain countries outside the Equillium Territory, and we also will grant Biocon a non-exclusive license, and a right of first negotiation to an exclusive license, to use our intellectual property related to itolizumab and Biocon Products in the Equillium Territory. Further, we are subject to certain diligence obligations related to development, commercialization and funding activities and if we fail to comply with these obligations Biocon may, in certain circumstances, terminate the Biocon License and, in certain other circumstances, such failure may result in the permitted fields of use for licensed Biocon Products being limited to orphan indications and the treatment of asthmatic conditions.

Clinical Supply Agreement with Biocon

In May 2017, in connection with the Biocon License, we entered into a clinical supply agreement, or the Biocon Supply Agreement, with Biocon, pursuant to which Biocon agreed to be our exclusive supplier of itolizumab clinical drug product for up to three concurrent orphan drug clinical indications at no cost until our first U.S. regulatory approval and all other clinical drug product at cost. The Biocon Supply Agreement will remain in effect until the expiration or termination of the Biocon License.

Intellectual Property

Our intellectual property is critical to our business and we strive to protect it, including by obtaining and maintaining patent protection in the United States and internationally for our product candidates, novel biological discoveries, epitopes, new therapeutic approaches and potential indications, and other inventions that are important to our business. For our product candidates, generally we initially pursue patent protection covering compositions of matter, antibody sequence diversity, epitopes, functional activity and methods of use. Throughout the development of our product candidates, we will seek to identify additional means of obtaining patent protection that would potentially enhance commercial success, including through additional methods of use and biomarker and companion diagnostic related claims.

As of March 3, 2021, our patent portfolio related to itolizumab included patents and patent applications exclusively licensed from Biocon in the United States, Australia, Canada, and New Zealand, as well as a pending provisional application and pending international and national stage patent applications filed under the Patent Cooperation Treaty, or PCT, that we own. The terms of the Biocon License are discussed above in “Business—Partnerships—Collaboration and License Agreement with Biocon and Clinical Supply Agreement with Biocon.”

Specifically, as of March 3, 2021, our licensed rights from Biocon related to itolizumab included six issued patents in the United States, two issued patents in Canada, and pending patent applications in the United States, Australia, Canada, and New

Zealand. Five of our issued U.S. patents are expected to expire in 2028 (absent any patent term extension for regulatory delays) and include claims directed to the antibody sequence of itolizumab and methods of formulating and using itolizumab alone or in combination with other agents to treat various T cell mediated diseases and disorders including GVHD and transplant rejection. One of our issued U.S. patents is expected to expire in 2034 (absent any patent term extension for regulatory delays), and includes claims directed to treating multiple sclerosis with itolizumab in certain patients exhibiting increased numbers of Th17 cells, wherein the method includes monitoring IL-23R expression. Our issued Canadian patents are expected to expire between 2027 and 2030. Our licensed rights from Biocon include a pending patent application family related to methods of using itolizumab to treat lupus, which is pending in the United States, Australia, Canada, and New Zealand. Patents that may issue from our pending in-licensed patent applications are expected to expire between 2027 and 2037, absent any patent term adjustments or extensions.

Additionally, we own one patent application family related to methods of using itolizumab to treat severe asthma, which is pending in the United States, Australia, Canada, and New Zealand. If granted, any patents that issue from this patent family are expected to expire in 2039, absent any patent term adjustments or extensions.

We also co-own one pending PCT patent application with the University of Houston System, which relates to diagnostic methods for using itolizumab to treat lupus nephritis. If granted, any patents that issue from this patent family are expected to expire in 2040, absent any patent from adjustments or extensions.

We file U.S. provisional patent applications as well as U.S. non-provisional applications and PCT applications that claim the benefit of the priority date of earlier filed provisional applications, when applicable. Provisional applications for patents were designed to provide a lower-cost first patent filing in the United States. Corresponding non-provisional patent applications must be filed not later than 12 months after the provisional application filing date. The corresponding non-provisional application benefits in that the priority date(s) of the patent application is/are the earlier provisional application filing date(s), and the patent term of the finally issued patent is calculated from the later non-provisional application filing date. This system allows us to obtain an early priority date, add material to the patent application(s) during the priority year, obtain a later start to the patent term and to delay prosecution costs, which may be useful in the event that we decide not to pursue examination in an application. The PCT system allows a single application to be filed within 12 months of the original priority date of the patent application, and to designate all of the 153 PCT member states in which national patent applications can later be pursued based on the international patent application filed under the PCT. The PCT searching authority performs a patentability search and issues a non-binding patentability opinion which can be used to evaluate the chances of success for the national applications in foreign countries prior to having to incur the filing fees. Although a PCT application does not issue as a patent, it allows the applicant to seek protection in any of the member states through national-phase applications. At the end of the period of 2 1/2 years from the first priority date of the patent application, separate patent applications can be pursued in any of the PCT member states either by direct national filing or, in some cases by filing through a regional patent organization, such as the European Patent Organization. The PCT system delays expenses, allows a limited evaluation of the chances of success for national/regional patent applications and enables substantial savings where applications are abandoned within the first 2 1/2 years of filing.

We intend to prosecute the pending applications that we own and in-license and to pursue patent issuance and protection in key commercial markets where we expect significant product sales may occur.

With the enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, an abbreviated pathway for the approval of biosimilar and interchangeable biological products was created. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as interchangeable based on its similarity to an existing reference product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the original branded product is approved under a Biologics License Application, or BLA.

The patent positions of biotechnology companies like ours are generally uncertain and involve complex legal, scientific and factual questions. We recognize that the ability to obtain patent protection and the degree of such protection depends on a number of factors, including the extent of the prior art, the novelty and non-obviousness of the invention, and the ability to satisfy the enablement requirement of the patent laws. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Consequently, we may not obtain or maintain adequate patent protection for any of our product candidates. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient proprietary protection from competitors. Any patents that we hold may be challenged, circumvented or invalidated by third parties.

Our commercial success will also depend in part on not infringing the proprietary rights of third parties. In addition, we have licensed rights under proprietary technologies of third parties to develop, manufacture and commercialize specific aspects of our products and services. It is uncertain whether the issuance of any third party patent would require us to alter our development or commercial strategies, alter our processes, obtain licenses or cease certain activities. The expiration of patents or patent applications licensed from third parties or our breach of any license agreements or failure to obtain a license to proprietary rights that we may require to develop or commercialize our future technology may have a material adverse impact on us. If third parties prepare and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference proceedings in the United States Patent and Trademark Office, or USPTO, to determine priority of invention. For a more comprehensive discussion of the risks related to our intellectual property, please see “Risk Factors—Risks Related to Intellectual Property.”

The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application related to the patent. A U.S. patent also may be accorded a PTA under certain circumstances to compensate for delays in obtaining the patent from the USPTO. In some instances, such a PTA may result in a U.S. patent term extending beyond 20 years from the earliest date of filing a non-provisional patent application related to the U.S. patent. In addition, in the United States, the term of a U.S. patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our products receive FDA approval, we expect to apply for patent term extensions on patents covering those products. We plan to seek patent term extensions to any of our issued patents in any jurisdiction where these are available, however there is no guarantee that the applicable authorities, including the FDA in the United States, will agree with our assessment of whether such extensions should be granted, and if granted, the length of such extensions.

We also rely on trade secrets relating to product candidates and seek to protect and maintain the confidentiality of proprietary information to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. Although we take steps to protect our proprietary information and trade secrets, including through contractual means with our employees and consultants, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets, including through breaches of such agreements with our employees and consultants. Thus, we may not be able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientific partners, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. Our agreements with employees also provide that all inventions conceived by the employee in the course of employment with us or from the employee’s use of our confidential information are our exclusive property.

Competition

The biotechnology and pharmaceutical industries are characterized by continuing technological advancement and significant competition. While we believe that our product candidates, technology, knowledge, experience and scientific resources provide us with competitive advantages, we face competition from major pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research institutions, among others. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. Key product features that would affect our ability to effectively compete with other therapeutics include the efficacy, safety and convenience of our products. The level of generic competition and the availability of reimbursement from government and other third-party payors will also significantly affect the pricing and competitiveness of our products. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.

Many of the companies against which we may compete have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. 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 personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Specifically, there are several companies marketing or developing treatments that may be approved for the same indications and/or diseases as our lead product candidate itolizumab (EQ001).

aGVHD

Corticosteroids, or steroids, remain the standard of care for the first-line treatment of aGVHD. There are currently no FDA-approved therapies indicated as a first-line treatment of aGVHD. Second-line therapy consists of off-label immunosuppressives for which the therapeutic benefit has not been established, and Incyte Corporation’s ruxolitinib which was approved for the treatment of steroid refractory aGVHD during 2019.

In addition, we are aware of a number of companies with development programs in aGVHD, including Bristol-Myers Squibb Company, CSL Behring LLC, ElsaLys Biotech, Fate Therapeutics, Inc., Incyte Corporation, Takeda Pharmaceutical Company Limited, Jazz Pharmaceuticals plc, Kalytera Therapeutics, Inc., Kamada Ltd., Mesoblast Limited, and Xenikos B.V.

Lupus Nephritis

Standard of care induction treatment in patients with the most severe forms of lupus nephritis, called proliferative lupus nephritis or Class III or IV lupus nephritis, is typically IV methylprednisolone followed by oral prednisone with the addition of MMF or cyclophosphamide. Standard of care for maintenance therapy is typically a combination of corticosteroids and MMF or calcineurin inhibitors. There are currently two approved therapies for the treatment of lupus nephritis. One is GlaxoSmithKline’s Benlysta, approved in 2020, and the other is Lupkynis (voclosporin), which was approved in January 2021 and is marketed by Aurinia Pharmaceuticals Inc.

We are aware of several companies with development programs targeting lupus nephritis including Alexion Pharmaceuticals, Inc, Apellis Pharmaceuticals, Inc., AstraZeneca plc, Aurinia Pharmaceuticals Inc., Boehringer Ingelheim GmbH, Genentech Inc., Novartis AG, GlaxoSmithKline plc, Kezar Life Sciences, Inc., Omeros Corporation, Bristol-Myers Squibb Company and Janssen Pharmaceuticals.

Asthma

Several biologic therapies that specifically target IgE or Th2-mediated cytokines have been approved by the FDA for the treatment of asthma including products developed by AstraZeneca plc, GlaxoSmithKline plc, Sanofi-Genzyme, Novartis AG, Regeneron Pharmaceuticals, Inc., Roche Holding AG and Teva Pharmaceutical Industries Limited.

In addition, Regeneron Pharmaceuticals, Inc. and Sanofi-Aventis U.S. LLC have received approval for dupilimab, an anti-IL-4 receptor antibody, as an add-on maintenance treatment in patients with moderate to severe asthma aged 12 years and older with an eosinophilic phenotype or with oral corticosteroid dependent asthma.

We are also aware of several companies with development programs in this indication, including Amgen Inc., AstraZeneca plc, GlaxoSmithKline plc, Gossamer Bio, Inc., Novartis AG, Regeneron Pharmaceuticals, Inc., Roche Holding AG, and Sanofi-Aventis U.S. LLC.

Sales and Marketing

Given our stage of development, we have not yet established a commercial organization or distribution capabilities. We intend to build a commercial infrastructure to support sales of itolizumab (EQ001) in the United States. We expect to manage sales, marketing, patient access and distribution through internal resources and third-party relationships. While we may commit significant financial and management resources to commercial activities, we will also consider collaborating with one or more pharmaceutical companies to enhance our commercial capabilities.

Manufacturing

We do not own or operate manufacturing facilities for the production of itolizumab (EQ001) or any future product candidates, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently rely on Biocon, our third-party contract manufacturer, pursuant to the Biocon License and Biocon Supply Agreement, for all our required raw materials, drug substance and drug product needs for preclinical research, clinical trials and commercial supply of itolizumab (EQ001). If itolizumab (EQ001) is approved, we have agreed to enter into a separate exclusive supply agreement with Biocon in the future. Biocon currently manufactures itolizumab (EQ001) at commercial scale at its FDA-regulated facility in Bangalore, India.

With respect to any future product candidates, we expect to rely on third-party contract manufacturers for all our required raw materials, drug substance and drug product needs for preclinical research, clinical trials and commercial supply.

Government Regulation and Product Approval

The FDA and other regulatory authorities at federal, state, and local levels, as well as in foreign countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring, and post-approval reporting of biologics such as those we are developing. We, along with third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure of our product candidates.

In the United States, the FDA regulates biologics under both the Federal Food, Drug and Cosmetic Act, or FDCA, and the Public Health Services Act, or PHSA, and their implementing regulations. The process required by the FDA before biologic product candidates may be marketed in the United States generally involves the following:

▪ satisfactory completion of an FDA Advisory Committee review, if applicable;

Preclinical and Clinical Development

Prior to beginning the first clinical trial with a product candidate, we must submit an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical studies. The IND also includes results of animal and in vitro studies assessing the toxicology, PK, pharmacology, and PD characteristics of the product candidate; chemistry, manufacturing, and controls information; and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical study. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site, and must monitor the study until completed. Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is

unlikely to meet its stated objectives. Some studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries.

For purposes of BLA approval, human clinical trials are typically conducted in three sequential phases that may overlap.

In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain more information about the product. These so-called Phase 4 studies may be made a condition to approval of the BLA. Concurrent with clinical trials, companies may complete additional animal studies and develop additional information about the biological characteristics of the product candidate, and must finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final product, or for biologics, the safety, purity and potency. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

BLA Submission, Review and Approval

Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, nonclinical studies and clinical trials are submitted to the FDA as part of a BLA requesting approval to market the product for one or more indications. The BLA must include all relevant data available from pertinent preclinical and clinical studies, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls, and proposed labeling, among other things. The submission of a BLA requires payment of a substantial application user fee to FDA, unless a waiver or exemption applies.

Once a BLA has been submitted, the FDA’s goal is to review standard applications within ten months after it accepts the application for filing, or, if the application qualifies for priority review, six months after the FDA accepts the application for filing. In both standard and priority reviews, the review process is often significantly extended by FDA requests for additional information or clarification. The FDA reviews a BLA to determine, among other things, whether a product is safe, pure and potent and the facility in which it is manufactured, processed, packed, or held meets standards designed to assure the product’s continued safety, purity and potency. The FDA may convene an advisory committee to provide clinical insight on application review questions. Before approving a BLA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

After the FDA evaluates a BLA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A Complete

Response letter will describe all of the deficiencies that the FDA has identified in the BLA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the Complete Response letter without first conducting required inspections, testing submitted product lots, and/or reviewing proposed labeling. In issuing the Complete Response letter, the FDA may recommend actions that the applicant might take to place the BLA in condition for approval, including requests for additional information or clarification. The FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.

If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the BLA with a Risk Evaluation and Mitigation Strategy, or REMS, to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to manage a known or potential serious risk associated with a product and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace. The FDA may require one or more Phase 4 post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and may limit further marketing of the product based on the results of these post-marketing studies.

Expedited Development and Review Programs

Any marketing application for a biologic submitted to the FDA for approval may be eligible for FDA programs intended to expedite the FDA review and approval process, such as priority review, fast track designation, breakthrough therapy and accelerated approval.

A product is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or to provide a significant improvement in the treatment, diagnosis or prevention of a serious disease or condition compared to marketed products. For products containing new molecular entities, priority review designation means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date (compared with ten months under standard review).

To be eligible for a fast track designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat a serious or life-threatening disease or condition and demonstrates the potential to address an unmet medical need by providing a therapy where none exists or a therapy that may be potentially superior to existing therapy based on efficacy or safety factors. Fast track designation provides opportunities for frequent interactions with the FDA review team to expedite development and review of the product. The FDA may also review sections of the BLA for a fast track product on a rolling basis before the complete application is submitted, if the sponsor and FDA agree on a schedule for the submission of the application sections, and the sponsor pays any required user fees upon submission of the first section of the BLA.

In addition, a sponsor can request designation of a product candidate as a “breakthrough therapy.” A breakthrough therapy is defined as a drug or biologic that is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug or biologic may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Drugs or biologics designated as breakthrough therapies are also eligible for accelerated approval. The FDA must take certain actions, such as holding timely meetings and providing advice, intended to expedite the development and review of an application for approval of a breakthrough therapy.

Additionally, products studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions may receive accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of accelerated approval, the FDA will generally require the sponsor to perform adequate and well-controlled post-marketing clinical studies to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product.

Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review and approval will not be shortened. Furthermore,

priority review, fast track designation, breakthrough therapy designation, and accelerated approval do not change the standards for approval but may expedite the development or approval process.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States for which there is no reasonable expectation that the cost of developing and making available in the United States a drug or biologic for this type of disease or condition will be recovered from sales in the United States for that drug or biologic. Orphan designation must be requested before submitting a BLA. After the FDA grants orphan designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. The orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review or approval process.

If a product that has orphan designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan exclusivity, which means that the FDA may not approve any other applications, including a full BLA, to market the same product 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. Orphan exclusivity does not prevent FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the BLA application fee.

A designated orphan product may not receive orphan exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.

Post-Approval Requirements

Any products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to quality control and quality assurance, record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing user fee requirements, under which FDA assesses an annual program fee for each product identified in an approved BLA. Biologic manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.

The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including AEs of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:

▪ fines, warning or untitled letters or holds on post-approval clinical studies;

▪ injunctions, consent decrees or the imposition of civil or criminal penalties.

The FDA closely regulates the marketing, labeling, advertising and promotion of biologics. A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. However, companies may share truthful and not misleading information that is otherwise consistent with the product’s FDA approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products.

Regulation of Diagnostic Tests

The co-development and validation of a diagnostic marker related to the CD6-ALCAM pathway and other urinary biomarkers for a companion diagnostic to identify lupus nephritis patients most likely to respond to itolizumab (EQ001) will subject us and any diagnostic collaborator to device regulations of the FDA. Unless an exemption applies, diagnostic tests require marketing clearance or approval from the FDA prior to commercial distribution. The two primary types of FDA marketing authorization applicable to a medical device are premarket notification, also called 510(k) clearance, and premarket approval, or PMA approval. We expect that any companion diagnostic developed for itolizumab (EQ001) will utilize the PMApathway.

PMA applications must be supported by valid scientific evidence, which typically requires extensive data, including technical, preclinical, clinical and manufacturing data, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device. For diagnostic tests, a PMA application typically includes data regarding analytical and clinical validation studies. As part of its review of the PMA, the FDA will conduct a pre-approval inspection of the manufacturing facility or facilities to ensure compliance with the Quality System Regulation, which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures. On August 6, 2014, the FDA issued a final guidance document addressing the development and approval process for “In Vitro Companion Diagnostic Devices.” According to the guidance, a companion diagnostic device and its corresponding drug should be approved or cleared contemporaneously by the FDA for the use indicated in the therapeutic product labeling.

Biosimilars and Reference Product Exclusivity

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the ACA, signed into law in 2010, includes the BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-approved reference biological product. To date, a number of biosimilars have been licensed under the BPCIA, and numerous biosimilars have been approved in Europe. The FDA has issued several guidance documents outlining its approach to the review and approval of biosimilars.

Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical study or studies. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product in any given patient and, for products that are administered multiple times to an individual, the biologic and the reference biologic may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. Complexities associated with the larger, and often more complex, structures of biological products, as well as the processes by which such products are manufactured, pose significant hurdles to implementation of the abbreviated approval pathway that are still being worked out by the FDA.

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 exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing that applicant’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of its product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. At this juncture, it is unclear whether products deemed “interchangeable” by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law.

The BPCIA is complex and continues to be interpreted and implemented by the FDA. In addition, recent government proposals have sought to reduce the 12-year reference product exclusivity period. Other aspects of the BPCIA, some of which may impact

the BPCIA exclusivity provisions, have also been the subject of recent litigation. As a result, the ultimate impact, implementation, and impact of the BPCIA is subject to significant uncertainty.

Other U.S. Healthcare Laws and Compliance Requirements

In the United States, our current and future operations are subject to regulation by various federal, state and local authorities in addition to the FDA, including but not limited to, the Centers for Medicare & Medicaid Services, or CMS, other divisions of the U.S. Department of Health and Human Services, or HHS (such as the Office of Inspector General, Office for Civil Rights and the Health Resources and Service Administration), the U.S. Department of Justice, or DOJ, and individual U.S. Attorney offices within the DOJ, and state and local governments. For example, our clinical research, sales, marketing and scientific/educational grant programs may have to comply with the anti-fraud and abuse provisions of the Social Security Act, the false claims laws, the privacy and security provisions of the Health Insurance Portability and Accountability Act, or HIPAA, and similar state laws, each as amended, as applicable.

The federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term remuneration has been interpreted broadly to include anything of value. The federal Anti-Kickback Statute has been interpreted to apply to arrangements between therapeutic product manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Our practices may not in all cases meet all of the criteria for protection under a statutory exception or regulatory safe harbor.

Additionally, the intent standard under the federal Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or Affordable Care Act, to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the Affordable Care Act codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act, or FCA (discussed below).

The federal false claims, including the FCA, and civil monetary penalty laws, which can be enforced by private citizens, on behalf of the government, through civil qui tam actions, prohibit any person or entity from, among other things, knowingly presenting, or causing to be presented, a false or fraudulent claim for payment to, or approval by, the federal government, including federal healthcare programs, such as Medicare and Medicaid, knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, or knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. For instance, historically, pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of the product for unapproved, off-label, and thus generally non-reimbursable, uses.

HIPAA created additional federal civil and criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payors, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Like the federal Anti-Kickback Statute, the Affordable Care Act amended the intent standard for certain healthcare fraud statutes under HIPAA such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

Also, many states have similar, and typically more prohibitive, fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

We may be subject to data privacy and security regulations by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations, imposes requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to business associates, independent contractors, or agents of covered entities, which include certain healthcare providers, health plans and healthcare clearinghouses, that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, many state laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways, are often not pre-empted by HIPAA, and may have a more prohibitive effect than HIPAA, thus complicating compliance efforts.

We may develop products that, once approved, may be administered by a physician. Under currently applicable U.S. law, certain products not usually self-administered (including injectable drugs) may be eligible for coverage under Medicare through Medicare Part B. Medicare Part B is part of original Medicare, the federal health care program that provides health care benefits to the aged and disabled, and covers outpatient services and supplies, including certain biopharmaceutical products, that are medically necessary to treat a beneficiary’s health condition. As a condition of receiving Medicare Part B reimbursement for a manufacturer’s eligible drugs, the manufacturer is required to participate in other government healthcare programs, including the Medicaid Drug Rebate Program and the 340B Drug Pricing Program. The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of HHS as a condition for states to receive federal matching funds for the manufacturer’s outpatient drugs furnished to Medicaid patients. Under the 340B Drug Pricing Program, the manufacturer must extend discounts to entities that participate in the program.

In addition, many pharmaceutical manufacturers must calculate and report certain price reporting metrics to the government, such as average sales price, or ASP, and best price. Penalties may apply in some cases when such metrics are not submitted accurately and timely. Further, these prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States.

Additionally, the federal Physician Payments Sunshine Act, or the Sunshine Act, within the Affordable Care Act, and its implementing regulations, require that certain manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) report annually to CMS information related to certain payments or other transfers of value made or distributed to physicians, as defined by such law, and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members. Beginning in 2022, applicable manufacturers also will be required to report such information regarding its relationships with physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified registered nurse anesthetists and certified nurse midwives during the previous year. Failure to report accurately could result in penalties. In addition, many states also govern the reporting of payments or other transfers of value, many of which differ from each other in significant ways, are often not pre-empted, and may have a more prohibitive effect than the Sunshine Act, thus further complicating compliance efforts.

In order to distribute products commercially, we must comply with state laws that require the registration of manufacturers and wholesale distributors of drug and biological products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical and biotechnology companies to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities, and/or register their sales and medical representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain physician prescribing data to pharmaceutical and biotechnology companies for use in sales and marketing, and to prohibit certain other sales and marketing practices. All of our activities are potentially subject to federal and state consumer protection and unfair competition laws.

Ensuring business arrangements with third parties comply with applicable healthcare laws and regulations is a costly endeavor. If our operations are found to be in violation of any of the federal and state healthcare laws described above or any other current or future governmental regulations that apply to us, we may be subject to significant penalties, including without limitation, civil, criminal and/or administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in

government programs, such as Medicare and Medicaid, injunctions, private “qui tam” actions brought by individual whistleblowers in the name of the government, or refusal to allow us to enter into government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Coverage, Pricing and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we may obtain regulatory approval. In the United States and in foreign markets, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on the extent to which third-party payors provide coverage and establish adequate reimbursement levels for such products. In the United States, third-party payors include federal and state healthcare programs, private managed care providers, health insurers and other organizations. Coverage and adequate reimbursement from governmental healthcare programs, such as Medicare & Medicaid in the United States, and commercial payors are critical to new product acceptance.

Our ability to commercialize any products successfully also will depend in part on the extent to which coverage and reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, decide which therapeutics they will pay for and establish reimbursement levels. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a therapeutic is:

▪ a covered benefit under its health plan;

▪ safe, effective and medically necessary;

▪ appropriate for the specific patient;

▪ cost-effective; and

▪ neither experimental nor investigational.

We cannot be sure that reimbursement will be available for any product that we commercialize and, if coverage and reimbursement are available, what the level of reimbursement will be. Coverage may also be more limited than the purposes for which the product is approved by the FDA or comparable foreign regulatory authorities. Reimbursement may impact the demand for, or the price of, any product for which we obtain regulatory approval.

Third-party payors are increasingly challenging the price, examining the medical necessity, and reviewing the cost-effectiveness of medical products, therapies and services, in addition to questioning their safety and efficacy. Obtaining reimbursement for our products may be particularly difficult because of the higher prices often associated with branded drugs and drugs administered under the supervision of a physician. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain FDA approvals. Our product candidates may not be considered medically necessary or cost-effective. Obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our product on a payor-by-payor basis, with no assurance that coverage and adequate reimbursement will be obtained. A third-party payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one third-party payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage for the product. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize any product candidate that we successfully develop. Additionally, we may develop companion diagnostic tests for use with our product candidates. Companion diagnostic tests require coverage and reimbursement separate and apart from the coverage and reimbursement for their companion pharmaceutical or biological products. Similar challenges to obtaining coverage and reimbursement, applicable to pharmaceutical products, will apply to companion diagnostics.

Different pricing and reimbursement schemes exist in other countries. In the European Union, governments influence the price of biopharmaceutical products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under

which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines but monitor and control company profits. The downward pressure on health care costs has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.

The marketability of any product candidates for which we receive regulatory approval for commercial sale may suffer if government and third-party payors fail to provide coverage and adequate reimbursement. In addition, emphasis on managed care, the increasing influence of health maintenance organizations, and additional legislative changes in the United States has increased, and we expect will continue to increase, the pressure on healthcare pricing. The downward pressure on the rise in healthcare costs in general, particularly prescription medicines, medical devices and surgical procedures and other treatments, has become very intense. Coverage policies and third-party payor reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Healthcare Reform

In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and affect the ability to profitably sell product candidates for which marketing approval is obtained. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.

For example, the Affordable Care Act has substantially changed healthcare financing and delivery by both governmental and private insurers. Among the Affordable Care Act provisions of importance to the pharmaceutical and biotechnology industries, in addition to those otherwise described above, are the following:

▪ a licensure framework for follow on biologic products.

There remain legal and political challenges to certain aspects of the Affordable Care Act. Since January 2017, the Trump administration signed several executive orders and other directives designed to delay, circumvent, or loosen certain requirements mandated by the Affordable Care Act. In December 2017, Congress repealed the tax penalty for an individual’s failure to maintain Affordable Care Act-mandated health insurance as part of a tax reform bill. Further, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the Affordable Care Act-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminated the health insurer tax. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas ruled that the individual mandate is a critical and inseverable feature of the Affordable Care Act, and therefore, because it was repealed as part of the tax reform bill, the remaining provisions of the Affordable Care Act are invalid as well. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the Affordable Care Act are invalid as well. The U.S. Supreme Court is currently reviewing this case, although it is unclear when a decision will be made. Although the U.S. Supreme Court has yet ruled on the constitutionality of the ACA, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the Affordable Care Act marketplace. The executive order also instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the Affordable Care Act. It is unclear how the Supreme Court ruling, other such litigation, and the healthcare reform measures of the Biden administration will impact the ACA and our business.

We anticipate that the Affordable Care Act, if substantially maintained in its current form, will continue to result in additional downward pressure on coverage and the price that we receive for any approved product, and could seriously harm our business. Any reduction in reimbursement from Medicare and 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. Such reforms could have an adverse effect on anticipated revenue from product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates.

Further legislation or regulation could be passed that could harm our business, financial condition and results of operations. Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. For example, in August 2011, President Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit reduction of at least $1.2 trillion for fiscal years 2012 through 2021, triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect beginning on April 1, 2013 and will stay in effect through 2030 unless additional Congressional action is taken. However, COVID-19 pandemic relief legislation has suspended the 2% Medicare sequester from May 1, 2020 through March 31, 2021. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

EQ US Equity

EQ · 10-K · period ended 2020-12-31

Item 1. Business.

EQ US Equity☆

EQ · 10-K · period ended 2020-12-31

Item 1. Business.

EQ US Equity