Certain
factors may have a material adverse effect on our business, financial condition and results of operations, and you should carefully consider
them. Accordingly, in evaluating our business, we encourage you to consider the following discussion of risk factors in its entirety,
in addition to other information contained in this Quarterly Report on Form 10-Q as well as our other public filings with the SEC. The
risks and uncertainties described below are those we currently believe to be material, but they are not the only ones we face. If any
of the following risks, or any other risks and uncertainties that we have not yet identified or that we currently consider not to be
material, actually occur or become material risks, our business and financial condition could be materially and adversely affected.
Risks
Related to Our Business
We
are a clinical stage biopharmaceutical company with a limited operating history.
We
are a clinical-stage biopharmaceutical company formed in October 2016 and have a limited operating history. We do not lease or own any
laboratory space and we have historically had a remote work environment for our employees. We outsource our manufacturing and clinical
trial operations as well as certain other functions.
We
have acquired or in-licensed four clinical stage assets and a late stage preclinical enteroviral vaccine platform. Marketing approval
of our product candidates will require extensive clinical testing data to support safety and efficacy requirements, as well as pharmaceutical
development, manufacturing and preclinical data, all of which are needed for regulatory approval, and the requirements may be different
in different jurisdictions in which we intend to launch our products. The likelihood of success of our business plan must be considered
in light of the challenges, substantial expenses, difficulties, complications and delays frequently encountered in connection with developing
and expanding early-stage businesses and the regulatory and competitive environment in which we operate. Biopharmaceutical product development
is a highly speculative undertaking, involves a substantial degree of risk, and is a capital-intensive business.
Accordingly,
you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in
the early stages of development, especially clinical-stage biopharmaceutical companies such as ours. Potential investors should carefully
consider the risks and uncertainties that a company with a limited operating history will face. In particular, we may not be able to:
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successfully
implement or execute our current business plan;
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successfully
start and complete clinical trials and obtain regulatory approval for the marketing of our product candidates;
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successfully
contract for the manufacture of our clinical drug products and establish a commercial drug supply;
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secure
market exclusivity and/or adequate intellectual property protection for our product candidates;
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attract
and retain an experienced management and advisory team;
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raise
sufficient funds in the capital markets to effectuate our business plan, including clinical development, regulatory approval and
commercialization for our product candidates;
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successfully
recruit and retain a fully functional launch ready commercial organization;
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successfully
launch teplizumab in the United States;
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successfully
execute our teplizumab launch plan for the At-Risk indication, including raising awareness and expanding screening to identify patients
At-Risk of developing clinical T1D; and
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successfully
establish strategic partnerships to launch teplizumab outside the United States
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If
we cannot successfully execute any one of the foregoing, our business may not succeed, and your investment will be adversely affected.
We
expect to incur substantial expenses and may never become profitable or be able to sustain profitability.
We
expect to incur substantial expenses without corresponding revenues unless and until we are able to obtain regulatory approval and successfully
commercialize our product candidates. We expect to incur significant expense to complete our clinical programs for our product candidates
in the United States and elsewhere. We may never be able to obtain regulatory approval for the marketing of our product candidates in
any indication in the United States or internationally. Even if we are able to commercialize our product candidates, we may not be able
to generate significant revenues or ever achieve profitability.
We
expect to incur significant research and development expenses as we advance clinical trials for our product candidates as well as significant
costs to build out our commercial infrastructure and conduct pre-commercial activities for teplizumab as we prepare for potential commercialization.
As a result, we expect to incur substantial losses for the foreseeable future, and these losses will be increasing. We are uncertain
when or if we will be able to achieve or sustain profitability. If we achieve profitability in the future, we may not be able to sustain
profitability in subsequent periods. Failure to become and remain profitable may impair our ability to sustain operations and adversely
affect our business and our ability to raise capital.
We
need to raise additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate certain,
or all of our product development programs or commercialization efforts.
We
expect our operating costs to be substantial as we incur costs to support our commercialization efforts for teplizumab, including costs
related to the buildout of an internal commercial infrastructure, and our ongoing and planned clinical trials for teplizumab and our
other product candidates. We will operate at a loss for the foreseeable future or until such time as we obtain regulatory approval for
and execute a successful commercial launch of teplizumab, if ever. For the six months ended June 30, 2021 and 2020, we had a net loss
of $61.6 million and $34.7 million, respectively, and as of June 30, 2021, we had an accumulated deficit of $239.2 million
and $176.4 million in cash, cash equivalents and marketable securities. We believe our current cash, cash equivalents and marketable
securities, will be sufficient to fund projected operating requirements for at least the next 12 months from the issuance of the financial
statements included in this report. We have based this estimate on assumptions that may prove to be wrong, and we could use our available
capital resources sooner than we currently expect. If we obtain regulatory approval for teplizumab, we have substantial milestone payments
that will become payable to our partners. We will need substantial additional capital to fund these milestone payments, as well as to
fund the clinical development programs for all of our product candidates.
We
do not have any prospective financing arrangements or credit facilities as a source of future funds apart from the available capacity
under our 2021 ATM Program, and there can be no assurance that we will be able to raise sufficient additional capital on acceptable terms
or at all. We may seek additional capital through a combination of private equity offerings, public equity offerings, debt financings
and strategic collaborations. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage
ownership of our stockholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges
senior to those of existing stockholders. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting
our ability to take specific actions, such as incurring additional debt, could increase our expenses and could require that our assets
secure such debt. Moreover, any debt we incur must be repaid regardless of our operating results. If we choose to pursue additional indications
and/or geographies for our product candidates, in-license or acquire additional development assets, or otherwise expand more rapidly
than we presently anticipate, we may also need to raise additional capital sooner than expected.
If
we are unable to raise additional capital when required or on acceptable terms, we may need to significantly delay, scale back or discontinue
the development or commercialization of one or more of our product candidates or cease operations altogether, or relinquish or license
on unfavorable terms, our rights to technologies or any future product candidates that we otherwise would seek to develop or commercialize.
Our
forecast of the period of time through which our financial resources will adequately support our operations is a forward-looking statement
and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed
elsewhere in this Risk Factors section. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our
available capital resources sooner than we currently expect.
We
may not be able to correctly estimate or control our future operating expenses, which could lead to cash shortfalls.
Our
operating expenses may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control.
These factors include:
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the
success of our development strategy;
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the
time, resources, and expense required to develop and conduct clinical trials and seek regulatory approvals for our product candidates;
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the
cost of preparing, filing, prosecuting, defending, and enforcing patent claims and other patent related costs, including litigation
costs and the results of such litigation;
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the
cost of manufacturing and maintaining sufficient inventories of our products to meet anticipated demand;
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any
product liability or other lawsuits related to our product candidates and the costs associated with defending them or the results
of such lawsuits;
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the
cost of growing our ongoing development operations and establishing commercialization operations;
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the
cost to attract and retain personnel with the skills required for effective operations;
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the
costs associated with being a public company; and
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the
costs associated with commercialization.
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Any
material increases in our operating expenses will have a material impact on our financial condition and business operations. In addition,
if we are unable to correctly estimate or control our future operating expenses, we may need to raise additional capital, delay or cease
development of one or more of our product candidates, which could have a material adverse effect on our business, operating results and
prospects.
Risks
Related to Product Development, Regulatory Approval, Manufacturing and Commercialization
The
potential approval of teplizumab in the United States is subject to satisfactorily addressing issues raised by the FDA in its CRL to
the teplizumab BLA, including the FDA’s conclusion that the drug pharmacokinetic profiles of the two drug products evaluated in
our PK/PD bridging study for teplizumab are not comparable, product quality issues, and the requirement that a fill/finish manufacturing
facility used by the Company for teplizumab resolve deficiencies identified by the FDA during a general inspection not specific to teplizumab.
This may require further development activities, additional data, analyses and modeling and will likely affect the potential for and
timing of any re-submission by the Company for an approval of teplizumab for the delay of clinical T1D in at-risk patients.
As
required by the FDA, Provention has provided in the BLA analytical data for teplizumab supporting the comparability between the
study drug previously manufactured by MacroGenics and Eli Lilly and Provention Bio’s to-be-commercialized drug product. In addition
to conducting analytical tests to evaluate comparability we have also conducted a double-blind, single low-dose, PK/ PD bridging study
in healthy subjects to support the CMC comparability assessment between the teplizumab study drug derived from drug substance manufactured
by Eli Lilly and the to-be-commercialized teplizumab drug product derived from the drug substance manufactured by our contract manufacturing
partner, AGC Biologics. This single low-dose study was the first time the teplizumab drug product derived from the drug substance manufactured
by AGC Biologics has been used in humans. We believe, based on the data and our analysis, that the results of the PK/PD study suggest
that the drug substances manufactured by AGC Biologics and Eli Lilly are comparable. Comparison of drug plasma concentration versus time
after dosing shows a lower AUC for the teplizumab drug product derived from the drug substance manufactured by AGC Biologics. Based on
our PK/PD modeling, we do not believe this lower AUC is significant enough to impact the efficacy or safety of the to-be-commercialized
teplizumab drug product when used as proposed in our BLA filing. We submitted our finalized Clinical Study Report and discussion document
to the FDA in January 2021.
As
previously announced, the Company received a letter from the FDA on April 2, 2021, indicating that, as
part of its then ongoing review of the Company’s BLA for teplizumab, the FDA has identified deficiencies that preclude discussion
of labeling and post-marketing requirements/commitments at such time. Separately, at an April 2, 2021 informal meeting with the Company
to discuss the May 27, 2021 Advisory Committee meeting, the FDA indicated that, based on the data it has reviewed to date, it was taking
the position that the drug pharmacokinetic profiles of the two drug products evaluated in a PK/PD bridging study submitted by the Company
for review by the FDA are not comparable, and additional data would be required before the FDA’s concerns could be satisfied. At
a second informal meeting on April 23, 2021, held to discuss the FDA’s considerations regarding the comparability of the two drug
products, the FDA reported that it concluded that the PK profiles of the two drug products evaluated in the PK/PD bridging study are
not comparable since the intended commercial product did not meet the pre-specified 80-125% PK AUC comparability target range. The FDA
stated that it cannot be certain if this observation is not clinically relevant, given that the relationship between transient lymphocyte
reduction, a PD marker, which was comparable in the PK/PD bridging study, and clinical efficacy, has yet to be fully validated.
The
FDA further informed the Company at the April 23, 2021 informal meeting that it planned to mention its PK comparability review in the
clinical pharmacology summary of its briefing materials for the May 27, 2021 Advisory Committee Meeting, which occurred as planned, in
addition to including a statement that the FDA is actively working with the Company to resolve the issue and that the focus of the Advisory
Committee meeting is the efficacy and safety of teplizumab. The FDA also recommended that both the FDA and the Company update their Advisory
Committee briefing materials to reflect the removal of the term “prevention” from the previously proposed indication, as
the remaining term “delay” more accurately reflects the results of the TN-10 trial. The FDA emphasized its understanding
of the high unmet need associated with delaying the onset of clinical-stage T1D and expressed its willingness to work with the Company
to find a solution and path forward for the comparability issue.
The
Company may not be successful in its goal to continue to work with the FDA to secure approval of teplizumab and bring the first disease-modifying
therapy for T1D to at-risk patients as soon as possible. On July 6, 2021, the Company announced that the FDA issued a CRL for the Company’s
BLA for teplizumab for the delay of clinical T1D in at-risk individuals. In the CRL, received late evening on July 2, 2021, the FDA stated
that a single, low-dose PK/PD bridging study in healthy volunteers to compare planned commercial product with drug product originating
from drug substance manufactured for historic clinical trials had failed to show PK comparability. The FDA further noted that PK remains
the primary endpoint for demonstration of comparability between the two products and that the Company will need to establish PK comparability
appropriately between the intended commercial product and the clinical trial product or provide other data that adequately justify why
PK comparability is not necessary.
The
results from relevant additional PK/PD data being, or to be, collected from a PK/PD substudy in patients receiving 12-days of therapy
in the ongoing Phase 3 PROTECT trial in newly diagnosed T1D patients in the third quarter of 2021 may not support PK comparability or
otherwise may be insufficient to address the FDA’s concerns on comparability. The PK/PD substudy data will be analyzed by independent,
unblinded third-parties to maintain the integrity of this placebo-controlled trial. Upon review of the results from this substudy, the
Company will determine whether to submit these data to the FDA for its review, along with any other relevant data and analyses based
on our ongoing discussions with the FDA, to support PK comparability or otherwise justify why PK comparability is not necessary.
The
Company may not be able to address to the FDA’s satisfaction all other considerations cited in the CRL relating to product quality
in the short-term as planned by the Company or at all. The CRL acknowledged that the FDA had not reviewed several amendments already
submitted by the Company in response to certain CMC information requests.
As
noted in the CRL, the deficiencies conveyed during a recent general inspection, not specific to teplizumab, at a fill/finish manufacturing
facility used by the Company will need to be resolved before approval and the Company may not be in a position to ensure that this manufacturing
facility successfully does so in a timely manner or at all.
Addressing
all of the FDA’s concerns in the CRL may not be possible. Even if the Company provides the FDA, as planned, with additional data,
analyses, modeling, and additional information from ongoing or new studies to support an approval of teplizumab for at-risk patients,
the results from these efforts may not clearly or fully address the FDA’s concerns raised in the CRL or be sufficient to support
a resubmission or an approval. If the Company fails to address the FDA’s concerns, despite its
efforts, including additional time and investments, our business and operations may be materially and adversely impacted.
We
may not be successful in our efforts to develop and obtain regulatory approval for our product candidates. If we are unable to obtain
approval for or generate revenues from our product candidates, our ability to create stockholder value will be limited.
Our
product candidates are in various stages of clinical development. Our ability to generate product revenue, which we do not expect will
occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our product candidates,
which may never occur. For example, our potential product candidates may be shown to have harmful side effects or may have other characteristics
that may make the products impractical to manufacture, unmarketable, or unlikely to receive marketing approval. We currently generate
no revenue from sales of any product, and we may never be able to develop or commercialize a marketable product.
We
will be required to submit our clinical trial protocols and receive approvals from the regulatory authorities before we can commence
additional studies with our product candidates, including PRV-3279. Nonclinical study results for our product candidates, including toxicology
studies, may not support the filing of an IND or foreign equivalent for the product candidate.
Moreover,
we may not be successful in obtaining acceptance from the regulatory authorities to start our clinical trials. Prior to commencing any
clinical trials, we will also have to obtain approval from the Institutional Review Board (“IRB”), or Ethics Committee (“EC”)
for each of the institutions at which we plan to conduct our clinical trials. If we do not obtain such acceptance, the time in which
we expect to commence clinical programs for any product candidate will be extended and such extension will increase our expenses and
increase our need for additional capital.
Further,
there is no guarantee that our clinical trials will be successful or that we will continue clinical development in support of an approval
from the regulatory authorities for any indication. Our clinical trial results may show our product candidates to be less effective than
expected or have unacceptable side effects or toxicities. For example, our Phase 2a PRINCE trial did not achieve its primary endpoint
of a change in Crohn’s Disease Activity Index Score at week 12 as compared to placebo. We note that most drug candidates never
reach the clinical development stage and even those that do commence clinical development have only a small chance of successfully completing
clinical development and gaining regulatory approval.
Our
business currently depends entirely on the successful development, regulatory approval and commercialization of our product candidates.
Our product candidates will require additional preclinical and clinical development, regulatory and marketing approval in multiple jurisdictions,
obtaining sufficient manufacturing capacity and expertise for both clinical development and commercial production and substantial investment
and significant commercialization efforts before we generate any revenue from product sales.
The
success of our current and future product candidates will depend on several factors, including the following:
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successful
completion of preclinical and clinical studies with positive results;
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sufficiency
of our financial and other resources to complete the necessary preclinical studies and clinical trials;
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entry
into collaborations to further the development of our product candidates;
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Investigational
new drug or clinical trial authorization applications, being cleared such that our product candidates can commence clinical trials;
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successful
initiation of enrollment in and completion of clinical trials;
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successful
data from our clinical programs that support a finding of safety and effectiveness and an acceptable risk-benefit profile of our
product candidates in the intended populations;
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receipt
of regulatory and marketing approvals from applicable regulatory authorities;
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establishment
of arrangements with third-party manufacturers for clinical supply and commercial manufacturing and, where applicable, commercial
manufacturing capabilities;
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successful
development of our internal manufacturing processes and transfer, where applicable, from our reliance on CMOs, to our own manufacturing
facility, or from our own manufacturing facility to CMOs or the facilities of collaboration partners;
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establishment
and maintenance of patent and trade secret protection or regulatory exclusivity for our product candidates;
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commercial
launch of our product candidates, if and when approved, whether alone or in collaboration with others, including our ability to recruit
and retain commercial talent;
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acceptance
of our product candidates and their therapeutic uses, if and when approved, by patients, the medical community and third-party payors;
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effective
competition with other therapies and treatment options;
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establishment
and maintenance of healthcare coverage and adequate reimbursement from third-party payors and national healthcare systems for any
approved products;
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enforcement
and defense of intellectual property rights and claims;
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maintenance
of a continued acceptable safety profile of the product candidates following approval; and
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achieving
desirable medicinal properties for the intended indications.
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If
we do not succeed in one or more of these factors in a timely manner or at all, we could experience significant delays or an inability
to successfully commercialize our product candidates. We cannot assure you that our product candidates will be successfully developed
or commercialized. If we are unable to develop, or obtain regulatory approval for, or, if approved, to successfully commercialize our
product candidates, it could have a material adverse effect on our business, operating results and prospects.
The
outbreak of the novel coronavirus 2019 (COVID-19) has caused delays to our clinical trials. Moreover, the longer the pandemic persists,
the more impact it will have on our clinical trial and other business plans and timelines. In addition,
this pandemic has caused substantial disruption in the financial markets and may adversely impact economies worldwide, both of which
could result in adverse effects on our business, operations and ability to raise capital.
The
COVID-19 pandemic continues to drive global uncertainty and has caused, and may continue to cause, delays to the development of certain
of our product candidates. Delays in completing our clinical trials are expected to increase our costs, slow our development and approval
process and could negatively impact our ability to commence product sales and generate revenues. Out of an abundance of caution to protect
patients, caregivers, clinical site staff, company employees as well as due to facility closures, quarantine, travel restrictions and
other governmental restrictions in March 2020 we temporarily paused the enrollment and randomization of new patients with newly diagnosed
T1D into our global Phase 3 PROTECT study of teplizumab. During the second quarter of 2020, we resumed enrolling patients in the PROTECT
study on a country by country and site by site basis and as of the end of the third quarter of 2020, all sites were activated, with a
majority of the sites actively enrolling patients. As a result of the delay, we now expect to complete enrollment in the PROTECT study
in the third quarter of 2021 and report top-line results from the PROTECT study in mid-2023 , subject to change for any potential
COVID-19 related or other interruptions. In addition, we, with our development partner Amgen, collectively decided that, to protect the
integrity and quality of the PRV-015 Phase 2b trial in gluten free diet non-responsive celiac disease, we would stagger study startup
throughout the third quarter of 2020 rather than initiating screening in the second quarter of 2020, as had originally been scheduled.
We initiated the Phase 2b trial in August 2020 and the pandemic has caused difficulties and delays in recruitment. Additionally,
our plans to initiate the Phase 2a portion of the PREVAIL study in lupus patients has been delayed from the first half to the fourth
quarter of 2021 predominantly due to COVID-19 related impacts on our plans.
Timely
enrollment in our clinical trials is dependent upon global clinical trial sites which may be adversely affected by global health matters,
such as pandemics. We are currently conducting clinical trials for our product candidates in many countries, including the United States,
European Union, the UK and Canada and may expand to other geographies. Many of these regions in which we operate are currently being
or may in the future be affected by COVID-19. Some factors from the COVID-19 outbreak that may delay or otherwise adversely affect enrollment
in the clinical trials of our product candidates, as well as adversely impact our business generally, include:
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delays
or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff,
and delays enrolling patients in our clinical trials or increased rates of patients withdrawing from our clinical trials following
enrollment as a result of contracting COVID-19, being forced to quarantine, or not accepting home health visits, particularly for
older patients with a higher risk of contracting COVID-19;
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limitations
on travel that could interrupt key trial activities, such as clinical trial site initiations and monitoring, domestic and international
travel by employees, contractors or patients to clinical trial sites, including any government-imposed travel restrictions or quarantines
that may impact the ability or willingness of patients, employees or contractors to travel to our clinical trial sites or secure
visas or entry permissions, any of which could delay or adversely impact the conduct or progress of our clinical trials;
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interruption
or delays in the operations of the United States Food and Drug Administration and foreign regulatory authorities, which may impact
review and approval timelines;
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interruption
of, or delays in receiving, supplies of raw materials for or our product candidates from our contract manufacturing organizations
due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems; and
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business
disruptions caused by potential workplace, laboratory and office closures and an increased reliance on employees working from home,
disruptions to or delays in ongoing laboratory experiments and operations or travel, and staffing shortages.
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Additionally,
in response to the COVID-19 pandemic, on March 10, 2020, the FDA announced its intention to postpone most inspections of foreign manufacturing
facilities and products; and, on March 18, 2020, the FDA temporarily postponed routine surveillance inspections of domestic manufacturing
facilities. Subsequently, on July 10, 2020, the FDA announced its intention to resume certain on-site inspections of domestic manufacturing
facilities subject to a risk-based prioritization system. The FDA intends to use this risk-based assessment system to identify the categories
of regulatory activity that can occur within a given geographic area, ranging from mission critical inspections to resumption of all
regulatory activities. More recently, in April 2021 the FDA issued guidance describing how it will request and conduct voluntary remote
interactive evaluations of manufacturing and outsourcing facilities as well as facilities involved in non-clinical and clinical research.
Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19
pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities
from conducting their regular inspections, reviews or other regulatory activities, it could significantly impact the ability of the FDA
or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on
our business.
The
pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could
adversely impact our ability to raise additional funds through public offerings or private placements and may also impact the volatility
of our stock price and trading in our stock. Moreover, it is possible the pandemic will continue to significantly impact economies worldwide,
which could result in adverse effects on our business and operations. The rapid development and
fluidity of the pandemic precludes any prediction as to the ultimate impact of COVID-19. Additionally, the pandemic could negatively
impact our ability to execute a successful launch of teplizumab if we receive marketing approval, which could impact our revenue making
potential and have other negative material adverse impacts on our business. The full extent of the impact and effects of COVID-19 on
our business, operations, liquidity, financial condition and results of operations remain uncertain at this time.
Clinical
drug development involves a risky, lengthy and expensive process, with an uncertain outcome. We may encounter substantial delays in completing
our clinical trials which in turn will require additional costs, or we may fail to demonstrate adequate safety and efficacy to the satisfaction
of applicable regulatory authorities.
It
is impossible to predict if or when any of our product candidates will prove safe or effective in humans or will receive regulatory approval,
and the risk of failure through the development process is high. Before obtaining marketing approval from regulatory authorities for
the sale of our product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates
in humans. Clinical testing is expensive, time-consuming and uncertain as to outcome. We cannot guarantee that any clinical trials will
be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of testing.
Events that may prevent successful or timely completion of clinical development include:
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delays
in reaching, or failing to reach, a consensus with regulatory agencies on study design;
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delays
in reaching, or failing to reach, agreement on acceptable terms with a sufficient number of prospective CROs, and clinical trial
sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
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delays
in obtaining required IRB, or EC, approval at each clinical trial site;
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delays
in recruiting a sufficient number of suitable patients to participate in our clinical trials;
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delays
as a result of the impact of the COVID-19 pandemic on clinical trial recruitment or other clinical trial activities;
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imposition
of a clinical hold by regulatory agencies, IRBs, or ECs;
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failure
by our CROs, other third parties or us to adhere to contractual, clinical trial, regulatory or legal requirements;
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failure
to perform in accordance with the FDA’s GCP or applicable regulatory guidelines in other countries;
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delays
in the testing, validation, manufacturing and delivery of sufficient quantities of our product candidates to the clinical sites;
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delays
in having patients’ complete participation in a study or return for post-treatment follow-up;
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subjects
choosing an alternative treatment for the indications for which we are developing our product candidates, or participating in competing
clinical trials;
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clinical
study sites or patients dropping out of a study;
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delay
or failure to address any patient safety concerns that arise during the course of a trial;
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unanticipated
costs or increases in costs of clinical trials of our product candidates;
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occurrence
of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits; or
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changes
in regulatory requirements and guidance that require amending or submitting new clinical protocols.
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We
could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs or ECs of the institutions in which such
trials are being conducted, by an independent Safety Review Board for such trial or by the FDA, MHRA, the competent authorities of the
European Union Member States, or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number
of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection
of the clinical trial operations or trial site by the FDA, MHRA, the competent authorities of the European Union Member States, or other
regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate
a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the
clinical trial.
Product
development costs for any of our product candidates will increase if we have delays in testing or approval or if we need to perform more
or larger clinical trials than planned. Additionally, changes in regulatory requirements and policies may occur and we may need to amend
study protocols to reflect these changes. Amendments may require us to resubmit our study protocols to the FDA, comparable foreign regulatory
authorities, and IRBs/ECs for reexamination, which may impact the costs, timing or successful completion of that study. If we experience
delays in completion of, or if we, the FDA or other regulatory authorities, the IRB, the ECs or other reviewing entities, or any of our
clinical trial sites suspend or terminate any of our clinical trials of any of our product candidates, its commercial prospects may be
materially harmed and our ability to generate product revenues will be delayed. Any delays in completing our clinical trials will increase
our costs, slow down our development and approval process and jeopardize our ability to commence product sales and generate revenues.
Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that
cause, or lead to, termination or suspension of, or a delay in the commencement or completion of, clinical trials may also ultimately
lead to the denial of regulatory approval of our product candidates. In addition, if one or more clinical trials are delayed, our competitors
may be able to bring products to market before we do, and the commercial viability of any of our product candidates could be significantly
reduced. Clinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our product
candidates or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize
our product candidates. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate
development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences
may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay
in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
The
outcome of preclinical studies 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. Further, product candidates in later stages of clinical trials may fail
to show the desired safety and efficacy profile despite having progressed through pre-clinical studies and initial clinical trials. A
number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials
due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies, and we cannot be certain that
we will not face similar setbacks. Additionally, data submitted to regulators are subject to varying interpretations that could delay,
limit or prevent agency approval. We cannot assure you that the FDA, EMA, MHRA or comparable foreign regulatory authorities will view
the results as we do, that the views of different regulatory authorities on our study results and data will be consistent with each other
or that any future trials of any of our product candidates will achieve positive results. For example, in the European Union, we have
initiated the process of seeking scientific advice from the EMA’s Committee for Medicinal Products for Human Use (“CHMP”),
with respect to the regulatory pathway for teplizumab. While the guidance provided in scientific advice procedures do not seek to pre-evaluate
the results of studies, the initial scientific advice letter that we received from CHMP in December 2020 suggested that an additional
confirmatory study would be necessary to support a marketing authorization application (“MAA”), for the use of PRV-031 in
at-risk individuals. We plan to engage with CHMP to further elucidate the disease-modifying effect of PRV-031 supported by study data
in the context of clinical management of T1D, specifically in at-risk individuals. If, however, the EMA determines that our current PRV-031
data package is insufficient to support an MAA for at-risk individuals and requires additional studies or data, such determination would
delay or prevent approval of PRV-031 in the European Union and European Economic Area (“EEA”)
for this indication, and may impact similar discussions in the United Kingdom. We have engaged with the MHRA to discuss a potential
regulatory path for PRV-031 in the United Kingdom. We have filed for and received in July 2021
an Innovation Passport for teplizumab in the UK. The Innovation Passport is the mandated entry point to the Innovative Licensing and
Access Pathway (“ILAP”) in the United Kingdom to facilitate approval of and market access to an innovative medicine. Additionally,
we have engaged the MHRA in a scientific advice procedure to discuss, among other topics, ILAP. The discussions with and feedback from
the MHRA in the United Kingdom, ILAP partner agencies such as the National Institute for Health and Care Excellence and the Scottish
Medicines Consortium, and the EMA/CHMP in the European Union will help us evaluate the possible regulatory and market access paths forward
in the UK and the European Union for teplizumab. On April 20, 2021 we received a scientific advice letter from the MHRA on matters relating
to the therapeutic position, non-clinical and clinical characterization of PRV-031. There is also no guarantee that a similar position
would be taken by the EMA in the European Union. The advice given by the MHRA makes clear that it is not legally binding with regard
to any future MAA for PRV-031, nor can it be taken as indicative of any future agreed position. The MHRA indicated in its letter that
it is of the view that there is an unmet medical need for a treatment that delays or prevents progression to T1D in at-risk patients.
The MHRA did not request another confirmatory study to be carried out, acknowledging that the indication being sought is rare and that
we may have difficulties recruiting sufficient numbers of subjects for such a study. However, the MHRA has considered that an MAA may
benefit from additional supplementary information on patient preference. Such additional information would seek to strengthen the argument
that PRV-031 would benefit the at-risk patients according to the proposed label claim. The MHRA also considered that reliance on one
pivotal study to obtain a marketing authorization ought to meet the criteria described in the EMA/CPMP guidance entitled “Points
to consider on application with (i) meta-analyses and (ii) one pivotal study” (CPMP/EWP/2330/99) , which for the time being, is
still relevant to applications made in the United Kingdom. We also plan additional engagements with EMA and other European stakeholders
in 2021; however, these stakeholders may not agree with our views on our teplizumab data package or our view of the relevant medical
need in at-risk populations and our efforts may not lead to favorable positions or decisions relating to or an approval of teplizumab
by the MHRA or a positive opinion by the EMA and a subsequent marketing authorization by the European Commission. Even if PRV-031 is
approved in United Kingdom and/or in the European Union, the MHRA or EMA/European Commission,
may limit the indication for which the product may be marketed, require extensive warnings on the product labeling or require
expensive and time-consuming additional clinical trials or reporting as conditions of an approval, amongst other requirements which the
Company may or may not be able to comply with.
We
have conducted and are conducting clinical trials outside the United States and anticipate conducting additional clinical trials outside
the United States, and the FDA may not accept data from such trials.
We
are currently conducting clinical trials for our product candidates in countries outside of the United States and we anticipate that
we will conduct additional clinical trials in countries outside the United States. Although the FDA may accept data from clinical trials
conducted outside the United States, acceptance of such study data by the FDA is subject to certain conditions. For example, the clinical
trial must be conducted in accordance with GCP requirements and the FDA must be able to validate the data from the clinical trial through
an onsite inspection if it deems such inspection necessary. Where data from foreign clinical trials are intended to serve as the sole
basis for marketing approval in the United States, the FDA will not approve the application on the basis of foreign data alone unless
those data are considered applicable to the United States patient population and United States medical practice, the clinical trials
were performed by clinical investigators of recognized competence, and the data is considered valid without the need for an on-site inspection
by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate the data through an on-site inspection
or other appropriate means. In addition, such clinical trials would be subject to the applicable local laws of the foreign jurisdictions
where the clinical trials are conducted. A description of any studies related to overdosage is also required, including information on
dialysis, antidotes, or other treatments, if known. There can be no assurance the FDA will accept data from clinical trials conducted
outside of the United States. If the FDA does not accept any such data, it would likely result in the need for additional clinical trials,
which would be costly and time-consuming and delay aspects of our development plan.
Risks
inherent in conducting international clinical trials include, but are not limited to:
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foreign
regulatory requirements that could burden or limit our ability to conduct our clinical trials;
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administrative
burdens of conducting clinical trials under multiple foreign regulatory schema;
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foreign
currency fluctuations which could negatively impact our financial condition since certain payments are paid in local currencies;
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manufacturing,
customs, shipment and storage requirements;
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cultural
differences in medical practice and clinical research; and
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diminished
protection of intellectual property in some countries.
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Biologics
carry unique risks and uncertainties, which could have a negative impact on future results of operations.
The
successful discovery, development, manufacturing and sale of biologics is a long, expensive and uncertain process. There are unique risks
and uncertainties with biologics. For example, access to and supply of necessary biological materials, such as cell lines, may be limited
and governmental regulations restrict access to and regulate the transport and use of such materials. In addition, the development, manufacturing
and sale of biologics is subject to regulations that are often more complex and extensive than the regulations applicable to other pharmaceutical
products. Manufacturing biologics, especially in large quantities, is often complex and may require the use of innovative technologies.
Such manufacturing also requires facilities specifically designed and validated for this purpose and sophisticated quality assurance
and quality control procedures. Biologics are also frequently costly to manufacture because production inputs are derived from living
animal or plant material, and some biologics cannot be made synthetically. In addition, after receiving product approval, the FDA and
other regulatory authorities may require us to submit samples of any lot of any approved product together with the protocols showing
the results of applicable tests at any time. Under some circumstances, the FDA and other regulatory authorities may require that we not
distribute a lot until the agency authorizes its release. Failure to successfully discover, develop, manufacture and sell biologics could
adversely impact our business and results of operations.
If
we are not able to obtain any required regulatory approvals for our product candidates, we will not be able to commercialize our product
candidates and our ability to generate revenue will be limited.
The
research, testing, manufacturing, labeling, packaging, storage, approval, sale, marketing, advertising and promotion, pricing, export,
import and distribution of drug products are subject to extensive regulation by the FDA, EMA, MHRA and other regulatory authorities in
the United States, European Union, United Kingdom and other countries, where regulations differ from country to country. We are not permitted
to market our product candidates as prescription pharmaceutical products in the United States until we receive approval of a New Drug
Application (“NDA”), or BLA from the FDA, or in any foreign countries until we receive the requisite approval from such countries.
In the United States, the FDA generally requires the completion of clinical trials of each drug to establish its safety and efficacy
and extensive pharmaceutical development to ensure its quality before an NDA or a BLA is approved. Regulatory authorities in other jurisdictions
impose similar requirements. Of the large number of drugs in development, only a small percentage result in the submission of an NDA
or a BLA to the FDA or other regulatory authorities and even fewer are eventually approved for commercialization. Changes in regulatory
approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory
review for a submitted product application may cause delays in the approval or rejection of an application. We have only limited experience
in filing the applications necessary to gain regulatory approvals and expect to rely on consultants and third party CROs with expertise
in this area to assist us in this process. Securing marketing approval requires the submission of extensive preclinical and clinical
data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s
safety and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process
to, and inspection of manufacturing facilities and grant of manufacturing authorizations and Good Manufacturing Practices (“GMP”)
certificates by, the regulatory authorities. Our product candidates may not be effective, may be only moderately effective or may prove
to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval
or prevent or limit commercial use. If our development efforts for our product candidates, including regulatory approval, are not successful
for their planned indications, our business will be materially adversely affected. Our success depends on the receipt of regulatory approval
and the issuance of such regulatory approvals is uncertain and subject to a number of risks, including the following:
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the
results of our clinical trials may not be satisfactory or may not meet the level of statistical or clinical significance required
by the FDA, EMA/European Commission, MHRA or other regulatory agencies for marketing approval;
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the
dosing of our product candidates in a particular clinical trial may not be at an optimal level;
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we
may be required to provide additional analysis or data for already completed clinical studies, or conduct additional studies;
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the
FDA, EMA, MHRA or comparable foreign regulatory authorities may require us to obtain clearance, CE marking or approval of companion
diagnostic tests;
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the
FDA, EMA, MHRA or comparable foreign regulatory authorities may disagree on the design or implementation of our clinical trials,
including the methodology used in our studies, our chosen endpoints, our statistical analysis, or our proposed product indication;
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our
failure to demonstrate to the satisfaction of the FDA, EMA, MHRA or comparable regulatory authorities that a product candidate is
safe and effective for its proposed indication;
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we
may fail to demonstrate that a product candidate’s clinical benefits outweigh its safety risks;
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immunogenicity
might affect a product candidate efficacy and/or safety;
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the
FDA, MHRA, the competent authorities of the European Union Member States or comparable foreign regulatory authorities may disagree
with our interpretation of data from nonclinical studies or clinical trials;
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the
FDA, MHRA, the competent authorities of the European Union Member States or comparable foreign regulatory authorities may fail to
approve the manufacturing processes or facilities of third-party manufacturers with whom we contract for clinical and commercial
supplies; or
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there
may be changes in the approval policies or regulations that render our nonclinical and clinical data insufficient for approval.
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Additionally,
even if we obtain regulatory approval for one indication, there is no guarantee we will be able to gain regulatory approval for additional
indications. For example, we intend to initially seek regulatory approval for our CVB vaccine product candidate for the prevention of
acute CVB infection. The results of longitudinal studies demonstrating the connection between CVB and T1D or celiac disease will be necessary
to expand the indicated use of this vaccine to T1D. These studies must be completed and submitted to the FDA, MHRA or EMA prior to receiving
approval in the United States, United Kingdom or European Union to market the CVB vaccine for additional indications such as prevention
of T1D. Such studies will be costly and time consuming and may not demonstrate to the FDA’s, MHRA’s or EMA’s satisfaction
the connection between the CVB virus and the onset of T1D or celiac disease. Failure or delay in obtaining regulatory approval for our
product candidates for the foregoing, or any other reasons, will prevent or delay us from commercializing our product candidates, and
our ability to generate revenue will be materially impaired. We cannot guarantee that regulators will agree with our assessment of the
results of the clinical trials we have conducted or intend to conduct in the future or that such future trials will be successful. The
FDA, EMA, MHRA and other regulators have substantial discretion in the approval process and may refuse to accept any application or may
decide that our data is insufficient for approval and require additional clinical trials, or pre-clinical or other studies. In addition,
varying interpretations of the data obtained from pre-clinical and clinical testing could delay, limit or prevent regulatory approval
of our product candidates.
The
FDA, EMA, MHRA or comparable foreign regulatory authorities could require the clearance, CE marking or approval of a companion diagnostic
device for teplizumab as a post-marketing commitment or otherwise, which may require substantial financial resources and could delay
or prevent regulatory approval of teplizumab.
The
FDA has communicated to the Company that it (i) acknowledges that the diagnosis stage 2 T1D may be well understood to future prescribers
of teplizumab, and therefore, specification of autoantibody testing in the labeling may not be required for the safe and effective use
of teplizumab and (ii) is continuing to discuss internally the requirement for a companion diagnostic(s) for teplizumab, and given these
uncertainties, the Company should consider seeking additional advice from the agency on the process of companion diagnostic development,
as it remains possible it will be required as a post-marketing commitment. The Company’s position is that a companion diagnostic
should not be required for the use of teplizumab in at-risk individuals based upon, among other reasons, (i) relevant FDA precedent and
guidance, (ii) the fact that the presence of autoantibodies is supportive, but not sufficient, for a diagnoses of stage 2 T1D and (iii)
the commercial availability of FDA-cleared tests or Clinical Laboratory Improvement Amendments, licensed laboratory-developed tests to
identify T1D, which the teplizumab final label can direct physicians to use.
Should
the FDA, EMA, MHRA or comparable foreign regulatory authorities disagree with us and require the use of a companion diagnostic, we may
face delays or obstacles in obtaining approval for teplizumab, as the FDA or other regulatory authorities may take the position that
a companion diagnostic device is required prior to granting approval of teplizumab. In addition, if a companion diagnostic is required,
we may be dependent on the cooperation and efforts of third-party collaborators to develop one or more companion diagnostics, which generally
require FDA clearance or approval, or equivalent approval in other jurisdictions. We and our potential future collaborators may encounter
difficulties in developing, validating or obtaining clearance/approval/CE marking for such companion diagnostics. Any delay or failure
by us or our potential future collaborators to develop or obtain regulatory clearance, CE marking or approval of such companion diagnostics,
if necessary, may delay or prevent approval of teplizumab, PRV-101 or our other product candidates.
Even
if we obtain marketing approval for any of our product candidates, we will be subject to ongoing obligations and continued regulatory
review, which may result in significant additional expense. Additionally, our product candidates could be subject to labeling and other
restrictions and withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements or if
we experience unanticipated problems with our product candidates.
Even
if we obtain regulatory approval for any of our product candidates for an indication, the FDA, EMA/European Commission, MHRA or foreign
equivalent may still impose significant restrictions on their indicated uses or marketing or the conditions of approval or impose ongoing
requirements for potentially costly and time-consuming post-approval studies, including Phase 4 clinical trials, post-market surveillance
to monitor safety and efficacy and a Risk Evaluation and Mitigation Strategy (“REMS”) or other risk minimization measures.
If the FDA concludes a REMS is needed in the United States, the sponsor of the NDA or BLA must submit a proposed REMS; the FDA will not
approve the NDA or BLA without an approved REMS, if required. A REMS could include medication guides, physician communication plans,
or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA
may also require a REMS for an approved product when new safety information emerges. Any such post-marketing requirements may negatively
impact our commercialization plans or require us to raise additional capital to support the execution of such requirements. Additionally,
if we face challenges or are unable to comply with post-marketing requirements, we may not be able to maintain marketing approval, or
we may decide to abandon the program.
Our
product candidates will also be subject to ongoing regulatory requirements governing the manufacturing, labeling, packaging, storage,
distribution, safety surveillance, advertising, promotion, recordkeeping and reporting of adverse events and other post-market information.
These requirements include registration with the FDA, as well as continued compliance with current GCP regulations for any clinical trials
that we conduct post-approval, and any additional requirements in other jurisdictions. In addition, manufacturers of drug products
and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance
with current GMP requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records
and documents.
With
respect to sales and marketing activities by us or any future licensor, advertising and promotional materials must comply with FDA rules
in addition to other applicable federal, state and local laws in the United States and similar legal requirements in other countries.
We may also be subject, directly or indirectly through our customers and licensors, to various fraud and abuse laws, including, without
limitation, the United States Anti-Kickback Statute, United States False Claims Act, and similar state laws, which impact, among other
things, our proposed sales, marketing, and scientific/educational grant programs. If we participate in the United States Medicaid Drug
Rebate Program, the Federal Supply Schedule of the United States Department of Veterans Affairs, or other government drug programs, we
will be subject to complex laws and regulations regarding reporting and payment obligations. All of these activities are also potentially
subject to United States federal and state consumer protection and unfair competition laws. Similar requirements exist in many of these
areas in other countries.
In
addition, if any of our product candidates are approved for a particular indication, our product labeling, advertising and promotion
would be subject to regulatory requirements and continuing regulatory review. The FDA, MHRA, and the competent authorities of the European
Union Member States strictly regulate the promotional claims that may be made about prescription products. In particular, a product may
not be promoted for uses that are not approved by the FDA, MHRA, or the European Commission as reflected in, or in a manner that is otherwise
inconsistent with, the product’s approved labeling. If we receive marketing approval for our product candidates, physicians may
nevertheless legally prescribe our products to their patients in a manner that is inconsistent with the approved label. If we are found
to have promoted such off-label uses, or otherwise inappropriately promoted our products, we may become subject to significant liability
and government fines. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses
and false or misleading claims, and a company that is found to have improperly promoted products, including off-label uses, may be subject
to significant sanctions. The federal government has levied large civil and criminal fines against companies for alleged improper promotion
and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent
decrees of permanent injunctions under which specified promotional conduct is changed or curtailed.
If
we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency,
problems with the facility where the product is manufactured, or we or our manufacturers fail to comply with applicable regulatory requirements,
we may be subject to the following administrative or judicial sanctions:
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restrictions
on the marketing or manufacturing of the product;
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withdrawal
of the product from the market;
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voluntary
or mandatory product recalls;
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restrictions
of the labeling of a product;
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restrictions
on product distribution or use
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requirements
to conduct post-marketing studies or clinical trials;
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issuance
of warning letters or untitled letters;
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injunctions
or the imposition of civil or criminal penalties or monetary fines, restitution, or disgorgement of profit or revenues;
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suspension,
withdrawal, variation or revocation of regulatory approval;
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suspension
or termination of any ongoing clinical trials;
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refusal
to approve pending applications or supplements to approved applications filed by us;
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suspension
or imposition of restrictions on operations, including costly new manufacturing requirements; or
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product
seizure or detention or refusal to permit the import or export of product.
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The
occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and generate revenue.
Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could
generate negative publicity. Adverse regulatory action, whether pre- or post-approval, can also potentially lead to product liability
claims and increase our product liability exposure.
Even
though we may obtain or apply for orphan drug designation for a product candidate, we may not be able to obtain orphan drug marketing
exclusivity and even if we obtain orphan drug marketing exclusivity, it may not effectively protect the product from competition.
We
have obtained orphan drug designation from the FDA for teplizumab for the treatment of newly diagnosed T1D. Separately, some of the subsets
of lupus erythematosus, which we may target with PRV-3279, are orphan indications (e.g., lupus nephritis). However, there is no guarantee
that the FDA, the European Commission or comparable foreign regulatory authorities will grant any future application for orphan drug
designation for any of our other product candidates, including teplizumab for the use in at-risk individuals, which would make us ineligible
for the additional exclusivity and other benefits of orphan drug designation, including the potential to receive a transferable priority
review voucher for obtaining approval of a designated rare pediatric disease product. For example, we have applied for orphan drug designation
of teplizumab for the use in at-risk individuals and await a final determination from the FDA’s Office of Orphan Drug Development
(“OOPD”). Current data suggests that there may be an initial undiagnosed prevalence approaching 165,000-200,000 Stage 2 T1D
subjects in all age groups, however, we believe the diagnosed prevalence for Stage 2 T1D subjects is less than 200,000, which, if the
FDA agrees, would meet the FDA’s criteria for orphan drug designation. Additionally, we believe it would take a significant amount
of resources and time to identify 200,000 treatable patients on a year-by-year basis. While we believe there is sufficient epidemiological
evidence and rationale to support Stage 2 T1D being a rare disease, OOPD may disagree with us and reject our orphan designation request.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is
generally a disease or condition that affects fewer than 200,000 individuals in the United States or for which there is no reasonable
expectation that the cost of developing and making a drug available in the United States for this type of disease or condition will be
recovered from sales of the product. Orphan drug designation must be requested before submitting an NDA or a BLA. After the FDA grants
orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan
product designation does not convey any advantage in or shorten the duration of regulatory review and approval process. In addition to
the potential period of exclusivity, orphan designation makes a company eligible for grant funding to defray costs of clinical trial
expenses, tax credits for clinical research expenses and potential exemption from the FDA application user fee. If a product that has
orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product
is entitled to orphan drug exclusivity, which means the FDA may not approve any other applications to market the same drug for the same
indication for seven years, except in limited circumstances, such as (i) the drug’s orphan designation is revoked; (ii) its marketing
approval is withdrawn; (iii) the orphan exclusivity holder consents to the approval of another applicant’s product; (iv) the orphan
exclusivity holder is unable to assure the availability of a sufficient quantity of drug; or (v) a showing of clinical superiority to
the product with orphan exclusivity by a competitor product. If a drug designated as an orphan product receives marketing approval for
an indication broader than what is designated, it may not be entitled to orphan drug exclusivity. There can be no assurance that we will
receive orphan drug designation for any of our product candidates in the indications for which we think they might qualify, if we elect
to seek such applications.
Even
if we obtain orphan drug exclusivity for teplizumab for the treatment of newly-diagnosed T1D in the United States, the FDA can still
approve other drugs that have a different active ingredient for use in treating the same indication. Furthermore, the FDA can waive orphan
drug exclusivity if we are unable to manufacture sufficient supply of teplizumab or if the FDA finds that a subsequent applicant for
newly-diagnosed T1D demonstrates clinical superiority to teplizumab. Accordingly, orphan drug exclusivity for a product may not effectively
protect the product from competition.
Although
we may pursue expedited regulatory approval pathways for a product candidate, it may not qualify for expedited development or, if it
does qualify for expedited development, it may not actually lead to a faster development or regulatory review or approval process.
Although
we believe there may be an opportunity to accelerate the development of certain of our product candidates through one or more of the
FDA’s or EMA’s expedited programs, such as fast track, breakthrough therapy, accelerated approval or priority review, we
cannot be assured that any of our other product candidates will qualify for such programs.
For
example, in the United States, a drug may be eligible for designation as a breakthrough therapy if the drug is intended, alone or in
combination with one or more other drugs, to treat a serious or life-threatening condition and preliminary clinical evidence indicates
that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. Although
breakthrough designation or access to any other expedited program may expedite the development or approval process, it does not change
the standards for approval. If we apply for breakthrough therapy designation or any other expedited program for our product candidates,
the FDA may determine that our proposed target indication or other aspects of our clinical development plans do not qualify for such
expedited program. Even if we are successful in obtaining a breakthrough therapy designation or access to any other expedited program,
we may not experience faster development timelines or achieve faster review or approval compared to conventional FDA procedures. For
example, the time required to identify and resolve issues relating to chemistry, manufacturing and controls, the acquisition of a sufficient
supply of our product for clinical trial purposes or the need to conduct additional preclinical or clinical studies may delay approval
by the FDA, even if the product candidate qualifies for a breakthrough therapy designation or access to any other expedited program.
Access to an expedited program may also be withdrawn by the FDA if it believes that the designation is no longer supported by data from
our clinical development program. Additionally, qualification for any expedited review procedure does not ensure that we will ultimately
obtain regulatory approval for such product candidate.
Obtaining
and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining
regulatory approval of our product candidates in other jurisdictions.
Obtaining
and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or
maintain regulatory approval in any other jurisdiction, but a failure or delay in obtaining regulatory approval in one jurisdiction may
have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product
candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of
the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative
review periods different from those in the United States, including additional preclinical studies or clinical trials, as clinical trials
conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the
United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some
cases, the price that we intend to charge for our products is also subject to approval.
Obtaining
foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and
costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory
requirements in international markets and/ or to receive applicable marketing approvals, our target market will be reduced and our ability
to realize the full market potential of our product candidates will be harmed.
Current
and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates.
In
the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes
regarding the healthcare system that could prevent or delay marketing approval for our product candidates, restrict or regulate post-approval
activities and affect our ability to profitably sell our product candidates.
Legislative
and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical
products. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations
will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition,
increased scrutiny by the United States Congress (“Congress”) of the FDA’s approval process may significantly delay
or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
The
FDA’s and other regulatory authorities’ policies may change, and additional government regulations may be enacted that could
prevent, limit or delay regulatory approval of our product candidates. We also cannot predict the likelihood, nature, or extent of adverse
government regulation that may arise from pending or future legislation or administrative action, either in the United States or abroad.
For example, on March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in
response to the COVID-19 pandemic. Among other provisions, the CARES Act made a number of changes to the Federal Food, Drug, and Cosmetic
Act (“FDCA”) aimed at preventing drug shortages. Similarly, the FDA has issued a number of guidance documents describing
the agency’s expectations for how drug manufacturers should comply with various FDA requirements during the pandemic, including
with respect to conducting clinical trials, distributing drug samples, and reporting post-marketing adverse events. Moreover, as a result
of the COVID-19 pandemic, there has been increasing political and regulatory scrutiny of drug supply chains, resulting in proposed and
enacted legislative and executive actions, including Executive Orders, to incentivize or compel drug manufacturing operations to relocate
to the United States. It is not clear how these changes and proposals could impact our business. If we are slow or unable to adapt to
changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance,
we may lose any marketing approval that we may have obtained, and we may not achieve or sustain profitability.
Healthcare
reform and other governmental and private payor initiatives may have an adverse effect upon, and could prevent, our product candidates’
commercial success, if approved.
The
United States government and individual states have been aggressively pursuing healthcare reform designed to impact delivery of, and/or
payment for, healthcare, which include initiatives intended to reduce the cost of healthcare. For example, in March 2010, the United
States Congress enacted the Patient Protection and Affordable Care Act, as modified by the Health Care and Education Reconciliation Act
(the “ACA”), which, among other things, expanded healthcare coverage through Medicaid expansion and the implementation of
the individual health insurance mandate; included changes to the coverage and reimbursement of drug products under government healthcare
programs; imposed an annual fee on manufacturers of branded drugs; and expanded government enforcement authority. We face uncertainties
because there have been, and may be additional, federal legislative and administrative efforts to repeal, substantially modify or invalidate
some or all of the provisions of the ACA. For example, tax reform legislation was enacted at the end of 2017 that eliminated the tax
penalty for individuals who do not maintain sufficient health insurance coverage beginning in 2019. The ACA has also been subject to
judicial challenge. The case Texas v. Azar, which challenges the constitutionality of the ACA, including provisions that are unrelated
to healthcare reform but were enacted as part of the ACA, was argued before the Supreme Court in November 2020. The Supreme Court dismissed
this challenge to the ACA on June 17, 2021 and, therefore, all of the ACA but the individual mandate to buy health insurance currently
remains in effect. In addition, the expansion of the 340B Drug Discount Program through the ACA has increased the number of purchasers
who are eligible for significant discounts on branded drugs. Several drug manufacturers have commenced litigation, which remains ongoing,
challenging the legality of contract pharmacy arrangements under the 340B Drug Discount Program, which may affect the way in which manufacturers
are required to extend the 340B Drug Discount Program prices to covered entities, including through contract pharmacies. There are also
ongoing challenges regarding the implementation of the 340B Drug Discount Program Administrative Dispute Resolution Process, which is
in part intended to resolve claims by covered entities that they have been overcharged for covered outpatient drugs by manufacturers.
The nature of the current Administrative Dispute Resolution Process, and the outcomes of these court cases, may have a material adverse
impact on our revenue should we participate in the 340B Drug Discount Program after receiving approval for our product candidates.
Beyond
the ACA, in 2020 and early 2021, the United States Department of Health and Human Services has issued various rules that affect pricing
or payment for drug products. For example, effective January 2023, revisions to the federal anti-kickback statute would remove protection
for traditional Medicare Part D discounts offered by pharmaceutical manufacturers to pharmacy benefit managers and health plans. Additional
healthcare reform efforts have sought to address certain issues related to the COVID-19 pandemic, including an expansion of telehealth
coverage under Medicare and accelerated or advanced Medicare payments to healthcare providers. Some of these changes have been and may
continue to be subject to legal challenge. For example, courts have temporarily enjoined a new “most favored nation” payment
model for select drugs covered under Medicare Part B that was to take effect on January 1, 2021 and would limit payment based on international
drug price. In addition, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their
marketed products, which has resulted in several U.S. Congressional inquiries, hearings and proposed and enacted federal legislation
and rules, as well as Executive Orders, designed to, among other things, reduce or limit the prices of drugs and make them more affordable
for patients, such as by tying the prices that Medicare reimburses for physician-administered drugs to the prices of drugs in other countries,
reform the structure and financing of Medicare Part D pharmaceutical benefits, including through increasing manufacturer contributions
to offset Medicare beneficiary costs, bring more transparency to drug pricing rationale and methodologies (including, for example, by
requiring drug manufacturers to disclose planned drug price increases and the rationales for such increases), implement data collection
and reporting under Section 204 of Title II of Division BB of the Consolidated Appropriations Act, 2021, which requires, among other
things, health plans and issuers to disclose rebates, fees, and other remuneration provided by drug manufacturers related to certain
pharmaceutical products, enable the government to negotiate prices for drugs covered under Medicare, including H.R. 3 which passed the
House, revise rules associated with the calculation of Medicaid Average Manufacturer Price and Best Price, including the removal of the
current statutory 100% of Average Manufacturer Price per-unit cap on Medicaid rebate liability effective as of January 1, 2024 under
the American Rescue Plan Act of 2021, which may significantly affect the amount of rebates paid on prescription drugs under Medicaid
and the prices that are required to be charged to covered entities under the 340B Drug Discount Program, create new anti-kickback statute
safe harbors applicable to certain point-of-sale discounts to patients and fixed-fee administrative fee payment arrangements with pharmacy
benefit managers, each of which are currently stayed, and facilitate the importation of certain lower-cost drugs from other countries.
The nature and scope of health care reform in the wake of the transition from the Trump administration to the Biden administration remains
uncertain, although President Biden supported reforms to lower drug prices during his campaign for the presidency. Adoption of new healthcare
reform legislation at the federal or state level could affect demand for, or pricing of, our products or product candidates if approved
for sale. We cannot predict, however, the ultimate content, timing or effect of any healthcare reform legislation or action, or its impact
on us, and healthcare reform could increase compliance costs and may adversely affect our future business and financial results.
In
addition, other legislative changes have been adopted that could have an adverse effect upon, and could prevent, our products’
or product candidates’ commercial success. More broadly, the Budget Control Act of 2011, as amended, or the Budget Control Act,
includes provisions intended to reduce the federal deficit, including reductions in Medicare payments to providers through 2030 (except
May 1, 2020 to December 31, 2021). Any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidized
health programs, or any significant taxes or fees imposed as part of any broader deficit reduction effort or legislative replacement
to the Budget Control Act, or otherwise, could have an adverse impact on our anticipated product revenues.
In
addition to governmental efforts in the United States, foreign jurisdictions as well as private health insurers and managed care plans
are likely to continue challenging manufacturers’ ability to obtain reimbursement, as well as the level of reimbursement, for pharmaceuticals
and other healthcare-related products and services. These cost-control initiatives could significantly decrease the available coverage
and the price we might establish for our products, which would have an adverse effect on our financial results. The pricing and reimbursement
of medicinal products in the European Union and the UK is subject to strict governmental control. Pricing and reimbursement negotiations
with governmental authorities are complex and may take significant amounts of time. To obtain reimbursement and/or pricing approval in
the European Union Member States and/or the UK, we may be required to conduct studies or otherwise provide data demonstrating the cost
effectiveness of our products compared with other available established therapies. The conduct of such studies could also result in delays
in the commercialization of our products. Additionally, cost-control initiatives, increasingly based on affordability and accessibility,
as well as post-marketing assessment of the product’s added value as compared to existing treatments, could decrease the price
of our products or the indications for which we are able to obtain reimbursement, which would result in lower revenues to us. New legislative
and policy initiatives in the European Union, aimed at increasing accessibility and affordability of medicinal products, and the increased
cooperation between the European Union Member States may further impact the price and reimbursement status of our products in the future.
If
we fail to successfully commercialize any of our product candidates, we may need to acquire additional product candidates and our business
will be adversely affected.
We
have never developed and obtained approval for any product candidates or commercialized any product candidates. We have limited product
candidates and do not have any other compounds in pre-clinical testing, lead optimization or lead identification stages beyond our product
candidates. We cannot be certain that any of our product candidates will prove to be sufficiently effective and safe to meet applicable
regulatory standards for any indication. If we fail to successfully obtain regulatory approval or commercialize any of our product candidates
for their targeted indications, whether as stand-alone therapies or in combination with other therapeutic agents, and if we are unable
to acquire additional product candidates in the future, our business will be adversely affected.
Even
if we receive regulatory approval for any of our product candidates, we may not be able to successfully commercialize the product and
the revenue that we generate from its sales, if any, may be limited.
If
approved for marketing, the commercial success of our product candidates will depend upon each product’s acceptance by the medical
community, including physicians, patients and health care payors. The degree of market acceptance for any of our product candidates will
depend on a number of factors, including:
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demonstration
of clinical safety and efficacy;
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relative
convenience, dosing burden and ease of administration;
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the
prevalence and severity of any adverse events and the overall safety profile;
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the
clinical indications for which our products are approved;
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the
acceptance of physicians to include T1D screening in routine patient medical care;
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the
willingness of physicians to prescribe our product candidates, and the target patient population to try new therapies;
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the
willingness of physicians and patients to accept 14 consecutive days of IV therapy
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efficacy
of our product candidates compared to future competing products or therapies;
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the
introduction of any new products that may in the future become available targeting indications for which our product candidates may
be approved;
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new
procedures or therapies that may reduce the incidences of any of the indications in which our product candidates may show utility;
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pricing
and cost-effectiveness;
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the
inclusion or omission of our product candidates in applicable therapeutic and vaccine guidelines;
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the
effectiveness of our own or any future collaborators’ sales and marketing strategies;
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limitations
or warnings contained in approved labeling from regulatory authorities, including any interactions of our products with other medicines
patients are taking;
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our
ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs, including Medicare
and Medicaid, private health insurers and other third-party payors or to receive the necessary pricing approvals from government
bodies regulating the pricing and usage of therapeutics; and
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the
willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement or government pricing approvals.
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If
any of our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, health care payors, and
patients, we may not generate sufficient revenue and we may not be able to achieve or sustain profitability. Our efforts to educate the
medical community and third-party payors on the benefits of our product candidates may require significant resources and may never be
successful.
In
addition, even if we obtain regulatory approvals, the timing or scope of any approvals may prohibit or reduce our ability to commercialize
our product candidates successfully. For example, if the approval process takes too long, we may miss market opportunities and give other
companies the ability to develop competing products or establish market dominance. Any regulatory approval we ultimately obtain may be
limited or subject to restrictions or post-approval commitments that render our product candidates not commercially viable. For example,
regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may grant approval
contingent on the performance of costly post-marketing clinical trials, or may approve any of our product candidates with a label that
does not include the labeling claims necessary or desirable for the successful commercialization for that indication. Further, the FDA
or comparable foreign regulatory authorities may place conditions on approvals or require risk management plans or a REMS, to assure
the safe use of the drug. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription
or dispensing of our product candidates. Moreover, product approvals may be withdrawn for non-compliance with regulatory standards or
if problems occur following the initial marketing of the product. Any of the foregoing scenarios could materially harm the commercial
success of our product candidates.
We
currently have a limited commercial organization. If we are unable to establish satisfactory sales and commercial support and marketing
capabilities, we may not successfully commercialize any of our product candidates.
We
have just recently begun to build out our commercial infrastructure and at present, we have only limited sales personnel. In order to
commercialize products that are approved for commercial sales, we must develop our own sales infrastructure. If we are not successful
recruiting sales personnel or in building our sales and marketing infrastructure in the United States, we will have difficulty successfully
commercializing our product candidates, which would adversely affect our business, operating results and financial condition.
If
we are unable to establish a satisfactory sales infrastructure, we may not realize a positive return on this investment. In addition,
we will have to compete with established and well-funded pharmaceutical and biotechnology companies to recruit, hire, train and retain
sales personnel. Factors that may inhibit our efforts to commercialize our product candidates without strategic partners or licensees
include:
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our
inability to recruit and retain adequate numbers of effective sales, market access, patient services, medical affairs and other key
commercial personnel;
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the
inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any of our product candidates;
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the
lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies
with more extensive product lines; and
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unforeseen
costs and expenses associated with creating an independent commercial organization.
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We
may enter into collaborations with third parties for the research, development, and commercialization of certain of the product candidates
we may develop. If any such collaborations are not successful, we may not be able to capitalize on the market potential of those product
candidates.
We
may seek additional third-party collaborators for the research, development, and commercialization of certain of the product candidates
we may develop. If we enter into any such arrangements with any third parties, we will likely have limited control over the amount and
timing of resources that our collaborators dedicate to the development or commercialization of any product candidates we may seek to
develop with them. Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities to successfully
perform the functions assigned to them in these arrangements. We cannot predict the success of any collaboration that we enter into.
Collaborations
pose numerous risks to us, including the following:
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collaborators
have significant discretion in determining the efforts and resources that they will apply to these collaborations;
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collaborators
may not pursue development and commercialization of any product candidates we may develop or may elect not to continue or renew development
or commercialization programs based on clinical trial results, changes in the collaborator’s strategic focus or available funding
or external factors such as an acquisition that diverts resources or creates competing priorities;
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collaborators
may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product
candidate, repeat or conduct new clinical trials, or require a new formulation of a product candidate for clinical testing;
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collaborators
could independently develop, or develop with third parties, products that compete directly or indirectly with our medicines or product
candidates we may develop if the collaborators believe that competitive products are more likely to be successfully developed or
can be commercialized under terms that are more economically attractive than ours;
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collaborators
with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution
of such product or products;
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collaborators
may not properly obtain, maintain, enforce, or defend our intellectual property or proprietary rights or may use our proprietary
information in such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to
potential litigation;
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disputes
may arise between the collaborators and us that result in the delay or termination of the research, development, or commercialization
of our products or product candidates or that result in costly litigation or arbitration that diverts management attention and resources;
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we
may lose certain valuable rights under circumstances identified in our collaborations, including if we undergo a change of control;
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collaborations
may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization
of the applicable product candidates we may develop; and
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collaboration
agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If a present
or future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development
or commercialization program under such collaboration could be delayed, diminished, or terminated.
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If
our collaborations do not result in the successful development and commercialization of product candidates, or if one of our collaborators
terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration.
If we do not receive the funding we expect under these agreements, our development of product candidates could be delayed, and we may
need additional resources to develop product candidates. In addition, if one of our collaborators terminates its agreement with us, we
may find it more difficult to find a suitable replacement collaborator or attract new collaborators, and our development programs may
be delayed or the perception of us in the business and financial communities could be adversely affected. All of the risks relating to
product development, regulatory approval and commercialization described in this Quarterly Report on Form 10-Q apply to the activities
of our collaborators.
These
relationships, or those like them, may require us to incur non-recurring and other charges, increase our near- and long-term expenditures,
issue securities that dilute our existing stockholders, or disrupt our management and business. In addition, we could face significant
competition in seeking appropriate collaborators, and the negotiation process is time-consuming and complex. Our ability to reach a definitive
collaboration agreement 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 several factors. If we license
rights to any product candidates, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate
them with our existing operations and company culture.
Amgen
has the right to assume control over the activities of our anti-IL-15 mAb product candidate.
Pursuant
to the Amgen Agreement, Amgen reserves the right, at any time until 120 days after the delivery of the final data package relating to
the Phase 2b PROACTIVE study which we initiated in August 2020, to assume control over all activities with respect to our anti-IL-15
monoclonal antibody (“mAb”), product candidate, including pricing and marketing decisions, after the payment of a $150.0
million milestone. There can be no assurance that Amgen’s strategic direction will be in line with ours should it assume control
of activities, or that their decisions will have a positive impact on our results of operations. Moreover, we may not realize the full
economic benefit of this agreement.
We
face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.
The
biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We have
existing competitors and will have potential new competitors in a number of jurisdictions, many of which have or will have substantially
greater name recognition, commercial infrastructures and financial, technical and personnel resources than we have. Established competitors
may invest heavily to quickly discover and develop novel compounds that could make any of our product candidates obsolete or uneconomical.
Any new product that competes with an approved product may need to demonstrate compelling advantages in efficacy, cost, convenience,
tolerability and safety to be commercially successful. Other competitive factors, including generic competition, could force us to lower
prices or could result in reduced sales. In addition, new products developed by others could emerge as competitors to our product candidates.
If we are not able to compete effectively against our current and future competitors, our business will not grow, and our financial condition
and operations will suffer.
Our
potential competitors both in the United States and throughout the world include companies developing and/or marketing drugs and therapeutic
solutions for immune-mediated diseases, including oncological, autoimmune and inflammatory diseases, as well as companies working in
our specific fields, including T1D, enteroviral and emerging viral diseases, lupus, and inflammatory bowel diseases, such as CD.
There
can be no assurance that our product candidates will be more effective or achieve greater market acceptance than competitive products,
or that our competitors will not succeed in developing products and technologies that are more effective than those being developed by
us or that would render our products and technologies less competitive or obsolete. Additionally, there can be no assurance that the
development by others of new or improved products will not make our product candidates superfluous or obsolete.
Our
product candidates may face competition sooner than expected.
We
intend to seek data exclusivity or market exclusivity for our monoclonal antibodies teplizumab and PRV-015, our DART molecule PRV-3279
and our PRV-101 CVB vaccine product candidates provided under the FDCA, and similar laws in other countries. In the United States, we
believe that these product candidates will qualify for 12 years of data exclusivity under the Biologics Price Competition and Innovation
Act of 2009 (“BPCIA”), which was enacted as part of the ACA. Under the BPCIA, an application for a biosimilar product or
BLA cannot be submitted to the FDA until four years, or if approved by the FDA, until 12 years, after the original brand product identified
as the reference product is approved under a BLA. The BPCIA provides an abbreviated pathway for the approval of biosimilar and interchangeable
biological products. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics,
including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand product.
The law is complex and the processes the FDA establishes to implement the law could have a material adverse effect on the future commercial
prospects for our biological product candidates. There is also a risk that Congress could repeal or amend the BPCIA to shorten this exclusivity
period, potentially creating the opportunity for biosimilar competition sooner than anticipated after the expiration of our patent protection.
Moreover, the extent to which a biosimilar, once approved, will be substituted for any reference product in a way that is similar to
traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory
factors that are still developing.
Our
product candidates that are not, or are not considered, biologics that would qualify for exclusivity under the BPCIA may be eligible
for market exclusivity as drugs under the FDCA. The FDCA provides a five-year period of non-patent marketing exclusivity within the United
States to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not
previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of
the drug substance. The Ensuring Innovation Act, enacted on April 23, 2021, amended the FDA’s statutory authority for granting
such exclusivity to reflect the agency’s existing regulations and longstanding interpretation that award exclusivity based on a
drug’s active moiety, as opposed to its active ingredient, which is intended to limit the applicability of this exclusivity, thereby
potentially facilitating generic competition. During the exclusivity period, the FDA may not accept for review an abbreviated new drug
application (“ANDA”), or a 505(b)(2) NDA, submitted by another company for another version of such drug. However, an application
may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three
years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than
bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the
application, for example, for new indications, dosages, or strengths of an existing drug. This three-year exclusivity covers only the
conditions associated with the new clinical investigations and does not prohibit the FDA from approving 505(b)(2) NDAs or ANDAs for drugs
containing the original active agent.
Even
if, as we expect, our product candidates are considered to be reference products eligible for 12 years of exclusivity under the BPCIA
or five years of exclusivity under the FDCA, another company could market competing products if the FDA approves a full BLA or full NDA
for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate
the safety, purity and potency of the products. Moreover, an amendment or repeal of the BPCIA could result in a shorter exclusivity period
for our product candidates, which would have a material adverse effect on our business.
In
addition, the Further Consolidated Appropriations Act, 2020, which incorporated the framework from the Creating and Restoring Equal Access
To Equivalent Samples (“CREATES”) legislation, was signed into law as part of the 2019 year-end federal spending package.
The legislation purports to promote competition in the market for drugs and biological products by facilitating the timely entry of lower-cost
generic and biosimilar versions of those drugs and biological products, including by allowing ANDA, 505(b)(2) NDA or biosimilar developers
to obtain access to branded drug and biological product samples. While the full impact of these provisions is unclear at this time and
initial litigation brought under this law is pending, its provisions do have the potential to facilitate the development and future approval
of biosimilar or generic versions of our products if approved, introducing biosimilar or generic competition that could have a material
adverse impact on our business, financial condition and results of operations.
Our
future growth depends, in part, on our ability to penetrate international markets, where we would be subject to additional regulatory
burdens and other risks and uncertainties.
Our
future profitability will depend, in part, on our ability to commercialize our product candidates in international markets for which
we intend to rely on collaborations with third parties. If we commercialize any of our product candidates in international markets, we
would be subject to additional risks and uncertainties, including:
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our
customers’ ability to obtain reimbursement for our product candidates in international markets;
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our
inability to directly control commercial activities because we are relying on third parties;
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the
burden of complying with complex and changing international regulatory, tax, accounting and legal requirements;
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different
medical practices and customs in foreign countries affecting acceptance in the marketplace;
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import
or export licensing requirements;
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longer
accounts receivable collection times;
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longer
lead times for shipping;
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language
barriers for technical training;
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reduced
protection of intellectual property rights in some foreign countries;
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foreign
currency exchange rate fluctuations; and
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the
interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.
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International
sales of our product candidates could also be adversely affected by the imposition of governmental controls, political and economic instability,
trade restrictions and changes in tariffs, any of which may adversely affect our results of operations.
If
we market any of our product candidates or, if approved, commercial products, in a manner that violates healthcare laws, or if we violate
government price reporting laws, we may be subject to civil or criminal penalties.
The
marketing and sale of pharmaceutical products are subject to comprehensive governmental regulation within the United States, with similar
requirements in other jurisdictions. Numerous federal, state and local authorities have jurisdiction over, or enforce laws related to,
such activities, including the FDA, United States Drug Enforcement Agency, Centers for Medicare & Medicaid Services, the United States
Department of Health and Human Services Office of Inspector General, the United States Department of Justice, state Attorneys General,
state departments of health and state pharmacy boards. See the section entitled “Business—Government Regulation” in
our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 25, 2021.
The
FDA enforces laws and regulations which require that the promotion of pharmaceutical products be consistent with the approved prescribing
information. While physicians may prescribe an approved product for a so-called “off label” use, it is unlawful for a pharmaceutical
company to promote its products in a manner that is inconsistent with its approved label and any company which engages in such conduct
can subject that company to significant liability. The federal government has levied large civil and criminal fines and/or other penalties
against companies for alleged improper promotion and has investigated and/or prosecuted several companies in relation to off-label promotion.
The FDA has also requested that certain companies enter consent decrees or permanent injunctions under which specified promotional conduct
is changed, curtailed or prohibited. Similarly, industry codes in the European Union and other foreign jurisdictions prohibit companies
from engaging in off-label promotion and regulatory agencies in various countries enforce violations of the code with civil penalties.
While we intend to ensure that our promotional materials are consistent with our label, regulatory agencies may disagree with our assessment
and may issue untitled letters, warning letters or may institute other civil or criminal enforcement proceedings.
We
are also subject to various federal and state laws pertaining to health care “fraud and abuse,” including anti-kickback laws
and false claims laws, for activities related to sales of any of our products or product candidates that may in the future receive marketing
approval. Anti-kickback laws generally prohibit persons from soliciting, receiving or providing remuneration, directly or indirectly,
to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which
payment may be made under federal healthcare programs such as Medicare and Medicaid. Although the specific provisions of these laws vary,
their scope is generally broad and there may not be regulations, guidance or court decisions that apply the laws to particular industry
practices. False claims laws prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented,
information or claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent.
If
any of our product candidates are approved, we anticipate that we will need to participate in the Medicaid Drug Rebate Program and a
number of other federal and state government pricing programs in the United States in order to obtain coverage for the product by certain
government healthcare programs. These programs would generally require us to pay rebates or provide discounts to certain private purchasers
or government payers in connection with our products when dispensed to beneficiaries of these programs. In some cases, such as with the
Medicaid Drug Rebate Program, the rebates are based on pricing and rebate calculations that we report on a monthly and quarterly basis
to the government agencies that administer the programs. We may have reimbursement obligations or be subject to penalties if we fail
to provide timely and accurate information to the government, pay the correct rebates or offer the correct discounted pricing.
Over
the past few years, numerous pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of alleged
promotional and marketing activities, such as: allegedly providing free trips, free goods, sham consulting fees and grants and other
monetary benefits to prescribers; reporting to pricing services inflated average wholesale prices that were then used by federal programs
to set reimbursement rates; engaging in off-label promotion that caused claims to be submitted to Medicare or Medicaid for non-covered,
off-label uses; and submitting inflated best price information to the Medicaid Drug Rebate Program to reduce liability for Medicaid rebates.
Most states also have statutes or regulations similar to the federal anti-kickback statute and False Claims Act, which apply to items
and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Efforts to ensure
that our activities comply with applicable healthcare laws and regulations will involve substantial costs. Given the breadth of the laws
and regulations, limited guidance for certain laws and regulations and evolving government interpretations of the laws and regulations,
governmental authorities may possibly conclude that our business practices may not comply with healthcare laws and regulations. If our
operations are found to be in violation of any of the laws described above or any other government regulations that apply to us, we may
be subject to sanctions, including substantial civil monetary penalties, exclusion of our products from reimbursement under government
programs, substantial criminal fines and imprisonment, any of which could adversely affect our business, financial condition, results
of operations, prospects and reputation.
We
are dependent on third parties to manufacture our product candidates, and our commercialization of our product candidates could be halted,
delayed or made less profitable if those third parties fail to obtain manufacturing approval from the FDA or comparable foreign regulatory
authorities, fail to provide us with sufficient quantities of our product candidates or fail to do so at acceptable quality levels or
prices.
We
do not currently have, nor do we plan to acquire, the capability or infrastructure to manufacture drug substance, in our product candidates
for use in our clinical trials or for commercial products, if any. As a result, we are obligated to rely on contract manufacturers for
clinical supplies of our product candidates and will be obligated, if and when any of our product candidates are approved for commercialization,
to rely on contract manufacturers for commercial supply. We may not be able to engage a contract manufacturer for commercial supply of
any of our product candidates on acceptable terms to us, or at all.
The
facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA, the competent authorities
of the European Union Member States, MHRA or other regulatory authorities pursuant to inspections that will be conducted after we submit
an NDA or BLA to the FDA or equivalent applications to other relevant regulatory authorities. We will be completely dependent on our
contract manufacturers for compliance with GMPs for manufacture of both active drug substances and finished drug products. These GMP
regulations cover all aspects of the manufacturing, testing, quality control and record keeping relating to our product candidates. If
our contract manufacturers do not successfully manufacture material that conforms to our specifications and the strict regulatory requirements
of the FDA, the competent authorities of the European Union Member States, MHRA or other regulatory authorities, they will not be able
to secure and/or maintain regulatory approval for their manufacturing facilities. If the FDA, the competent authorities of the European
Union Member States, MHRA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product
candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would
significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.
Our
contract manufacturers are subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies
for compliance with GMPs and similar regulatory requirements. Although we are responsible for oversight of manufacturing of our product
candidates, we do not have control over our contract manufacturers’ compliance with these regulations and standards. For example,
in a general inspection unrelated to teplizumab at a fill/finish manufacturing facility the FDA identified deficiencies which are required
to be addressed by that manufacturing facility as a condition to an approval of teplizumab. Failure by any of our contract manufacturers
to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure
to grant approval to market any of our product candidates, delays, suspensions or withdrawals of approvals, operating restrictions and
criminal prosecutions, any of which could significantly and adversely affect our business. In addition, although we have audit and certain
other oversight rights under our contracts with our contract manufacturers, we do not have control over the ability of our contract manufacturers
to maintain adequate quality control, quality assurance and qualified personnel. Failure by our contract manufacturers to comply with
or maintain any of these standards could adversely affect our ability to develop, obtain regulatory approval for or market any of our
product candidates.
If,
for any reason, these third parties are unable or unwilling to perform, we may not be able to terminate our agreements with them, to
the extent applicable, and we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with
them and we cannot be certain that any such third parties will have the manufacturing capacity to meet future requirements. If these
manufacturers or any alternate manufacturer of finished drug product experiences any significant difficulties in its respective manufacturing
processes for our drug substance or finished drug products or should cease doing business with us, we could experience significant interruptions
in the supply of any of our product candidates or may not be able to create a supply of our product candidates at all. Were we to encounter
manufacturing issues, our ability to produce a sufficient supply of any of our product candidates might be negatively affected. Our inability
to coordinate the efforts of our third-party manufacturers, or the lack of capacity available at our third-party manufacturers, could
impair our ability to supply any of our product candidates at required levels. Because of the significant regulatory requirements that
we would need to satisfy in order to qualify a new active drug substances or finished drug products manufacturer, if we face these or
other difficulties with our current manufacturers, we could experience significant interruptions in the supply of any of our product
candidates if we decided to transfer the manufacture of any of our product candidates to one or more alternative manufacturers in an
effort to deal with the manufacturing issues.
Any
manufacturing problem or the loss of a contract manufacturer could be disruptive to our operations and result in lost sales. Additionally,
we rely on third parties to supply the raw materials needed to manufacture our potential products. Any reliance on suppliers may involve
several risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules,
reliability and quality. Any unanticipated disruption to a contract manufacturer caused by problems at suppliers could delay shipment
of any of our product candidates, increase our cost of goods sold and result in lost sales.
We
cannot guarantee that our future manufacturers and suppliers will be able to reduce the costs of commercial scale manufacturing of any
of our product candidates over time. If the commercial-scale manufacturing costs of any of our product candidates are higher than expected,
these costs may significantly impact our operating results. In order to reduce costs, we may need to develop and implement process improvements.
However, in order to do so, we will need, from time to time, to notify or make submissions with regulatory authorities, and the improvements
may be subject to approval by such regulatory authorities. We cannot be sure that we will receive these necessary approvals or that these
approvals will be granted in a timely fashion. We also cannot guarantee that we will be able to enhance and optimize output in our commercial
manufacturing process. If we cannot enhance and optimize output, we may not be able to reduce our costs over time.
Each
of our contract manufacturers for our product candidates is a single source supplier. If any of the contract manufacturers in the supply
chain for one of our product candidates experiences a delay or is unable to deliver the products or components necessary to manufacture
the subject product, our ability to produce the affected product would be materially impaired.
Although
we believe we currently have supply to support potential teplizumab supply demands for several years, we do not have an ongoing commitment
from AGC Biologics for commercial supply of teplizumab or with any other contract manufacturers of our other product candidates. Our
current agreement with AGC Biologics for the supply of teplizumab as well as agreements with other contract manufacturers of our other
product candidates operate on a statement of work basis. If teplizumab is approved for commercial use but we are unable to reach agreement
with AGC Biologics on the production of teplizumab for commercial use, or if we are unable to maintain commercial relationships with
contract manufacturers of our other product candidates, we may not have sufficient supply of teplizumab to fulfill customer orders or
sufficient supply for our other clinical trials. Identifying, qualifying and transferring manufacturing to secondary sources is a time-consuming
process and there is no guaranty that we would be able to reach an agreement with a secondary source on acceptable terms, which could
have a material adverse effect on our sales, results or operations and financial condition.
Our
experience manufacturing teplizumab is limited and if the FDA requires any changes to our manufacturing process, including to address
the FDA’s PK comparability considerations identified in the teplizumab CRL, or if we encounter any manufacturing issues, we may
experience delays in commercialization, or in our ongoing and planned clinical trials, including the PROTECT study.
We
have limited experience manufacturing teplizumab and we currently rely on single-source, third-party manufacturers to supply us with
drug substance and drug product. We historically relied upon an existing supply of teplizumab drug substance produced by Eli Lilly to
manufacture drug product at our third-party manufacturer for use in our clinical trials of teplizumab. We have entered into agreements
with our third-party manufacturers to manufacture teplizumab for our anticipated clinical trial needs and with all except AGC for the
potential commercialization of teplizumab. We believe supplies of teplizumab sufficient to supply the PROTECT study and to fulfill our
initial years of commercial needs in the United States have been manufactured by our third-party manufacturers.
In
order to obtain regulatory approval for teplizumab, third-party manufacturers have been required to consistently produce teplizumab in
commercial quantities and of specified quality on a repeated basis and document their ability to do so. The required number of batches
of teplizumab have been manufactured at our CMO’s by the processes we intend to use for commercialization. The quality and consistency
of these lots, along with their comparability to teplizumab manufactured previously for clinical studies, will need to be approved by
the FDA, which, on April 23, 2021, reported to the Company that it concluded that the teplizumab manufactured by the current third-parties
is not comparable to drug product used in the “At-Risk” TN-10 study, and that it cannot be certain if this observation is
not clinically relevant. See “The potential approval of teplizumab in the United States is subject to satisfactorily addressing
issues raised by the FDA in its CRL to the teplizumab BLA, including the FDA’s conclusion that the drug pharmacokinetic profiles
of the two drug products evaluated in our PK/PD bridging study for teplizumab are not comparable, product quality issues, and the requirement
that a fill/finish manufacturing facility used by the Company for teplizumab resolve deficiencies identified by the FDA during a general
inspection not specific to teplizumab. This may require further development activities, additional data, analyses and modeling and will
likely affect the potential for and timing of any re- submission by the Company for an approval of teplizumab for the delay of clinical
T1D in at-risk patients.” Additionally, in the July 2, 2021 CRL received by the Company, the FDA stated that as PK remains
the primary endpoint for demonstration of comparability between the two products, the Company will need to establish PK comparability
appropriately between the intended commercial product and the clinical trial product or provide other data that adequately justify why
PK comparability is not necessary.
Changes
in product candidate manufacturing or formulation may result in additional costs or delay.
As
product candidates are developed through preclinical studies to late-stage clinical trials towards approval and commercialization, it
is common that various aspects of the development program, such as manufacturing methods and formulation, are altered in an effort to
optimize processes. During the course of a development program, sponsors may also change the contract manufacturers used to produce the
product candidates. Also, if we, through third-parties, engage in the scale-up of manufacturing, we may encounter unexpected issues relating
to the manufacturing process or the quality, purity and stability of the product, and we may be required to refine or alter our manufacturing
processes to address these issues. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes
could cause our product candidates to perform differently and affect the results of clinical trials. Such changes may also require additional
testing, notification or approval by the FDA, the competent authorities of the European Union Member States, MHRA or other regulatory
authorities. This could delay completion of clinical trials; require the conduct of bridging clinical trials or studies, or the repetition
of one or more clinical trials; increase clinical trial costs; delay approval of our product candidates and jeopardize our ability to
commence product sales and generate revenue.
We
expect to rely on third parties to conduct clinical trials for our product candidates. If these third parties do not successfully carry
out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize any of
our product candidates and our business would be substantially harmed.
We
rely on third-party CROs and vendors to conduct and manage our clinical programs including contracting with clinical sites to perform
our clinical trials. We plan to rely heavily on these parties for execution of clinical trials for our product candidates and will control
only certain aspects of their activities. Nevertheless, we will be responsible for ensuring that each of our studies is conducted in
accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on CROs and clinical sites will
not relieve us of our regulatory responsibilities. We and our CROs are required to comply with GCPs, which are regulations and guidelines
enforced by the FDA, the Competent Authorities of the Member States of the EEA and comparable foreign regulatory authorities for any
products in clinical development. The FDA and its foreign equivalents enforce these GCP regulations through periodic inspections of trial
sponsors, principal investigators and trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated
in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional
clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA or other regulatory
authorities will determine that any of our clinical trials comply with GCPs. In addition, our clinical trials must be conducted with
products produced under GMP regulations and will require a large number of test subjects. Our failure or the failure of our CROs or clinical
sites to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process and
could also subject us to enforcement action up to and including civil and criminal penalties.
Although
we design the clinical trials for our product candidates in consultation with CROs, we expect that the CROs will manage all of the clinical
trials conducted at contracted clinical sites. As a result, many important aspects of our drug development programs are delegated to
third-parties. In addition, the CROs and clinical sites may not perform all of their obligations under arrangements with us or in compliance
with regulatory requirements. If the CROs or clinical sites do not perform clinical trials in a satisfactory manner, breach their obligations
to us or fail to comply with regulatory requirements, the development and commercialization of any of our product candidates for the
subject indication may be delayed or our development program materially and irreversibly harmed. We fully cannot control the amount and
timing of resources these CROs and clinical sites will devote to our program or any of our product candidates. If we are unable to rely
on clinical data collected by our CROs, we could be required to repeat, extend the duration of, or increase the size of our clinical
trials, which could significantly delay commercialization and require significantly greater expenditures.
If
any of our relationships with these third-party CROs or clinical sites terminate, we may not be able to enter into arrangements with
alternative CROs or clinical sites. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines,
if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere
to our clinical protocols, regulatory requirements or for other reasons, any such clinical trials may be extended, delayed or terminated,
and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our financial
results and the commercial prospects for any of our product candidates would be harmed, our costs could increase and our ability to generate
revenue could be delayed.
The
outcome of pre-clinical testing and early clinical trials may not be predictive of the success of later clinical trials, and the results
of our clinical trials may not satisfy the requirements of the FDA or comparable foreign regulatory authorities.
We
currently have no products approved for sale and we cannot guarantee that we will ever have marketable products. Clinical failure can
occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we or any future collaborators
may decide, or regulators may require us, to conduct additional clinical trials or pre-clinical studies. We will be required to demonstrate
with substantial evidence through well-controlled clinical trials that our product candidates are safe and effective for use in a diverse
population before we can seek marketing approvals for their commercial sale. Success in pre-clinical studies and early-stage clinical
trials does not mean that future larger registration clinical trials will be successful. This is because product candidates in later-stage
clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and comparable foreign regulatory
authorities despite having progressed through pre-clinical studies and early-stage clinical trials.
From
time to time, we may publish or report interim or preliminary data from our clinical trials. Interim or preliminary data from clinical
trials that we may conduct may not be indicative of the final results of the trial and are subject to the risk that one or more of the
clinical outcomes may materially change as patient enrollment continues and more patient data become available. Interim or preliminary
data also remain subject to audit and verification procedures that may result in the final data being materially different from the interim
or preliminary data. As a result, interim or preliminary data should be viewed with caution until the final data are available.
In
some instances, there can be significant variability in safety and efficacy results between different clinical trials of the same product
candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, differences
in and adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We do not
know whether any clinical trials we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain marketing
approval to market our product candidates.
Third-party
coverage and reimbursement and health care cost containment initiatives and treatment guidelines may constrain our future revenues.
Our
ability to successfully market our product candidates will depend in part on the level of reimbursement that government health administration
authorities, private health coverage insurers and other organizations provide for the cost of our products and related treatments. Countries
in which any of our product candidates are sold through reimbursement schemes under national health insurance programs frequently require
that manufacturers and sellers of pharmaceutical products obtain governmental approval of initial prices and any subsequent price changes.
In certain countries, including the United States, government-funded and private medical care plans can exert significant indirect pressure
on prices. We may not be able to sell our product candidates profitably if adequate prices are not approved or coverage and reimbursement
is unavailable or limited in scope. Increasingly, third-party payors attempt to contain health care costs in ways that are likely to
impact our development of products including:
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failing
to approve or challenging the prices charged for health care products;
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introducing
reimportation schemes from lower priced jurisdictions;
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limiting
both coverage and the amount of reimbursement for new therapeutic products;
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denying
or limiting coverage for products that are approved by the regulatory agencies but are considered to be experimental or investigational
by third-party payors; and
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refusing
to provide coverage when an approved product is used in a way that has not received regulatory marketing approval.
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Moreover,
recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their commercial products.
There have been several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other
things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the
cost of drugs under Medicare, and reform government program reimbursement methodologies for drugs. While any proposed measures will require
authorization through additional legislation to become effective, Congress has indicated that it will continue to seek new legislative
and/or administrative measures to control drug costs. At the state level, legislatures are increasingly passing legislation and implementing
regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints,
discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed
to encourage importation from other countries and bulk purchasing. See “Healthcare reform and other governmental and private
payor initiatives may have an adverse effect upon, and could prevent, our product candidates’ commercial success, if approved.”
Risks
Relating to Our Intellectual Property Rights
We
depend on rights to certain pharmaceutical compounds that are licensed to us. We do not control these pharmaceutical compounds and any
loss of our rights to them could prevent us from selling our products.
We
are dependent on licenses from third parties for all but one of our pharmaceutical compounds. We do not own the patents that underlie
these licenses. Our rights to use the pharmaceutical compounds we license are subject to the continuation of and compliance with the
terms of those licenses. Thus, the patents and patent applications applicable to our product candidates were not written by us or our
attorneys, and we did not have control over the drafting and prosecution. The former patent owners and our licensors might not have given
the same attention to the drafting and prosecution of these patents and applications as we would have if we had been the owners of the
patents and applications and had control over the drafting. Moreover, under certain of our licenses, patent prosecution activities remain
under the control of the licensor. We cannot be certain that drafting of the licensed patents and patent applications, or patent prosecution,
by the licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable
patents and other intellectual property rights.
Our
rights to develop and commercialize the product candidates we license are subject to the validity of the owner’s intellectual property
rights. Enforcement of our licensed patents or defense or any claims asserting the invalidity of these patents is often subject to the
control or cooperation of our licensors. Legal action could be initiated against the owners of the intellectual property that we license
and an adverse outcome in such legal action could harm our business because it might prevent such companies or institutions from continuing
to license intellectual property that we may need to operate our business. In addition, such licensors may resolve such litigation in
a way that benefits them but adversely affects our ability to develop and commercialize our product candidates.
In
addition, our rights to practice the inventions claimed in the licensed patents and patent applications are subject to our licensors
abiding by the terms of those licenses and not terminating them. Our licenses may be terminated by the licensor if we are in material
breach of certain terms or conditions of the license agreement or in certain other circumstances. Certain of our licenses contained in
our license agreements contain provisions that allow the licensor to terminate the license if (i) we breach any payment obligation or
other material provision under the agreement and fail to cure the breach within a fixed time following written notice of termination,
(ii) we or any of our affiliates, licensees or sublicensees directly or indirectly challenge the validity, enforceability, or extension
of any of the licensed patents, (iii) we declare bankruptcy or dissolve, (iv) we fail to maintain a licensed product in active development
or fail to use commercially reasonable efforts to develop or commercialize a licensed product. Our rights under the licenses are subject
to our continued compliance with the terms of the license, including the payment of royalties due under the license. Termination of these
licenses could prevent us from marketing some or all of our products. Because of the complexity of our products and the patents we have
licensed, determining the scope of the license and related royalty obligations can be difficult and can lead to disputes between us and
the licensor. An unfavorable resolution of such a dispute could lead to an increase in the royalties payable pursuant to the license.
If a licensor believed we were not paying the royalties due under the license or were otherwise not in compliance with the terms of the
license, the licensor might attempt to revoke the license. If such an attempt were successful, we might be barred from producing and
selling some or all of our products.
It
is difficult and costly to protect our intellectual property rights, and we cannot ensure the protection of these rights.
Our
commercial success will depend, in part, on obtaining and maintaining patent protection for our technologies, products and processes,
successfully defending these patents against third-party challenges and successfully enforcing these patents against third party competitors.
The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal, scientific and factual questions
for which important legal principles remain unresolved. Changes in either the patent laws or in interpretations of patent laws may diminish
the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowable or enforceable in
our patents. The existing patents and patent applications relating to our product candidates and related technologies may be challenged,
invalidated or circumvented by third parties and might not protect us against competitors with similar products or technologies.
The
degree of future protection for our proprietary rights is uncertain, because legal means afford only limited protection and may not adequately
protect our rights, permit us to gain or keep our competitive advantage, or provide us with any competitive advantage at all. For example,
others have filed, and in the future are likely to file, patent applications covering products and technologies that are similar, identical
or competitive to any of our product candidates, or important to our business. We cannot be certain that any patent application owned
by a third party will not have priority over patent applications filed by us, or that we will not be involved in interference, opposition
or invalidity proceedings before United States or foreign patent offices. Additionally, the composition of matter patents for teplizumab
have expired, and although we have filed method of use patents for teplizumab, these may not provide adequate protection from competitors.
In
the future we may rely on know-how and trade secrets to protect technology, especially in cases when we believe patent protection is
not appropriate or obtainable. However, know-how and trade secrets are difficult to protect. While we intend to require employees, academic
collaborators, consultants and other contractors to enter into confidentiality agreements, we may not be able to adequately protect our
trade secrets or other proprietary or licensed information. Typically, research collaborators and scientific advisors have rights to
publish data and information in which we may have rights. If we cannot maintain the confidentiality of our proprietary technology and
other confidential information, our ability to receive patent protection and our ability to protect valuable information owned by us
may be imperiled. Enforcing a claim that a third-party entity illegally obtained and is using any of our trade secrets is expensive and
time consuming, and the outcome is unpredictable. In addition, courts are sometimes less willing to protect trade secrets than patents.
Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
If
we fail to obtain or maintain patent protection or trade secret protection for our product candidates or our technologies, third parties
could use our proprietary information, which could impair our ability to compete in the market and adversely affect our ability to generate
revenues and attain profitability.
We
may also rely on the trademarks we may develop to distinguish our products from the products of our competitors. We cannot guarantee
that any trademark applications filed by us or our licensors will be approved. Third parties may also oppose such trademark applications,
or otherwise challenge our use of the trademarks. In the event that the trademarks we use are successfully challenged, we could be forced
to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources to advertising and
marketing new brands. Further, we cannot provide assurance that competitors will not infringe the trademarks we use, or that we will
have adequate resources to enforce these trademarks.
Our
product candidates may infringe the intellectual property rights of others, which could increase our costs and delay or prevent our development
and commercialization efforts.
Our
success depends in part on avoiding infringement of the proprietary technologies of others. The pharmaceutical industry has been characterized
by frequent litigation regarding patent and other intellectual property rights. Identification of third-party patent rights that may
be relevant to our proprietary technology is difficult because patent searching is imperfect due to differences in terminology among
patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Additionally, because patent applications
are maintained in secrecy until the application is published, we may be unaware of third-party patents that may be infringed by commercialization
of any of our product candidates or any future product candidate. There may be certain issued patents and patent applications claiming
subject matter that we may be required to license in order to research, develop or commercialize any of our product candidates, and we
do not know if such patents and patent applications would be available to license on commercially reasonable terms, or at all. Any claims
of patent infringement asserted by third parties would be time-consuming and may:
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result
in costly litigation;
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divert
the time and attention of our technical personnel and management;
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prevent
us from commercializing a product until the asserted patent expires or is held finally invalid or not infringed in a court of law;
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require
us to cease or modify our use of the technology and/or develop non-infringing technology; or
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require
us to enter into royalty or licensing agreements.
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Third
parties may hold proprietary rights that could prevent any of our product candidates from being marketed. Any patent-related legal action
against us claiming damages and seeking to enjoin commercial activities relating to any of our product candidates or our processes could
subject us to potential liability for damages and require us to obtain a license to continue to manufacture or market any of our product
candidates or any future product candidates. We cannot predict whether we would prevail in any such actions or that any license required
under any of these patents would be made available on commercially acceptable terms, if at all. In addition, we cannot be sure that we
could redesign our product candidates or any future product candidates or processes to avoid infringement, if necessary. Accordingly,
an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent us from
developing and commercializing any of our product candidates or a future product candidate, which could harm our business, financial
condition and operating results.
A
number of companies, including several major pharmaceutical companies, have conducted, or are conducting, research in immune-mediated
diseases within the therapeutic fields in which we intend to operate, which has resulted, or may result, in the filing of many patent
applications related to this research. If we were to challenge the validity of these or any issued United States patent in court, we
would need to overcome a statutory presumption of validity that attaches to every issued United States patent. This means that, in order
to prevail, we would have to present clear and convincing evidence as to the invalidity of the patent’s claims. If we were to challenge
the validity of these or any issued United States patent in an administrative trial before the Patent Trial and Appeal Board in the United
States Patent and Trademark Office, we would have to prove that the claims are unpatentable by a preponderance of the evidence. There
is no assurance that a jury and/or court would find in our favor on questions of infringement, validity or enforceability.
We
may be subject to claims that we have wrongfully hired an employee from a competitor or that we or our employees have wrongfully used
or disclosed alleged confidential information or trade secrets of their former employers.
As
is commonplace in our industry, we will employ individuals who were previously employed at other pharmaceutical companies, including
our competitors or potential competitors. We may be subject in the future to claims that our employees or prospective employees are subject
to a continuing obligation to their former employers (such as non-competition or non-solicitation obligations) and that such obligations
has been breached or claims that our employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary
information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending
against these claims, litigation could result in substantial costs and be a distraction to management.
Risks
Related to Ownership of our Common Stock
The
price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for stockholders.
The
market price of our common stock has been volatile and can be subject to wide fluctuations in response to various factors, some of which
are beyond our control, including, the reporting of results of our clinical trials or partner-sponsored clinical trials involving our
programs. Other factors may include those discussed in this “Risk Factors” section of this Quarterly Report on Form 10-Q:
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our
commercialization, marketing and manufacturing prospects;
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our
intentions and our ability to establish collaborations and/or partnerships;
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the
timing or likelihood of regulatory filings and approvals;
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our
development, commercialization, marketing and manufacturing capabilities;
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our
expectations regarding the potential market size and the size of the patient populations for our product candidates;
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the
implementation of our business model and strategic plans for our business and technology;
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the
scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates, along
with any product modifications and improvements;
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estimates
of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional capital;
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our
financial performance; and
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developments
and projections relating to our competitors and our industry, including competing therapies and procedures.
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In
addition, the stock markets in general, and the markets for biopharmaceutical and biotechnology stocks in particular, have experienced
extreme volatility that may have been unrelated to the operating performance of the issuer. These broad market fluctuations may adversely
affect the market price or liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of
that stock have sometimes instituted securities class action litigation against the issuer.
On
May 21, 2021, a putative class action complaint was filed in the U.S. District Court for the District of New Jersey (the “Court”),
naming the Company, Chief Executive Officer Ashleigh Palmer, and Chief Financial Officer Andrew Drechsler as defendants. The complaint
alleges violations of the Securities Exchange Act of 1934 and Rule 10b-5 in connection with disclosures made regarding the teplizumab
BLA and teplizumab’s commercialization timeline. The plaintiff seeks to represent a class of shareholders who purchased or otherwise
acquired the Company’s securities between November 2, 2020 and April 8, 2021. The complaint seeks unspecified damages. Per the
procedures set forth by federal securities laws, applications for appointment of lead plaintiff(s) and lead counsel were due to the Court
on July 20, 2021. Two applications for lead plaintiff and lead counsel were submitted to the Court on that date; one of the two movants
subsequently withdrew its application.
This
lawsuit and this type of litigation could result in substantial costs and divert our management’s attention and resources and could
also require us to make substantial payments to satisfy judgments or to settle litigation.
An
active, liquid and orderly market for our common stock may not develop, which could result in substantial losses for stockholders.
Prior
to our IPO, there was no public market for shares of our common stock. Although our common stock is listed on The Nasdaq Global Select
Market (“Nasdaq”), the market for our shares has demonstrated varying levels of trading activity and an active public market
for our shares may not be sustained. The lack of an active market may impair the ability to sell shares at the time a shareholder wish
to sell them or at a price that a shareholder may consider reasonable. An inactive market may also impair our ability to raise capital
by selling shares and may impair our ability to acquire other businesses, applications, or technologies using our shares as consideration.
We
have incurred increased costs as a result of operating as a public company, and our management is now required to devote substantial
time to additional compliance initiatives and corporate governance practices.
As
a public company, we incur significant legal, accounting and other expenses. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street
Reform and Consumer Protection Act, the listing requirements of Nasdaq and other applicable securities rules and regulations impose various
requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate
governance practices. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover,
these rules and regulations have increased our legal and financial compliance costs and will make some activities more time-consuming
and costly.
Future
capital raises may dilute our existing stockholders’ ownership and/or have other adverse effects on our operations.
If
we raise additional capital by issuing equity securities, our existing stockholders’ percentage ownership will be reduced, and
these stockholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences and
privileges senior to those of our common stock. If we raise additional funds by issuing debt securities, these debt securities would
have rights senior to those of our common stock and the terms of the debt securities issued could impose significant restrictions on
our operations, including liens on our assets. If we raise additional funds through collaborations and licensing arrangements, we may
be required to relinquish some rights to our technologies or product candidates, or to grant licenses on terms that are not favorable
to us.
Our
principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters
subject to stockholder approval.
Our
executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately
21.5% of our voting stock as of June 30, 2021. Therefore, these stockholders may have the ability to influence us through this ownership
position. For example, if these stockholders were to choose to act together, they may be able to significantly influence all matters
submitted to our stockholders for approval, including elections of directors, amendments of our organizational documents, or approval
of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals
or offers for our common stock that you may feel are in your best interest as one of our stockholders.
Sales
of a substantial number of shares of our common stock in the public market could cause our stock price to decline.
Sales
of a substantial number of shares of our common stock in the public market could cause the market price of our common stock to decline.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the
market price of our common stock could decline.
In
accordance with the guidelines specified under Rule 10b5-1 of the Exchange Act and our policies regarding stock transactions, a number
of our employees, including executive officers, have adopted and may continue to adopt stock trading plans pursuant to which they have
arranged to sell shares of our common stock from time to time in the future. Generally, sales under such plans by our executive officers
and directors require public filings. Sales by such persons could be viewed negatively by holders and potential purchasers of our common
stock, resulting in a decline in the market price of our common stock.
In
addition, as of June 30, 2021, approximately 15.6 million shares of common stock were subject to outstanding options, reserved for future
issuance under our equity incentive plans or subject to outstanding warrants. If these additional shares of common stock are sold, or
if it is perceived that they will be sold, in the public market, the market price of our common stock could decline.
If
we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness
of our financial reports and the market price of our securities may decrease.
Section
404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting
and provide a management report on our internal control over financial reporting
If
we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal control
over financial reporting is effective or if we are unable to provide an attestation report from our independent registered public accounting
firm, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock
could decrease.
Provisions
in our organizational documents and provisions under Delaware law could discourage a takeover that stockholders may consider favorable
and may lead to entrenchment of management.
Our
amended and restated certificate of incorporation and bylaws contains provisions that could delay or prevent changes in control or changes
in our management without the consent of our board of directors. These provisions include the following:
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no
cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
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the
exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors
or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of
directors;
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the
ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms
of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute
the ownership of a hostile acquirer;
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the
ability of our board of directors to amend our bylaws without obtaining stockholder approval;
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the
required approval of at least 66 2/3% of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws
or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors;
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the
requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive
officer, the president or the board of directors, or at the request of holders of record of at least 20% of our outstanding shares
of common stock, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including
the removal of directors; and
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advance
notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters
to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation
of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
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In
addition, these provisions would apply even if we were to receive an offer that some stockholders may consider beneficial.
We
are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section 203,
a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder
has held the stock for three years or, among other exceptions, the board of directors has approved the transaction.
Claims
for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us
and may reduce the amount of money available to us.
Our
amended and restated certificate of incorporation and bylaws provide that we will indemnify our directors and officers, in each case
to the fullest extent permitted by Delaware law.
In
addition, as permitted by Section 145 of the Delaware General Corporation Law, our bylaws became effective immediately prior to the completion
of the IPO and our indemnification agreements that we have entered into with our directors and officers provide that:
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we
will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request,
to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person
acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant
and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful;
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we
may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law;
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we
are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that
such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled
to indemnification;
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we
will not be obligated pursuant to our bylaws to indemnify a person with respect to proceedings initiated by that person against us
or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to
indemnification;
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the
rights conferred in our bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors,
officers, employees and agents and to obtain insurance to indemnify such persons; and
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we
may not retroactively amend our bylaw provisions to reduce our indemnification obligations to directors, officers, employees and
agents.
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Our
certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially
all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum
for disputes with us or our directors, officers or employees.
Our
certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action
or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising
pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws, any action to interpret, apply, enforce,
or determine the validity of our certificate of incorporation or bylaws, or any action asserting a claim against us that is governed
by the internal affairs doctrine. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce
any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision
will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal
courts have exclusive jurisdiction. In addition, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state
courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Securities
Act or any other claim for which the federal and state courts have concurrent jurisdiction.
The
choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes
with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and
other employees. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to
be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions,
which could adversely affect our business and financial condition.
We
do not intend to pay dividends on our common stock, and, consequently, the ability to achieve a return on investment will depend on appreciation
in the price of our common stock.
We
do not intend to pay any cash dividends on our common stock for the foreseeable future. We intend to invest our future earnings, if any,
to fund our growth. Therefore, shareholders are not likely to receive any dividends on their common stock for the foreseeable future.
Since we do not intend to pay dividends, the ability to receive a return on investment will depend on any future appreciation in the
market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which our
holders have purchased it.
General
Risk Factors
We
will need to grow the size of our organization, and we may experience difficulties in managing this growth.
As
our development and commercialization plans and strategies continue to develop, we intend to expand the size of our employee and consultant/contractor
base. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit,
maintain, motivate and integrate additional employees. In addition, our management may have to divert a disproportionate amount of its
attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. Our future
financial performance and our ability to develop and commercialize our product candidates and any other future product candidates and
our ability to compete effectively will depend, in part, on our ability to effectively manage our future growth.
If
we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business
strategy. In addition, the loss of the services of our co-founders would adversely impact our business prospects.
Our
management team has expertise in many different aspects of drug development and commercialization. However, our ability to compete in
the highly competitive pharmaceuticals industry depends in large part upon our ability to attract and retain highly qualified managerial,
scientific and medical personnel. We will need to hire additional personnel as we further develop our product candidates. Competition
for skilled personnel in our market is intense and competition for experienced scientists may limit our ability to hire and retain highly
qualified personnel on acceptable terms. Despite our efforts to retain valuable employees, members of our management, scientific and
medical teams may terminate their employment with us on short notice. We have entered into employment agreements with certain of our
executive officers. However, these employment arrangements will provide for at-will employment, which means that any of our employees
could leave our employment at any time, with or without notice. Moreover, there can be no assurance that anyone we expect to employ in
a key management position will be available to join our team when we expect them to, if at all. The loss of the services of any of our
executive officers or other key employees, or our inability to hire targeted executives, could potentially harm our business, operating
results or financial condition. In particular, we believe that the loss of the services of our co-founders would have a material adverse
effect on our business. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level,
and senior managers as well as junior, mid-level, and senior scientific and medical personnel.
Other
pharmaceutical companies with which we compete for qualified personnel have greater financial and other resources, different risk profiles,
and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement.
Some of these characteristics may be more appealing to high-quality candidates than what we have to offer. If we are unable to continue
to attract and retain high-quality personnel, the rate and success at which we can develop and commercialize product candidates would
be limited.
If
product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization
of our product candidates.
We
face a potential risk of product liability as a result of the clinical testing of our product candidates and will face an even greater
risk if we commercialize any of our product candidates or any other future product. For example, we may be sued if any product we develop,
including any of our product candidates, or any materials that we use in our products allegedly causes injury or is found to be otherwise
unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects
in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach
of warranties. In the US, claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves
against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates.
Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability
claims may result in:
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decreased
demand for any of our product candidates or any future products that we may develop;
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injury
to our reputation;
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withdrawal
of clinical trial participants;
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costs
to defend the related litigation;
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a
diversion of management’s time and our resources;
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substantial
monetary awards to trial participants or patients;
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product
recalls, withdrawals or labeling, marketing or promotional restrictions;
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the
inability to commercialize some or all of our product candidates; and
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a
decline in the value of our stock.
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Our
inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability
claims could prevent or inhibit the commercialization of products we develop. We maintain product liability insurance covering our clinical
trials. Although we will maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement
in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage.
Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage.
We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not
covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.
We
may acquire businesses or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions.
We
may acquire additional businesses or products, form strategic alliances or create joint ventures with third parties that we believe will
complement or augment our existing business. If we acquire businesses with promising markets or technologies, we may not be able to realize
the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture.
We may encounter numerous difficulties in developing, manufacturing and marketing any new products resulting from a strategic alliance
or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that,
following any such acquisition, we will achieve the expected synergies to justify the transaction.
We
are generally a virtual company and may be unable to adequately protect our information technology systems from cyber-attacks, which
could result in the disclosure of confidential information, damage our reputation, and subject us to significant financial and legal
exposure.
We
are a virtual company and may be unable to adequately protect our information technology systems from cyber-attacks, which could result
in the disclosure of confidential information, damage our reputation, and subject us to significant financial and legal exposure.
Cyber-attacks
are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. Cyber-attacks could
include wrongful conduct by hostile foreign governments, industrial espionage, deployment of harmful malware, denial-of-service, and
other means to threaten data confidentiality, integrity and availability. A successful cyber-attack could cause serious negative consequences
for our company, including the disruption of operations, the misappropriation of confidential business information and trade secrets,
and the disclosure of corporate strategic plans. To date, we have not experienced threats to our data and information technology systems.
However, although we devote resources to protect our information technology systems, we realize that cyber-attacks are a threat, and
there can be no assurance that our efforts will prevent information security breaches that would result in business, legal or reputational
harm to us, or would have a material adverse effect on our operating results and financial condition.
We
rely on the proper function, availability and security of our information technology systems to operate our business and a cyber-attack
or other breach or disruption of these systems could have a material adverse effect on our business and results of operations.
We
rely on information technology systems to process, transmit and store electronic information in our day-to-day operations. The form and
function of such systems may change over time as our business needs change. The nature of our business involves the receipt and storage
of personal and financial information regarding our customers. We use our information technology systems to manage or support a variety
of business processes and activities, including sales, procurement and supply chain, manufacturing and accounts payable. In addition,
we use enterprise information technology systems to record, process, and summarize transactions and other financial information and results
of operations for internal reporting purposes and to comply with regulatory financial reporting, legal, and tax requirements. Our information
technology systems may be susceptible to damage, disruptions or shutdowns due to computer viruses, attacks by computer hackers, failures
during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, telecommunication
failures, user errors or catastrophic events. Any failure by us to maintain or protect our information technology systems and data integrity,
including from cyber-attacks, intrusions, disruptions or shutdowns, could result in the unauthorized access to personally identifiable
information, theft of intellectual property or other misappropriation of assets or the loss of key data and information, or otherwise
compromise our confidential or proprietary information and disrupt our operations. If our information technology systems are breached
or suffer severe damage, disruption or shutdown and we are unable to effectively resolve the issues in a timely manner, our business
and operating results may be materially and adversely affected.
If
our efforts to maintain the privacy and security of our patient, employee, supplier or Company information are not successful, we could
incur substantial additional costs and become subject to litigation, enforcement actions and reputational damage.
Our
business, like that of most biopharmaceutical companies, involves the receipt, storage and transmission of patient information, as well
as confidential information about our employees, our suppliers and our Company. Our information systems are vulnerable to an increasing
threat of continually evolving cybersecurity risks. Unauthorized parties may attempt to gain access to our systems or information through
fraud or other means of deceiving our employees or third-party service providers. Hardware, software or applications we develop or obtain
from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information and
device security. The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are also constantly changing
and evolving, and may be difficult to anticipate or detect for long periods of time. The ever-evolving threats mean we must continually
evaluate and adapt our systems and processes, and our efforts may not be adequate to safeguard against all data security breaches, misuse
of data or sabotage of our systems. Any future significant compromise or breach of our data security, whether external or internal, or
misuse of patient, employee, supplier or Company data, could result in additional significant costs, lost sales, fines, lawsuits and
damage to our reputation. In addition, as the regulatory environment related to information security, data collection and use, and privacy
becomes increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with those requirements
could also result in additional costs.
We
are subject to stringent privacy laws, information security laws, regulations, policies and contractual obligations related to data privacy
and security and changes in such laws, regulations, policies and contractual obligations could adversely affect our business.
We
are subject to data privacy and protection laws and regulations that apply to the collection, transmission, storage and use of personally-identifying
information, which among other things, impose certain requirements relating to the privacy, security and transmission of personal information,
including comprehensive regulatory systems in the United States, UK and European Union. The legislative and regulatory landscape for
privacy and data protection continues to evolve in jurisdictions worldwide, and there has been an increasing focus on privacy and data
protection issues with the potential to affect our business. Failure to comply with any of these laws and regulations could result in
enforcement action against us, including fines, imprisonment of company officials and public censure, claims for damages by affected
individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business, financial
condition, results of operations or prospects.
There
are numerous United States federal and state laws and regulations related to the privacy and security of personal information. For example,
the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended, and its implementing regulations establish
privacy and security standards that limit the use and disclosure of individually identifiable health information, or protected health
information, and require the implementation of administrative, physical and technological safeguards to protect the privacy of protected
health information and ensure the confidentiality, integrity and availability of electronic protected health information. While we have
determined that we are neither a “covered entity” nor a “business associate” directly subject to HIPAA, many
of the United States health care providers, including United States clinical trial sites, with which we interact are subject to HIPAA,
and we have assumed contractual obligations related to protecting the privacy of personal information. Determining whether protected
health information has been handled in compliance with applicable privacy standards and our contractual obligations can be complex and
may be subject to changing interpretation. If we are unable to properly protect the privacy and security of protected health information,
we could be found to have breached our contracts and we could face civil and criminal penalties. In addition, our operations have been
affected by the California Consumer Privacy Act (“CCPA”), which took effect on January 1, 2020. The CCPA gives California
consumers (defined to include all California residents) certain rights, including the right to ask covered companies to disclose the
types of personal information collected, the categories of sources from which such information was collected, the business purpose for
collecting or selling the consumer’s personal information, the categories of third parties with whom a covered company shares personal
information, and specific pieces of information collected by a covered company. The CCPA imposes several obligations on covered companies
to provide notice to California consumers regarding their data processing activities. The CCPA also gives California consumers the right
to ask covered companies to delete a consumer’s personal information and it places limitations on a covered company’s ability
to sell personal information, including providing consumers a right to opt out of sales of their personal information.
In
addition, we may be subject to privacy and security laws in the various jurisdictions in which we operate, obtain or store personally
identifiable information. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has
been an increasing focus on privacy and data protection issues with the potential to affect our business. For example, the processing
of personal data in the EEA and the UK, is subject to the General Data Protection Regulation (the “GDPR”), which took effect
in May 2018. The GDPR increases obligations with respect to clinical trials conducted in the EEA, such as in relation to the provision
of fair processing notices, responding to data subjects who exercise their rights and reporting certain data breaches to regulators and
affected individuals. The GDPR also requires us to enter certain contractual arrangements with third parties that process GDPR-covered
personal data on our behalf. The GDPR also increases the scrutiny applied to transfers of personal data from the EEA (including from
clinical trial sites in the EEA) to countries that are considered by the European Commission to lack an adequate level of data protection,
such as the United States. The July 2020 invalidation by the Court of Justice of the European Union of the EU-United States Privacy Shield
framework, one of the mechanisms used to legitimize the transfer of personal data from the EEA to the United States, and the imposition
of restrictions on the use of other transfer mechanisms made such transfer more complex and challenging and have also led to increased
scrutiny on data transfers from the EEA to the United States generally and may increase our costs of compliance with data privacy legislation.
In June 2021, the Court of Justice of the European Union issued a ruling that expanded the scope of the “one stop shop” under
the GDPR. According to the ruling, the competent authorities of European Union Member States may, under certain strict conditions, bring
claims to their national courts against a company for breaches of the GDPR, including unlawful cross-border processing activities, even
such company does not have an establishment in the European Union member state in question and the competent authority bringing the claim
is not the lead supervisory authority. If our or our partners’ or service providers’ privacy or data security measures
fail to comply with the GDPR requirements, we may be subject to litigation, regulatory investigations, enforcement notices requiring
us to change the way we use personal data and/or fines of up to 20 million Euros or up to 4% of the total worldwide annual turnover of
the preceding financial year, whichever is higher, as well as claims by affected individuals, negative publicity, reputational harm and
a potential loss of business and goodwill.
Data
privacy remains an evolving landscape at both the domestic and international level, with new regulations coming into effect and continued
legal challenges, and our ongoing efforts to comply with evolving laws and regulations may be costly and require ongoing modifications
to our policies, procedures and systems. Our efforts to comply may also be unsuccessful. It is possible that these laws may be interpreted
and applied in a manner that is inconsistent with our practices. Failure to comply with laws regarding data protection would expose us
to risk of enforcement actions taken by data protection authorities in the European Union, the UK, and elsewhere and carries with it
the potential for significant penalties if we are found to be non-compliant. Similarly, failure to comply with federal and state laws
in the United States regarding privacy and security of personal information could expose us to penalties under such laws. Any such failure
to comply with data protection and privacy laws could result in government-imposed fines or orders requiring that we change our practices,
claims for damages by data subjects, regulatory investigations and enforcement action, litigation and significant costs for remediation,
any of which could adversely affect our business. Even if we are not determined to have violated these laws, government investigations
into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our business,
financial condition, results of operations or prospects.
If
securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion
regarding our stock, our stock price and trading volume could decline.
The
trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about
us or our business. We only recently obtained research coverage by securities and industry analysts. If there are insufficient securities
or industry analysts covering us, the market price for our stock would be negatively impacted. If any of the analysts who cover us issue
an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our clinical
trials and operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these
analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in
turn could cause our stock price or trading volume to decline.