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, MA01701
(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 ̈Nox
The aggregate market
value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2021, 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 $2.04, was approximately $17,462,218. 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 18, 2022,
the number of outstanding shares of the registrant’s common stock was 13,441,296.
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 2022 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, 2021.
XENETIC BIOSCIENCES, INC.
2021 ANNUAL REPORT ON FORM 10-K
TABLE CONTENTS
PART I 1
Item 1 Business 1
Item 1A Risk Factors 21
Item 1B Unresolved Staff Comments 49
Item 2 Properties 49
Item 3 Legal Proceedings 49
Item 4 Mine Safety Disclosures 49
Item 6 [Reserved] 50
Item 7A Quantitative and Qualitative Disclosures About Market Risk 58
Item 8 Financial Statements and Supplementary Data 59
Item 9A Controls and Procedures 60
Item 9B Other Information 61
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 61
PART III 62
Item 10 Directors, Executive Officers and Corporate Governance 62
Item 11 Executive Compensation 62
Item 14 Principal Accounting Fees and Services 62
Item 15 Exhibits and Financial Statement Schedules 63
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; 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 along with the likelihood and extent of competition to our drug candidates; the development of the XCARTTM
CAR T (Chimeric Antigen Receptor T Cell) (“XCART”) 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; and 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.
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 implement our business strategy;
· 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;
· interruptions or cancellation of existing contracts;
ii
· 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. 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.
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 from 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 attacks on healthy organs. In each case, these toxicities
have sometimes resulted in death. In addition, all currently approved CAR T cell therapies work by targeting CD19, an antigen common to
all B cells. A significant number of patients have been observed to experience relapse following this treatment, and in many cases the
relapsing patients are evidencing CD19 antigen escape, or lack of expression of the CD19 antigen as an effective target for those CAR
T cell therapies. 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 (“PSA”) to prolong
a drug's circulating half-life and potentially improve other pharmacological properties. We incorporate our patented and proprietary
technologies into drug candidates currently under development with biotechnology and pharmaceutical industry collaborators to create
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 countries or territories by any applicable agencies. We are receiving ongoing
royalties pursuant to a license of our PolyXen technology to an industry partner.
Although we hold a broad patent portfolio, the
focus of our internal development efforts in 2021 was on advancing development of our 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 the wholly-owned subsidiaries of Xenetic UK, Lipoxen Technologies
Limited (“Lipoxen”), Xenetic Bioscience, Incorporated (“XTI”) and SymbioTec, GmbH (“SymbioTec”), own
various U.S. federal trademark registrations and applications, along with 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 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 the Company’s primary CRO 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.
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 were expected
to take approximately 20 months unless earlier terminated in accordance with the MSA. On October 12, 2021, we entered into an Amendment
Number One to the MSA (the “MSA Amendment”) with Pharmsynthez to, among other things, terminate all work orders under the
MSA. As a result, no further services were to be performed under the Work Order, and any additional services will be covered by new work
orders. In exchange, we entered into a new work order (the “Second Work Order”) simultaneously with the MSA Amendment. Under
the terms of the Second Work Order, Pharmsynthez shall provide certain enumerated services to support the development of our XCART technology
upon the written request of the Company, which work may be requested by us from time to time.
Pursuant to the MSA Amendment and Second Work
Order, upon entry into the Second Work Order, we made a one-time $40,000 payment to Pharmsynthez, of which $21,000 was a one-time payment
in full for all money and other compensation owed by us under the Work Order, and the remaining $19,000 will be creditable against any
out-of-pocket costs and expenses incurred by Pharmsynthez on behalf of us pursuant to any new work orders initiated after the effective
date of the MSA Amendment, including the Second Work Order.
At The Market (“ATM”) Offering
On November 19, 2021, we entered into an ATM Offering
Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC, as the exclusive sales agent (“Wainwright”),
pursuant to which we may offer and sell, from time to time through Wainwright, shares of our common stock. The offer and sale of the shares
will be made pursuant to a shelf registration statement on Form S-3 (File No. 333-260201) and the related prospectus, as supplemented
by a prospectus supplement dated November 19, 2021, and filed with the Securities and Exchange Commission (the “SEC”) on such
date pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”), and is currently limited
to a number of shares of up to $4,000,000 of common stock pursuant to General Instruction I.B.6 of Form S-3.
Pursuant to the ATM Agreement, Wainwright may
sell the shares in sales deemed to be “at-the-market” equity offerings as defined in Rule 415 promulgated under the Securities
Act, including sales made directly on or through the Nasdaq Capital Market. If agreed to in a separate terms agreement, we may sell shares
to Wainwright as principal, at a purchase price agreed upon by Wainwright and us. Wainwright may also sell shares in privately negotiated
transactions with our prior approval. Sales of the shares through Wainwright, if any, will be made in amounts and at times to be determined
by us from time to time, but we have no obligation to sell any of the shares, and either we or Wainwright may at any time suspend offers
under the agreement or terminate the agreement. Actual sales will depend on a variety of factors to be determined by us from time to time,
including (among others) market conditions, the trading price of our common stock and determinations by us of the appropriate sources
of funding for us. The offer and sale of the shares pursuant to the ATM Agreement will terminate upon the earlier of (a) the issuance
and sale of all of the shares subject to the ATM Agreement or (b) the termination of the ATM Agreement by Wainwright or us pursuant to
the terms thereof.
No shares were sold under the ATM Agreement during
the year ended December 31, 2021.
Private Placement
On July 26, 2021, we entered into a securities
purchase agreement in connection with a private placement with the purchaser named on the signature page thereto (“Purchaser”),
pursuant to which we issued and sold to Purchaser, in a private placement priced at-the-market under Nasdaq rules, (i) 950,000 shares
of our common stock, par value $0.001 per share; (ii) warrants to purchase an aggregate of 4,629,630 shares of our common stock, with
an exercise price of $3.30 per share (the “Series A Warrants”) which expire three and one half years from the earlier of (a)
the six month anniversary of the initial exercise date and (b) the date that the registration statement registering all of the warrant
shares underlying the Series A Warrants is declared effective; and (iii) pre-funded warrants to purchase up to 3,679,630
shares of our common stock, with an exercise price of $0.001 per share (the “Series B Warrants”) with no expiration (the
“Private Placement”), at a purchase price of $2.70 per one share and one Series A Warrant and $2.699 per one Series B Warrant
and one Series A Warrant. The Private Placement closed on July 28, 2021 resulting in gross proceeds from the Private Placement of approximately
$12.5 million, before deducting placement agent fees and offering expenses, and excluding the exercise of any such warrants. Net proceeds
from the Private Placement were $11.5 million. All of the Series B Warrants were exercised in 2021 resulting in approximately $4,000 of
proceeds.
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.
During the year ended December 31, 2021, the focus
of our internal development efforts was on advancing development of our XCART technology. We have not been actively pursuing development
efforts for PolyXen or any of our other technologies.
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, 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 Pharmsynthez 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 drug candidates
under development internally and with our biotechnology and pharmaceutical collaborators. The following discussion summarizes key information
regarding our current drug candidates:
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 Pharmsynthez
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.
Pharmsynthez received regulatory approval to commence
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 had started the registration phase of Epolong by filing a registration
dossier to obtain approval in Russia. Pharmsynthez had reported in its press release that it expected that the Russian stage of registration
activities would be completed in 2021 and that it would be able to start production of the product as early as the first quarter of 2022.
Pharmsynthez has not informed the Company that the registration process has been completed or that production of the product has commenced.
Serum Institute conducted Phase I and Phase II
clinical trials of ErepoXen in ninety-five 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 Pharmsynthez’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.
Significant Collaborations and Strategic Arrangements
Takeda
We were 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 relied on our PolyXen technology to conjugate PSA with therapeutic blood-clotting factors, with the goal of improving the
pharmacokinetic profile and extending the active half-life of these biologic molecules. The agreement granted 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. There are no active projects under the exclusive research, development and license
agreement and the parties mutually terminated the agreement in August 2021.
In October 2017, we granted to Takeda the right
to grant a non-exclusive sublicense to certain patents related to the Company’s PolyXen technology that were previously exclusively
licensed to Takeda in connection with products related to the treatment of blood and bleeding disorders. Pursuant to the 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 commenced
in late 2019. During the years ended December 31, 2021, and December 31, 2020, royalty payments of approximately $1.2 million and $0.4
million were recorded as revenue by us, respectively. The termination of the Takeda exclusive research, development and license agreement
had no impact on the Company’s non-exclusive sublicense agreement and the royalties being generated.
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
its 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, 2021, and December 31, 2020, 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. Effective December 20, 2021 SynBio assigned the Co-Development Agreement to its parent company, 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 product 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 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 3.3% of the total outstanding common stock of the Company as of December 31, 2021.
In addition to its common stock ownership, Pharmsynthez holds approximately 1.5 million shares of our outstanding Series B Preferred Stock
(as defined in Note 10, Stockholders’ Equity) and all of our issued and outstanding Series A Preferred Stock (as defined
in Note 10, Stockholders’ Equity) through SynBio.
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, 2021, 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, 2021, and December 31, 2020. Serum Institute had a share ownership of less than 1% of our total outstanding
common stock as of December 31, 2021.
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 began to expire 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 January 20, 2022, 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 along with 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, a next generation Factor VIII protein product candidate 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 twenty 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 fourteen years following FDA approval. The term of patents outside of the U.S. varies
in accordance with the laws of the foreign jurisdiction but is typically also twenty 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 for our clinical supply needs.
Government Regulation
General
Government authorities in the U.S. at the federal,
state and local level, and other countries, extensively regulate, among other things, the research, development, testing, manufacture,
quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and
import of products such as those we are developing. Generally, a new drug must be approved by the FDA through the NDA process and a new
biologic must be licensed by the FDA through the biologics license application (“BLA”) process before it may be legally marketed
in the U.S.
U.S. Regulation
Drug Development Process
In the U.S., the FDA regulates drugs under the
Federal Food, Drug, and Cosmetic Act (“FDCA”), and in the case of biologics, also under the Public Health Service Act, and
their implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal,
state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply
with the applicable U.S. requirements at any time during the product development process, approval process or after approval may subject
an applicant to administrative or judicial sanctions. These sanctions could include the FDA’s refusal to approve pending applications,
withdrawal of an approval, license revocation, a clinical hold, warning letters or untitled letters, product recalls, product seizures,
total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement
or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.
The process required by the FDA before a drug or biologic may be marketed
in the U.S. generally involves the following:
· submission to the FDA of an NDA or BLA;
· FDA review and approval of the NDA or BLA.
The drug or biologic manufacturer may also be
subject to post-approval regulatory requirements. Once a pharmaceutical candidate is identified for development, it enters the preclinical
testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies.
An IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA
as part of the IND. The sponsor will also include a protocol detailing, among other things, the objectives of the first phase of the clinical
trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated, if the first phase lends itself
to an efficacy evaluation. Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective
thirty days after receipt by the FDA, unless the FDA, within the thirty-day time period, places the clinical trial on a clinical hold.
In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds
may also be imposed by the FDA at any time before or during clinical trials due to safety concerns about ongoing or proposed clinical
trials or noncompliance with specific FDA requirements, and the trials may not begin or continue until the FDA notifies the sponsor that
the hold has been lifted.
All clinical trials must be conducted under the
supervision of one or more qualified investigators in accordance with GCP regulations. They must be conducted under protocols detailing
the objectives of the trial, dosing procedures, subject selection and exclusion criteria and the safety and effectiveness criteria to
be evaluated. Each protocol must be submitted to the FDA as part of the IND, and timely safety reports must be submitted to the FDA if
any serious and unexpected adverse events occur. An institutional review board (“IRB”) at each institution participating in
the clinical trial (or in some cases an independent IRB) must review and approve each protocol before a clinical trial commences at that
institution. As part of its review, the IRB must also approve the information regarding the trial and the consent form that must be provided
to each trial subject or his or her legal representative, monitor the study until completion and otherwise comply with IRB regulations.
Human clinical trials are typically conducted in three sequential phases
that may overlap or be combined:
Post-approval trials, sometimes referred to as
Phase IV studies, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment
of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase IV clinical trials
as a condition of approval of an NDA or BLA.
The FDA or the sponsor may suspend a clinical
trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk.
Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted
in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. In addition,