ITEM 1A – RISK FACTORS
Our business is subject to numerous
risks. You should consider carefully the risks and uncertainties described below, in addition to other information contained in
this Annual Report as well as our other public filings with the Securities and Exchange Commission. Any of the following risks
could have a material adverse effect on our business, financial condition, results of operations and prospects and cause the trading
price of our Common Stock to decline.
Risks Related to Our Financial Condition
and Capital Requirements
We have never been profitable and
may never achieve or sustain profitability. If we are unable to generate sufficient revenue from our operations to pay expenses
or we are unable to obtain additional financing on commercially reasonable terms, our business, financial condition and results
of operations may be materially and adversely affected.
We are a clinical stage biopharmaceutical
company with a limited operating history. Pharmaceutical product and technology development is a highly speculative undertaking
and involves a substantial degree of risk. To date, we have focused primarily on developing our drug candidates, XCART, XBIO-101
and PolyXen, our biological platform technology, and researching additional drug candidates. We have no products approved for commercial
sale and have generated only limited revenue to date. Due to capital constraints in 2020 we focused solely on winding down the
XBIO-101 Phase 2 trial and preliminary development efforts associated with the XCART technology. Our primary focus is on advancing
the XCART technology through regulatory approval and commercialization and that we will continue to incur significant research
and development and other expenses related to our ongoing operations. As a result, we have never been profitable and we may not
achieve profitability in the foreseeable future, if at all. Our ability to generate profits in the future will depend on a number
of factors, including:
· Market acceptance of our drug candidates and technologies;
· Costs of acquiring and developing new drug candidates and technologies;
· Ability to bring our drug candidates to market;
· General and administrative costs relating to our operations;
· Increases in our research and development costs;
· Charges related to purchases of technology or other assets;
· Establishing, maintaining and protecting our intellectual property rights;
· Attracting, hiring and retaining qualified personnel; and
· Our ability to raise additional capital.
As of December 31, 2020, we had an accumulated
deficit of approximately $176.9 million. We expect to incur additional significant operating losses as we expand our research and
development activities and our commercialization, marketing and sales efforts. We may also encounter unforeseen expenses, difficulties,
complications, delays and other unknown factors that may adversely affect our business. In addition, because of the numerous risks
and uncertainties associated with pharmaceutical product development, including that our current drug candidates may not achieve
the clinical endpoints of applicable trials, we are unable to predict the timing or amount of increased expenses, and if or when
we will achieve or maintain profitability. If we are unable to generate sufficient revenue from our operations to pay expenses
or we are unable to obtain additional financing on commercially reasonable terms, our business, financial condition and results
of operations may be materially and adversely affected.
We will require substantial additional
funding to achieve our goals. Failure to obtain this necessary capital when needed on acceptable terms, or at all, may force us
to delay, limit or terminate our product development efforts, other operations or commercialization efforts.
Developing drug candidates is an expensive,
risky and lengthy process, and we expect our expenses to increase in connection with our ongoing activities, particularly as we
continue the research and development of, initiate clinical trials of, and seek marketing approval for, our drug candidates.
As of December 31, 2020, we had cash of
approximately $11.5 million. We expect that we will require additional capital to commence and complete clinical trials, obtain
regulatory approval for, and to commercialize, our drug candidates, including our other preclinical drug candidates and our future
drug candidates. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to
seek additional funds sooner than planned, through public or private equity or debt financings, third-party funding, marketing
and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or a combination
of these approaches. In any event, we will require additional capital to pursue preclinical and clinical activities, pursue regulatory
approval for, and to commercialize, our longer term pipeline drug candidates. Even if we believe we have sufficient funds for our
current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic
considerations.
Any additional fundraising efforts may
divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our
drug candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable
to us, if at all. Moreover, the terms of any financing may negatively impact the holdings or the rights of our stockholders, and
the issuance of additional securities, whether equity or debt, by us or the possibility of such issuance may cause the market price
of our shares to decline. The incurrence of indebtedness could result in increased fixed payment obligations and we may be required
to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability
to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability
to conduct our business.
If we are unable to obtain funding on a
timely basis, we may be required to significantly curtail, delay or discontinue our pre-clinical development program or the commercialization
of any drug candidates. We may also be unable to expand our operations or otherwise capitalize on our business opportunities, as
desired, which could harm our business, financial condition and results of operations.
Raising additional capital may cause
dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or drug candidates.
Until such time, if ever, as we can
generate substantial product revenues, we expect to finance our cash needs through a combination of equity and debt
financings, as well as selectively continuing to enter into collaborations, strategic alliances and licensing arrangements.
For example, on December 14, 2020, we completed the registered direct Common Stock offering, which resulted in gross proceeds
of approximately $6.0 million before deducting the placement agent’s fees and related offering expenses. We do not
currently have any committed external source of funds. To the extent that we raise additional capital through the sale of
equity or convertible debt securities, equity interests will be diluted, and the terms of these securities may include
liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing, if available, may
involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends, and may be secured by all or a portion of our
assets.
If we raise funds by selectively continuing
to enter into collaborations, strategic alliances or licensing arrangements with third-parties, we may have to relinquish additional
valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that
may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be
required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop
and market drug candidates that we would otherwise prefer to develop and market ourselves. If we are unable to raise additional
funds through collaborations, strategic alliances or licensing arrangements, we may be required to terminate product development
or future commercialization efforts or to cease operations altogether.
Risks Related to the Discovery and Development
of our Pharmaceutical Products
Our business is substantially dependent
on the success of XCART.
Our business will substantially depend
on the successful clinical development, regulatory approval and commercialization of the XCART platform technology. It will require
substantial clinical development and regulatory approval efforts before we are permitted to commence its commercialization, if
ever. We have, and plan to continue to, pursue our clinical development strategy through academic and strategic collaborations.
For example, in 2020, we entered into the Scripps Agreement and the MSA with Pharmsynthez to advance the development of the XCART
technology. If we have difficulty maintaining these collaborations, or obtaining, or are unable to obtain, and maintaining additional
academic collaborations as planned, we may need to delay, limit or terminate any ongoing or planned clinical development, which
would have an adverse effect on our business. The clinical trials and manufacturing and marketing of XCART and any other product
candidates will be subject to extensive and rigorous review and regulation by numerous government authorities in the United States,
the European Union and other jurisdictions where we intend to test and, if approved, market our product candidates. Before obtaining
regulatory approvals for the commercial sale of any product candidate, we must demonstrate through preclinical testing and clinical
trials that the product candidate is safe and effective for use in each target indication, and potentially in specific patient
populations. This process can take many years and may include post-marketing studies and surveillance, which would require the
expenditure of substantial resources beyond the proceeds we have currently raised. Of the large number of drugs in development
for approval in the United States and the European Union, only a small percentage successfully complete the FDA or EMA regulatory
approval processes, as applicable, and are commercialized. Accordingly, even if we are able to obtain the requisite financing or
identify an academic collaboration partner to continue to fund our research, development and clinical programs, we cannot assure
you that XCART or any of our other product candidates will be successfully developed or commercialized.
We are an early stage company in
the business of developing pharmaceutical products including drug candidates and technologies. Given the uncertainty of such development,
our business operations may never fully materialize and create value for investors.
We currently do not have any products that
have gained marketing approval. We have invested substantially all of our efforts and financial resources developing ErepoXen,
OncoHist, XBIO-101 and, more recently XCART. Our revenues to date consist primarily of collaboration and royalty revenue from a
single partner and not from product sales. Our ability to generate product revenues, which may not occur for several years, if
ever, will depend on the successful development and eventual commercialization of our drug candidates. We currently generate royalty
revenue under a sub-license agreement but do not have revenue from sales of any drugs, and we may never be able to develop or commercialize
a marketable drug. Each of our drug candidates will require development, management of development and manufacturing activities,
marketing approval in multiple jurisdictions, obtaining manufacturing supply, building of a commercial organization, substantial
investment and significant marketing efforts before we generate any revenues from drug sales. We have not yet demonstrated an ability
to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields,
particularly in the pharmaceutical area. For example, to execute our business plan we will need to successfully:
· Protect, leverage and expand our intellectual property portfolio;
· Effectively compete with other therapies;
· Obtain and maintain healthcare coverages and adequate reimbursement;
· Enforce and defend intellectual property rights and claims; and
We may find it difficult to enroll
patients in our clinical studies, which could delay or prevent clinical studies of our pharmaceutical products.
Identifying and qualifying patients to
participate in clinical studies of our pharmaceutical products is critical to our success. The timing of our clinical studies depends
on the speed at which we can recruit patients to participate in testing our pharmaceutical products. We may experience delays.
If patients are unwilling to participate in our clinical studies because of negative publicity from adverse events in the biopharmaceutical
industries or for other reasons, including competitive clinical studies for similar patient populations, the timeline for recruiting
patients, conducting studies and obtaining regulatory approval of potential products may be delayed. These delays could result
in increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or termination
of the clinical studies altogether.
We may not be able to identify, recruit
and enroll a sufficient number of patients, or those with required or desired characteristics to achieve diversity in a study,
to complete our clinical studies in a timely manner. Patient enrollment is affected by many factors including:
· Severity of the disease under investigation;
· Real or perceived availability of alternative treatments;
· Size and nature of the patient population;
· Eligibility criteria for and design of the trial in question;
· Perceived risks and benefits of the drug candidate under study;
· Proximity and availability of clinical sites for prospective patients;
· Ongoing clinical trials of potentially competitive agents;
· Patient referral practices of physicians; and
We may not be able to initiate or continue
clinical studies if we cannot enroll a sufficient number of eligible patients to participate in the clinical studies required by
the FDA or other regulatory agencies. Our ability to successfully initiate, enroll and complete a clinical study in any foreign
country is subject to numerous risks unique to conducting business in foreign countries, including:
· Difficulty in establishing or managing relationships with CROs and physicians;
· Different standards for the conduct of clinical studies;
If we have difficulty enrolling a sufficient
number of patients to conduct our clinical studies as planned, we may need to delay, limit or terminate ongoing or planned clinical
studies, any of which would have an adverse effect on our business.
We may encounter substantial delays
in commencement, enrollment or completion of our clinical trials or we may fail to demonstrate safety and efficacy to the satisfaction
of applicable regulatory authorities, which could prevent us from commercializing our current and future drug candidates on a timely
basis, if at all.
Before obtaining marketing approval from
regulatory authorities for the sale of our current and future drug candidates, we must conduct extensive clinical trials to demonstrate
the safety and efficacy of the drug candidates. We cannot guarantee that any clinical studies will be conducted as planned or completed
on schedule, if at all. A failure of one or more clinical studies can occur at any stage of testing. Events that may prevent successful
or timely completion of clinical development include:
· Delays in reaching a consensus with regulatory agencies on study design;
· Delays in recruiting suitable patients to participate in our clinical studies;
· Clinical study sites or patients dropping out of a study;
Any inability to successfully complete
preclinical studies and clinical trials could result in additional costs to us or impair our ability to generate revenues from
product sales, regulatory and commercialization milestones and royalties. In addition, if we make manufacturing or formulation
changes to our drug candidates, we may need to conduct additional studies to bridge our modified drug candidates to earlier versions.
Clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our drug candidates
or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize
our drug candidates and may harm our business, financial condition, results of operations and prospects.
If the results of our clinical studies
are inconclusive or if there are safety concerns or adverse events associated with our pharmaceutical products, we may:
· Be subject to changes with the way the product is administered;
· Be sued; or
· Experience damage to our reputation.
As described above, any of these events
could prevent us from achieving or maintaining market acceptance of our pharmaceutical products and impair our ability to generate
revenues.
Clinical trials may fail to demonstrate
the safety and efficacy of our pharmaceutical drug candidates and could prevent or significantly delay regulatory approval.
Before receiving NDA or BLA approval to
commercialize a drug candidate, we must demonstrate to the FDA, with substantial evidence from well-controlled clinical trials,
that the drug candidate is both safe and effective or the biologic is safe, pure and potent. If these trials or future clinical
trials are unsuccessful, our business and reputation could be harmed and our stock price could be adversely affected.
Clinical failure can occur at any stage
of clinical development. Clinical trials may produce negative or inconclusive results, and we or any of our current and future
collaborators may decide, or regulators may require us, to conduct additional clinical or preclinical testing. We will be required
to demonstrate with substantial evidence through well-controlled clinical trials that our drug candidates are as safe and effective
for use in a specific patient population as the respective reference products before we can seek regulatory approvals for their
commercial sale. Success in early clinical trials does not mean that future larger registration clinical trials will be successful
because drug candidates in later-stage clinical trials may fail to demonstrate equivalent safety and efficacy to the satisfaction
of the FDA and foreign regulatory agencies despite having progressed through initial clinical trials. Drug candidates that have
shown promising results in early clinical trials may still fail in subsequent confirmatory clinical trials. Similarly, the outcome
of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results
of a clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical industry, including those
with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials, even after obtaining
promising results in earlier clinical trials.
In addition, the design of a clinical trial
can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become
apparent until the clinical trial is well advanced. We may be unable to design and execute a clinical trial to support regulatory
approval. In some instances, there can be significant variability in safety or efficacy results between different trials of the
same drug candidate due to numerous factors, including but not limited to changes in trial protocols, differences in size and type
of the patient populations, adherence to the dosing regimen and the rate of dropout among clinical trial participants.
Because of these risks, our research and
development efforts, and those of our collaborative partners, may not result in any commercially viable products. If a significant
portion of these development efforts is not successfully completed, or if required regulatory approvals are not obtained by us
or our partners, or any approved products are not commercially successful, we may not generate significant revenues or become profitable.
If we complete the necessary preclinical
and clinical studies, we cannot predict when or if we will obtain regulatory approval to commercialize a drug candidate or the
approval may be for a more narrow indication than we expect.
A drug candidate cannot be commercialized
until the appropriate regulatory authorities have reviewed and approved the drug candidate. Even if our drug candidates demonstrate
safety and efficacy in clinical studies, the regulatory agencies may not complete their review processes in a timely manner, or
we may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee or other regulatory
advisory group or authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections
based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy
during the period of product development, clinical studies and the review process. Regulatory agencies also may approve a drug
candidate for fewer or more limited indications than requested or may grant approval subject to the performance of post-marketing
studies. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful
commercialization of our drug candidates. Failure to obtain, or a delay in obtaining, regulatory approval to commercialize a drug
candidate will impair our ability to generate revenues and harm our business prospects.
If we obtain regulatory approval
for a drug candidate, our drug candidate will remain subject to regulatory scrutiny.
If our drug candidates are approved, they
will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling,
record-keeping, conduct of post-marketing studies and submission of safety, efficacy and other post-market information, including
both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities.
Manufacturers and manufacturing facilities
are required to comply with extensive FDA, and comparable foreign regulatory authority requirements, including ensuring that quality
control and manufacturing procedures conform to cGMP regulations. As such, we will be subject to continual review and inspections
to assess compliance with cGMP and adherence to commitments made in any, BLA or marketing authorization application, or MAA. Accordingly,
we and our collaborators and suppliers must continue to expend time, money and effort in all areas of regulatory compliance, including
manufacturing, production and quality control.
Any regulatory approvals that we or our
collaboration partners receive for our drug candidates may be subject to limitations on the approved indicated uses for which the
product may be marketed or to the conditions of approval or may contain requirements for potentially costly additional clinical
trials and surveillance to monitor the safety and efficacy of the drug candidate. We will be required to report certain adverse
reactions and production problems, if any, to the FDA and comparable foreign regulatory authorities. Any new legislation addressing
drug safety issues could result in delays in product development or commercialization, or increased costs to assure compliance.
We will have to comply with requirements concerning advertising and promotion for our products. Promotional communications with
respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information
in the product’s approved label. As such, we are not allowed to promote our products for indications or uses for which they
do not have approval. If our drug candidates are approved, we must submit new or supplemental applications and obtain approval
for certain changes to the approved products, product labeling or manufacturing process. We could also be asked to conduct post-marketing
clinical trials to verify the safety and efficacy of our products in general or in specific patient subsets. An unsuccessful post-marketing
study or failure to complete such a study could result in the withdrawal of marketing approval.
If a regulatory agency discovers previously
unknown problems with an approved product, such as adverse events of unanticipated severity or frequency or problems with our manufacturing
facilities, or if a regulatory agency disagrees with the promotion, marketing or labeling of a product, such regulatory agency
may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply
with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:
· Issue untitled and warning letters;
· Impose civil or criminal penalties;
· Suspend or withdraw regulatory approval or revoke a license;
· Suspend any of our ongoing clinical trials;
· Seize or detain products or require a product recall.
Any government investigation of alleged
violations of law could require us to expend significant time and resources in response and could generate negative publicity.
Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize
and generate revenue from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of
the Company and our operating results will be negatively impacted.
The commercial success of any current
or future pharmaceutical products will depend upon the degree of market acceptance by physicians, patients, third-party payors
and others in the medical community.
Even with the requisite approvals, the
commercial success of our pharmaceutical products will depend in part on the medical community, patients, and third-party payors
accepting our pharmaceutical products as medically useful, cost-effective, and safe. Any pharmaceutical product that we, or our
partners, bring to the market may not gain market acceptance by physicians, patients, third-party payors or others in the medical
community. The degree of market acceptance of these pharmaceutical products, if approved for commercial sale, will depend on a
number of factors, including:
· Our ability to provide acceptable evidence of safety and efficacy;
· Relative convenience and ease of administration;
· The prevalence and severity of any adverse side effects;
· Restrictions on use in combination with other products;
· Availability of alternative treatments;
· Effectiveness of our or our partners’ sales and marketing strategy;
· Our ability to obtain sufficient third-party coverage or reimbursement; and
· Potential product liability claims.
Even if a potential product displays a
favorable efficacy and safety profile in preclinical and clinical studies, market acceptance of the product will not be known until
after it is launched. Our efforts to educate the medical community and third-party payors on the benefits of the pharmaceutical
products may require a significant amount of resources and may never be successful. If these products do not achieve an adequate
level of acceptance, we may not generate significant product revenue and may not become profitable.
The commercial potential of a pharmaceutical
candidate in development is difficult to predict. If the market size for a new drug candidate or technology is significantly smaller
than we anticipate, it could significantly and negatively impact our revenue, results of operations and financial condition.
It is very difficult to estimate the commercial
potential of pharmaceutical products due to important factors, such as safety and efficacy compared to other available technologies
or treatments, including changing standards of care, third-party payor reimbursement standards, patient and physician preferences,
the availability of competitive alternatives that may emerge either during the long drug development process or after commercial
introduction, and the availability of generic versions of our successful drug candidates following approval by government health
authorities, based on the expiration of regulatory exclusivity or our inability to prevent generic versions from coming to market
by asserting our patents. If due to these factors, or others, the market potential for a pharmaceutical product is lower than we
anticipated, it could significantly and negatively impact the commercial terms of any collaboration partnership potential for such
pharmaceutical product or, if we have already entered into a collaboration for such pharmaceutical product, the revenue potential
from royalty and milestone payments could be significantly diminished which would negatively impact our business, financial condition
and results of operations.
Failure to obtain or maintain adequate
coverage and reimbursement for our drug candidates, if approved, could limit our ability to market those products and decrease
our ability to generate revenue.
The success of our drug candidates, if
approved, depends on the availability of adequate coverage and reimbursement from third-party payors. In addition, because our
drug candidates represent new approaches to the treatment of certain diseases, we cannot be sure that coverage and reimbursement
will be available for, or accurately estimate the potential revenue from, our drug candidates or assure that coverage and reimbursement
will be available for any product that we may develop.
Patients who are provided medical treatment
for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment.
Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors
are critical to new product acceptance.
Government authorities and third-party
payors, such as private health insurers and health maintenance organizations, decide which drugs and treatments they will cover
and the amount of reimbursement. 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 product 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.
In the United States, no uniform policy
of coverage and reimbursement for products exists among third-party payors. As a result, 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 products on a payor-by-payor basis,
with no assurance that coverage and adequate reimbursement will be obtained. Even if we obtain coverage for a given product, the
resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability or may require co-payments
that patients find unacceptably high. Additionally, third-party payors may not cover, or provide adequate reimbursement for, long-term
follow-up evaluations required following the use of our gene-modifying products. Patients are unlikely to use our drug candidates
unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our drug candidates. There
is significant uncertainty related to insurance coverage and reimbursement of newly approved products. It is difficult to predict
at this time what third-party payors will decide with respect to the coverage and reimbursement for our drug candidates.
Moreover, increasing efforts by governmental
and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit
both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate
payment for our drug candidates. We expect to experience pricing pressures in connection with the sale of any of our drug candidates
due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, cost containment initiatives
and additional legislative changes.
We intend to seek approval to market our
drug candidates in both the United States and in select foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions
for our drug candidates, we will be subject to rules and regulations in those jurisdictions. In some foreign countries, the pricing
of pharmaceutical products is subject to governmental control and other market regulations which could put pressure on the pricing
and usage of our drug candidates. In these countries, pricing negotiations with governmental authorities can take considerable
time after obtaining marketing approval of a drug candidate. In addition, market acceptance and sales of our drug candidates will
depend significantly on the availability of adequate coverage and reimbursement from third-party payors for our drug candidates
and may be affected by existing and future health care reform measures. Failure to obtain or maintain adequate coverage and reimbursement
for our drug candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue.
We may use our financial and human
resources to pursue a particular research program or drug candidate and fail to capitalize on programs or drug candidates that
may be more profitable or for which there is a greater likelihood of success.
Because we have limited resources, we may
forego or delay pursuit of opportunities with certain programs, drug candidates or for indications that later prove to have greater
commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable
market opportunities. Our spending on current and future research and development programs for drug candidates may not yield any
commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular drug
candidate, we may relinquish valuable rights to that drug candidate through strategic collaboration, licensing or other royalty
arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights
to such drug candidate, or we may allocate internal resources to a drug candidate in a therapeutic area in which it would have
been more advantageous to enter into a partnering arrangement. Failure to pursue opportunities with greater commercial potential
or relinquishing valuable rights to drug candidates may adversely impact our business, results of operations and prospects.
We may not be successful in our efforts
to identify or discover additional pharmaceutical products.
The success of our business depends primarily
upon our ability to identify and develop pharmaceutical products. Our research programs may fail to identify potential pharmaceutical
products for clinical development for a number of reasons. Our research methodology may be unsuccessful in identifying potential
pharmaceutical products or our potential pharmaceutical products may be shown to have harmful side effects or may have other characteristics
that may make the products unmarketable or unlikely to receive marketing approval.
If any of these events occur, we may be
forced to abandon our development efforts for a program or programs, which would have a material adverse effect on our business
and could potentially cause us to cease operations. Research programs to identify new pharmaceutical products require substantial
technical, financial and human resources. We may focus our efforts and resources on potential programs or pharmaceutical products
that ultimately prove to be unsuccessful. If we are not successful in our efforts to identify or discover additional pharmaceutical
products, it could adversely affect our business, results of operations and prospects.
We may fail to obtain orphan drug
designations from the FDA for our drug candidates, and even if we obtain such designations, we may be unable to maintain the benefits
associated with orphan drug designation, including the potential for market exclusivity.
Under the Orphan Drug Act, the FDA may
grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition, which is defined as one occurring
in a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United
States where there is no reasonable expectation that the cost of developing the drug or biologic will be recovered from sales in
the United States. In the United States, orphan drug designation entitles a party to financial incentives such as opportunities
for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has orphan
drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is
entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including a full NDA or BLA,
to market the same drug or biologic for the same indication for seven years, except in limited circumstances, such as a showing
of clinical superiority to the product with orphan drug exclusivity or where the manufacturer is unable to assure sufficient product
quantity.
We may seek to obtain orphan drug
designation for our active drug candidates for any qualifying indications they may be approved for in the future. Even if we obtain
such designations, we may not be the first to obtain marketing approval of our drug candidate for the orphan-designated indication
due to the uncertainties associated with developing pharmaceutical products. In addition, exclusive marketing rights in the United
States may be limited if we seek approval for an indication broader than the orphan-designated indication, or 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. Further, even if we obtain orphan drug
exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with
different active moieties can be approved for the same condition. Even after an orphan product is approved, the FDA can subsequently
approve the same drug with the same active moiety for the same condition if the FDA concludes that the later drug is safer, more
effective or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory
review time of a drug, nor gives the drug any advantage in the regulatory review or approval process. In addition, even if we seek
orphan drug designation for our drug candidates, we may never receive such designations.
The market opportunities for our
drug candidates may be limited to those patients who are ineligible for or have failed prior treatments and may be small.
Cancer therapies are sometimes characterized
as first line, second line or third line, and the FDA often approves new therapies initially only for third line use. When cancer
is detected early enough, first line therapy is sometimes adequate to cure the cancer or prolong life without a cure. Whenever
first line therapy, which usually consists of chemotherapy, hormone therapy, surgery or a combination of these, proves unsuccessful,
second line therapy may be administered. Second line therapies often consist of more chemotherapy, radiation, antibody drugs, tumor
targeted small molecules or a combination of these. Third line therapies can include bone marrow transplantation, antibody and
small molecule targeted therapies, more invasive forms of surgery and new technologies. In markets with approved therapies, we
expect to initially seek approval of our drug candidates as a later stage therapy for patients who have failed other approved treatments.
Subsequently, for those drugs that prove to be sufficiently beneficial, if any, we would expect to seek approval as a second line
therapy and potentially as a first line therapy, but there is no guarantee that our drug candidates, even if approved, would be
approved for second line or first line therapy. In addition, we may have to conduct additional clinical trials prior to gaining
approval for second line or first line therapy.
Our projections of both the number of people
who have the cancers we are targeting, as well as the subset of people with these cancers in a position to receive later stage
therapy and who have the potential to benefit from treatment with our drug candidates, are based on our beliefs and estimates.
These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations
or market research and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these
cancers. The number of patients may turn out to be lower than expected. In addition, the potentially addressable patient population
for our drug candidates may be limited or may not be amenable to treatment with our drug candidates. Even if we obtain significant
market share for our drug candidates, we may never achieve profitability without obtaining regulatory approval for additional indications,
including use as a first or second line therapy, which may adversely affect our business and results of operations.
Healthcare legislative reform measures
may have a material adverse effect on our business and results of operations.
In both the United States and certain foreign
jurisdictions, there have been a number of legislative and regulatory enactments in recent years that change the healthcare system
in ways that could impact our future ability to sell our drug candidates profitably.
Furthermore, there have been and
continue to be a number of initiatives at the federal and state level that seek to reduce healthcare costs. Most
significantly, in March 2010, the Patient Protection and Affordable Health Care Act, as amended by the Health Care and
Education Reconciliation Act (collectively, the “ACA”), was signed into law, which includes measures that
significantly change the way healthcare is financed by both governmental and private insurers. In January 2017, Congress
voted to adopt a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of
legislation that would repeal portions of the ACA. In addition, on January 20, 2017, former President Trump signed an
Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant
exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on
states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Further,
on October 12, 2017, former President Trump issued another executive order requiring the Secretaries of HHA and the
Departments of Labor, and Treasury to consider proposing regulations or revising existing guidance to allow more employers to
form association health plans that would be allowed to provide coverage across state lines, increase the availability of
short-term, limited duration health insurance plans, which are generally not subject to the requirements of the ACA, and
increase the availability and permitted use of health reimbursement arrangements. On October 13, 2017, the Department of
Justice announced that HHS was immediately stopping its cost sharing reduction payments to insurance companies based on the
determination that those payments had not been appropriated by Congress. Furthermore, on December 22, 2017, former President
Trump signed the Tax Cuts and Jobs Act (the “TCJA”) into law that, in addition to overhauling the federal tax
system, also, effective as of January 1, 2019, repeals the penalties associated with the individual mandate. In part, as a
result of the repeal of such penalties, there is litigation pending in various Federal jurisdictions challenging the validity
of the ACA and certain cases are now being considered by the United States Supreme Court after oral arguments. Congress or
the President of the United States also could consider subsequent legislation or executive action to replace, eliminate or
reaffirm elements of the ACA. We will continue to evaluate the effect that the ACA and any future measures to modify, repeal,
replace or reaffirm the ACA have on our business. We are not able to provide any assurance that the continued healthcare
reform debate will not result in legislation, regulation, litigation, or executive action by the President of the United
States that is adverse to our business.
Laws and other reform and cost containment
measures that may be proposed and adopted in the future remain uncertain, but may result in additional reductions in Medicare and
other healthcare funding, which could have a material adverse effect on our future customers and accordingly, our ability to generate
revenue, attain profitability, or commercialize our products.
Risks Related to Our Reliance on Third-Parties
If conflicts arise between us and
our collaborators or strategic partners, these parties may act in their self-interest, which may limit our ability to implement
our strategies.
If conflicts arise between our corporate
or academic collaborators or strategic partners and us, the other party may act in its self-interest, which may limit our ability
to implement our strategies. Some of our academic collaborators and strategic partners are conducting multiple product development
efforts within each area that is the subject of the collaboration with us. Our collaborators or strategic partners, however, may
develop, either alone or with others, products in related fields that are competitive with the products or potential products that
are the subject of these collaborations. Competing products, either developed by the collaborators or strategic partners or to
which the collaborators or strategic partners have rights, may result in the withdrawal of partner support for our drug candidates.
Some of our collaborators or strategic
partners could also become our competitors in the future. Our collaborators or strategic partners could develop competing products,
preclude us from entering into collaborations with their competitors, fail to obtain timely regulatory approvals, terminate their
agreements with us prematurely, or fail to devote sufficient resources to the development and commercialization of products. Any
of these developments could harm our product development efforts, which may adversely affect our business, results of operations
and prospects.
We expect to rely on third-parties
to conduct, supervise and monitor our clinical studies, and if these third-parties perform in an unsatisfactory manner, it may
harm our business.
We rely on CROs, clinical investigators
and clinical study sites to ensure our clinical studies are conducted properly and on time. We will have limited influence over
the performance by CROs, clinical investigators and clinical study sites and we will control only certain aspects of our CROs’
activities. Nevertheless, we will be responsible for ensuring that each of our clinical studies is conducted in accordance with
the applicable protocol, legal, and regulatory requirements and scientific standards, and our reliance on the CROs does not relieve
us of our regulatory responsibilities.
We, our clinical investigators and our
CROs are required to comply with the FDA’s GCPs for conducting, recording and reporting the results of clinical trials to
assure that the data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical
trial participants are protected. The FDA enforces these GCPs through periodic inspections of study sponsors, principal investigators
and clinical trial sites. If we, our CROs or the clinical investigators fail to comply with applicable GCPs, the clinical data
generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before
approving any marketing applications. Upon inspection, the FDA may determine that our clinical trials did not comply with GCPs.
In addition, our future clinical trials will require a sufficient number of test subjects to evaluate the safety and efficacy of
our drug candidates. Accordingly, if our CROs or clinical investigators fail to comply with these regulations or fail to recruit
a sufficient number of patients, we may be required to repeat such clinical trials, which would delay the regulatory approval process.
Our CROs are not our employees, and we
are therefore unable to directly monitor whether or not they devote sufficient time and resources to our clinical and nonclinical
programs, which must be conducted in accordance with GCPs and GLPs, respectively. These CROs may also have relationships with other
commercial entities, including our competitors, for whom they may also be conducting clinical studies or other drug development
activities that could harm our competitive position. If our CROs do not successfully carry out their contractual duties or obligations,
fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure
to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical studies may be extended,
delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize our pharmaceutical
products. As a result, our financial results and the commercial prospects for our pharmaceutical products would be harmed, our
costs could increase, and our ability to generate revenues could be delayed.
We may also rely on other third-parties
to store and distribute our products for any clinical studies that we may conduct. Any performance failure on the part of our
distributors could delay clinical development or marketing approval of our pharmaceutical products or commercialization of our
products, if approved, producing additional losses and depriving us of potential product revenue.
Our collaborators or strategic partners
may decide to adopt alternative technologies or may be unable to develop commercially viable products with our technology, which
would negatively impact our revenues and our strategy to develop these products.
Our collaborators or strategic partners
may adopt alternative technologies, which could decrease the marketability of our products. Additionally, because our current or
future collaborators or strategic partners are likely to be working on more than one development project, they could choose to
shift their resources to projects other than those they are working on with us. If they do so, this would delay our ability to
test our technology and would delay or terminate the development of potential products based on our platforms. Further, our collaborators
and strategic partners may elect not to develop products arising out of our collaborative and strategic partnering arrangements
or to devote sufficient resources to the development, manufacturing, marketing or sale of these products. The failure to develop
and commercialize a drug candidate pursuant to our agreements with our current or future collaborator would prevent us from receiving
future milestone and royalty payments which would negatively impact our revenues.
We may seek to establish additional
collaborations and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development
and commercialization plans.
Our drug candidate development programs
and the potential commercialization of our drug candidates will require substantial additional cash to fund expenses. For some
of our drug candidates, we may decide to collaborate with additional pharmaceutical and biotechnology companies for the development
and potential commercialization of those drug candidates. For our XCART technology, we intend to seek to leverage the manufacturing
expertise and capability of an academic or strategic collaborator during early development.
We face significant competition in seeking
appropriate collaborators. Whether we reach a definitive agreement for any additional collaborations will depend, among other things,
upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration
and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical
trials, the likelihood of approval by FDA or similar regulatory authorities outside the United States, the potential market for
the subject drug candidate, the costs and complexities of manufacturing and delivering such drug candidate to patients, the potential
of competing drugs, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge
to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The collaborator
may also consider alternative drug candidates or technologies for similar indications that may be available to collaborate on and
whether such a collaboration could be more attractive than the one with us for our drug candidate. The terms of any additional
collaborations or other arrangements that we may establish may not be favorable to us.
We may also be restricted under existing
collaboration agreements from entering into future agreements on certain terms with potential collaborators. Collaborations are
complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations
among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.
We may not be able to negotiate additional
collaborations on a timely basis, including for early XCART development, on acceptable terms, or at all. If we are unable to do
so, we may have to curtail the development of the drug candidate for which we are seeking to collaborate, reduce or delay its development
program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales
or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense.
If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain
additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may
not be able to further develop our drug candidates or bring them to market and generate product revenue.
If we enter into one or more collaborations,
we may be required to relinquish important rights to and control over the development of our drug candidates or otherwise be subject
to unfavorable terms.
Any future collaborations we enter into
could subject us to a number of risks, including:
· Collaborators may experience financial difficulties;
Our contract manufacturers are subject
to significant regulation with respect to manufacturing our products. The manufacturing facilities on which we rely may not continue
to meet regulatory requirements and have limited capacity.
We currently have relationships with a
limited number of suppliers for the manufacturing of our pharmaceutical products. Each supplier may require licenses to manufacture
components if such processes are not owned by the supplier or in the public domain and we may be unable to transfer or sublicense
the intellectual property rights we may have with respect to such activities.
All entities involved in the preparation
of pharmaceutical products for clinical studies or commercial sale, including our existing contract manufacturers for our drug
candidates, are subject to extensive regulation. Components of a finished pharmaceutical product approved for commercial sale or
used in late-stage clinical studies must be manufactured in accordance with cGMP. These regulations govern manufacturing processes
and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality
of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of
adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of our pharmaceutical products
that may not be detectable in final product testing. Our contract manufacturers must supply all necessary documentation in support
of an NDA or BLA on a timely basis and must adhere to the FDA’s GLP, and cGMP regulations enforced by the FDA through its
facilities inspection program. The facilities and quality systems of some or all of our third-party contractors must pass a pre-approval
inspection for compliance with the applicable regulations as a condition of regulatory approval of our pharmaceutical products
or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing
facility involved with the preparation of our pharmaceutical products or our other potential products or the associated quality
systems for compliance with the regulations applicable to the activities being conducted. If these facilities do not pass a pre-approval
plant inspection, FDA approval of the products will not be granted.
The regulatory authorities also may, at
any time following approval of a product for sale, audit the manufacturing facilities of our third-party contractors. If any such
inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications
or applicable regulations occurs independent of such an inspection or audit, we, or the relevant regulatory authority, may require
remedial measures that may be costly and/or time-consuming for us or a third-party to implement and that may include the temporary
or permanent suspension of a clinical study or commercial sales or the temporary or permanent closure of a facility. Any such remedial
measures imposed upon third-parties with whom we contract could materially harm our business.
If our third-party manufacturers fail to
maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other things, refusal to approve a pending
application for a drug candidate, or revocation of a pre-existing approval. As a result, our business, financial condition and
results of operations may be materially harmed.
Additionally, if supply from one approved
manufacturer is interrupted, there could be a significant disruption in commercial supply. The number of manufacturers with the
necessary manufacturing capabilities is limited. In addition, an alternative manufacturer would need to be qualified through an
NDA or BLA supplement which could result in further delay. The regulatory agencies may also require additional studies if a new