10-K
1
xenetic_10k-123120.htm
ANNUAL REPORT
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 20549
Form 10-K
Commission File Number: 001-37937
XENETIC BIOSCIENCES, INC.
(Exact name of registrant as specified
in its charter)
40 Speen Street, Suite 102
Framingham, MA 01701
(Address of principal executive offices
and zip code)
781-778-7720
(Registrant’s telephone number,
including area code)
Securities registered pursuant
to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.001 par value per share XBIO The NASDAQ Capital Market
Purchase Warrants XBIOW The NASDAQ Capital Market
Securities registered pursuant to Section
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 Section 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, a 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. (Check one):
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 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 Exchange Act Rule 12b-2): Yes ̈ No x
The aggregate
market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2020, the last business
day of the registrant’s most recently completely second fiscal quarter, based upon the closing price of the registrant’s
common stock on the NASDAQ Capital Market on that date of $1.02, was approximately $6,136,160. For purposes of this computation,
all officers, directors, and 10% beneficial owners of the registrant are deemed to be affiliates. Such determination should not
be deemed to be an admission that such officers, directors or 10% beneficial owners are, in fact, affiliates of the registrant.
As of March 11,
2021, the number of outstanding shares of the registrant’s Common Stock was 8,746,692.
DOCUMENTS INCORPORATED BY REFERENCE
Information required in response to Part
III of Form 10-K (Items 10, 11, 12, 13 and 14) is hereby incorporated by reference to portions of the registrant's definitive proxy
statement, information statement or an amendment to this Annual Report on Form 10-K for its 2021 Annual Meeting of Stockholders.
The registrant intends to file a definitive proxy statement, information statement or an amendment to this Annual Report on Form
10-K with the Securities and Exchange Commission no later than 120 days after the end of the registrant's fiscal year ended December
31, 2020.
XENETIC BIOSCIENCES, INC.
2020 ANNUAL REPORT ON FORM 10-K
TABLE CONTENTS
PART I 1
Item 1 Business 1
Item 1A Risk Factors 23
Item 1B Unresolved Staff Comments 52
Item 2 Properties 52
Item 3 Legal Proceedings 52
Item 4 Mine Safety Disclosures 52
Item 6 Selected Financial Data 53
Item 7A Quantitative and Qualitative Disclosures About Market Risk 63
Item 8 Financial Statements and Supplementary Data 64
Item 9A Controls and Procedures 65
Item 9B Other Information 66
PART III 67
Item 10 Directors, Executive Officers and Corporate Governance 67
Item 11 Executive Compensation 67
Item 14 Principal Accounting Fees and Services 67
Item 15 Exhibits and Financial Statement Schedules 68
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933,
as amended. All statements contained in this Annual Report other than statements of historical fact, including statements regarding
our future results of operations and financial position, our business strategy and plans, future revenues, projected costs, prospects
and our objectives for future operations, are forward-looking statements. These forward-looking statements include, but are not
limited to, statements concerning the anticipated effects and duration of the novel coronavirus, or COVID-19, global pandemic and
the responses thereto, including the pandemic’s impact on general economic and market conditions, as well as on our business,
results of operations and financial condition; our plans to develop our proposed drug candidates; our expectations regarding the
nature, timing and extent of clinical trials and proposed clinical trials including the timing of generating clinical data from
these trials; our expectations regarding the timing for proposed submissions of regulatory filings, including but not limited to
any Investigational New Drug (“IND”) filing or any New Drug Application (“NDA”); the nature, timing and
extent of collaboration arrangements; the expected results pursuant to collaboration arrangements including the receipts of future
payments that may arise pursuant to collaboration arrangements; the outcome of our plans to obtain regulatory approval of our drug
candidates; the outcome of our plans for the commercialization of our drug candidates; our plans to address certain markets, engage
third party manufacturers, and evaluate additional drug candidates for subsequent commercial development, and the likelihood and
extent of competition to our drug candidates; the development of the XCARTTM CAR T (“Chimeric Antigen Receptor
T Cell”) technology; our plans to apply the XCART technology to advance cell-based therapeutics by targeting the unique B
cell receptor on the surface of an individual patient’s malignant tumor cells for the treatment of B-cell lymphomas; our
beliefs regarding the expected results of the XCART technology, including its potential to significantly enhance the safety and
efficacy of cell therapy for B-cell lymphomas by generating patient- and tumor-specific CAR T cells; and our anticipation that
our primary focus will now be on advancing the XCART technology regulatory approval and commercialization technology.
In
some cases, these statements may be identified by terminology such as “may,” “will,” “would,”
“could,” “should,” “expect,” “plan,” “anticipate,” “believe,”
“estimate,” “seek,” “approximately,” “intend,” “predict,” “potential,”
“projects,” or “continue,” or the negative of such terms and other comparable terminology. Although we
believe that the expectations reflected in the forward-looking statements contained herein are reasonable, we cannot guarantee
future results, the levels of activity, performance or achievements. These statements involve known and unknown risks and uncertainties
that may cause our or our industry's results, levels of activity, performance or achievements to be materially different from those
expressed or implied by forward-looking statements.
Some
factors that could cause actual results to differ materially include without limitation:
· our ability to finance our business;
· our ability to secure and maintain a manufacturer for the XCART technology;
· the impact of new technologies on our drug candidates and our competition;
· changes in laws or regulations of governmental agencies;
ii
· interruptions or cancellation of existing contracts;
· impact of competitive products and pricing;
· product demand and market acceptance and risks;
· the presence of competitors with greater financial resources;
· our ability to attract and retain key personnel;
· adverse publicity related to our products or the Company itself;
· adverse claims relating to our intellectual property;
· the adoption of new, or changes in, accounting principles;
· other new lines of business that the Company may enter in the future;
· general economic and business conditions, as well as inflationary trends;
These
factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed
in the forward-looking statements in this Annual Report. Other unknown or unpredictable factors also could have material adverse
effects on our future results, including, but not limited to, those discussed in the section titled “Risk Factors.”
The forward-looking statements in this Annual Report are made only as of the date of this Annual Report, and we do not undertake
any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances. We intend that
all forward-looking statements be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
As
used in this Annual Report, unless otherwise indicated, all references herein to “Xenetic,” the “Company,”
“we” or “us” refer to Xenetic Biosciences, Inc. and its wholly-owned subsidiaries.
Our
brand and product names, including but not limited to XCARTTM, OncoHistTM, PolyXen®,
ErepoXenTM and ImuXenTM contained in this Annual Report are trademarks, registered trademarks or
service marks of Xenetic Biosciences, Inc. and/or its subsidiaries in the United States of America (“USA” or “U.S.”)
and certain other countries. All other company and product names may be trademarks of the respective companies with which they
are associated.
Summary Risk Factors
Our business is subject to numerous risks. In addition to the
summary below, you should carefully review the “Risk Factors” section of this Annual Report on Form 10-K. We may be
subject to additional risks and uncertainties not presently known to us or that we currently deem immaterial. These risks should
be read in conjunction with the other information in this Annual Report on Form 10-K. Some of the principal risks relating to our
business include:
iii
· Our business is substantially dependent on the success of XCART.
iv
v
PART I
ITEM 1 – BUSINESS
Overview
We are a biopharmaceutical company focused
on progressing XCART, a personalized CAR T platform technology engineered to target patient- and tumor-specific neoantigens. We
are initially advancing cell-based therapeutics targeting the unique B-cell receptor on the surface of an individual patient’s
malignant tumor cells, for the treatment of B-cell lymphomas. XCART has the potential to fuel a robust pipeline of the therapeutic
assets targeting high-value oncology indications. The XCART technology, developed by the Scripps Research Institute (the “Scripps
Research”) in collaboration with the Shemyakin-Ovchinnikov Institute of Bioorganic Chemistry (“IBCH”), is believed
to have the potential to significantly enhance the safety and efficacy of cell therapy for B-cell lymphomas by generating patient-
and tumor-specific CAR T cells. We are currently advancing XCART preclinical efforts through strategic collaborations with Scripps
Research and PJSC Pharmsynthez (“Pharmsynthez”).
More than 70,000 new cases of non-Hodgkin
Lymphoma (“NHL”) are diagnosed each year in the United States, and more than 19,000 patients die of this group of diseases
annually. Most forms of NHL, including follicular lymphoma, mantle cell lymphoma, marginal zone lymphoma, lymphoplasmacytic lymphoma,
and small lymphocytic lymphoma, which account collectively for ~45% of all cases of NHL, are incurable with available therapies,
except for allogeneic stem cell therapy (“allo-SCT”). However, many NHL patients are not suitable candidates for allo-SCT,
and this treatment is also limited by significant rates of morbidity and mortality due to graft versus host disease. Aggressive
B-cell lymphomas such as diffuse large B-cell lymphoma account for 30-35% of NHL. The majority of patients with aggressive B-NHL
are successfully treated with combination chemotherapy, but a significant portion relapse or have refractory disease, and the outcome
of these patients is poor.
CAR T cell therapies are an
innovative approach in which a patient’s T cells are genetically modified to carry chimeric antigen receptors
(“CARs”). High objective response rates have been reported in some hematological malignancies, but patients
treated with CAR T cell therapies can have serious and sometimes fatal toxicities, which include instances in which the CAR T
cells have caused high levels of cytokines due to over-activation, referred to as “cytokine release syndrome,” or
CRS, neurologic toxicities and cases in which CAR T cells have attacked healthy organs. In each case, these toxicities have
sometimes resulted in death. Hematopoietic Stem Cell Transplant (“HSCT”), also known as bone marrow
transplantation, has for decades been curative for many patients with hematological cancers or orphan inherited blood
disorders. However, adoption of HSCT to date has been limited by the risks of transplant-related morbidity and mortality from
graft-versus-host-disease, or GvHD, and the potential for serious infections or cancer recurrence due to the lack of an
effective immune system following a transplant.
The XCART technology
platform was designed by its originators to utilize an established screening technique to identify peptide ligands that bind specifically
to the unique B-cell receptor (“BCR”) on the surface of an individual patient’s malignant tumor cells. The peptide
is then inserted into the antigen-binding domain of a CAR T cell, and a subsequent transduction/transfection process is used to
engineer the patient’s T cells into a CAR T format which redirects the patient’s T cells to attack the tumor. Essentially,
the XCART screening platform is the inverse of a typical CAR T screening protocol wherein libraries of highly specific antibody
domains are screened against a given target. In the case of XCART screening, the target is itself an antibody domain, and hence
highly specific by its nature. The XCART technology creates the possibility of personalized treatment of lymphomas utilizing a
CAR with an antigen-binding domain that should only recognize, and only be recognized by, the unique BCR of a particular patient’s
B-cell lymphoma. An expected result for XCART is limited off-tumor toxicities, such as B-cell aplasia. Our clinical development
program will seek to confirm the early preclinical results, and to demonstrate a more attractive safety profile than existing therapies.
We anticipate that our primary focus will now be on advancing this technology through regulatory approval and commercialization.
Additionally, we are leveraging our proprietary
drug delivery platform, PolyXen, by partnering with biotechnology and pharmaceutical companies. PolyXen is an enabling platform
technology which can be applied to protein or peptide therapeutics. It employs the natural polymer polysialic acid to prolong a
drug's circulating half-life and potentially improve other pharmacological properties.
We incorporate our patented and proprietary
technologies into a number of drug candidates currently under development with biotechnology and pharmaceutical industry collaborators
with the goal of creating what we believe will be the next-generation biologic drugs with improved pharmacological properties over
existing therapeutics. Our drug candidates have resulted from our research activities or that of our collaborators and are in the
development stage. As a result, we continue to commit a significant amount of our resources to our research and development activities
and anticipate continuing to do so for the near future. To date, none of our drug candidates have received regulatory marketing
authorization in the U.S. by the Food and Drug Administration (“FDA”) nor in any other territories by any applicable
agencies. We are receiving ongoing royalties pursuant to a license of our PolyXen technology to an industry partner.
We also have oncology
therapeutic investigational drug candidate XBIO-101 (sodium cridanimod) for the treatment of progestin resistant endometrial cancer.
We commenced a Phase 2 trial under an IND in 2017 for the potential treatment of progesterone receptor negative endometrial cancer
in conjunction with progesterone therapy, with the first patient dosed in October 2017. We closed patient enrollment in the trial
in March 2019 as a result of slower than expected progress on the trial resulting from patient enrollment and retention challenges
and have suspended further development of XBIO-101. We currently have no plans to continue development of XBIO-101.
Although we hold a broad patent portfolio,
the focus of our internal development efforts in 2020 was limited to winding down the XBIO-101 Phase 2 trial and preliminary development
efforts associated with the XCART technology.
We were incorporated under the laws of
the State of Nevada in August 2011. We, directly or indirectly, through our wholly-owned subsidiaries, Hesperix S.A. (“Hesperix”)
and Xenetic Biosciences (U.K.) Limited (“Xenetic U.K.”), and its wholly-owned subsidiaries, Lipoxen Technologies Limited
(“Lipoxen”), Xenetic Bioscience, Incorporated (“XTI”) and SymbioTec, GmbH (“SymbioTec”), own
various U.S. federal trademark registrations and applications, and unregistered trademarks and service marks, including but not
limited to XCART, OncoHist, PolyXen, ErepoXen and ImuXen.
Our Strategy
In July 2019 we acquired the XCART platform,
a novel CAR T technology engineered to target patient- and tumor-specific neoantigens (see “Our Technology and Drug Candidates”
for a description of the technology). We believe these personalized T cell therapies have the potential to offer cancer patients
substantial benefits over the existing standard of care and currently approved CAR T therapies. We plan to initially apply the
XCART technology to develop cell-based therapeutics for the treatment of B-cell Lymphomas with our primary focus to advance this
technology through regulatory approval and commercialization. We also intend to pursue industry collaborations and potential licenses
to develop XCART for other uses and indications.
We plan to opportunistically advance our
PolyXen platform technology by entering into collaborative out-license arrangements with pharmaceutical companies who could apply
the necessary resources for advancing drug candidates through to commercialization. These arrangements would provide support to
us in the form of access to partner-generated clinical data, which is informative when contemplating potential monetization of
our proprietary technology in other markets. One aim of these efforts would be to drive incremental shareholder value and generate
working capital to assist in providing the funding required to support our XCART development efforts.
We intend to pursue orphan drug designations
and accelerated approval pathways for relevant oncology indications as appropriate in both the U.S. and Europe. If our orphan oncology
drug candidates are granted orphan drug designation, then we may benefit from certain key advantages of orphan status including
certain market exclusivities.
We intend to advance development of our
drug candidates primarily through the use of contract manufacturing and contract research organizations (“CROs”) in
order to efficiently manage our resources. Continuous pipeline growth and advancement of out-licensed drug candidates is dependent,
in part, on our ability to raise sufficient capital and to advance our existing co-development collaborations and strategic arrangements
as well as enter into new such arrangements.
Business Developments
XCART Technology
On May 15, 2020, we entered into a Research
Funding and Option Agreement with Scripps Research (the “Scripps Agreement”), pursuant to which we have agreed to provide
Scripps Research an aggregate of up to $3.0 million to fund research relating to advancing the pre-clinical development of XCART.
The research funding is payable by us to Scripps Research on a quarterly basis in accordance with a negotiated budget, which provides
for an initial payment of approximately $300,000 on the date of the Scripps Agreement and subsequent quarterly payments of approximately
$300,000 over a 27-month period. Under the Scripps Agreement, Scripps Research has granted us a license within the Field (as defined
in the Scripps Agreement) to any Patent Rights or Technology (as defined in the Scripps Agreement) under the terms of that certain
license agreement with Scripps Research, dated February 25, 2019, assigned to the Company on March 1, 2019. Additionally, we have
the option to acquire a worldwide exclusive license to Scripps Research’s rights in the Technology or Patent Rights not already
licensed to the Company, as well as a non-exclusive, royalty-free, non-transferrable license to make and use Scripps Research Technology
(as defined in the Scripps Agreement) solely for the Company’s internal research purposes during the performance of the research
program contemplated by the Scripps Agreement.
On June 12, 2020, we entered into a Master
Services Agreement with Pharmsynthez (“MSA”) to advance the development of our XCART technology for B-cell malignancies.
Under the MSA, Pharmsynthez agreed to provide services pursuant to work orders agreed upon by the parties from time to time, which
services include, but are not limited to, acting as our primary contract research organization to assist in managing collaborations
with multiple academic institutions in Russia and Belarus. We are required to pay reasonable fees, expenses and pass-through costs
incurred by Pharmsynthez in providing the services in accordance with a budget and payment terms set forth in each work order.
Additionally, in the event that a work order provides for milestone payments, we are required to make such payments to Pharmsynthez,
or third party service providers designated by Pharmsynthez, in accordance with the terms set forth in the work order, which milestone
payments may be made, at our sole discretion, in cash or shares of our common stock, par value $0.001 (the “Common Stock”).
We executed a work order with Pharmsynthez
on June 12, 2020 (the “Work Order”) under the MSA pursuant to which Pharmsynthez agreed to conduct a Stage 1 study
of our XCART technology under the research program as set forth in the Work Order. The activities to be performed under the Work
Order are expected to take approximately 20 months unless earlier terminated in accordance with the MSA. Under the terms of the
Work Order, we paid Pharmsynthez $51,000 as an initial payment for trial startup costs, which amount was credited against the amounts
paid under the Sponsored Research Agreement entered into with Pharmsynthez in the third quarter of 2019 (the “SRA”).
The Work Order provides for additional pass-through costs to be invoiced by Pharmsynthez upon execution of contracts with third
party sites, which will be further credited against the SRA. The total cost under the Work Order is currently estimated to be approximately
$1.8 million. Additionally, the Work Order provides for milestone payments of up to an aggregate of $1,050,000, or, in our sole
discretion, up to an aggregate of 1,000,000 shares of our Common Stock, to be paid or issued, as applicable, by us upon achievement
of milestones associated with completion of early stages of the research program as set forth in the Work Order.
Increase in Authorized Shares
On December 4, 2020, our shareholders voted
to approve an amendment to our Articles of Incorporation to increase the authorized shares of Common Stock to 50,000,000 shares
(the “Authorized Share Increase”). We filed a Certificate of Amendment to the Company’s Articles of Incorporation
with the Secretary of the State of Nevada to effect the Authorized Share Increase as of December 4, 2020.
Registered Direct
Offering
On December 10, 2020, we entered into a Securities Purchase
Agreement with certain institutional and accredited investors named therein, pursuant to which we agreed to issue and sell, in
a registered direct offering, 2,448,980 shares of our Common Stock, par value $0.001 per share, at an offering price of $2.45 per
share. The offering resulted in gross proceeds of approximately $6.0 million before deducting the placement agent’s fees
and related offering expenses. The shares were offered by us pursuant to a prospectus supplement to our effective shelf registration
statement on Form S-3 (Registration No. 333-227572), which was initially filed with the Securities and Exchange Commission (“SEC”)
on September 27, 2018, and was declared effective on October 12, 2018. The offering closed on December 14, 2020.
Our Technology and Drug Candidates
The Technologies
We incorporate our patented and proprietary
technologies into a number of drug candidates which are currently under development internally or with our biotechnology and pharmaceutical
collaborators, with the goal of creating what we believe will be the next generation of biologic drugs and therapeutics. While
we primarily focus on researching and developing oncology drugs, we also have ownership and other economic interests in drugs being
developed by our collaborators to treat other conditions. Our patent portfolio spans five core proprietary technologies including
three platforms, small molecules and biologics covering multiple drug candidates and indications including XCART, XBIO-101, PolyXen,
OncoHist and ImuXen.
During the year ended December 31, 2020,
the focus of our internal development efforts was limited to winding down the XBIO-101 Phase 2 trial and preliminary development
efforts associated with the XCART technology. We have not been actively pursuing development efforts for PolyXen, OncoHist and
ImuXen and impaired our In-Process Research and Development asset, OncoHist, in 2020. As a result, we anticipate that the focus
of our future internal development efforts will be limited to research and development of our XCART technology.
Research, Outside Services and Collaborations
Through partner efforts, we are developing
our pipeline of next-generation bio-therapeutics and novel oncology drugs based on our XCART and PolyXen proprietary technologies.
In order to do this while efficiently managing our overhead, we rely on the services of contract manufacturers and CROs and our
strategic collaborations. We currently do not have in-house research facilities to pursue these initiatives. Accordingly, continuous
pipeline growth and advancement of our technologies and drug candidates is dependent on several important collaborations and strategic
arrangements including our arrangements with:
Accordingly, in addition to pursuing our
development of the XCART technology, we also have significant interests in drug candidates being developed by our collaborators
to treat other conditions. We may collect some combination of milestone payments and royalties pursuant to these collaborations
to the extent that these drugs are successfully developed and marketed. However, other than royalty payments under a sublicense
with Takeda and potential royalty payments from SynBio under our collaboration agreement, we do not anticipate any milestone or
royalty payments in the near term, if at all. For further detail, please read the section titled “Significant Collaborations
and Strategic Arrangements” below.
Our Drug Candidate Pipeline
Our product pipeline contains a number
of drug candidates under development internally and with our biotechnology and pharmaceutical collaborators. The following discussion
summarizes key information regarding our current drug candidates, organized by our internal programs and our collaborators’
programs:
XCART
XCART is a personalized CAR T cell platform
technology engineered to target patient-specific tumor neoantigens. We believe XCART has the potential to offer cancer patients
substantial benefits over the existing standard of care and currently approved CAR T therapies including enhanced safety and efficacy
of cell therapy for B-cell lymphomas. We are initially advancing cell-based therapeutics targeting the unique B-cell receptor on
the surface of an individual patient’s malignant tumor cells, for the treatment of B-cell lymphomas.
The XCART platform was designed to target
personalized, patient-specific tumor neoantigens and has demonstrated proof of mechanism in B-cell lymphoma, an area of significant
unmet medical need. The acquisition of XCART fits with our current strategy of focusing on research addressing unmet needs in oncology.
Our R&D efforts will focus initially on leveraging the XCART platform to develop cell-based therapeutics for the treatment
of B-cell Non-Hodgkin lymphomas, an initial global market opportunity estimated to exceed $5 billion per year.
ErepoXen
ErepoXen, or polysialylated erythropoietin
(“PSA-EPO”), uses our PolyXen platform technology for the treatment of anemia in chronic kidney disease (“CKD”)
patients. It is designed to reduce the dosing frequency by extending the circulating half-life of the therapeutic in the body.
We are not pursuing clinical development of ErepoXen but continue to entertain out-license opportunities for the drug candidate
in our licensed territories.
We have collaboration agreements with SynBio
and Serum Institute to develop and launch ErepoXen in limited markets pursuant to which we will collect royalties if they are successful
in these efforts.
SynBio received regulatory approval and
commenced a Phase II(b)/III human clinical trial of ErepoXen (also known as Epolong) in Russia with patient recruitment completed
in 2020. In December 2020, Pharmsynthez reported positive data from this clinical trial and filed a registration dossier to obtain
approval of Epolong in Russia. In February 2021, Pharmsynthez reported in a press release that it expects that the Russian stage
of registration activities will be completed in 2021 and that it will be able to start production of the product as early as the
first quarter of 2022.
Serum Institute conducted Phase I and
Phase II clinical trials of ErepoXen in 95 human subjects. These safety trials, which had no significant drug-related adverse
events, provided us with the data to commence a Phase II, repeat dosing, International Conference on Harmonisation of
Technical Requirements for Pharmaceuticals for Human Use compliant clinical trial for ErepoXen in Australia, New Zealand and
South Africa for CKD patients not on dialysis. We completed three cohorts of this study and then terminated the study.
In addition, Serum Institute finished Phase
I/II clinical trials in India of ErepoXen for in-center-dialysis patients. Serum Institute may seek to leverage SynBio’s
trial data and potential Russian marketing authorization to request a waiver for a Phase III clinical trial in India, subject to
local regulatory authority approval.
Pipeline Expansion Opportunities
Operating under licenses from us within
their home markets, our collaborators can potentially generate preclinical and clinical data related to our technologies across
a wide spectrum of therapeutic areas. Under these agreements, we retain all rights for major markets and co-own the clinical data.
We therefore have the opportunity to utilize the data in our decision-making process regarding development and commercialization
in major markets. We expect to be able to utilize the results from substantially all of the clinical toxicity data and other clinical
data generated in the development of PolyXen for a variety of orphan oncology indications and next generation biologic drugs.
Significant Collaborations and Strategic Arrangements
Takeda
We are a party to an exclusive research,
development and license agreement with Takeda, related to the development of a novel series of polysialylated blood coagulation
factors. This collaboration with Takeda relies on our PolyXen technology to conjugate PSA to therapeutic blood-clotting factors,
with the goal of improving the pharmacokinetic profile and extending the active half-life of these biologic molecules. The agreement
grants Takeda a worldwide, exclusive, royalty-bearing license to our PSA patented and proprietary technology in combination with
Takeda’s proprietary molecules designed for the treatment of blood and bleeding disorders. The first program under this agreement
was a next generation Factor VIII protein product candidate (“SHP656”).
In May 2017, we announced that Takeda had
terminated further development of SHP656, its polysialylated rFVIII drug candidate for the treatment of hemophilia, being developed
using our proprietary PolyXen technology. While Takeda’s Phase I/II trial demonstrated SHP656’s efficacy and pharmacokinetic
data commensurate with the profile of an extended half-life rFVIII product, the pre-defined once-weekly dosing criterion set forth
in the research, development, license and supply agreement was not met. Based on Takeda’s published research, there were
no treatment-emergent adverse events reported. Though the trial’s pre-defined once-weekly dosing criterion was not met, we
continue to explore the potential for future collaborations with Takeda and Takeda has commenced a new, undisclosed internal project
under the agreement.
In October 2017, we entered into a Right
of Sublicense Agreement (the “Sublicense Agreement”) with Takeda that granted to Takeda the right to grant a nonexclusive
sublicense to certain patents related to our PolyXen technology that were previously exclusively licensed to Takeda in connection
with products related to the treatment of blood and bleeding disorders (“Covered Products”). Pursuant to the Sublicense
Agreement, Takeda (i) paid us a one-time payment of seven million five hundred thousand dollars ($7,500,000) in November 2017 and
(ii) agreed to pay us single digit royalty payments based upon net sales of the Covered Products throughout the term. Royalty payments
on net sales of the Covered Products commenced in late 2019.
SynBio LLC
In August 2011, we entered into a stock
subscription and collaborative development agreement with SynBio (the “Co-Development Agreement”), pursuant to which
we granted SynBio an exclusive license to develop, market and commercialize certain drug candidates utilizing molecules based on
SynBio’s technology and our PolyXen, OncoHist and ImuXen platform technologies in Russia and the CIS, collectively referred
to herein as the SynBio Market. In exchange for our granting to SynBio those certain license rights, SynBio granted an exclusive
license to us to use any preclinical and clinical data generated by SynBio and to engage in the development and commercialization
of drug candidates that may arise from the collaboration in any territory outside of the SynBio Market based upon the Co-Development
Agreement.
We hope and expect to mitigate certain
technical and commercial risks of drug development by working in collaboration with SynBio. Under the Co-Development Agreement,
SynBio is responsible for progressing six new product candidates through human proof of concept trials in Russia as primary validation
for the initiation of European Medicines Agency (“EMA”) or FDA clinical trials by us.
The primary goal of the Co-Development
Agreement is to research and develop drug candidates for planned commercialization using SynBio and our combined respective expertise
and technologies. Drug candidates must meet the success criteria as decided upon by a joint steering committee, which includes
representation from both SynBio and us, where we have the right to appoint the chair who has the casting vote. Once a potential
drug candidate is selected, clinical trials will be separately conducted by each company in their respective territories with the
goal to achieve regulatory approval of the products for commercial sale.
SynBio is wholly responsible for funding
and conducting their own research and clinical development activities in Russia, and we are wholly responsible for funding and
conducting our own research and clinical development activities in the U.S., Europe and elsewhere outside the SynBio Market. There
are no milestones or other research-related payments provided for under the Co-Development Agreement other than fees for the provision
of each party’s respective research supplies based on their technology. Upon successful commercialization of any resultant
products, we are entitled to receive low double digit royalties on sales in certain territories and pay royalties to SynBio for
sales outside those certain territories subject to the terms of the Co-Development Agreement. For the years ended December 31,
2020 and 2019, there were no supply service revenues in connection with the Co-Development Agreement. The Co-Development Agreement
continues until it is terminated in accordance with the terms and conditions set forth therein. SynBio is a wholly-owned subsidiary
of Pharmsynthez and all ownership percentages held by SynBio are combined with Pharmsynthez.
PJSC Pharmsynthez
In November 2009, we entered into a collaborative
research and development license agreement with Pharmsynthez (the “Pharmsynthez Arrangement”) pursuant to which we
granted an exclusive license to Pharmsynthez to develop, commercialize and market six drug candidates based on our PolyXen and
ImuXen technology anywhere within Russia and the CIS, as well as certain clinical and research data developed by us on the six
product candidates. In exchange, Pharmsynthez granted us an exclusive license to use any preclinical and clinical data developed
by Pharmsynthez, within the scope of the Pharmsynthez Arrangement, and to engage in further research, development and commercialization
of drug candidates in any territory outside of Russia and the CIS at our own expense.
We expect to mitigate certain risks of
drug development by reviewing human clinical data arising out of this collaboration with Pharmsynthez before we take a particular
drug candidate into FDA and EMA trials. Under the Pharmsynthez Arrangement, Pharmsynthez is responsible for progressing six new
drug candidates through human proof of concept trials in Russia as primary validation prior to the initiation of EMA/FDA clinical
trials by us outside of Russia. A joint steering committee, where we have the right to appoint the chair who has the casting vote,
was established to facilitate the communication of scientific data and to assist generally with each party’s research decisions
and to monitor research and development progress under the Pharmsynthez Arrangement.
Pharmsynthez is wholly responsible for
funding and conducting its own research and clinical development activities in Russia. We are wholly responsible for funding and
conducting our own research and clinical development activities in the U.S., Europe and the rest of the world outside of Russia
and the ex-CIS regions. There are no milestones or other research related payments provided for under the Pharmsynthez Arrangement
other than royalties. The Pharmsynthez Arrangement shall continue until it is terminated in accordance with the terms and conditions
set forth therein.
Pharmsynthez directly, and indirectly through
SynBio, has a share ownership in us of approximately 5.1% of the total outstanding Common Stock as of December 31, 2020. In addition
to its Common Stock ownership, Pharmsynthez holds outstanding warrants to purchase our Common Stock, approximately 1.5 million
shares of our outstanding Series B Preferred Stock (as defined in Note 11, Stockholders’ Equity), and all of our issued
and outstanding Series A Preferred Stock (as defined in Note 11, Stockholders’ Equity) through SynBio.
During the third quarter of 2019, we entered
into the SRA with Pharmsynthez related to experiments identified by us to support our efforts for the initial tech transfer of
the XCART methods to a future academic collaborator. On June 12, 2020, we entered into the MSA and Work Order with Pharmsynthez
to advance the development of our XCART technology for B-cell malignancies. The MSA terminated and superseded the SRA. For further
detail, please read the section titled “Recent Developments” above.
During the fourth quarter of 2019, we
entered into a loan agreement with Pharmsynthez (the “Pharmsynthez Loan”), pursuant to which we advanced
Pharmsynthez an aggregate principal amount of up to $500,000 to be used for the development of a specific product under the
Co-Development Agreement. The Pharmsynthez Loan had a term of 15-months and accrued interest at a rate of 10% per annum. The
Pharmsynthez Loan is guaranteed by all of the operating subsidiaries of Pharmsynthez, including SynBio and AS Kevelt
(“Kevelt”), and is secured by all of the equity interests of the Company owned by Pharmsynthez and SynBio.
Effective January 23, 2021, we entered into a First Amendment to Loan Agreement and Other Loan Documents with Pharmsynthez,
Kevelt and SynBio (the “Pharmsynthez Loan Extension”) to modify the repayment terms and maturity of the
Pharmsynthez Loan to January 2022. The terms of the Pharmsynthez Loan Extension call for two (2) equal monthly principal
payments of $25,000 in each of January 23, 2021 and February 28, 2021 and the payment of all outstanding accrued interest in
six (6) equal installments from January 31, 2021 through June 30, 2021. In addition, the Pharmsynthez Loan Extension requires
monthly interest payments and the repayment of the remaining principal amount in six (6) equal monthly installments from July
2021 through January 2022. All other terms of the Pharmsynthez Loan remain in effect.
Serum Institute
In August 2011, we entered into a collaborative
research and development agreement with Serum Institute (the “Serum Agreement”) providing Serum Institute an exclusive
license to use our PolyXen technology to research and develop one potential commercial product, PSA-EPO. Serum Institute is responsible
for conducting all preclinical and clinical trials required to achieve regulatory approvals within certain predetermined territories
at Serum Institute’s own expense. Royalty payments are payable by Serum Institute to us for net sales to certain customers
in the Serum Institute sales territory. Royalty payments are payable by us to Serum Institute for net sales received by us over
the term of the license. There are no milestone or other research-related payments due under the collaborative arrangement. The
Serum Agreement continues until it is terminated in accordance with the terms and conditions set forth therein. Through December
31, 2020, we and Serum Institute continued to engage in research and development activities with no resultant commercial products.
No royalty revenue or expense was recognized by us related to the Serum Institute arrangement during the years ended December 31,
2020 and 2019. Serum Institute had a share ownership of less than 1% of our total outstanding Common Stock as of December 31, 2020.
Our Intellectual Property
We strive to protect and enhance the proprietary
technology, inventions, and improvements that are commercially important to our business, including seeking, maintaining and defending
patent rights, whether developed internally or licensed from our collaborators or other third-parties. Our policy is to seek to
protect our proprietary position by, among other methods, filing patent applications in the U.S. and in jurisdictions outside of
the U.S. covering our proprietary technology, inventions, improvements and product candidates that are important to the development
and implementation of our business. We also rely on trade secrets and know-how relating to our proprietary technology and product
candidates, continuing innovation, and in-licensing opportunities to develop, strengthen and maintain our proprietary position
in the field of oncology. We also plan to rely on data exclusivity, market exclusivity, and patent term extensions when available.
Our commercial success will depend in part on our ability to obtain and maintain patent and other proprietary protection for our
technology, inventions, and improvements; to preserve the confidentiality of our trade secrets; to obtain and maintain licenses
to use intellectual property owned by third-parties; to defend and enforce our proprietary rights, including any patents that we
may own in the future; and to operate without infringing on the valid and enforceable patents and other proprietary rights of third-parties.
Our drug candidates are in various stages
of development, each protected by patent and pending patent applications in the U.S. with the U.S. Patent and Trademark Office
(“USPTO”) and in certain other developed countries. Our first issued patents begin to expire starting in 2021 with
the majority of the existing issued patents expiring between 2025 and 2030.
Our patent strategy is to file patent applications
on innovations and improvements in those jurisdictions that comprise the major pharmaceutical markets in the world or locations
where a pharmaceutical may be manufactured. These jurisdictions include, but are not limited to, the U.S., U.K., Australia, Japan,
Canada, South Korea, China, India, Russia and certain other countries in the European Union (“E.U.”) and Asia, though
we do not necessarily file a patent application in each of these jurisdictions for every patent family.
As of February 3, 2021, we directly or
indirectly own, through our wholly-owned subsidiaries, Hesperix and Xenetic U.K., and Xenetic U.K.’s wholly-owned subsidiaries,
Lipoxen, XTI and SymbioTec, more than 170 U.S. and international patents and pending patent applications that cover various aspects
of our technologies. We have acquired or filed patent applications, and plan to file additional patent applications, covering various
aspects of our XCART platform technology including all rights throughout the world in and to patents and patent applications related
to “Articles And Methods Directed To Personalized Therapy Of Cancer,” and our PolyXen platform technology covering
polysialylation and advanced polymer conjugate technologies, respectively, as well as our other product candidates. More specifically,
our patents and patent applications cover polymer architecture, drug conjugates, formulations, methods of manufacturing polymers
and polymer conjugates and methods of administering polymer conjugates.
We have received patent protection for
certain therapeutics that use our PolyXen technology linking the specific therapeutic to a PSA. These include, but are not limited
to, PSA-EPO, PSA-insulin and PSA-insulin like protein, SHP656 (PSA-rFVIII), PSA-DNase I and PSA-granulocyte colony stimulating
factor (PSA-GCSF). Further patents cover methods to prepare proteins that are linked to a PSA. These method patents include those
that link a PSA to a protein in a high pH solution as well as patents that use a process for producing an aldehyde derivative of
a sialic acid through the opening and oxidation of a sialic acid unit. For instance, we have patent protection for a PSA linkage
that can be at the N-terminus.
We have received patent protection for
the production of PSA and the removal of endotoxin during the purification process. The removal of endotoxin occurs through the
addition of a high pH solution to the PSA and a process to separate a polydisperse ionically charged polysaccharide, such as PSA,
into fractions of different average molecular weight. This is accomplished through the use of a column and elution buffers with
different and constant ionic strength and pH, resulting in a fractionated polysaccharide that has a molecular weight polydispersity
of 1.1 or lower.
Issued patents can provide protection for
varying periods of time, depending upon the date of filing of the patent application, the date of patent issuance, and the legal
term of patents in the countries in which they are obtained. In general, patents issued for applications filed in the U.S. can
provide exclusionary rights for 20 years from the earliest effective filing date. In addition, in certain instances, the term of
an issued U.S. patent that covers or claims an FDA approved product can be extended to recapture a portion of the term effectively
lost as a result of the FDA regulatory review period, which is called patent term extension. The restoration period cannot be longer
than five years and the total patent term, including the restoration period, must not exceed 14 years following FDA approval. The
term of patents outside of the U.S. varies in accordance with the laws of the foreign jurisdiction, but typically is also 20 years
from the earliest effective filing date. However, the actual protection afforded by a patent varies on a product-by-product basis,
from country-to-country, and depends upon many factors, including the type of patent, the scope of its coverage, the availability
of regulatory-related extensions, the availability of legal remedies in a particular country, and the validity and enforceability
of the patent.
In certain situations, where we work with
drugs covered by one or more patents, our ability to develop and commercialize our technologies may be affected by limitations
of our access to these proprietary drugs. Even if we believe we are free to work with a proprietary drug, we cannot guarantee that
we will not be accused of, or be determined to be, infringing on a third-party’s rights and be prohibited from working with
the drug or found liable for damages. Any such restriction on access or liability for damages would have a material adverse effect
on our business, results of operations and financial condition.
The patent positions of pharmaceutical
and biotechnology companies, such as ours, are uncertain and involve complex legal and factual issues. There can be no assurance
that patents that have been issued will be held valid and enforceable in a court of law. Even for patents that are held valid and
enforceable, the legal process associated with obtaining such a judgment is time consuming and costly. Additionally, issued patents
can be subject to opposition or other proceedings that can result in the revocation of the patent or maintenance of the patent
in amended form (and potentially in a form that renders the patent without commercially relevant and/or broad coverage). Further,
our competitors may be able to circumvent and otherwise design around our patents. Even if a patent is issued and enforceable,
because development and commercialization of pharmaceutical products can be subject to substantial delays, patents may expire early
and provide only a short period of protection, if any, following the commercialization of products encompassed by our patent(s).
We may have to participate in interference proceedings declared by the USPTO, which could result in a loss of the patent and/or
substantial cost to us. Further, we understand that if any of our pending patent applications do not issue, or are deemed invalid
following issuance, we may lose valuable IP protection.
U.S. and foreign patent rights and other
proprietary rights exist that are owned by third-parties and relate to pharmaceutical compositions and reagents, medical devices
and equipment and methods for preparation, packaging and delivery of pharmaceutical compositions. We cannot predict with any certainty
which, if any, of these rights will be considered relevant to our technology by authorities in the various jurisdictions where
such rights exist, nor can we predict with certainty which, if any, of these rights will or may be asserted against us by third-parties.
We could incur substantial costs in defending ourselves and our partners against any such claims. Furthermore, parties making such
claims may be able to obtain injunctive or other equitable relief, which could effectively block our ability to develop or commercialize
some or all of our products in the U.S. and in other countries and could result in the award of substantial damages. In the event
of a claim of infringement, we or our partners may be required to obtain one or more licenses from third-parties. There can be
no assurance that we can obtain a license to any technology that we determine we require on reasonable terms, if at all, or that
we could develop or otherwise obtain alternative technology. The failure to obtain licenses, if required, may have a material adverse
effect on our business, results of operations and financial condition. Further, we may not be able to obtain IP licenses related
to the development of our drug candidates on a commercially reasonable basis, if at all.
It is our policy to require our employees
and consultants, outside scientific collaborators, sponsored researchers and other advisors who receive confidential information
from us to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements
provide that all confidential information 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. The agreements
provide that all inventions conceived by an employee shall be our property. There can be no assurance, however, that these agreements
will provide meaningful protection or adequate remedies for our trade secrets in the event of unauthorized use or disclosure of
such information.
Manufacturing and Supply
We do not have the capability to manufacture
our own materials necessary to support our drug candidate development programs nor do we intend to acquire such capability as part
of our present business strategy. We currently have agreements in place with Serum Institute whereby Serum Institute would produce
clinical materials for use in the development of drug candidates involving our PolyXen technology, including candidates developed
by our partners. We do not have any agreements in place to manufacture clinical materials for use in the development of our XCART
technology and anticipate seeking a third party manufacturer, including potentially an academic collaborator pursuant to the Pharmsynthez
MSA, for our clinical supply needs.
Government Regulation