Item 1. Business
We are an immuno-oncology company focused
on the development and commercialization of individualized immunotherapies for the treatment of cancer and infectious diseases
based on our proprietary precision immunotherapy technology platform called Arcelis.
Our most advanced product candidate is
rocapuldencel-T (formerly referred to as AGS-003), which we are developing for the treatment of metastatic renal cell carcinoma,
or mRCC, and other cancers. We are conducting a pivotal Phase 3 clinical trial of rocapuldencel-T plus sunitinib (or another targeted
therapy) vs. sunitinib (or another targeted therapy) monotherapy for the treatment of newly diagnosed mRCC. We refer to this trial
as the ADAPT trial. We dosed the first patient in the ADAPT trial in May 2013 and completed enrollment of the trial in July 2015.
Under the protocol for the trial, a series
of interim analyses have been conducted by the independent data monitoring committee, or IDMC, for the trial to evaluate safety,
efficacy and futility. The most recent interim analysis was conducted in February 2017 (data cut-off as of February 3, 2017) after
75% of the originally targeted pre-specified number of 290 events for the analysis of the original primary endpoint of overall
survival had occurred. At this interim analysis, the IDMC concluded that the trial was unlikely to demonstrate a statistically
significant improvement in overall survival in the combination treatment arm, utilizing the intent-to-treat population, the original
primary endpoint. The IDMC therefore recommended that the trial be discontinued for futility. The IDMC also noted that rocapuldencel-T
had been generally well-tolerated in the trial.
Notwithstanding the IDMC recommendation,
we considered the data too immature to observe the delayed treatment effect often observed with immunotherapy and decided to continue
to conduct the trial pending further review and analysis of the data and discussions with the U.S. Food and Drug Administration,
or FDA. This determination was made after discussion of the results of the interim analysis with the ADAPT trial principal investigators.
In determining to continue the trial, we considered, among other factors, the degree of maturity of the data set
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at the time of the interim analysis, the mechanism of action of rocapuldencel-T, which involves the induction of long-term memory
immune responses, and the IDMC’s assessment of the safety profile of rocapuldencel-T. This determination was also supported
by the extended durability of tumor responses observed in patients treated with rocapuldencel-T plus sunitinib in the trial. At
the time of the IDMC’s February 2017 interim analysis, the median duration of follow-up was 20 months and more than half
the patients in both treatment groups were still alive.
In May 2017, we met with the FDA to discuss
the ADAPT trial and the future direction of the rocapuldencel-T program. Following that meeting, we determined to continue the
ADAPT trial until at least the pre-specified number of 290 events occurs and to submit to the FDA a protocol amendment to increase
the pre-specified number of events for the primary analysis of overall survival in the trial beyond 290 events. We believe that
extending our evaluation of rocapuldencel-T beyond 290 events in the trial could enhance our ability to observe rocapuldencel-T’s
expected delayed treatment effect.
We are currently finalizing an amendment
to the ADAPT protocol, including an amended primary endpoint analysis, and plan to submit it to the FDA prior to the interim data
analysis planned for the second quarter of 2018, at which time approximately 55 new events (deaths) are expected to have occurred
subsequent to the February 2017 interim analysis. We are planning to include the following four co-primary endpoints in the amended
ADAPT protocol:
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Overall
survival for all randomized patients when approximately 375 events have occurred (under the same analysis that was originally
planned for 290 events);
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The
percentage of patients surviving at least five years;
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Overall
survival for patients who remained alive at the time of the February 2017 interim analysis, to be evaluated when approximately
155 new events have occurred; and
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Overall
survival for all patients for whom at least 12 months of follow-up is available (excluding patients who died or were lost to follow-up
within the first 12 months after enrollment).
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In connection with our amendment of the ADAPT protocol, the
special protocol assessment, or the SPA, for the ADAPT trial ceased to be in effect. Additionally, we are developing a protocol
for a Phase 2 clinical trial of rocapuldencel-T in combination with a checkpoint inhibitor for the treatment of patients with mRCC,
but we do not intend to initiate this trial unless and until we obtain financing to fund the trial.
In addition, we are developing AGS-004,
our second Arcelis-based product candidate, for the treatment of HIV. We have completed Phase 1 and Phase 2 trials funded by government
grants and a Phase 2b trial that was funded in full by the National Institutes of Health, or NIH, and the National Institute of
Allergy and Infectious Diseases, or NIAID. We are currently supporting an ongoing investigator-initiated clinical trial of AGS-004
in adult HIV patients evaluating the use of AGS-004 in combination with vorinostat, a latency reversing drug, for HIV eradication
and plan to support an investigator-initiated Phase 2 clinical trial of AGS-004 evaluating AGS-004 for long-term viral control
in pediatric patients provided that results from our investigator-initiated clinical trial in adult HIV patients are favorable
and government funding is obtained.
Our Arcelis Platform
Our proprietary Arcelis precision immunotherapy
technology platform utilizes biological components from a patient’s own cancer cells or virus to generate individualized
immunotherapies. These immunotherapies employ specialized white blood cells called dendritic cells to activate an immune response
specific to the patient’s own disease. Arcelis is based on the work of Dr. Ralph Steinman, winner of the 2011 Nobel
Prize in medicine for the discovery of the role of dendritic cells in the immune system. We believe that our Arcelis-based immunotherapies
may be applicable to a wide range of cancers and infectious diseases and have the following attributes that we consider critical
to a successful immunotherapy:
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target a patient’s disease-specific antigens, including mutated antigens, or neoantigens,
to elicit a potent immune response that is specific to the patient’s own disease;
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overcome the immune suppression that exists in cancer and infectious disease patients;
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induce memory T-cells, a specialized type of immune cell that is known to correlate with improved
clinical outcomes for cancer and HIV patients;
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have minimal toxicity; and
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can be produced using a centralized manufacturing process.
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Despite our setback with respect to rocapuldencel-T,
we continue to believe that our immunotherapies combine the advantages of other approaches to immunotherapy, including approaches
to facilitate antigen recognition and approaches to overcome immune suppression such as checkpoint inhibition, while addressing
limitations that these approaches present.
Our Development Programs
The following table summarizes our development programs for
rocapuldencel-T and AGS-004.
Product Candidate
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Primary Indication
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Status
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Rocapuldencel-T
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mRCC
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Ongoing ADAPT trial; enrollment completed in July 2015; IDMC recommended study discontinuation for futility in February 2017; ongoing discussions with FDA regarding protocol amendment and statistical analysis plan; interim analysis planned for second quarter of 2018
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Planned Phase 2 clinical trial in combination with a checkpoint inhibitor
expected
to open for enrollment as early as the first half of 2019 subject to supportive data from the ADAPT trial and discussions with
the FDA and our obtaining financing to fund the trial.
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AGS-004
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HIV
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Ongoing second stage of investigator-initiated clinical trial in combination with vorinostat for HIV eradication
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Planned
investigator-initiated Phase 2 clinical trial for long-term viral control in pediatric patients provided that results from
ongoing trial in adult HIV patients are favorable and government funding and necessary approvals are obtained
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We hold all commercial rights to rocapuldencel-T
and AGS-004 in all geographies other than rights to rocapuldencel-T in Russia and the other states comprising the Commonwealth
of Independent States, which we exclusively licensed to Pharmstandard International S.A., or Pharmstandard, rights to rocapuldencel-T
for the treatment of mRCC in South Korea, which we exclusively licensed to Green Cross Corp., or Green Cross, and rights to rocapuldencel-T
in China, Hong Kong, Taiwan and Macau, which we exclusively licensed to Lummy (Hong Kong) Co. Ltd., or Lummy HK. We have granted
to MEDcell Co., Ltd., a wholly-owned subsidiary of Medinet Co. Ltd., hereinafter referred to together as “Medinet,”
an exclusive license to manufacture rocapuldencel-T for the treatment of mRCC in Japan.
Rocapuldencel-T
We are developing rocapuldencel-T for the
treatment of mRCC and other cancers. We are conducting the ADAPT trial of rocapuldencel-T plus sunitinib / targeted therapy for
the treatment of newly diagnosed mRCC. We dosed the first patient in the ADAPT trial in May 2013. In July 2015 we completed enrollment
in the ADAPT trial, enrolling 462 patients with the goal of generating 290 events for the original primary endpoint of overall
survival. We enrolled these patients at 107 clinical sites in North America, Europe and Israel. Under the ADAPT trial protocol,
these patients were randomized between the rocapuldencel-T plus sunitinib / targeted therapy combination arm and sunitinib / targeted
therapy alone control arm on a two-to-one basis.
In February 2017, the IDMC for the ADAPT
trial recommended that the trial be discontinued for futility based on its planned interim data analysis. The IDMC concluded that
the trial was unlikely to demonstrate a statistically significant improvement in overall survival in the combination treatment
arm, utilizing the intent-to-treat population at the pre-specified number of 290 events (deaths), the original primary endpoint
of the study. Notwithstanding the IDMC’s recommendation, we determined to continue to conduct the trial while we analyzed
interim data from the trial. Following a meeting with the FDA, we determined to continue the ADAPT trial until at least the pre-specified
number of 290 events occurs and to submit to the FDA a protocol amendment to increase the pre-specified number of events for the
primary analysis of overall survival in the trial beyond 290 events. We believe that extending our evaluation of rocapuldencel-T
beyond 290 events in the trial could enhance our ability to observe rocapuldencel-T’s expected delayed treatment effect.
We are currently finalizing an amendment
to the ADAPT protocol, including an amended primary endpoint analysis, and plan to submit it to the FDA prior to the interim data
analysis planned for the second quarter of 2018, at which time approximately 55 new events (deaths) are expected to have occurred
subsequent to the February 2017 interim analysis. We are planning to include the following four co-primary endpoints in the amended
ADAPT protocol:
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Overall
survival for all randomized patients when approximately 375 events have occurred (under the same analysis that was originally
planned for 290 events);
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The
percentage of patients surviving at least five years;
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Overall
survival for patients who remained alive at the time of the February 2017 interim analysis, to be evaluated when approximately
155 new events have occurred; and
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Overall
survival for all patients for whom at least 12 months of follow-up is available (excluding patients who died or were lost to follow-up
within the first 12 months after enrollment).
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In connection with our amendment of the
ADAPT protocol, the SPA, for the ADAPT trial ceased to be in effect. Additionally, we are developing a protocol for a Phase 2 clinical
trial of rocapuldencel-T in combination with a checkpoint inhibitor for the treatment of patients with mRCC, but we do not intend
to initiate this trial unless and until we obtain financing to fund the trial.
AGS-004
We are developing AGS-004 for the treatment
of HIV and are focusing this program on the use of AGS-004 in combination with other therapies for the eradication of HIV. We believe
that by combining AGS-004 with therapies that are being developed to expose the virus in latently infected cells to the immune
system, we can potentially eradicate the virus. The current standard of care, antiretroviral drug therapy, or ART, can reduce levels
of HIV in a patient’s blood, increase the patient’s life expectancy and improve the patient’s quality of life.
However, ART cannot eliminate the virus, which persists in latently infected cells, remains undetectable by the immune system and
can recur. In addition, ART requires daily, life-long treatment and can have significant side effects.
We are supporting an investigator-initiated
clinical trial of AGS-004 in up to 12 adult HIV patients to evaluate the use of AGS-004 in combination with vorinostat, a latency
reversing therapy, for the eradication of HIV at the University of North Carolina. This trial is being conducted in two stages.
Stage 1 of this trial has been completed and was designed to study immune response kinetics to AGS-004 in patients on continuous
ART. These data were used to better define the optimal dosing strategy in combination with the latency reversing therapy vorinostat
in the ongoing Stage 2. Some patients in Stage 1 have rolled over into Stage 2. The patient clinical costs for the first stage
of this trial were funded by Collaboratory of AIDS Researchers for Eradication, or CARE. The NIH Division of AIDS has approved
$6.6 million in funding for the second stage of this trial.
We also plan to determine whether to explore the use of AGS-004
monotherapy to provide long-term control of HIV viral load in otherwise immunologically healthy patients and eliminate their need
for ART. Accordingly, if initial data from Stage 2 of the ongoing adult eradication study are favorable and government funding
and necessary approvals are obtained, we expect to support an investigator-initiated Phase 2 clinical trial of AGS-004 monotherapy
in pediatric patients infected with HIV who have otherwise healthy immune systems and have been treated with ART since birth or
shortly thereafter and, as a result, are lacking the antiviral memory T-cells to combat the virus. The commencement of this trial
is subject to supportive data obtained from the adult eradication trial and approval of the protocol by the principal investigator(s),
institutional review boards, the IMPAACT Network leadership and the FDA and to the agreement by the NIH to fund the trial costs
not related to AGS-004 manufacturing.
Strategy
Our goal is to become a leading biopharmaceutical
company focused on discovering, developing and commercializing individualized immunotherapies for the treatment of a wide range
of cancers and certain infectious diseases. Key elements of our strategy, all subject to the availability of financing, are as
follows:
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complete clinical development and seek marketing approval of rocapuldencel-T for the treatment
of mRCC, subject to our ongoing analysis of the preliminary ADAPT trial data set and our discussions with the FDA;
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expand clinical development of rocapuldencel-T including in mRCC in combination with a checkpoint inhibitor
and in other advanced solid tumors;
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commercialize rocapuldencel-T in North America independently and with third parties outside North
America;
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establish a facility or otherwise arrange for the commercial manufacture of our products based
on our Arcelis platform;
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continue clinical development of AGS-004 for the treatment of HIV, potentially through government
funding or other third party funding, and collaborate with third parties for commercialization on a worldwide basis; and
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enter into arrangements with third parties both to assist in the development and commercialization of
our product candidates, particularly in international markets, and to in-license product candidates in order to expand our pipeline;
and
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pursue expansion of our broad
intellectual property protection for our Arcelis precision immunotherapy technology platform, product candidates and
proprietary manufacturing processes through U.S. and international patent filings and maintenance of trade secret
confidentiality.
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Immunotherapy to Treat Cancer and Infectious Diseases
Cancer cells occur frequently in the human
body, yet are effectively controlled by T-cells in the immune system, which recognize proteins produced by the cancer cells, known
as antigens, as abnormal and kill the associated cancer cells. Two specific types of T-cells are necessary for an effective anti-cancer
immune response: CD8+ T-cells, which kill cancer cells, and CD4+ T-cells, which provide a “help” signal that activates
and directs the CD8+ T-cell response.
Cancer cells utilize several strategies
to escape detection by the immune system and T-cells. For example, cancer cells secrete factors that act systemically to prevent
T-cells from responding to activation signals, resulting in the inability of T-cells to carry out their role of killing cancer
cells. Chronic viral infections such as HIV or hepatitis C present the same challenges to the immune system as cancer because the
immune system must overcome this disease-induced immune suppression to recognize and respond to virus-infected cells.
Immunotherapy is intended to stimulate
and enhance the body’s natural mechanism for recognizing and killing cancer cells and virus-infected cells. Current immunotherapeutic
approaches to treat cancer can generally be separated into two different mechanisms of action: approaches to facilitate antigen
recognition and approaches to overcome immune suppression.
Approaches to Facilitate Antigen Recognition
Cancer immunotherapies that use an antigen-based approach are designed
to stimulate an immune response against one or more tumor-associated antigens. In most cases, the tumor-associated antigens that
are being targeted are non-mutated, or normal, antigens, which are usually well tolerated by the immune system. In the context
of cancer, these normal antigens are either produced at abnormally high levels or predominantly in tumor cells, or both. The goal
of antigen-based immunotherapies is to activate the patient’s own immune system to seek out and kill the cancer cells that
carry the targeted antigen. A limited number of antigen-based immunotherapies have been approved by the FDA such as Provenge (sipuleucel-T)
for metastatic castrate-resistant prostate cancer, Kymriah (tisagenlecleucel) for B-cell precursor acute lymphoblastic leukemia,
and Yescarta (axicabtagene ciloleucel) for certain types of large B-cell lymphomas. Because these immunotherapies are designed
to target specific antigens, they are less likely to have toxicity than traditional cancer therapies. However, antigen-based immunotherapies
based on shared or commonly overexpressed antigens may have limited efficacy because they are only able to target one or a limited
number of antigens, which may or may not be present in the patient’s cancer cells, and do not capture mutated antigens specific
to that patient’s tumor that can drive tumor growth.
Approaches to Overcome Immune Suppression
Immunotherapies that rely on approaches
to overcome immune suppression are designed to block signaling pathways that prevent T-cell activation and function. The class
of monoclonal antibody-based immunotherapies known as checkpoint inhibitors are being developed on the basis of this approach.
For example, Bristol-Myers Squibb’s first FDA-approved immunotherapy Yervoy (ipilimumab), a treatment for patients with unresectable
or metastatic melanoma, is designed to act by blocking the function of a protein expressed in activated T-cells called CTLA4, which
acts as a T-cell “off” switch. By blocking the function of CTLA4, the patient’s T-cells can become activated,
resulting in an immune response against tumors. Another pathway that immunotherapies are being developed to address is the PD-1/PD-L1
pathway. In this pathway, activated T-cells expressing the protein PD-1 are disabled when binding occurs between PD-1 and its ligand,
PD-L1, which is expressed on tumor cells. Approved anti-PD-1/PDL-1 pathway checkpoint inhibitors and those being developed are
designed to interrupt this pathway by binding to the PD-1 protein or the PD-L1 ligand to prevent them from binding with each other.
Two anti-PD-1/PDL-1 pathway checkpoint inhibitors, Bristol-Myers Squibb’s nivolumab (Opdivo) and Merck’s pembrolizumab
(Keytruda), are FDA approved for patients with several types of cancers, including, in the case of nivolumab, second line therapy
of patients with mRCC. Positive results of a Phase 3 trial combining nivolumab and ipilumumab in front-line treatment of metastatic
renal carcinoma have also been recently reported. However, not all patients respond to anti-PD-1/PDL-1 checkpoint inhibitors, and,
in most cases, patients whose tumors predominantly express PD-L1 are most likely to respond. Immunotherapies that use checkpoint
inhibition have demonstrated the ability to effectively overcome immunosuppression and enable T-cells to function against tumor
cells and potentially virus-infected cells. However, these therapies are administered systemically to enable T-cells to function
and are not designed to target tumor-specific differences, such as the unique mutations of an individual’s tumor. This lack
of specificity can negatively impact healthy tissue and cause significant side effects.
Designing Immunotherapies Using Our Arcelis Platform
We believe that our proprietary Arcelis
precision immunotherapy technology platform enables us to produce individualized immunotherapies that can combine the advantages
of these approaches to immunotherapy while addressing the limitations and disadvantages of these approaches. We have designed our
Arcelis platform to create product candidates which have attributes that we believe are critical to a successful immunotherapy:
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Target disease-specific antigens, including mutated antigens.
The immunotherapy should target antigens, including unique mutated antigens, associated with the patient’s disease. We believe that immunotherapies that target only non-mutated, or commonly shared, tumor-associated antigens will, in many cases, be limited in terms of efficacy as non-mutated antigens are generally poor at stimulating immune responses. Our Arcelis precision immunotherapy technology platform uses messenger RNA, or mRNA, from the patient’s own cancer or virus to yield an individualized immunotherapy that contains the patient’s disease-specific antigens, including mutated antigens, and is designed to elicit a potent immune response specific to the patient’s own disease.
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Overcome disease-induced immune suppression.
The immunotherapy must be able to generate an effective immune response in patients whose immune systems are compromised by their disease. Both tumors and HIV are known to impair the functionality of CD4+ T helper cells, which aid their escape from CD8+ T-cell attack. Our Arcelis-based immunotherapies do not require fully functioning CD4+ helper T-cells to mount an immune response with effective anti-tumor or anti-viral activity as we add the protein known as CD40 ligand, or CD40L, to provide the signaling that the CD4+ helper T-cells would otherwise provide.
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Induce memory T-cells.
The immunotherapy should be able to induce specific T-cells, such as CD8+CD28+ memory T-cells, which are known to correlate with improved clinical outcomes for cancer and HIV patients. These memory T-cells are long lived and necessary for a durable immune response. Our Arcelis process produces dendritic cells that secrete IL-12, which is necessary to induce and expand patient-specific CD8+CD28+ memory T-cells. These memory T-cells are able to seek out and kill cancer or virus-infected cells that express the antigens identical to those displayed on the surface of the dendritic cells.
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Have minimal toxicity.
The immunotherapy should have minimal toxicity, which would potentially enable it to be combined with other therapies for cancer and infectious diseases. The mechanism of action of Arcelis-based products induces patient- and disease-specific memory T-cells. The antigen source and the dendritic cells that are both used for the therapy are both derived from the individual patient. This target customization and specificity is less likely to impact healthy tissue and cause toxicity. Our Arcelis-based product candidates have been well tolerated in clinical trials in more than 375 patients with no serious adverse events attributed to our immunotherapies.
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Our Arcelis precision immunotherapy technology
platform is focused on dendritic cells which present antigens to the attention of the human immune system, including, in particular,
T-cells, and are critical to the immune system’s recognition of proteins derived from cancer cells or virus-infected cells.
Dendritic cells are capable of internalizing cancer or virus protein antigens and displaying fragments of these protein antigens
on their surface as small peptides. The dendritic cells then present these peptide antigens to T-cells. This allows the T-cells
to bind to these peptide antigens and, in the case of cancer, target and kill cancer cells expressing these antigens and, in the
case of infectious disease, target and kill virus-infected cells to control the spread of infectious virus.
The following graphic illustrates the processes comprising our
Arcelis precision immunotherapy platform:
At the clinical site
. As shown
in the graphic above, the manufacture of our Arcelis-based immunotherapies requires two components derived from the patient:
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A disease sample: In the case of cancer, the sample consists of tumor cells, and in the case of infectious disease, the sample consists of blood containing the virus. The disease sample is generally collected at the time of diagnosis or initial treatment.
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Monocytes: Monocytes are a type of white blood cell, which are obtained through a laboratory procedure called leukapheresis that occurs after diagnosis and at least three weeks prior to initiating treatment with our immunotherapy.
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At the manufacturing facility
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tumor cells or the blood sample and the leukapheresis product are shipped to the manufacturing facility following collection at
the clinical site. After receipt of these components at the facility, we take the following steps:
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We isolate the patient’s disease mRNA, which carries the genetic information to recreate the patient’s disease antigens, from the disease sample and amplify the mRNA so that only a small disease sample is required to manufacture the immunotherapy.
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Separately, we extract the monocytes from the leukapheresis product and culture them using a proprietary process to produce matured dendritic cells.
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We then combine the matured dendritic cells with a solution of the patient’s isolated mRNA and a proprietary synthetic CD40L RNA. We apply a brief electric pulse to the solution in a process referred to as electroporation, which enables the patient’s mRNA and the CD40L RNA to pass into, or load, the dendritic cells. The dendritic cells process the CD40L RNA into CD40L protein, enabling the dendritic cells to secrete IL-12, a cytokine required to induce and expand CD8+CD28+ memory T-cells.
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We then further culture the mRNA-loaded dendritic cells so that these cells allow for antigen expression from the patient’s mRNA and presentation in the form of peptides on the surface of the dendritic cells. These mature, loaded dendritic cells are formulated using the patient’s plasma that was collected during the leukapheresis to become the Arcelis-based product. Typically, several years of doses are produced for each patient.
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After verifying the quality of the product, we vial, cryogenically freeze and then ship individual patient doses to the clinic, where each is thawed and administered by intradermal injection.
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Patient treatment
. Upon injection
into the skin of the patient, the mature, loaded dendritic cells are intended to migrate to the lymph nodes near the site of the
injection. It is at these lymph nodes that the dendritic cells come into contact with T-cells. This interaction with the loaded
dendritic cells is intended to cause a measurable increase in patient- and disease-specific memory T-cells.
We believe that our Arcelis precision immunotherapy
technology platform allows us to create individualized immunotherapies that may be capable of treating a wide range of cancers
and infectious diseases using a centralized manufacturing process. Specifically, our Arcelis platform typically allows us to:
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produce several years of customized therapy on average for a patient from a small disease sample and a single leukapheresis from that patient;
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produce additional years of therapy for a patient at a later date with an additional leukapheresis enabling the collection of additional monocytes, but without requiring an additional disease sample from the patient;
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use a single manufacturing facility for North America, which is possible because our Arcelis process can utilize monocytes obtained through leukapheresis within four days of the procedure, and doses of our immunotherapies can be shipped frozen in a cryoshipper that can maintain the target temperature for at least ten days;
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cryopreserve the multiple doses generated from the single manufacturing process for each patient in a direct injectable formulation that allows the doses to remain stable and usable for up to five years; and
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produce immunotherapies that can be administered by intradermal injection in an outpatient procedure.
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Rocapuldencel-T for the Treatment of Metastatic Renal Cell
Carcinoma and Other Cancers
We are developing rocapuldencel-T for use
in combination with sunitinib (or another targeted therapy) for the treatment of mRCC. Sunitinib is an oral small molecule drug
sold under the trade name Sutent and is the current standard of care for initial treatment, or first-line treatment, of mRCC following
diagnosis. In April 2012, the FDA notified us that we have obtained fast track designation for rocapuldencel-T for the treatment
of mRCC.
We are conducting the ADAPT Phase 3 trial
of rocapuldencel-T plus sunitinib (or another targeted therapy) compared to sunitinib (or another targeted therapy) monotherapy
for the treatment of newly diagnosed mRCC. In July 2015 we completed enrollment in the ADAPT trial, enrolling 462 patients with
the goal of generating 290 events for the original primary endpoint of overall survival. In February 2017, the IDMC for the ADAPT
trial recommended that the trial be discontinued for futility based on its planned interim data analysis. The IDMC concluded that
the trial was unlikely to demonstrate a statistically significant improvement in overall survival in the combination treatment
arm, utilizing the intent-to-treat population at the pre-specified number of 290 events (deaths), the original primary endpoint
of the study. Notwithstanding the IDMC’s recommendation, we determined to continue to conduct the trial while we analyzed
interim data from the trial.
In May 2017, we met with the FDA to discuss
the ADAPT trial and the future direction of the rocapuldencel-T program. Following that meeting, we determined to continue the
ADAPT trial until at least the pre-specified number of 290 events occurs and to submit to the FDA a protocol amendment to increase
the pre-specified number of events for the primary analysis of overall survival in the trial beyond 290 events. We believe that
extending our evaluation of rocapuldencel-T beyond 290 events in the trial could enhance our ability to observe rocapuldencel-T’s
expected delayed treatment effect.
We are currently finalizing an amendment
to the ADAPT protocol, including an amended primary endpoint analysis, and plan to submit it to the FDA prior to the interim data
analysis planned for the second quarter of 2018, at which time approximately 55 new events (deaths) are expected to have occurred
subsequent to the February 2017 interim analysis. We are planning to include the following four co-primary endpoints in the amended
ADAPT protocol:
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Overall
survival for all randomized patients when approximately 375 events have occurred (under the same analysis that was originally
planned for 290 events);
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The
percentage of patients surviving at least five years;
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Overall
survival for patients who remained alive at the time of the February 2017 interim analysis, to be evaluated when approximately
155 new events have occurred; and
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Overall
survival for all patients for whom at least 12 months of follow-up is available (excluding patients who died or were lost to follow-up
within the first 12 months after enrollment).
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In connection with our amendment of the
ADAPT protocol, the SPA, for the ADAPT trial ceased to be in effect. Additionally, we are developing a protocol for a Phase 2 clinical
trial of rocapuldencel-T in combination with a checkpoint inhibitor for the treatment of patients with mRCC, but we do not intend
to initiate this trial unless and until we obtain financing to fund the trial.
Renal Cell Carcinoma
RCC is the most common type of kidney cancer.
The American Cancer Society, or ACS estimates that there were approximately 63,000 new cases of kidney cancer and approximately
14,000 deaths from this disease in the United States in 2016. The National Comprehensive Cancer Network, or NCCN estimates that
90% of kidney cancer cases are RCC. For patients with RCC that had metastasized by the time RCC was first diagnosed, a condition
referred to as newly diagnosed mRCC, the five-year survival rate has historically been approximately 12%.
ACS statistics indicate that approximately
25% of newly diagnosed RCC patients present with mRCC in the United States. Additional patients who were initially diagnosed with
earlier stage RCC may also progress to mRCC as these patients suffer relapses. The NCCN estimates between 20% to 30% of patients
with early stage RCC will relapse within three years of surgical excision of the primary tumor. Although the National Cancer Institute,
or NCI, does not provide prevalence of RCC by stage, based on the NCCN’s three-year relapse rate, we estimate that there
may be up to an additional 10,000 to 15,000 cases of mRCC identified annually in the United States. Combining newly diagnosed mRCC
patients with patients who relapse, we estimate that there may be between 20,000 to 25,000 new cases of mRCC in the United States
each year. We estimate, based on publicly available information, including 2013 quarterly and annual reports of companies that
market other therapies approved for mRCC, that the current worldwide mRCC market for these other therapies exceeds $2 billion.
Physicians generally diagnose mRCC by examining
a tumor biopsy under a microscope. Upon evaluation of the visual appearance of the tumor cells, a pathologist will classify the
mRCC into clear cell or non-clear cell types. According to the NCCN, approximately 80% of all RCC diagnoses are clear cell RCC.
Because clear cell types are the most common type of tumor cell, most of the more recently approved therapies for mRCC have limited
their clinical trials to patients with the clear cell type of tumor cell. However, the FDA has not limited the approval of these
therapies to clear cell types of mRCC, so they may be used for both clear cell and non-clear cell types.
mRCC Patient Classification
Upon diagnosis, the prognosis for patients
with mRCC is classified into three overall disease risk profiles — favorable, intermediate and poor — using objective
prognostic risk factors. These risk factors were originally developed by researchers at Memorial Sloane Kettering Cancer Center
and subsequently revised by Dr. Daniel Heng from the University of Calgary’s Baker Cancer Center and contributors from
the International Metastatic Renal Cell Carcinoma Database Consortium, or the Consortium, based on clinical data from patients
treated with sunitinib and other therapies. These risk factors, which we refer to as the Heng risk factors, have been correlated
to adverse overall survival in mRCC and include:
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time from diagnosis to the initiation of systemic therapeutic treatment of less than one year,
which is indicative of more aggressive disease. We refer to this risk factor as the less than one year to treatment risk factor;
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•
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low levels of hemoglobin, a protein in the blood that carries oxygen;
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•
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elevated corrected calcium levels;
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•
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diminished overall patient performance status or physical functioning;
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•
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elevated levels of neutrophils, a type of white blood cell; and
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elevated platelet count.
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Patients exhibiting zero risk factors at
the time of treatment are included in the favorable risk group; patients exhibiting one or two risk factors are included in the
intermediate risk group; and patients exhibiting three or more risk factors are included in the poor risk group. Even when treated
with standard of care therapies such as sunitinib, patients in the intermediate risk group have an expected survival of less than
two years, and patients in the poor risk group have an expected survival of less than one year. In January 2013, Dr. Heng
published in
Lancet Oncology
the following data from the Consortium database regarding overall survival of mRCC patients
in these three risk groups treated with sunitinib and other therapies:
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•
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in 157 favorable risk patients, the median overall survival was 43.2 months;
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•
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in 440 intermediate risk patients, the median overall survival was 22.5 months; and
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•
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in 252 poor risk patients, the median overall survival was 7.8 months.
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Current Treatment
The initial treatment for most mRCC patients
when the primary tumor is intact is surgical removal of the tumor, usually requiring partial or complete removal of the affected
kidney, referred to as nephrectomy. The NCCN generally recommends systemic treatment with approved therapies for mRCC patients
following nephrectomy for patients whose tumors have metastasized or for patients who present with mRCC upon diagnosis or as a
result of a relapse from an earlier stage of RCC.
Historically, mRCC has been treated with
non-specific, cytokine-based immunotherapies such as interferon
a
and IL-2, which have
demonstrated a clinical benefit in a small percentage of mRCC patients. However, these therapies lack specificity and have been
demonstrated to have severe toxicities, which can lead to cardiopulmonary, neuropsychiatric, dermatologic, renal, hepatic and hematologic
side effects and limits their use. For example, although high-dose IL-2 is the only therapy to have demonstrated durable complete
mRCC remissions, its toxicity restricts its use to a small minority of patients and for a short duration.
Several targeted therapies, such as Sutent
(sunitinib), Votrient (pazopanib), Torisel (temsirolimus), Nexavar (sorafenib), Avastin (bevacizumab) plus interferon-
a
,
Afinitor (everolimus), Inlyta (axitinib), Opdivo (nivolumab) and Cabometyx (cabozantinib) are approved for the treatment of mRCC.
While most of these targeted therapies have been evaluated in first-line treatment of mRCC, Sutent demonstrated a higher rate of
progression free survival and overall survival in its pivotal Phase 3 clinical trial than that shown by the other targeted therapies
in their pivotal Phase 3 clinical trials. According to an independent market research survey conducted during the second half of
2014 of 87 US-based medical oncologists and new prescription data (IMS), Sutent was the first-line drug of choice for approximately
half of newly treated advanced RCC patients. In addition, the data showed that the use of Votrient was increasing as initial therapy
for advanced RCC.
Although most of these targeted therapies
have demonstrated prolonged progression free survival as compared to interferon-
a
, they
are rarely associated with durable remissions or enhanced long-term survival, particularly in patients who are classified as intermediate
or poor risk at the time of treatment. In addition, each of these targeted therapies has shortcomings that limit their use in the
treatment of mRCC, including significant toxicities, such as neutropenia and other hematologic toxicities, fatigue, diarrhea, hand-foot
syndrome, hypertension and other cardiovascular effects. The overlapping and combined toxicities of the targeted therapies have
prevented their use in combination therapies. For instance, researchers conducting a Phase 1 clinical trial of the combination
of sunitinib and temsirolimus discontinued the trial due to toxicities. We believe that the inability to date to combine these
therapies without additive toxicity and the absence of durable remissions and prolonged survival in patients with intermediate
and poor risk disease indicates there is an unmet need for novel therapeutic approaches for mRCC that can improve efficacy without
adding any appreciable toxicity. We determined to conduct the ADAPT trial based on our earlier belief that the combination of rocapuldencel-T
with sunitinib or other therapies had the potential to address this unmet need.
Development Status
We are conducting our pivotal Phase 3 ADAPT
trial of rocapuldencel-T. We have previously conducted three clinical trials of rocapuldencel-T and its predecessor product, including
a Phase 2 trial and two Phase 1 trials. To date, we have administered rocapuldencel-T to over 300 patients in these trials. We
submitted to the FDA an investigational new drug application, or IND, for rocapuldencel-T in March 2003. Additionally, we are developing
a protocol for a Phase 2 clinical trial of rocapuldencel-T in combination with a checkpoint inhibitor for the treatment of patients
with mRCC, but we do not intend to initiate this trial unless and until we obtain financing to fund the trial.
Phase 3 ADAPT Trial of rocapuldencel-T
Overview
The
ADAPT trial is a randomized, multicenter, open label trial comparing combination therapy with rocapuldencel-T and sunitinib (or
another targeted therapy) to monotherapy with sunitinib (or another targeted therapy) for the treatment of newly diagnosed metastatic
renal cell carcinoma (mRCC). A total of 462 previously untreated patients were enrolled in the ADAPT trial and randomized 2:1 between
combination treatment with rocapuldencel-T and sunitinib (combination arm) vs. sunitinib monotherapy (control arm) after undergoing
cytoreductive nephrectomy. For both arms, the protocol permits switching to other standard-of-care treatments for mRCC for reasons
such as intolerance to therapy or disease progression. The original primary efficacy endpoint for the study is a statistically
significant improvement in overall survival in the combination treatment utilizing the intent to treat population at the pre-specified
number of 290 events (deaths). Secondary efficacy endpoints include progression-free survival, objective response rate and disease
control rate, and an exploratory efficacy endpoint of immune response. We dosed the first
patient in May 2013 and completed
enrollment in July 2015 at 107 sites across North America, Europe and Israel.
In February 2017, the IDMC for the ADAPT
trial recommended that the trial be discontinued for futility based on its planned interim data analysis. The IDMC concluded that
the trial was unlikely to demonstrate a statistically significant improvement in overall survival in the combination treatment
arm, utilizing the intent-to-treat population at the pre-specified number of 290 events (deaths), the original primary endpoint
of the study. Notwithstanding the IDMC’s recommendation, we determined to continue to conduct the trial while we analyzed
interim data from the trial. Following a meeting with the FDA, we determined to continue the ADAPT trial until at least the pre-specified
number of 290 events occurs, and to submit to the FDA a protocol amendment to increase the pre-specified number of events for the
primary analysis of overall survival in the trial beyond 290 events. We believe that extending our evaluation of rocapuldencel-T
beyond 290 events in the trial could enhance our ability to observe rocapuldencel-T’s expected delayed treatment effect.
We are currently finalizing an amendment
to the ADAPT protocol, including an amended primary endpoint analysis, and plan to submit it to the FDA prior to the interim data
analysis planned for the second quarter of 2018, at which time approximately 55 new events (deaths) are expected to have occurred
subsequent to the February 2017 interim analysis. We are planning to include the following four co-primary endpoints in the amended
ADAPT protocol:
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Overall
survival for all randomized patients when approximately 375 events have occurred (under the same analysis that was originally
planned for 290 events);
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The
percentage of patients surviving at least five years;
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Overall
survival for patients who remained alive at the time of the February 2017 interim analysis, to be evaluated when approximately
155 new events have occurred; and
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Overall
survival for all patients for whom at least 12 months of follow-up is available (excluding patients who died or were lost to follow-up
within the first 12 months after enrollment).
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In connection with our amendment of the
ADAPT protocol, the SPA, for the ADAPT trial ceased to be in effect. Additionally, we are developing a protocol for a Phase 2 clinical
trial of rocapuldencel-T in combination with a checkpoint inhibitor for the treatment of patients with mRCC, but we do not intend
to initiate this trial unless and until we obtain financing to fund the trial.
ADAPT Trial Design
Our design for the ADAPT trial required
enrollment of adult patients who have been newly diagnosed with mRCC with primary tumor intact and metastatic disease following
nephrectomy, who have predominantly clear cell RCC based upon the tumor collected at nephrectomy, and who have not received any
prior therapies for RCC. Participating patients were required to be suitable candidates for sunitinib therapy and have either poor
risk or intermediate risk disease at presentation, with the less than one year to treatment risk factor and not more than four
Heng risk factors in total. As part of the ADAPT trial design, the two arms of the trial were balanced based upon known prognostic
risk factors. Patients were stratified by number of Heng risk factors (1, 2, 3 or 4) as well as whether they had measurable versus
non-measurable metastatic disease following nephrectomy. The patient population in the ADAPT trial is generally comparable to the
patient population treated in our Phase 2 combination therapy clinical trial. Approximately 77% of the patients enrolled in the
ADAPT trial are intermediate risk patients (1-2 risk factors) and 23% are poor risk (3-4 risk factors). The average age of patients
in the study is 60, with approximately 74% of the patients being male and approximately 95% of the patients being caucasian.
Under the ADAPT trial protocol, patients
in the combination arm are dosed with rocapuldencel-T once every three weeks for five doses, followed by a booster dose every three
months beginning six weeks after the fifth dose. In accordance with its label, sunitinib dosing is administered in six-week cycles,
consisting of four weeks on drug and two weeks on drug holiday. Rocapuldencel-T dosing is initiated at the end of the initial six-week
sunitinib cycle. The first dose of rocapuldencel-T is administered prior to the start of sunitinib dosing in the second sunitinib
cycle. This dosing regimen is identical to the dosing regimen used in our Phase 2 combination therapy clinical trial of rocapuldencel-T
and sunitinib, except that the start of the sixth dose is scheduled for six weeks following the fifth dose to better provide patients
the opportunity to receive a total of eight doses across 48 weeks. Patients in the control arm receive sunitinib on the same dosing
schedule as patients receive sunitinib in the combination arm.
Under the ADAPT trial protocol, rocapuldencel-T
is administered for at least 48 weeks so that patients receive at least eight doses of rocapuldencel-T. Dosing will cease prior
to 48 weeks if two events of disease progression or unacceptable toxicity occur or upon the joint decision of the patient and the
investigator. If after 48 weeks of dosing of rocapuldencel-T a patient has stable disease or is responding to treatment, dosing
will continue once every three months until disease progression. If an investigator determines to discontinue sunitinib, either
due to disease progression or toxicity, the investigator can, at any time during the ADAPT trial after the first six-week cycle
of sunitinib, initiate second-line therapy with one of the other approved therapies, including pazopanib, axitinib, nivolumab,
everolimus or temsirolimus. In the event of discontinuation of sunitinib for patients in the combination arm, such patients would
continue with rocapuldencel-T dosing in combination with the second-line therapy. In our Phase 2 combination therapy clinical trial,
dosing ceased upon the first event of disease progression and second-line therapy was not permitted.
A graphic of the trial design is shown below:
Phase 3 ADAPT Trial Design
1
Other therapies may be substituted for Sunitinib
for intolerance or progression
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February 2017 Interim Analysis
As noted above, following the February
2017 interim analysis the IDMC recommended that the ADAPT trial be discontinued for futility. While data on the original primary
endpoint of the trial, overall survival in the intent-to-treat population, did not pass the futility test, we conducted several
additional analyses, including an analysis of the overall survival in the first one-third of patients enrolled in the study and
certain immune monitoring data that we believe suggest that rocapuldencel-T may potentially have a beneficial effect in a significant
number of patients and may be working through its intended mechanism of action. A review of the data from the February 2017 interim
analysis is provided below.
Original Primary Endpoint -
Overall Survival in the Intent-to-Treat Population
At the time of the interim analysis after
75% of the targeted number of 290 events had occurred and using a data cut-off of February 3, 2017, the median overall survival
for the combination treatment arm was estimated to be 27.7 months (95% Confidence Interval (CI): 23.0, 35.9) compared to 32.4 months
(95% CI: 22.5, -) for the control arm in the intent-to-treat population. The hazard ratio was 1.10 (95% CI: 0.83, 1.46), which
was greater than the pre-defined futility boundary for the February 2017 interim analysis of 0.98. A Kaplan-Meier plot of this
data is provided below:
Kaplan-Meier Analysis of Overall Survival
in Intent-to-Treat Population
Of note, baseline demographics and subsequent
therapies were generally comparable across the two treatment arms.
Overall Survival in the Modified
Intent-to-Treat Population
There were 39 patients in the combination
treatment arm and 14 patients in the control arm who did not receive treatment. These patients did not receive treatment for a
variety of reasons including death before initiation of treatment, withdrawal of consent, and, in the combination arm, failure
to manufacture rocapuldencel-T. We analyzed the original primary endpoint of overall survival in both treatment arms excluding
these patients, which we refer to as the modified intent-to-treat population (mITT). At the time of the interim analysis and using
the February 3, 2018 data cut-off date, the estimated median overall survival for the combination treatment arm was 30.4 months
(95% CI: 25.8, -) compared to 32.5 months (95% CI: 23.0, -) for the control arm in the mITT population. The hazard ratio was .97
(95% CI: 0.72, 1.33) in the mITT population.
Post Hoc Analysis of Survival Data
for the First One-Third of Enrolled Patients
Subsequent to the IDMC meeting, to explore
the hypothesis that longer follow-up time may provide useful information to identify a potential beneficial effect of rocapuldencel-T,
we conducted a
post-hoc
subgroup analysis of overall survival in the first one-third of patients enrolled in the study (n=154).
In these patients, for whom generally the longest follow-up data was available, the estimated median overall survival for the combination
arm was 30.1 months (95% CI: 23.3, -) compared to 22.2 months (95% CI: 17.2, -) for the control arm. The hazard ratio in this
post-hoc
subgroup analysis was 0.88 (95% CI: 0.56, 1.36). A Kaplan-Meier plot of this data is provided below:
Kaplan-Meier Analysis of Overall Survival in the First Tertile of Randomized Subjects
Objective Response Rate Data
As of the February 3, 2017 data cut-off
date for the February 2017 interim analysis, 42.7% of the 307 patients in the combination treatment arm demonstrated an objective
response by RECIST criteria, a secondary endpoint in the trial, as compared with 39.4% of the 155 patients in the control arm.
Duration of Response Data
Patients in the combination treatment arm
who demonstrated an objective response had a median duration of response of 8.4 months compared to 6.3 months for patients in the
control arm. Additionally, 16% of those patients with an objective response in the combination treatment arm had durable responses
lasting at least 30 months compared to 7% of those who had an objective response in the control arm. Also, as of the date of the
interim analysis, all of the patients in the combination arm who had achieved a duration of response of at least 30 months had
maintained those responses through 36 months. Also of note, at the time of the data cut-off for the February 2017 interim analysis,
no patients in the control arm had yet achieved a durable response lasting 36 months or longer.
Duration of response data is
summarized in the graph below. For each time point, the graph shows the percentage of patients with a durable response
lasting at least as long as the indicated time. For example, for the 131 patients in the combination arm who had an objective
response, 60 of those 131 patients (46%) had a duration of response lasting 12 months or longer, 43 of those 131 patients
(33%) had a duration of response lasting 18 months or longer, 27 of those 131 patients (21%) had a duration of response
lasting 24 months or longer, and 21 of those 131 patients (16%) had a duration of response lasting 36 months or longer. Note
that patients who had a response of at least a certain number of months are also included in the data points for having
achieved a duration of response for all previous time points indicated.
Duration of Response Data
Progression-Free Survival Data
At the time of the interim analysis, the
median progression-free survival for the combination treatment arm was 6.0 months (95% CI: 5.8, 6.7) compared to 7.8 months (95%
CI: 5.9, 9.3) for the control arm in the ITT population. The hazard ratio was 1.15 (95% CI: 0.92, 1.44).
Immune Response Data
Subsequent to the IDMC meeting, we conducted
a pre-defined analysis of immune responses, an exploratory efficacy endpoint, using multi-parametric flow cytometry. To analyze
immune response, blood samples were collected from patients in the combination treatment arm enrolled at sites in the United States
who provided consent for immune monitoring. Of the 146 subjects tested for immune responses, the number of subjects that met the
criterion for inclusion in the pre-defined subgroup of immune responders were analyzed. Comparing the measured immune responses
after 3, 5 and 7 doses to the immune measurement at visit 2 (immediately before initiation of dosing), 72% met the criterion after
3 doses (n=136), 72% met the criterion after 5 doses (n=134), and 82% met the criterion after seven doses (n=98), suggesting that
Rocapuldencel-T is having its intended effect of stimulating an immune response in the majority of patients. Immune responders
are defined as patients who have an increase of more than two standard deviations from the patient-specific baseline in the number
of memory T cells (CD8+/CD28+/CD45RA-) at one or more time points.
Median overall survival at the time of
the February interim analysis had not yet been reached in the subgroup of immune responders (95% CI: 30.1, [-]). Additionally,
consistent with the mechanism of action of rocapuldencel-T, for those subjects who received at least seven doses of rocapuldencel-T,
there was a statistically significant correlation between survival and the change in the number of antigen-specific memory T-cells
from baseline (Spearman's Rho = 0.40; p<0.0001) in patients for whom immune response data has been analyzed (including both
immune responders and non-responders, n=72).
The relationship between the immune response,
as measured by the increase in the number of antigen-specific memory T-cells from baseline per milliliter of blood, and survival,
is shown in the graph below. For those 25 patients with the greatest increase in the number of antigen-specific memory T-cells
from baseline, no patient deaths had been recorded as of the time of the February 2017 interim analysis.
Immune Response Data - Survival
Importantly, the number of antigen-specific
memory T-cells was found to increase only after administration of rocapuldencel-T, and in those subjects who received at least
seven doses of rocapuldencel-T (n= 100) out of the 146 subjects analyzed for immune response, the average number of antigen-specific
memory T-cells after the seventh dose was approximately double the number observed before treatment. This increase was found to
be statistically significant (p<0.0001).
Immune Response Data – Antigen-Specific
Memory T-Cells
IL-12 Secretion Data
A pre-specified analysis was conducted
to evaluate the relationship between the amount of IL-12 secreted by each patient's specific immunotherapy and that patient's survival.
Samples from patients in the combination arm enrolled at North American sites who provided consent for immune monitoring (n=179)
were divided into two groups: those with above the median amount of IL-12, and those with below the median amount of IL-12. Comparison
of the Kaplan-Meier curves for these two groups revealed that those with higher than median levels of IL-12 generally demonstrated
improved survival. Additionally, there was a statistically significant correlation between the level of IL-12 and survival (Spearman's
Rho = 0.27; p<0.0002). There was also a statistically significant correlation between the level of IL-12 and the change from
baseline in antigen-specific memory T-cells for patients who received at least seven doses of rocapuldencel-T (n=95; Spearman's
Rho = 0.43; p<0.0001).
Regulatory T-Cell Data
A pre-specified analysis was conducted
to evaluate the relationship between the percentage of regulatory T-cells at baseline and survival for patients in both arms of
the trial enrolled. Samples from patients in the combination treatment arm enrolled at North American sites who provided consent
for immune monitoring (n=176) were divided into two groups: those with above median percentage of regulatory T-cells at baseline,
and those with below median percentage of regulatory T-cells at baseline. Comparison of the Kaplan-Meier curves for these two groups
revealed that those with higher than median percentage of regulatory T-cells at baseline demonstrated improved survival. This finding
was in contrast to the control arm (n=79), where a greater percentage of regulatory T-cells at baseline was associated with poorer
survival. One hypothesis that could potentially explain this result is that rocapuldencel-T may be acting to convert regulatory
T-cells to effector T-cells.
Other Development Activities.
We
are developing a protocol for a Phase 2 clinical trial of rocapuldencel-T in combination with a checkpoint inhibitor for patients
with mRCC, which we do not intend to initiate unless and until we obtain financing to fund such trial. We believe that rocapuldencel-T
may be capable of treating a wide range of cancers and we are evaluating or plan to evaluate rocapuldencel-T in clinical trials
in additional cancer indications. Development of rocapuldencel-T in these other indications will in part depend upon our ongoing
review of the ADAPT study data and discussions with the FDA, and subject to us obtaining the financing necessary to support such
trials.
Phase 2 Combination Therapy Clinical Trial
From July 2008 to October 2009, we enrolled
21 newly diagnosed mRCC patients in a single arm, multicenter, open label Phase 2 clinical trial of rocapuldencel-T in combination
with sunitinib. We conducted this clinical trial at nine clinical sites in the United States and Canada. Our design for the trial
required adult patients with previously untreated mRCC, no prior nephrectomy or at least one accessible lesion for biopsy, a histologically
confirmed predominantly clear cell tumor, and suitability for sunitinib therapy. The primary endpoint of the trial was complete
response rate. Secondary endpoints included progression free survival, overall survival, safety, clinical benefit rate and immune
response.
Patients in the trial generally received
one initial six-week cycle of sunitinib, consisting of four weeks on drug and two weeks on drug holiday, prior to initiating the
combined treatment with rocapuldencel-T. Patients then received a dose of rocapuldencel-T every three weeks for a total of five
doses, while also continuing three additional six-week cycles of sunitinib. This 24-week induction phase was followed by a booster
phase during which patients received a dose of rocapuldencel-T once every three months and continued to receive sunitinib in six-week
cycles until disease progression.
The following table summarizes certain
key data from the 11 intermediate risk and 10 poor risk patients enrolled in the Phase 2 combination therapy clinical trial.
Outcome
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(N=21)
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Median OS (1)
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30.2 months
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Median PFS (2)
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11.2 months
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Complete response (3)
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0 patients
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Partial response (4)
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9 patients
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Stable disease (5)
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4 patients
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Immune response
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CD8+ CD28+ memory T-cells correlated with OS, PFS and reduced metastatic tumor burden; IL-2 and interferon-
g
(IFN-
g
) recovery
|
_________________
(1) Overall
survival, or OS, is the length of time from the initiation of treatment to the patient’s death.
(2) Progression
free survival, or PFS, is the length of time from treatment initiation to the worsening of the patient’s disease or the patient’s
death.
(3) Complete
response is the disappearance of all measurable target lesions and non-target lesions.
(4) Partial
response is the overall tumor regression based on a decrease of at least 30% in the overall amount of measurable tumor mass in
the body and improvement or no change in non-target lesions.
(5) Stable
disease is neither sufficient decrease in tumor size to qualify as a partial response nor sufficient increase in tumor size to
qualify as disease progression.
Particular observations from these data
and the trial, which have informed our further clinical development of rocapuldencel-T, include:
Efficacy Analysis
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Seven patients survived for more than 4.5 years following enrollment in this trial. Two of these
patients remained alive as of December 31, 2016 and both have had a sustained clinical response spanning nearly eight years and
remain on rocapuldencel-T in combination with continued targeted therapy.
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Five poor risk patients did not receive five doses of rocapuldencel-T due to early disease progression.
Median overall survival in the 16 patients who received at least five doses of rocapuldencel-T was 36.0 months.
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Median overall survival in the 11 intermediate risk patients was 61.9 months. Median overall survival
in the 10 poor risk patients was 9.1 months.
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The following graphic shows data and follow-up as of December 31, 2015, the number of months that
each patient in the Phase 2 clinical trial survived from the time of enrollment in the trial.
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•
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Of the nine patients who exhibited a partial response, five patients exhibited partial responses
during the 24-week induction phase, including two patients who exhibited partial responses prior to initiation of treatment with
rocapuldencel-T. The other three patients exhibited partial responses after prolonged dosing with rocapuldencel-T during the booster
phase. We do not believe that these late occurring partial responses have been observed in clinical trials of sunitinib alone.
As a result, we believe that these late responses may relate to the immunologic effects of prolonged rocapuldencel-T dosing and
rocapuldencel-T’s effect on CD8+ CD28+ memory T-cells.
|
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•
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We observed a statistically significant correlation between increased progression free survival
and prolonged survival (p<0.001). Statistical significance is determined by methods that establish the p-value of the results.
Typically, results are considered statistically significant if they have a p-value of 0.05 or less, meaning that there is less
than a one-in-20 likelihood that the observed results occurred by chance.
|
Immune Response Analysis
|
•
|
In the 14 patients in the trial who received at least five doses of rocapuldencel-T and could be
evaluated for memory T-cell response, we observed a statistically significant correlation between the increase in the number of
CD8+ CD28+ memory T-cells over the initial five doses of rocapuldencel-T and survival (p<0.002), progression free survival (p<0.031)
and reduced metastatic tumor burden (p<0.045). The following graphics show, for each of these 14 patients, the increase in their
tumor-specific memory T-cells that they exhibited as measured immediately prior to their first dose of rocapuldencel-T and immediately
following the patient’s fifth dose of rocapuldencel-T, or the absence of such increase, as compared to such patient’s
survival.
|
Phase 2 Combination Therapy Clinical
Trial of rocapuldencel-T:
Correlation of Immune Response and Overall
Survival
|
•
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Rocapuldencel-T was found to have positive impact on immune cell function and restoration of cellular
immunity in a majority of patients, including an increase in levels of IL-2 and IFN-
g
.
|
Safety
|
•
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The adverse events in this trial associated with rocapuldencel-T were generally only mild injection
site reactions, while the toxicities associated with sunitinib were consistent with those expected from treatment with sunitinib
alone.
|
The original design for the Phase 2 clinical
trial called for the recruitment of 50 patients to generate 38 fully evaluable patients. However, in October 2009, we terminated
enrollment in this trial early due to a lack of funding. As a result, only 21 patients were enrolled and received at least one
dose of rocapuldencel-T. In addition, the trial was originally designed to enroll patients with favorable and intermediate risk
disease profiles. Instead, the actual population enrolled consisted entirely of patients with intermediate or poor risk disease
profiles who had the less than one year to treatment risk factor. Because the patient population had poorer prognoses when they
entered the trial than we expected and we did not have a sufficient number of evaluable patients, we did not perform the statistical
analysis to determine whether the primary endpoint of complete response rate was achieved. As a result, if we submit a biologics
license application, or BLA to the FDA for rocapuldencel-T, we expect the data from this trial to be considered by the FDA for
the purpose of evaluating the safety and feasibility of rocapuldencel-T, but that it will only have a limited impact on the FDA’s
ultimate assessment of the efficacy of rocapuldencel-T.
Based on our experience with the Phase 2 clinical trial, we concluded
that the secondary endpoints in the trial, progression free survival and overall survival, along with immune response, were the
appropriate endpoints to consider for measuring the efficacy of rocapuldencel-T in combination with sunitinib in patients with
mRCC in our pivotalPhase 3 clinical trial.
Rocapuldencel-T Phase 2 Combination
Therapy Clinical Trial, as Compared to Independent Third Party mRCC Data
. At ASCO in June 2013, Dr. Heng presented
data from the Consortium database regarding overall survival and progression free survival for intermediate and poor risk patients
treated with sunitinib and other targeted therapies, including data with respect to 1,189 intermediate and poor risk patients with
the less than one year to treatment risk factor.
Using the overall survival data from the
Consortium database presented in June 2013 and published in April 2014, a summary comparison of this data with our Phase 2 clinical
trial of rocapuldencel-T in combination with sunitinib is set forth in the graphic below. This graphic compares the median overall
survival data from the Consortium intermediate and poor risk patients with the less than one year to treatment risk factor with
the median overall survival data from the 21 patients in our Phase 2 clinical trial of rocapuldencel-T in combination with sunitinib,
all of whom had the less than one year to treatment risk factor. A majority of the Consortium patients and the patients in our
Phase 2 clinical trial had one or more additional risk factors.
1. 1Ko JJ et al. First-, second-, third-line
therapy for mRCC: Benchmarks for trial design from the IMDC.
Br J Cancer
. April 2014:1-6.
2. Amin et al.
Journal for ImmunoTherapy of Cancer
.
2015;3:14 (21 April 2015).
Progression free survival for intermediate
and poor risk patients in the Consortium database with the less than one year to treatment risk factor was 5.6 months, as compared
to the 11.2 months of median progression free survival that we observed in the 21 patients in our Phase 2 clinical trial of rocapuldencel-T
in combination with sunitinib.
Although we believe comparisons between
our data and these collections of data are useful in evaluating the overall results of our Phase 2 clinical trial, the treatment
of the Consortium patients was conducted at different sites, at different times and in different patient populations than the treatment
in our Phase 2 combination therapy trial. The treatment also differed because certain of the Consortium patients received therapies
other than sunitinib as first-line treatment. All of the patients in our Phase 2 clinical trial received sunitinib as first-line
treatment. Our ongoing pivotal Phase 3 combination therapy clinical trial of rocapuldencel-T is the first trial that we have conducted
that directly compares rocapuldencel-T and sunitinib or other targeted therapies as a combination therapy against sunitinib as
monotherapy. Results of this head-to-head comparison in our phase 3 ADAPT trial differed significantly from the comparisons presented
above and elsewhere in this Annual Report on Form 10-K.
AGS-004 for the Treatment of Human Immunodeficiency
Virus
We are developing AGS-004, our second Arcelis-based
product candidate, for the treatment of HIV. We have completed three clinical trials of AGS-004. These include Phase 1 and Phase
2 clinical trials that were funded by government grants and a Phase 2b trial that was funded in full by the NIH.
Based on the clinical data that we have
generated to date, we have determined to focus our development program on the use of AGS-004 in combination with other therapies
to achieve complete virus eradication and the use of AGS-004 monotherapy to provide long-term control of HIV viral load in immunologically
healthy patients and eliminate their need for ART.
Human Immunodeficiency Virus
HIV is characterized by a chronic viral
infection and an associated deterioration of immune function. Specifically, the virus disables and kills crucial human immune cells
called CD4+ T-cells. CD4+ T-cells are necessary to generate and maintain antiviral T-cells, including the CD8+CD28+ memory T cells
that aid in the killing of virus-infected cells. Over time, this viral impact on an infected person’s immune system outpaces
the body’s natural ability to replace CD4+ T-cells and immunodeficiency results. As a result, the longer a person has been
infected with the virus, the more functionally impaired these cells become.
At the same time, HIV infection causes
the immune cells in HIV patients, including CD4+ T-cells and CD8+ T-cells that are not killed by the virus, to be in a chronic
state of activation. The persistent state of immune activation in HIV patients results in chronic inflammation. We believe that
this inflammation plays a role in the elevated rates of age-related comorbidities, including malignancies and cardiovascular disease
observed in HIV patients. In addition, the activation of the CD4+ T-cells supports virus replication which leads to the production
of new virus and increased viral load.
HIV is a persistent virus that can rapidly
adapt to its environment by mutating and creating HIV variants that are drug resistant and can evade immune attack. As a result,
there are a large number of mutated variants of HIV existing in any one infected individual and no two individuals have identical
viral sequences.
According to the World Health Organization,
the number of people living with HIV in the world was approximately 35 million in 2013. The Centers for Disease Control and
Prevention estimates that more than 1.2 million people are currently living with HIV in the United States and the number of
new cases of HIV infection in the United States is expected to remain constant at approximately 50,000 cases per year.
Current treatments for HIV.
In
1996, triple combinations of oral medications known as ART were demonstrated to substantially reduce the levels of virus in the
blood of patients with HIV. Since then, the introduction of new drug classes of ART and combination drug treatment strategies has
enhanced treatment for HIV.
ART in HIV-infected patients can decrease
levels of HIV in the blood to below the limits of detection, increase life expectancy and improve quality of life. However, there
continues to be an unmet need for HIV therapies for the following reasons:
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ART can have significant side effects. The most recent U.S. guidelines on ART treatment contain
a number of tables of adverse effects of combination regimens and how to manage them. Some combinations present potentially life-threatening
complications and other complications that are chronic, cumulative and overlapping, and sometimes irreversible.
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ART requires life-long daily treatment. The risks of long-term daily administration of ART remain
unknown but are potentially significant. In addition, the requirement for life-long daily treatment has made strict adherence to
the treatment regime difficult. Poor compliance has led to the development of drug resistant HIV variants that are ineffectively
controlled by the available armamentarium of ART.
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ART cannot eradicate the virus and, therefore, does not cure HIV-infected patients. For example,
up to 20% of patients receiving ART fail to achieve normal CD4+ T-cell counts, resulting in a continued weakened immune system.
In addition, certain patients are not able to achieve effective control of the virus using current treatment regimens. ART cannot
eradicate the virus because the virus persists in latently infected cells. These cells, which constitute the HIV latent reservoir,
do not consistently express HIV antigens in a manner or a compartment that permits effective control. Instead, these cells serve
as a source privileged from ART control for virus replication and viral rebound in the absence of ART. Following discontinuation
of treatment with ART, HIV viral levels return to levels observed prior to treatment with ART within 12 weeks of treatment interruption.
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AGS-004 Opportunity
We believe, based on the mechanism of action
of AGS-004 and the clinical data that we have generated, that AGS-004 has the potential to address this unmet need for the following
reasons:
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Potential to Eradicate HIV in Combination with Latency Reversing Drugs
. A number of companies and academic groups are evaluating drugs that can potentially activate the latently infected cells to increase viral antigen expression and make the cells vulnerable to elimination by the immune system. We believe that treating HIV-infected patients, who are being successfully treated with ART, with a combination of AGS-004 and one of these latency reversing drugs could lead to activation of antigen expression from the latently infected cells along with a potent memory T-cell response that is specific to the patient’s own unique viral antigens. We believe that this approach could potentially result in complete eradication of the patient’s virus.
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Long-Term Viral Load Control in Immunologically Healthy Patients
. We believe that AGS-004 may allow for long-term virus control and eliminate the need for life-long treatment with ART in infected patients who have minimal immune suppression but no T-cell response against their virus. We have designed AGS-004 to induce CD8+ CD28+ memory T-cells that are specific to the patient’s own unique viral antigens, do not require CD4+ T-cell help to kill viral cells and do not result in CD4+ T-cell activation which typically increases viral replication and viral load. As reported in
Clinical & Experimental Immunology
, researchers have demonstrated that elevated levels of CD8+CD28+ memory T-cells in the blood are a statistically significant predictor of long-term non-progression in HIV-infected patients not treated with ART drugs. As a result, we believe that inducing these memory T-cells may lead to viral control. Patients with minimal immune suppression and no T-cell response include pediatric patients who have been successfully treated with ART drugs since birth or shortly thereafter and have generally healthy immune systems.
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Minimal Toxicity
. AGS-004 has been well tolerated in clinical trials with no serious adverse events being attributed to it. As a result, we believe we can combine AGS-004 with other HIV therapies without additional toxicities.
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Lack of Chronic Inflammation
. We have designed AGS-004 to elicit a patient-specific and disease-specific immune response that does not cause any additional inflammation. In our clinical trials of AGS-004, AGS-004 has not induced changes in markers that are associated with chronic inflammation in HIV patients.
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Description and Development Status
AGS-004 is an individualized immunotherapy
based on our Arcelis precision immunotherapy technology platform. It is produced by electroporating dendritic cells with mRNA encoding
for patient-specific HIV antigens that have been derived from a patient’s virus-infected blood and with RNA that encodes
the CD40L protein. The process for producing AGS-004 is the same process as is used to produce rocapuldencel-T, with the one key
difference being that rocapuldencel-T contains all of the antigens from a patient’s tumor cells while AGS-004 contains potentially
all variants unique to each individual patient of four selected HIV antigens (Gag, Nef, Vpr and Rev). We designed AGS-004 to include
these antigens because immunity to them has been observed in long-term non-progressors and elite controllers, two groups of rare
patients able to control virus replication without ART. Because no two patients share identical HIV antigen sequences and there
are a large number of mutated variants of HIV existing in each infected patient, by using mRNA that is specific to the patient’s
virus and that captures potentially all of the unique patient-specific variants of each antigen in the sample obtained, we believe
our immunotherapy maximizes the relevance of the immune responses induced in each patient.
We have conducted three clinical trials
of AGS-004, which include:
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a phase 2b clinical trial of AGS-004;
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a phase 2a clinical trial of AGS-004; and
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a phase 1 clinical trial of AGS-004.
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We submitted to the FDA an IND for AGS-004
in August 2008.
We are focusing our development program
for AGS-004 on the use of AGS-004 in combination with latency reversing therapies to achieve complete virus eradication. Latently
infected cells differ from other infected cells in that the HIV genome is permanently integrated into the chromosomal DNA of the
latently infected cells. These latently infected cells persist long-term and constitute the HIV latent reservoir, which serves
as a source privileged from ART control for virus replication and viral rebound in the absence of antiretroviral therapy. As a
result, demonstration that latently infected cells can be targeted by immune responses induced by AGS-004 is essential to our development
strategy pertaining to virus eradication.
Adult Eradication Trial.
We
are supporting an investigator-initiated clinical trial of AGS-004 in 12 adult HIV patients who are being treated with ART to evaluate
the use of AGS-004 to eradicate the virus. The trial is being conducted by co-investigator Dr. David Margolis, Professor of
Medicine at the University of North Carolina. Dr. Margolis is the leader of CARE, and has been a pioneer in the research of
HIV latent reservoir reversing treatments. The trial is being conducted in two stages. Stage 1 of this trial has been completed
and was designed to study immune response kinetics to AGS-004 in patients on continuous ART. These data were used to better define
the optimal dosing strategy in combination with the latency reversing therapy vorinostat in the ongoing Stage 2. The patient clinical
costs for Stage 1 of this trial were funded by CARE. The NIH Division of AIDS has approved $6.6 million in funding to be provided
directly to the University of North Carolina for the Stage 2 of this trial.
Planned Pediatric Functional Cure Trial
. We believe
that a patient population that could benefit from AGS-004 monotherapy consists of 14+ year old, HIV-infected individuals who have
been treated with ART since birth or shortly thereafter. These individuals are characterized by having very small HIV latent reservoirs
and otherwise healthy immune systems, while lacking antiviral CD8+ CD28+ memory T-cell responses. We believe that successfully
inducing antiviral CD8+ CD28+ memory T-cell responses in these patients could allow for long-term viral load control and eliminate
the need for life-long antiretroviral therapy. We plan to determine whether to support an investigator-initiated Phase 2 clinical
trial of AGS-004 in pediatric patients infected with HIV who have otherwise healthy immune systems and have been treated with ART
since birth or shortly thereafter and, as a result, are lacking the antiviral memory T-cells to combat the virus. The commencement
of this trial is subject to supportive data obtained from the adult eradication trial and approval of the protocol by the principal
investigator(s), institutional review boards, the IMPAACT Network leadership and the FDA and to the agreement by the NIH to fund
the trial costs not related to AGS-004 manufacturing to evaluate the use of AGS-004 monotherapy to allow for long-term control
of viral load and eliminate the need for ART. We are currently developing the clinical protocol for this trial to immunize pediatric
HIV patients who were infected at birth and treated with antiretroviral therapy at or near birth. We are developing this clinical
protocol in collaboration with Drs. Katherine Luzuriaga, University of Massachusetts, and Deborah Persaud, John Hopkins Medical
Center, both specializing in pediatric virology.
Phase 2b Clinical Trial
. In
January 2015, we completed a randomized, placebo controlled, double blind Phase 2b clinical trial of AGS-004 in chronically infected
patients on ART that we opened for enrollment in July 2010. We designed this trial to confirm the data obtained in an earlier Phase
2a clinical trial in which AGS-004 led to a reduction in virus replication. We initially planned to enroll 42 chronically infected
patients in the Phase 2b trial at nine clinical sites in the United States and Canada with the intent to generate 36 events for
the primary endpoint analysis. However, due to a higher than anticipated dropout rate by patients who were unable to complete the
full 12 week treatment interruption period provided for by the trial, we needed to enroll 53 patients in the trial to generate
36 events for the primary endpoint analysis. These patients were randomized between AGS-004 treatment and a placebo control on
a two-to-one basis.
HIV infection is classified as “chronic”
or “acute” based on how long the patient has been infected prior to starting ART. Patients with chronic HIV infection
are patients who have initiated ART after at least six months from the time of initial infection. Patients with acute HIV infection
are patients who have initiated ART less than 45 days after initial infection. This trial enrolled adult patients with chronic
HIV-1 infection and undetectable viral loads as a result of treatment with ART. Patients also had to have adequate CD4+ T-cell
counts and a pre-ART plasma viral sample to be used to manufacture AGS-004.
In this trial, patients first received
intradermal doses of AGS-004 or placebo every four weeks for a total of four doses, together with their ART. Following the fourth
dose of AGS-004 or placebo, patients discontinued their ART but continued to receive AGS-004 or placebo every four weeks for 12
weeks. We refer to this period as the treatment interruption period. Patients who demonstrated control of viral replication under
10,000 copies/ml and maintained CD4+ T-cell counts above 350 cells/mm
3
could remain off ART and continue their treatment
interruption past 12 weeks. Following the end of treatment interruption, all patients were eligible for continued treatment with
the combination of AGS-004 and ART. A schematic of the trial design is shown below.
Phase 2b Study Design for the Chronically
Infected Cohort
The primary endpoint of the trial was a
comparison of the median viral load in the AGS-004-treated patients with the median viral load in patients receiving placebo after
12 weeks of ART treatment interruption. Under this protocol, the primary endpoint required that there was a
³
1.1 log 10 difference in median viral load between the AGS-004-treated cohort compared to the placebo-treated cohort. A 1.1 log
10 reduction means a 92% lower virus concentration in the AGS-004-treated cohort compared to the placebo-treated cohort. Secondary
endpoints included comparisons between AGS-004-treated patients and the patients receiving placebo with respect to change in viral
load from pre-ART to the end of 12 weeks of treatment interruption, duration of treatment interruption, changes in CD4+ T-cell
counts and safety.
In September 2011, we added to the trial
a single arm, open-label, unblinded cohort of up to 12 patients with acute HIV-1 infection and undetectable viral loads as a result
of treatment with ART. We evaluated AGS-004 in this patient population to assess AGS-004 in patients who initiated ART during the
acute phase of infection and as a result may have sustained less immune damage. Patients in this cohort were dosed in the same
manner as patients in the chronically infected arm of the clinical trial. However, in this cohort, patients had to demonstrate
a positive CD8+ CD28+ anti-HIV memory T-cell response in order to become eligible to enter the 12 week treatment interruption period.
The primary endpoints for this cohort included the time to detectable viral load during the ART interruption period and comparison
of changes in CD4+ T-cell counts during the ART interruption period between the acute cohort and the chronic cohort. Six patients
were enrolled in this cohort. All six patients demonstrated a positive CD8+ CD28+ memory T-cell response and initiated treatment
interruption. For the five of six patients that re-initiated ART after treatment interruption, there were no significant declines
in CD4+ T cells between the interruption date and the re-initiation date. All six patients experienced viral rebound during treatment
interruption with the times to detectable viral load ranging from two to eight weeks and the duration of treatment interruption
for those patients who reinitiated ART ranged from approximately one month to approximately nine months. In addition, three of
six patients had a decrease in circulating CD4+ T cells containing HIV DNA of 25%, 47% and 63%, respectively, when measured after
three doses of AGS-004 while on ART.
In the Phase 2b trial, 54 patients received
the full four doses of AGS-004 or placebo during the first four weeks together with their ART. Of these patients, 36 patients continued
on AGS-004 or placebo for the full 12-week treatment interruption period, 23 of whom received AGS-004.
In January 2015, we announced top-line
results from the trial. The primary endpoint of the trial was not achieved.
However, we believe that data from the
trial provided evidence of the ability of AGS-004 to induce memory T-cell responses which may have directly impacted the latent
viral reservoir. Of the evaluated 22 patients who received AGS-004 and completed the 12-week treatment interruption period, 15
patients, or approximately 70 percent, had positive antiviral memory T-cell responses prior to beginning the treatment interruption
versus zero percent of placebo patients. Within the AGS-004 treatment group, those patients that had antiviral memory T-cell responses
had significantly fewer CD4+ T-cells with integrated HIV DNA when compared to non-responders. These findings relate directly to
the utilization of AGS-004 in our ongoing adult eradication study and our planned pediatric study, where one of the key objectives
is to decrease the latent HIV reservoir.
Safety analysis
In this trial, AGS-004 was well tolerated.
No AGS-004-related serious adverse events were reported. The most common adverse event was mild injection site reactions. During
the antiretroviral treatment interruption, no notable differences in incidence of adverse events occurred compared to when patients
were receiving AGS-004 in combination with antiretroviral drug therapy.
NIH and NIAID Contract
. Our
development of AGS-004 has received significant funding from the U.S. federal government. In September 2006, we entered into a
multi-year research contract with the NIH and the National Institute of Allergy and Infectious Diseases, or NIAID, to design, develop
and clinically test an autologous HIV immunotherapy capable of eliciting therapeutic immune responses. We are using funds from
this contract to develop AGS-004. Under this contract, as it has been amended, the NIH and the NIAID have committed to fund up
to $39.8 million, including reimbursement of our direct expenses and allocated overhead and general and administrative expenses
of up to $38.4 million and payment of specified amounts totaling up to $1.4 million upon our achievement of specified development
milestones. We have recorded total revenue of $38.3 million through December 31, 2017 under the NIH agreement. As of December 31,
2017, there was up to $1.5 million of potential revenue remaining to be earned under the agreement. This commitment extends until
July 2018.
We have agreed to a statement of work under
the contract, and are obligated to furnish all the services, qualified personnel, material, equipment, and facilities, not otherwise
provided by the U.S. government, needed to perform the statement of work. In accordance with the laws applicable to government
intellectual property rights under federal contracts, we have a right under our contract with the NIH to elect to retain title
to inventions conceived or first reduced to practice under the NIH and NIAID contract, subject to the right of the U.S. government
to a royalty-free license to practice or have practiced for or on behalf of the United States the subject invention throughout
the world. The government also has special statutory “march-in” rights to license or to require us to license such
inventions to third parties under limited circumstances. In addition, we may not grant to any person the exclusive right to use
or sell any such inventions in the United States unless such person agrees that any products embodying the subject invention or
produced through the use of the subject invention will be manufactured substantially in the United States
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Manufacturing
We currently manufacture our Arcelis-based
products, including rocapuldencel-T and AGS-004, for research and development purposes and for use in our clinical trials at our
facilities in Durham, North Carolina, which we refer to as our Technology Drive and Patriot Center facilities. These facilities
include manufacturing suites for the production of products using our Arcelis technology platform. We have designed these suites
to comply with the FDA’s current good manufacturing practice, or cGMP, requirements.
In January 2017, we entered into a ten-year lease agreement with
two five-year renewal options for 40,000 square feet of manufacturing and office space at the Center for Technology Innovation,
or CTI, on the Centennial Campus of North Carolina State University in Raleigh, North Carolina. We had intended to utilize this
facility to manufacture rocapuldencel-T to support submission of a BLA to the FDA and to support initial commercialization of rocapuldencel-T.
In addition, to provide for capacity expansion
beyond the initial few years following potential launch of rocapuldencel-T, we had planned to buildout and equip a second facility,
which we refer to as the Centerpoint facility. In August 2014, we entered into a ten-year lease agreement with renewal options.
Under the lease agreement, we agreed to lease certain land and an approximately 125,000 square-foot building to be constructed
in Durham County, North Carolina. We initially intended this facility to house our corporate headquarters and commercial manufacturing
before we entered into the lease for the CTI facility. The shell of the new facility was constructed on a build-to-suit basis in
accordance with agreed upon specifications and plans and was completed in June 2015. However, the build-out and equipping of the
interior of the facility was suspended as we pursued financing arrangements to support the further buildout of the facility.
Due to the IDMC recommendation in February
2017 to discontinue the ADAPT trial, we reassessed our manufacturing plans. We determined to use our Technology Drive and Patriot
Center facilities for the manufacture of rocapuldencel-T and AGS-004, respectively, to support our ongoing clinical trials and
any likely near-term clinical trials that we may initiate and initiated discussions with the landlords of the CTI facility and
the Centerpoint facility regarding our leases. In March 2017, the landlord of our CTI facility notified us that it was terminating
the lease due to nonpayment of invoices for up-fit costs, effective immediately, and in March 2017 we entered into a lease termination
agreement with the landlord. In November 2017, we and TKC Properties, the landlord of the Centerpoint facility, entered into a
lease termination agreement in connection with the sale by TKC of the facility to a third party.
We expect that we would establish both
manual and automated manufacturing processes in our commercial manufacturing facilities if we determine to build out such facilities.
We had decided to delay the implementation of our automated manufacturing process until after initial commercialization of rocapuldencel-T,
and thus planned to seek marketing approval of rocapuldencel-T and, if approved, to initially commercially supply rocapuldencel-T
using our manual manufacturing process. Prior to implementing commercial manufacturing of rocapuldencel-T, we would be required
to demonstrate that our commercial manufacturing facility is constructed and operated in accordance with current good manufacturing
practice. We would also be required to show the comparability between rocapuldencel-T that we produce using the manual processes
in our current facility and rocapuldencel-T produced using the manual process in our new facility.
We have granted exclusive manufacturing
rights for rocapuldencel-T to Pharmstandard in Russia and the other states comprising the Commonwealth of Independent States, to
Green Cross in South Korea, to Medinet in Japan and to Lummy HK in China, Hong Kong, Taiwan and Macau. We have also agreed to enter
into an agreement with Pharmstandard for the manufacture of rocapuldencel-T in the European market.
Sales and Marketing
We hold exclusive commercial rights to
all of our product candidates in all geographies other than rights to rocapuldencel-T in Russia and the other states comprising
the Commonwealth of Independent States, which are held by Pharmstandard, rights to rocapuldencel-T for the treatment of mRCC in
South Korea, which are held by Green Cross and rights to rocapuldencel-T in China, Hong Kong, Taiwan and Macau, which are held
by Lummy HK. We have granted to Medinet an exclusive license to manufacture in Japan rocapuldencel-T for the treatment of mRCC.
We currently intend to retain North American
marketing rights for rocapuldencel-T and any future oncology products that we may develop. To maximize the value of these rights,
we would expect to build a commercial infrastructure for such products comprised of medical, marketing and sales teams as well
as a customer service function to manage patient access and logistics partners associated with rocapuldencel-T production and distribution.
Our commercial infrastructure would also include personnel who manage reimbursement activities with third party payors, such as
managed care organizations, group purchasing organizations, oncology group networks and government accounts. We currently do not
have any commercial capabilities or in-house personnel specializing in these functions. Outside North America, we plan to seek
to enter into collaboration agreements with other pharmaceutical or biotechnology firms to commercialize rocapuldencel-T.
For AGS-004, we plan to seek to enter into
collaboration agreements with other pharmaceutical or biotechnology firms to commercialize this product candidate on a worldwide
basis.
Competition
The biotechnology and pharmaceutical industries
are highly competitive. There are many pharmaceutical companies, biotechnology companies, public and private universities and research
organizations actively engaged in the research and development of products that may be similar to or competitive with our products.
There are a number of multinational pharmaceutical companies and large biotechnology companies currently marketing or pursuing
the development of products or product candidates targeting the same indications as our product candidates. It is probable that
the number of companies seeking to develop products and therapies for the treatment of unmet needs in these indications will increase.
Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approaches,
and others are based on entirely different approaches.
Many of our competitors, either alone or
with their strategic partners, have substantially greater financial, technical and human resources than we do and significantly
greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products
and the commercialization of those products. Our competitors’ drugs may be more effective, or more effectively marketed and
sold, than any drug we may commercialize and may render our product candidates obsolete or non-competitive. We anticipate that
we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. We expect
any products that we develop and commercialize to compete on the basis of, among other things, efficacy, safety, convenience of
administration and delivery, price, the level of generic competition and the availability of reimbursement from government and
other third party payors.
mRCC
Historically, mRCC was treated with chemotherapy,
radiation and hormonal therapies, as well as cytokine-based therapies such as interferon-alpha and IL-2. More recently, the FDA
has approved several targeted therapies as monotherapies for mRCC, including Nexavar (sorafenib), marketed by Bayer Healthcare
Pharmaceuticals, Inc. and Onyx Pharmaceuticals, Inc.; Sutent (sunitinib) and Inlyta (axitinib), marketed by Pfizer, Inc.; Avastin
(bevacizumab), marketed by Genentech, Inc., a member of the Roche Group; Votrient (pazopanib) and Afinitor (everolimus), marketed
by Novartis Pharmaceuticals Corporation; Torisel (temsirolimus), marketed by Pfizer and most recently, Opdivo (nivolumab), marketed
by Bristol-Myers Squibb and Cabometyx (cabozantinib), marketed by Exelixis, for second-line mRCC. In addition, we estimate that
there are numerous therapies for mRCC in clinical development by many public and private biotechnology and pharmaceutical companies
targeting numerous different cancer types and stages. A number of these are in late stage development including Opdivo (nivolumab)
plus Yervoy (ipilimumab) in combination for first-line mRCC, for which favorable data have been reported in a Phase 3 trial. In
addition, if a standalone therapy for mRCC were developed that demonstrated improved efficacy over currently marketed first-line
therapies with a favorable safety profile and without the need for combination therapy, such a therapy might pose a significant
competitive threat to rocapuldencel-T.
Other Oncology Indications
We
estimate that there are numerous other cancer immunotherapy products in clinical development by many public and private biotechnology
and pharmaceutical companies targeting numerous different cancer types. A number of these product
candidates are in late-stage
clinical development
or have recently been approved in different cancer
types including two recently approved checkpoint inhibitor-based immunotherapies, nivolumab which is marketed by Bristol-Myers
Squibb and pembrolizumab, which is marketed by Merck. These newer immunotherapies are in addition to the targeted therapies, chemotherapeutics,
radiation therapy, hormonal therapies and cytokine-based therapies used in the treatment in a wide range of oncology indications.
HIV
There are numerous FDA-approved treatments
for HIV, primarily antiretroviral therapies, marketed by large pharmaceutical companies. In addition, generic competition has recently
developed as patent exclusivity periods for older drugs have expired, with more than 15 generic bioequivalents currently on the
market. The presence of these generic drugs is resulting in price pressure in the HIV therapeutics market. Currently, there are
no approved therapies for the eradication of HIV. We expect that major pharmaceutical companies that currently market antiretroviral
therapy products or other companies that are developing HIV product candidates may seek to develop products for the eradication
of HIV.
Intellectual Property
Our success depends in part on our ability
to obtain and maintain proprietary protection for our products and product candidates, technology and know-how, to operate without
infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. We are seeking a range
of patent and other protections for our product candidates and platform technology. We also rely on trade secrets, know-how, continuing
technological innovation and in-licensing opportunities to develop and maintain our proprietary position.
Patents
We own or exclusively license 16 U.S. patents
and three U.S. patent applications, as well as approximately 55 foreign counterparts, covering our Arcelis precision immunotherapy
technology platform and Arcelis-based product candidates.
We use our Arcelis precision immunotherapy
technology platform to generate individualized mRNA-loaded dendritic cell immunotherapies. As described above, the process of obtaining
a disease sample and dendritic cells from a patient, using those materials to manufacture an individualized drug product and shipping
the drug product to the clinical site for use in the treatment of the patient involves many important steps. These steps include:
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amplifying mRNA from a disease sample obtained from the patient;
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differentiating dendritic cell precursors (monocytes) isolated from the patient into immature dendritic cells;
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maturing the immature dendritic cells in culture and loading the mature dendritic cells with the amplified mRNA and CD40L protein; and
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formulating the matured, loaded dendritic cells in the patient’s plasma with cryoprotectants to protect the cells in the resulting drug product when the drug product is frozen and thawed.
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We have sought to protect these steps or
the equipment related to carrying out one or more of these steps through patents or trade secrets. We have also sought to protect
the resultant drug product through patents.
These patents and patent applications are
directed to one or more aspects of our Arcelis precision immunotherapy technology platform or Arcelis-based products. Specifically,
these patents and patent applications are collectively directed to:
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Arcelis-based compositions of matter and products;
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methods of manufacturing Arcelis-based products;
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methods of using Arcelis-based products for treatment of tumors;
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compositions that we use in the manufacture of Arcelis-based AGS-004 products; and
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equipment would be used for assisting the automated manufacture of Arcelis-based products.
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We believe that all of the above aspects
of our Arcelis precision immunotherapy technology platform are required to successfully and efficiently produce our Arcelis-based
product candidates and are covered by a combination of our patents, patent applications, trade secrets and know-how. The U.S. patents
expire between 2021 and 2029, and the U.S. patent applications, if issued, would expire between 2025 and 2028, the counterpart
patents in Europe and Japan expire between 2021 and 2027, and the counterpart patent applications in Europe, if issued, would expire
between 2025 and 2027. Included in these patents and patent applications are:
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seven U.S. patents and corresponding patent application in Europe and patent in Japan collectively directed towards an automated apparatus for the manipulation of nucleic acids in a closed container, components thereof and related methods of use. The U.S. and Japanese patents expire in 2027, and the patent application in Europe, if issued, would expire in 2027.
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one U.S. patent and corresponding European and Japanese patents collectively directed towards cryoconserved dendritic cells and related methods of manufacture. The U.S., European and Japanese patents expire in 2021.
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four U.S. patents and two U.S. patent applications, two corresponding European patents, two corresponding Japanese patents and a corresponding patent application in Europe collectively directed towards methods of maturing dendritic cells and the composition of matter of dendritic cells that have undergone this maturation process. The U.S. patents expire in 2026 and the U.S. applications, if issued, would expire in 2025, the European patents expire in 2025 and 2027, the Japanese patents expire in 2025 and 2027 and the patent application in Europe, if issued, would expire in 2025.
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one U.S. patent and corresponding patents in Europe and Japan collectively directed towards methods of manufacture of dendritic cells from monocytes stored for more than six hours and up to four days without freezing and the composition of matter of dendritic cells that have been manufactured from these monocytes. The U.S. patent will expire in 2029, and patents in Europe and Japan will expire in 2026.
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two U.S. patents, two patents in Europe and one patent in Japan are collectively directed towards the composition of matter of AGS-004 and related methods of manufacture. The U.S. patents expire in 2026. The European and Japanese patents will expire in 2025.
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one U.S. patent and one U.S. patent application are directed towards the composition of matter and related methods of use of some of the primers that we use in the manufacture of AGS-004. The U.S. patent and U.S. patent application, if issued, will expire in 2028.
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In addition, if the use of Arcelis-based
products for the treatment of RCC and HIV are approved by the FDA, then, depending upon factors such as the timing and duration
of FDA review and the timing and conditions of FDA approval, as well as factors such as patent claim scope, some of our issued
U.S. patents (or patents that may issue from our pending U.S. patent applications) may be eligible for limited patent term extension
under the Hatch-Waxman Act.
Trade Secrets
In addition to patents, we rely on trade
secrets and know-how to develop and maintain our competitive position. For example, significant aspects of the process by which
we manufacture or plan to automate manufacturing of our Arcelis-based drug product candidates are based on unpatented trade secrets
and know-how. Trade secrets and know-how can be difficult to protect. We seek to protect our proprietary technology and processes,
in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors,
contractors and commercial partners. These agreements are designed to protect our proprietary information and, in the case of the
invention assignment agreements, to grant us ownership of technologies that are developed through a relationship with a third party.
We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical security
of our premises and physical and electronic security of our information technology systems. Although we have confidence in these
individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies
for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the
extent that our consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes
may arise as to the rights in related or resulting know-how and inventions.
Development and Commercialization Agreements
An important part of our business strategy
is to enter into arrangements with third parties both to assist in the development and commercialization of our product candidates,
particularly in international markets, and to in-license product candidates in order to expand our pipeline.
Pharmstandard
.
In
August 2013, in connection with the purchase of shares of our series E preferred stock by Pharmstandard, we entered into an exclusive
royalty-bearing license agreement with Pharmstandard. Under this license agreement, we granted Pharmstandard and its affiliates
a license, with the right to sublicense, to develop, manufacture and commercialize rocapuldencel-T and other products for the treatment
of human diseases, which are developed by Pharmstandard using our individualized immunotherapy platform, in the Russian Federation,
Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Ukraine and Uzbekistan, which
we refer to as the Pharmstandard Territory. We also provided Pharmstandard with a right of first negotiation for development and
commercialization rights in the Pharmstandard Territory to specified additional products we may develop.
Under the terms of the license agreement,
Pharmstandard licensed us rights to clinical data generated by Pharmstandard under the agreement and granted us an option to obtain
an exclusive license outside of the Pharmstandard Territory to develop and commercialize improvements to our Arcelis technology
generated by Pharmstandard under the agreement, a non-exclusive worldwide royalty-free license to Pharmstandard improvements to
manufacture products using our Arcelis technology and a license to specified follow-on licensed products generated by Pharmstandard
outside of the Pharmstandard Territory, each on terms to be negotiated upon our request for a license. In addition, Pharmstandard
agreed to pay us pass-through royalties on net sales of all licensed products in the low single digits until it has generated a
specified amount of aggregate net sales. Once the net sales threshold is achieved, Pharmstandard will pay us royalties on net sales
of specified licensed products, including rocapuldencel-T, in the low double digits below 20%. These royalty obligations last until
the later of the expiration of specified licensed patent rights in a country or the twelfth anniversary of the first commercial
sale in such country on a country by country basis and no further royalties on specified other licensed products. After the net
sales threshold is achieved, Pharmstandard has the right to offset a portion of the royalties Pharmstandard pays to third parties
for licenses to necessary third party intellectual property against the royalties that Pharmstandard pays to us.
The agreement will terminate upon expiration
of the royalty term, upon which all licenses will become fully paid up perpetual exclusive licenses. Either party may terminate
the agreement for the other party’s uncured material breach or if specified conditions occur relating to the other party’s
insolvency or bankruptcy and we may terminate the agreement if Pharmstandard challenges or assists a third party in challenging
specified patent rights of ours. If Pharmstandard terminates the agreement upon our material breach or bankruptcy, Pharmstandard
is entitled to terminate our licenses to improvements generated by Pharmstandard, upon which we may come to rely for the development
and commercialization of rocapuldencel-T and other licensed products outside of the Pharmstandard Territory, and Pharmstandard
is entitled to retain its licenses from us and to pay us substantially reduced royalty payments following such termination.
In November 2013, we entered into an agreement
with Pharmstandard under which Pharmstandard purchased additional shares of our series E preferred stock. Under this agreement,
we agreed to enter into a manufacturing rights agreement for the European market with Pharmstandard and that the manufacturing
rights agreement would provide for the issuance of warrants to Pharmstandard to purchase 24,989 shares of our common stock at an
exercise price of $116.40 per share. As of February 1, 2018, we had not entered into this manufacturing rights agreement or issued
the warrants.
Pharmstandard and Actigen
.
On February 1, 2018, we entered into an option agreement with Pharmstandard and Actigen Limited to evaluate, with an option to
license, certain patent rights and know-how related to a group of fully human PD1 monoclonal antibodies and related technology
held by Actigen. Actigen previously granted Pharmstandard an option to exclusively license these patent rights. Under the option
agreement, Pharmstandard granted to us (i) an exclusive license for evaluation purposes only to make, have made, use and import
the PD1 monoclonal antibodies covered by these patent rights (but not offer to sell or sell products and processes covered by or
incorporating the patent rights) for a period of one year from the date of the agreement and (ii) an option exercisable during
the one-year period to obtain an exclusive license (with the right to sublicense) under the patent rights to make, have made, use,
offer for sale, sell and import (with a right to grant sublicenses) the PD1 monoclonal antibodies for all prophylactic, therapeutic
and diagnostic uses and for all human diseases and conditions in the United States and Canada. The parties have agreed that, if
we exercise the option during the option exercise period, the parties will negotiate in good faith a license agreement on the terms
and conditions outlined in the option agreement, including payments by us to Pharmstandard of (i) an upfront license fee of $3.6
million, payable upon execution of the license agreement in our common stock, (ii) various development and regulatory milestone
payments totaling $8.5 million, and (iii) upper single digit percentage royalties on net sales of any pharmaceutical product or
therapeutic regimen incorporating the licensed PD1 monoclonal antibodies that will apply on a country-by-country basis until the
later of the last to expire patent or ten years from the date of first commercial sale, against which the first $5.0 million of
our development expenditures will be credited as prepaid royalties.
In consideration for the rights granted
under the option agreement, we agreed to issue to Pharmstandard, on or before April 2, 2018, 169,014 shares of our common stock,
the value of which will be creditable against the upfront license fee if we entered into a license agreement. Unless earlier terminated
by any party for uncured material breach or by us without cause upon thirty days prior written notice, the option agreement will
terminate upon the later of the end of the option exercise period if we decide not to exercise the option or sixty days after we
exercise the option.
Green Cross
.
In July 2013, in connection with the purchase of our series E preferred stock by Green Cross, we entered into an exclusive royalty-bearing
license agreement with Green Cross. Under this agreement we granted Green Cross a license to develop, manufacture and commercialize
rocapuldencel-T for mRCC in South Korea. We also provided Green Cross with a right of first negotiation for development and commercialization
rights in South Korea to specified additional products we may develop.
Under the terms of the license, Green Cross
has agreed to pay us $0.5 million upon the initial submission of an application for regulatory approval of a licensed product in
South Korea, $0.5 million upon the initial regulatory approval of a licensed product in South Korea and royalties ranging from
the mid-single digits to low double digits below 20% on net sales until the fifteenth anniversary of the first commercial sale
in South Korea. In addition, Green Cross has granted us an exclusive royalty free license to develop and commercialize all Green
Cross improvements to our licensed intellectual property in the rest of the world, excluding South Korea, except that, as to such
improvements for which Green Cross makes a significant financial investment and that generate significant commercial benefit in
the rest of the world, we are required to negotiate in good faith a reasonable royalty that we will be obligated to pay to Green
Cross for such license. Under the terms of the agreement, we are required to continue to develop and to use commercially reasonable
efforts to obtain regulatory approval for rocapuldencel-T in the United States.
The agreement will terminate upon expiration
of the royalty term, which is 15 years from the first commercial sale, upon which all licenses will become fully paid up perpetual
non-exclusive licenses. Either party may terminate the agreement for the other party’s uncured material breach or if specified
conditions occur relating to the other party’s insolvency or bankruptcy and we may terminate the agreement if Green Cross
challenges or assists a third party in challenging specified patent rights of ours. If Green Cross terminates the agreement upon
our material breach or bankruptcy, Green Cross is entitled to terminate our licenses to improvements and retain its licenses from
us and to pay us substantially reduced milestone and royalty payments following such termination.
Medinet
.
In
December 2013, we entered into a license agreement with Medinet. Under this agreement, we granted Medinet an exclusive, royalty-free
license to manufacture in Japan rocapuldencel-T and other products using our Arcelis technology solely for the purpose of the development
and commercialization of rocapuldencel-T and these other products for the treatment of mRCC. We refer to this license as the manufacturing
license. In addition, under this agreement, we granted Medinet an option to acquire a nonexclusive, royalty-bearing license under
our Arcelis technology to sell in Japan rocapuldencel-T and other products for the treatment of mRCC. We refer to the option as
the sale option and the license as the sale license.
The sale option expired on April 30, 2016.
As a result, Medinet may only manufacture rocapuldencel-T and these other products for us or our designee. We have agreed to negotiate
in good faith a supply agreement under which Medinet would supply us or our designee with rocapuldencel-T and these other products
for development and sale for the treatment of mRCC in Japan. During the term of the manufacturing license, we may not manufacture
rocapuldencel-T or these other products for us or any designee for development or sale for the treatment of mRCC in Japan.
In consideration for the manufacturing
license, Medinet paid us $1.0 million. Medinet also loaned us $9.0 million in connection with us entering into the agreement. We
have agreed to use these funds in the development and manufacturing of rocapuldencel-T and the other products. Medinet also agreed
to pay us milestone payments of up to a total of $9.0 million upon the achievement of developmental and regulatory milestones and
$5.0 million upon the achievement of a sales milestone related to rocapuldencel-T and these products.
We borrowed the $9.0 million pursuant to
an unsecured promissory note that bears interest at a rate of 3.0 % per annum. The principal and interest under the note are
due and payable on December 31, 2018. Under the terms of the note and the manufacturing license agreement, any milestone payments
related to the developmental and regulatory milestones that become due will be applied first to the repayment of the loan. We have
achieved $5.0 in milestones. As a result, the outstanding principal of the loan has been reduced to $4.0 million as of February
1, 2018. We have the right to prepay the loan at any time. If we have not repaid the loan by December 31, 2018, then we have
agreed to grant to Medinet a non-exclusive, royalty-bearing license to make and sell Arcelis products in Japan for the treatment
of cancer. In such event, the amounts owing under the loan as of December 31, 2018 may constitute pre-paid royalties under
the license or would be due and payable. We do not expect to pay the amounts owing under the loan by December 31, 2018. Royalties
under this license would be paid until the expiration of the licensed patent rights in Japan at a rate to be negotiated. If we
cannot agree on the royalty rate, we have agreed to submit the matter to arbitration.
Under the agreement, we had the right to revoke both the manufacturing
license and the sale license to be granted to Medinet, or the sale license only. On February 14, 2018, we notified Medinet that
we irrevocably agreed to have no further right to exercise our right under the license agreement to revoke the manufacturing and
the sale license, or the sale license only.
The agreement will terminate upon expiration
of the royalty term, upon which all licenses will become fully paid up, perpetual non-exclusive licenses. Either party may terminate
the agreement for the other party’s uncured material breach or if specified conditions occur relating to the other party’s
insolvency or bankruptcy, and we may terminate the agreement if Medinet challenges or assists a third party in challenging specified
patent rights of ours. If Medinet terminates the agreement upon our material breach or bankruptcy, Medinet is entitled to terminate
our licenses to improvements and retain its royalty-bearing licenses from us.
Lummy
. On April 7, 2015, we and Lummy HK entered into
a license agreement pursuant to which we granted to Lummy HK an exclusive license under the Arcelis technology, including patents,
know-how and improvements to manufacture, develop and commercialize products for the treatment of cancer in China, Hong Kong, Taiwan
and Macau. Lummy HK also has a right of first negotiation with respect to a license under the Arcelis technology for the treatment
of infectious diseases in China, Hong Kong, Taiwan and Macau. This agreement was subsequently amended in December 2016, October
2017 and March 2018.
Under the terms of the license agreement,
the parties will share relevant data, and we will have a right to reference Lummy HK data for purposes of its development programs
under the Arcelis technology. In addition, Lummy HK has granted to us an exclusive, royalty-free license under and to any and all
Lummy HK improvements to the Arcelis technology conceived or reduced to practice by Lummy HK and Lummy HK data to develop and/or
commercialize products outside China, Hong Kong, Taiwan and Macau, an exclusive, royalty-free license under and to any and all
INDs and other regulatory approvals and Lummy HK trademarks used for an Arcelis-Based Product to develop and/or commercialize an
Arcelis-Based Product outside China, Hong Kong, Taiwan and Macau and a non-exclusive, worldwide, royalty-free license under any
Lummy HK improvements and Lummy HK data to manufacture Arcelis-Based Products anywhere in the world. Lummy HK has the right to
reference our data, INDs and other regulatory filings and submissions for the purpose of developing and obtaining regulatory approval
of licensed products in China, Hong Kong, Taiwan and Macau.
Pursuant to the license agreement, Lummy HK will pay us royalties
on net sales and up to an aggregate of $22.3 million upon the achievement of manufacturing, regulatory and commercial milestones,
$2.55 million of which has been earned as of March 31, 2018. On October 18, 2017, we entered into a second amendment to the
license agreement and Lummy HK paid us $1.5 million upon the achievement of a manufacturing milestone in October 2017. The milestone
payment was made in consideration of the successful initiation of transfer of technology related to the manufacturing of rocapuldencel-T.
On March 23, 2018, we entered into a third amendment to the license agreement pursuant to which Lummy agreed to pay us a $1.05
million milestone. .
The license agreement will terminate upon expiration of the last
to expire royalty term for all Arcelis-Based Products, with each royalty term being the longer of the expiration of the last valid
patent claim covering the applicable Arcelis-Based Product and 10 years from the first commercial sale of such Arcelis-Based Product.
Either party may terminate the license agreement for the other party’s uncured material breach or if specified conditions
occur relating to the other party’s insolvency or bankruptcy. We may terminate the license agreement if Lummy HK challenges
or assists a third party in challenging specified patent rights of ours. If Lummy HK terminates the license agreement upon our
material breach or bankruptcy, Lummy HK is entitled to terminate the licenses it granted to us and retain its licenses from us
with respect to Arcelis-Based Products then in development or being commercialized, subject to Lummy HK’s continued obligation
to pay royalties and milestones with respect to such Arcelis-Based Products.
Invetech
.
In October
2014, we entered into a development agreement with Invetech Pty Ltd, or Invetech. The development agreement supersedes and
replaces the development agreement entered into by the parties as of July 2005. Under the development agreement, Invetech
agreed to continue to develop and provide prototypes of the automated production system to be used for the manufacture of our Arcelis-based
products, or the Production Systems. Development services will be performed on a proposal by proposal basis. Invetech had agreed
to defer 30% of its fees, with such deferral not to exceed $5.0 million.
The development agreement requires the
parties to discuss in good faith Invetech’s supply of Production Systems for use in manufacturing commercial product. We
have an obligation to purchase $25.0 million worth of Production Systems, components, subsystems and spare parts for commercial
use. Once that obligation has been satisfied, we have the right to have a third party supply Production Systems for use in
manufacturing commercial product, provided that Invetech has a right of first refusal with respect to any offer by a third party
and we may not accept an offer from a third party unless that offer is at a price that is less than that offered by Invetech and
otherwise under substantially the same or better terms. We will own all intellectual property arising from the development
services (with the exception of existing Invetech intellectual property incorporated therein, under which we will have a license). The
term of the development agreement will continue until the completion of the development of the Production Systems. The development
agreement can be terminated early by either party because of a technical failure or by us without cause.
In September, 2017, we entered into a satisfaction
and release agreement with Invetech. Under this agreement, we agreed to make, issue and deliver to Invetech (i) a cash payment
of $500,000, (ii) 57,142 shares of our common stock and (iii) an unsecured convertible promissory note in the original principal
amount of $5.2 million on account of and in full satisfaction and release of all payment obligations to Invetech arising under
the development agreement prior to the date of the satisfaction and release agreement.
Saint-Gobain
.
In January 2015, we entered
into a development agreement with Saint-Gobain Performance Plastics Corporation, or Saint-Gobain, that was subsequently amended
in 2015, 2016 and 2017. Under the agreement, Saint-Gobain agreed to develop a range of disposables for use in our automated production
systems to be used for the manufacture of our Arcelis-based products. We had also agreed separately to purchase $3.5 million in
disposables under the agreement during 2017. The Saint-Gobain agreement requires the parties to execute a commercial supply agreement
under which Saint-Gobain would become the exclusive supplier of disposables for the manufacture of our products treating solid
tumors for no less than fifteen years. The Saint-Gobain agreement will continue until December 31, 2019, but can be terminated
earlier by written agreement of the parties because of a material default, including the failure to execute the commercial supply
agreement, or a failure to achieve a performance milestone.
In November, 2017, we entered into a satisfaction
and release agreement with Saint-Gobain. Under this agreement, we agreed to make, issue and deliver to Saint-Gobain (i) a cash
payment of $500,000, (ii) 34,499 shares of our common stock (iii) an unsecured convertible promissory note in the original principal
amount of $2.4 million, and (iv) certain specified equipment originally provided to us under the development agreement, on account
of and in full satisfaction and release of all payment obligations to Saint-Gobain arising under the development agreement, including
the development fees and charges owed by us to Saint-Gobain.
Cellscript
.
In December
2015, we entered into a development and supply agreement with Cellscript, LLC. Under the agreement, Cellscript has agreed to develop
cGMP processes for the manufacture and production of CD40L RNA, a ribonucleic acid used in the production of our Arcelis-based
products, and to manufacture and produce CD40L RNA.
In consideration for these development
and production services, we have agreed to pay Cellscript total fees of $4.6 million. Upon the execution of the agreement, we made
an initial payment to Cellscript of $2.0 million through the issuance to Cellscript of 45,309 shares of our common stock. The balance
of these fees are payable to Cellscript, at our option, in cash, common stock or a combination of cash and common stock upon the
achievement of development milestones. Any shares of common stock issued pursuant to the agreement are subject to a lock-up period
of 180 days from the date of issuance of such shares to Cellscript.
Under the terms of the agreement, Cellscript
shall be the sole and exclusive manufacturer and supplier to us of CD40L RNA, and we will make agreed upon cash payments to Cellscript
for CD40L RNA produced for us during the term of the Agreement. Under the agreement, Cellscript shall also be our sole and exclusive
supplier of enzymes and various kits comprising enzymes for transcription, capping and/or polyadenylation of RNA. We will make
agreed upon cash payments to Cellscript for each kit that is purchased under the agreement.
The agreement will continue until the earlier of (i) June 30, 2018
or (ii) the effective date of a commercial supply agreement negotiated in good faith by the parties, but can be earlier terminated
by either party due to a material breach or upon bankruptcy of the other party.
Government Regulation
Government authorities in the United States, at the federal,
state and local level, and in other countries and jurisdictions, including the EU, extensively regulate, among other things, the
research, development, testing, manufacture, pricing, quality control, approval, packaging, storage, recordkeeping, labeling, advertising,
promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of biopharmaceutical products.
The processes for obtaining marketing approvals in the United States and in foreign countries and jurisdictions, along with compliance
with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial
resources.
U.S. Drug and Biological Product Approval Process
In the United States, the FDA approves and regulates drugs under
the Federal Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations. Biologic products are licensed for marketing under
the Public Health Service Act, or PHSA. The failure to comply with the applicable U.S. requirements at any time during the product
development process, approval process or after approval, may subject an applicant to a variety of administrative or judicial sanctions,
such as the FDA’s refusal to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance
of warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions,
fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties.
The process required by the FDA before a drug or biological
product may be marketed in the United States generally involves the following:
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completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good
laboratory practice, or GLP, regulations;
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submission to the FDA of an IND which must become effective before human clinical trials may begin;
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approval by an independent institutional review board, or IRB, at each clinical site before each trial may be initiated;
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performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, to establish
the safety and efficacy of the proposed drug or biological product for each indication;
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submission to the FDA of a new drug application, or NDA, for a drug product or a BLA for a biologic;
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satisfactory completion of an FDA advisory committee review, if applicable;
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satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to
assess compliance with cGMP, and to assure that the facilities, methods and controls are adequate to preserve the drug’s
identity, strength, quality and purity;
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FDA review and approval of the NDA or BLA; and
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compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation
Strategy, or REMS, and the potential requirement to conduct post-approval studies.
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Preclinical Studies and the IND
. Before an applicant
begins testing a compound with potential therapeutic value in humans, the product candidate enters the preclinical testing stage.
Preclinical studies include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to
assess its potential safety and efficacy. An IND sponsor must submit the results of the preclinical tests, together with manufacturing
information, analytical data and any available clinical data or literature, among other things, to the FDA as part of an IND. An
IND is an exemption from the FDCA that allows an unapproved product candidate to be shipped in interstate commerce for use in an
investigational clinical trial and a request for FDA authorization to administer such investigational product to humans. Such authorization
must be secured prior to interstate shipment and administration of any product candidate that is not the subject of an approved
NDA. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or
questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold or partial hold. In
such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result,
submission of an IND may not result in the FDA allowing clinical trials to commence.
Clinical Trials
. Clinical trials involve the administration
of the investigational new drug to human subjects under the supervision of qualified investigators in accordance with GCP requirements,
which include the requirement that all research subjects provide their informed consent in writing for their participation in any
clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters
to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent
protocol amendments must be submitted to the FDA as part of the IND.
In addition to the foregoing IND requirements, an IRB representing
each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences
at that institution, and the IRB must conduct continuing review and reapprove the study at least annually. The IRB must review
and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must
operate in compliance with FDA regulations. An IRB can suspend or terminate approval of a clinical trial at its institution, or
an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if
the product candidate has been associated with unexpected serious harm to patients. Additionally, some trials are overseen by an
independent group of qualified experts organized by the trial sponsor, known as a data safety monitoring board or committee, or
DSMB.
Human clinical trials are typically conducted in three sequential
phases, which may overlap or be combined:
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Phase 1: The drug or biological candidate product is initially introduced into healthy human subjects or patients with the
target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible,
to gain an early indication of its effectiveness.
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Phase 2: The drug or biological candidate product is administered to a limited patient population to identify possible adverse
effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine
dosage tolerance and optimal dosage.
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Phase 3: The drug or biological candidate product is administered to an expanded patient population, generally at geographically
dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy
and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information
for the labeling of the product.
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In some cases, the FDA may approve an NDA for a product candidate
but require the sponsor to conduct additional clinical trials to further assess the product candidate’s safety and effectiveness
after approval. Such post-approval trials are typically referred to as Phase 4 clinical trials. These studies are used to gain
additional experience from the treatment of a larger number of patients in the intended treatment group and to further document
a clinical benefit in the case of drugs approved under accelerated approval regulations. Failure to exhibit due diligence with
regard to conducting Phase 4 clinical trials could result in withdrawal of approval for products.
Progress reports detailing the results of the clinical trials
must be submitted at least annually to the FDA and more frequently if serious adverse events occur. Phase 1, Phase 2 and Phase
3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor
may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being
exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution
if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated
with unexpected serious harm to patients.
Information about certain clinical trials must be submitted
within specific timeframes to the NIH for public dissemination on their ClinicalTrials.gov website.
Special Protocol Assessment
. The SPA process is
designed to facilitate the FDA’s review and approval of drug and biological products by allowing the FDA to evaluate the
proposed design and size of Phase 3 clinical trials that are intended to form the primary basis for determining a drug or biological
product’s efficacy. Upon specific request by a clinical trial sponsor, the FDA will evaluate the trial protocol and respond
to a sponsor’s questions regarding, among other things, primary efficacy endpoints, trial conduct and data analysis, within
45 days of receipt of the request. The FDA ultimately assesses whether the trial protocol design and planned analysis of the trial
adequately address objectives in support of a regulatory submission. All agreements and disagreements between the FDA and the sponsor
regarding an SPA must be clearly documented in an SPA letter or the minutes of a meeting between the sponsor and the FDA.
Even if the FDA agrees to the design, execution and analyses
proposed in protocols reviewed under an SPA, the FDA may revoke or alter its agreement under the following circumstances:
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public health concerns emerge that were unrecognized at the time of the protocol assessment;
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a sponsor fails to follow a protocol that was agreed upon with the FDA;
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the relevant data, assumptions, or information provided by the sponsor in a request for SPA change are found to be false statements
or misstatements or are found to omit relevant facts; or
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the FDA and the sponsor agree in writing to modify the trial protocol and such modification is intended to improve the study.
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Marketing Approval
. Assuming successful completion
of the required clinical testing, the results of the preclinical and clinical studies, together with detailed information relating
to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as
part of an NDA or BLA requesting approval to market the product for one or more indications. Every new product must be the subject
of an approved application before it may be commercialized in the United States. Under federal law, the submission of most applications
is subject to an application user fee, which for federal fiscal year 2018 is $2,421,495 for an application requiring clinical data.
The sponsor of an approved application is also subject to an annual program fee, which for fiscal year 2018 is $304,162. Certain
exceptions and waivers are available for some of these fees, such as an exception from the application fee for products with orphan
designation and a waiver for certain small businesses.
In addition, under the Pediatric Research Equity Act of 2003,
or PREA, as amended and reauthorized, an NDA, BLA or supplement to an NDA or BLA for certain types of new drug or biological products
must contain data that are adequate to assess the safety and effectiveness of the drug or biological product for the claimed indications
in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the
product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission
of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric
data requirements. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan
designation.
The FDCA requires that a sponsor who is planning to submit a
marketing application for a drug or biological product that includes a new active ingredient, new indication, new dosage form,
new dosing regimen or new route of administration submit an initial Pediatric Study Plan, or PSP, within sixty days of an end-of-phase
2 meeting or as may be agreed between the sponsor and FDA. The initial PSP must include an outline of the pediatric study or studies
that the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach,
or a justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full
or partial waiver of the requirement to provide data from pediatric studies along with supporting information. FDA and the sponsor
must reach agreement on the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric
plan need to be considered based on data collected from nonclinical studies, early phase clinical trials, or other clinical development
programs.
The FDA also could require submission of a risk evaluation and
mitigation strategy, or REMS, plan to mitigate any identified or suspected serious risks. The REMS plan could include medication
guides, physician communication plans, assessment plans, and elements to assure safe use, such as restricted distribution methods,
patient registries, or other risk minimization tools.
The FDA conducts a preliminary review of all NDAs and BLAs within
the first 60 days after submission before accepting them for filing to determine whether they are sufficiently complete to permit
substantive review. The FDA may request additional information rather than accept an NDA or BLA for filing. In this event, the
application must be resubmitted with the additional information. The resubmitted application is also subject to review before the
FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews
an NDA or BLA to determine, among other things, whether the product is safe and effective (described as safe, pure and potent for
BLAs) and the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the product’s
continued safety, purity and potency. The FDA is required to refer an application for a novel drug or biological product to an
advisory committee or explain why such referral was not made. An advisory committee is a panel of independent experts, including
clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should
be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such
recommendations carefully when making decisions.
Before approving an NDA or BLA, the FDA typically will inspect
the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that
the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production
of the product within required specifications. Additionally, before approving an NDA or BLA, the FDA will typically inspect one
or more clinical sites to assure compliance with GCP and integrity of the clinical data submitted.
The testing and approval process requires substantial time,
effort and financial resources, and each may take several years to complete. Data obtained from clinical activities are not always
conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA
may not grant approval on a timely basis, or at all. We may encounter difficulties or unanticipated costs in our efforts to develop
our product candidates and secure necessary governmental approvals, which could delay or preclude us from marketing our products.
If the FDA’s evaluation of the NDA or BLA and inspection
of the manufacturing facilities and clinical trial sites are favorable, the FDA may issue an approval letter, or, in some cases,
a complete response letter. A complete response letter generally contains a statement of specific conditions that must be met in
order to secure final approval of the NDA or BLA and may require additional clinical or preclinical testing in order for FDA to
reconsider the application. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically
issue an approval letter. An approval letter authorizes commercial marketing of the drug or biological product with specific prescribing
information for specific indications. Even with submission of this additional information, the FDA ultimately may decide that the
application does not satisfy the regulatory criteria for approval.
Even if the FDA approves a product, it may limit the approved
indications for use for the product, require that contraindications, warnings or precautions be included in the product labeling,
require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a drug’s safety after
approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions,
including distribution restrictions or other risk management mechanisms, which can materially affect the potential market and profitability
of the product. The FDA may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance
programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes,
and additional labeling claims, are subject to further testing requirements and FDA review and approval.
Special FDA Expedited Review and Approval Programs
.
The FDA is authorized to designate certain products for expedited
review if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition.
These programs are fast track designation, breakthrough therapy designation, priority review designation and regenerative advanced
therapy designation. The FDA may also approve certain products on an accelerated basis. The purpose of these programs is to provide
important new drugs to patients earlier than under standard FDA review procedures.
To be eligible for a fast track designation, the FDA must determine,
based on the request of a sponsor, that a product is intended to treat a serious aspect of a serious or life threatening disease
or condition and will fill an unmet medical need. The FDA will determine that a product will fill an unmet medical need if it will
provide a therapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy
or safety factors. For fast track products, sponsors may have greater interactions with the FDA and the FDA may initiate review
of sections of a fast track product’s application before the application is complete.
Under the provisions of the Food and Drug Administration Safety
and Innovation Act, or FDASIA, enacted in 2012, a sponsor also can request designation of a product candidate as a “breakthrough
therapy.” A breakthrough therapy is defined as a drug or biological product that is intended, alone or in combination with
one or more other drugs or biological products, to treat a serious or life-threatening disease or condition, and preliminary clinical
evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant
endpoints, such as substantial treatment effects observed early in clinical development. Products designated as breakthrough therapies
are also eligible for accelerated approval. The FDA must take certain actions, such as holding timely meetings and providing advice,
intended to expedite the development and review of an application for approval of a breakthrough therapy.
In addition, the FDA may give a priority review designation
to drugs or biological products that provide safe and effective therapy where no satisfactory alternative exists or a significant
improvement compared to marketed products in the treatment, diagnosis or prevention of a disease. For products regulated by the
Center for Biologics Evaluation and Research, or CBER, the product must be intended to treat a serious or life threatening disease
or condition. A priority review means that the targeted time for the FDA to review an application is six months, rather than ten
months. Most products that are eligible for fast track designation are also likely to be considered appropriate to receive a priority
review.
With passage of the 21st Century Cures Act, or the Cures Act,
in December 2016, Congress authorized the FDA to accelerate review and approval of products designated as regenerative advanced
therapies. A product is eligible for this designation if it is a regenerative medicine therapy that is intended to treat, modify,
reverse or cure a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product
candidate has the potential to address unmet medical needs for such disease or condition. The benefits of a regenerative advanced
therapy designation include early interactions with the FDA to expedite development and review, benefits available to breakthrough
therapies, potential eligibility for priority review and accelerated approval based on surrogate or intermediate endpoints.
Finally, the FDA may grant accelerated approval to a product
for a serious or life-threatening condition that provides meaningful therapeutic advantage to patients over existing treatments
based upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical
benefit. The FDA may also grant accelerated approval for such a condition when the product has an effect on an intermediate clinical
endpoint that can be measured earlier than an effect on irreversible morbidity or mortality and that is reasonably likely to predict
an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence
of the condition and the availability or lack of alternative treatments. Products granted accelerated approval must meet the same
statutory standards for safety and effectiveness as those granted traditional approval.
Even if a product qualifies for one or more of these programs,
the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA
review or approval will not be shortened.
Post-Approval Requirements
. Any drug or biological
products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the
FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution,
advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product,
such as adding new indications or other labeling claims are subject to prior FDA review and approval.
The FDA may impose a number of post-approval requirements as
a condition of approval of an NDA or BLA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials,
and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization. Regulatory
approval of oncology products often requires that patients in clinical trials be followed for long periods to determine the overall
survival benefit of the drug or biologic.
In addition, drug manufacturers and other entities involved
in the manufacture and distribution of approved drugs and biological products are required to register their establishments with
the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance
with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before
being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and
documentation requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must
continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.
A product may also be subject to official lot release, meaning
that the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If
the product is subject to official release, the manufacturer must submit samples of each lot, together with a release protocol
showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on
the lot, to the FDA. The FDA may in addition perform certain confirmatory tests on lots of some products before releasing the lots
for distribution. Finally, the FDA will conduct laboratory research related to the safety, purity, potency and effectiveness of
pharmaceutical products.
Once an approval is granted, the FDA may withdraw the approval
if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market.
Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency,
or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling
to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of
distribution or other restrictions under a REMS program. Other potential consequences include, among other things:
• restrictions on the marketing or manufacturing of
the product, complete withdrawal of the product from the market or product recalls;
• fines, warning letters or holds on post-approval clinical
trials;
• refusal of the FDA to approve pending applications
or supplements to approved applications, or suspension or revocation of product license approvals;
• product seizure or detention, or refusal to permit
the import or export of products; or
• injunctions or the imposition of civil or criminal
penalties.
The FDA strictly regulates marketing, labeling, advertising
and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance
with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the
promotion of off label uses, and a company that is found to have improperly promoted off label uses may be subject to significant
liability.
If a company is found to have promoted off-label uses, it may
become subject to adverse public relations and administrative and judicial enforcement by the FDA, the Department of Justice, or
the Office of the Inspector General of the Department of Health and Human Services, as well as state authorities. This could subject
a company to a range of penalties that could have a significant commercial impact, including civil and criminal fines and agreements
that materially restrict the manner in which a company promotes or distributes drug products.
In addition, the distribution of prescription pharmaceutical
products is subject to the Prescription Drug Marketing Act, or PDMA, and its implementing regulations, as well as the Drug Supply
Chain Security Act, or DSCA, which regulate the distribution and tracing of prescription drugs and prescription drug samples at
the federal level, and set minimum standards for the regulation of drug distributors by the states. The PDMA, its implementing
regulations and state laws limit the distribution of prescription pharmaceutical product samples, and the DSCA imposes requirements
to ensure accountability in distribution and to identify and remove counterfeit and other illegitimate products from the market.
Biosimilars and Non-Patent Exclusivity.
The 2010 Patient
Protection and Affordable Care Act, which was signed into law on March 23, 2010, included a subtitle called the Biologics
Price Competition and Innovation Act of 2009 or BPCIA. That Act established a regulatory scheme authorizing the FDA to approve
biosimilars and interchangeable biosimilars. As of January 1, 2018, the FDA has approved nine biosimilar products for use in the
United States. No interchangeable biosimilars, have been approved. The FDA has issued several guidance documents outlining an approach
to review and approval of biosimilars. Additional guidances are expected to be finalized by FDA in the near term.
Under the Act, a manufacturer may submit an application for
licensure of a biologic product that is “biosimilar to” or “interchangeable with” a previously approved
biological product or “reference product.” In order for the FDA to approve a biosimilar product, it must find that
there are no clinically meaningful differences between the reference product and proposed biosimilar product in terms of safety,
purity and potency. For the FDA to approve a biosimilar product as interchangeable with a reference product, the agency must find
that the biosimilar product can be expected to produce the same clinical results as the reference product, and (for products administered
multiple times) that the biologic and the reference biologic may be switched after one has been previously administered without
increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic.
Under the BPCIA, an application for a biosimilar product may
not be submitted to the FDA until four years following the date of approval of the reference product. The FDA may not approve a
biosimilar product until 12 years from the date on which the reference product was approved. We believe that our investigational
products, if approved via full BLAs, will be considered “reference products” that are entitled to both four-year and
twelve-year exclusivity under the BPCIA. Even if a product is considered to be a reference product eligible for exclusivity, another
company could market a competing version of that product if the FDA approves a full BLA 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
their product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. At this
juncture, it is unclear whether products deemed “interchangeable” by the FDA will, in fact, be readily substituted
by pharmacies, which are governed by state pharmacy law.
Pediatric Exclusivity
. Pediatric exclusivity is
another type of non-patent exclusivity in the United States and, if granted, provides for the attachment of an additional six months
of marketing protection to the term of any existing regulatory exclusivity or patent protection, including the non-patent and orphan
exclusivity. This six-month exclusivity may be granted if an application sponsor submits pediatric data that fairly respond to
a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population
studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted.
Orphan Drug Designation and Exclusivity
. Under the
Orphan Drug Act, the FDA may grant orphan drug designation to a drug (including a biologic) 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 more
than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and
making available in the United States a drug for this type of disease or condition will be recovered from sales in the United States
for that drug. Orphan drug designation must be requested before submitting an NDA or 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.
If a product that has orphan drug designation subsequently receives
the first FDA approval for the disease for which it has such designation, the product is entitled to orphan product exclusivity,
which means that the FDA may not approve any other applications, including a full NDA or full BLA, to market the same drug for
the same indication for seven years. For purposes of small molecule drugs, the FDA defines “same drug” as a drug that
contains the same active moiety and is intended for the same use as the previously approved orphan drug. For purposes of large
molecule drugs, the FDA defines “same drug” as a drug that contains the same principal molecular structural features,
but not necessarily all of the same structural features, and is intended for the same use as the drug in question. Notwithstanding
the above definitions, a drug that is clinically superior to an orphan drug will not be considered the “same drug”
and thus will not be blocked by orphan drug exclusivity.
Orphan exclusivity does not block the approval of a different
product for the same rare disease or condition, nor does it block the approval of the same product for different indications. If
a product designated as an orphan drug ultimately receives marketing approval for an indication broader than what was designated
in its orphan drug application, it may not be entitled to exclusivity. Orphan exclusivity will also not bar approval of another
product under certain circumstances, including if a subsequent product with the same product for the same indication is shown to
be clinically superior to the approved product on the basis of greater efficacy or safety, or providing a major contribution to
patient care, or if the company with orphan drug exclusivity is not able to meet market demand. This is the case despite an earlier
court opinion holding that the Orphan Drug Act unambiguously required the FDA to recognize orphan exclusivity regardless of a showing
of clinical superiority.
The 21st Century Cures Act.
On December 13, 2016, the 21st Century Cures Act,
or Cures Act, was enacted into law. The Cures Act is designed to modernize and personalize healthcare, spur innovation and research,
and streamline the discovery and development of new therapies through increased federal funding of particular programs. It authorizes
increasing funding for the FDA to spend on innovation projects. The new law also amends the Public Health Service Act, or PHSA,
to reauthorize and expand funding for the NIH. The Act establishes the NIH Innovation Fund to pay for the cost of development and
implementation of a strategic plan, early stage investigators and research. It also charges the NIH with leading and coordinating
expanded pediatric research. Further, the Cures Act directs the Centers for Disease Control and Prevention to expand surveillance
of neurological diseases.
With amendments to the FDCA and the PHSA, Title III of the Cures
Act seeks to accelerate the discovery, development, and delivery of new medicines and medical technologies. To that end, and among
other provisions, the Cures Act reauthorizes the existing priority review voucher program for certain products intended to treat
rare pediatric diseases until 2020; creates a new priority review voucher program for product applications determined to be material
national security threat medical countermeasure applications; revises the FDCA to streamline review of combination product applications;
requires the FDA to evaluate the potential use of “real world evidence” to help support approval of new indications
for approved products; provides a new “limited population” approval pathway for antibiotic and antifungal products
intended to treat serious or life-threatening infections; and authorizes the FDA to designate a product as a “regenerative
advanced therapy,” thereby making it eligible for certain expedited review and approval designations.
Health care Law and Regulation
Health care providers
and third-party payors play a primary role in the recommendation and prescription of drug products that are granted marketing approval.
Arrangements with providers, consultants, third-party payors and customers are subject to broadly applicable fraud and abuse, anti-kickback,
false claims laws, patient privacy laws and regulations and other health care laws and regulations that may constrain business
and/or financial arrangements. Restrictions under applicable federal and state health care laws and regulations, include the following:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting,
offering, paying, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the
referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made,
in whole or in part, under a federal health care program such as Medicare and Medicaid;
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the federal civil and criminal false claims laws, including the civil False Claims Act, and civil monetary penalties laws,
which prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal
government, claims for payment that are false, fictitious or fraudulent or knowingly making, using or causing to made or used a
false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government.
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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal
laws that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any health
care benefit program or making false statements relating to health care matters;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their respective implementing
regulations, including the Final Omnibus Rule published in January 2013, which impose obligations, including mandatory contractual
terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
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the federal false statements statute, which prohibits knowingly and willfully falsifying, concealing ·or covering up
a material fact or making any materially false statement in connection with the delivery of or payment for health care benefits,
items or services;
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the federal transparency requirements known as the federal Physician Payments Sunshine Act, under the Patient Protection and
Affordable Care Act, as amended by the Health Care Education Reconciliation Act, or the Affordable Care Act, which requires certain
manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services,
or CMS, within the United States Department of Health and Human Services, information related to payments and other transfers of
value made by that entity to physicians and teaching hospitals, as well as ownership and investment interests held by physicians
and their immediate family members; and
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analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to health
care items or services that are reimbursed by non-government third-party payors, including private insurers.
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Some state
laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the
relevant compliance guidance promulgated by the federal government in addition to requiring manufacturers to report information
related to payments to physicians and other health care providers or marketing expenditures. State and foreign laws also govern
the privacy and security of health information in some circumstances, many of which differ from each other in significant ways
and often are not preempted by HIPAA, thus complicating compliance efforts.
Pharmaceutical Insurance Coverage
and Health Care Reform
In the United States
and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed
services generally rely on third-party payors to reimburse all or part of the associated health care costs. Significant uncertainty
exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities. Thus, even
if a product candidate is approved, sales of the product will depend, in part, on the extent to which third-party payors, including
government health programs in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations,
provide coverage and establish adequate reimbursement levels for, the product. The process for determining whether a payor will
provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will
pay for the product once coverage is approved. Third-party payors are increasingly challenging the prices charged, examining the
medical necessity and reviewing the cost-effectiveness of medical products and services and imposing controls to manage costs.
Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include
all of the approved products for a particular indication.
In order to secure
coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic
studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required
to obtain FDA or other comparable marketing approvals. Nonetheless, product candidates may not be considered medically necessary
or cost effective. A decision by a third-party payor not to cover a product could reduce physician utilization once the product
is approved and have a material adverse effect on sales, results of operations and financial condition. Additionally, a payor’s
decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s
determination to provide coverage for a product does not assure that other payors will also provide coverage and reimbursement
for the product, and the level of coverage and reimbursement can differ significantly from payor to payor.
The containment
of health care costs also has become a priority of federal, state and foreign governments and the prices of products have been
a focus in this effort. Governments have shown significant interest in implementing cost-containment programs, including price
controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment
measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit a
company’s revenue generated from the sale of any approved products. Coverage policies and third-party reimbursement rates
may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which a company
or its collaborators receive marketing approval, less favorable coverage policies and reimbursement rates may be implemented in
the future.
There have been
a number of federal and state proposals during the last few years regarding the pricing of pharmaceutical and biopharmaceutical
products, limiting coverage and reimbursement for drugs and biologics and other medical products, government control and other
changes to the health care system in the United States. In March 2010, the ACA was enacted, which includes measures that have significantly
changed health care financing by both governmental and private insurers. The provisions of the ACA of importance to the pharmaceutical
and biotechnology industry are, among others, the following:
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an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drug agents or biologic
agents, which is apportioned among these entities according to their market share in certain government health care programs;
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an increase in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer
price for branded and generic drugs, respectively;
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a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts
to negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the
manufacturer's outpatient drugs to be covered under Medicare Part D;
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extension of manufacturers' Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid
managed care organizations, unless the drug is subject to discounts under the 340B drug discount program;
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a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that
are inhaled, infused, instilled, implanted or injected;
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expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage
to additional individuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133%
of the federal poverty level, thereby potentially increasing manufacturers' Medicaid rebate liability;
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expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
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new requirements under the federal Physician Payments Sunshine Act for drug manufacturers to report information related to
payments and other transfers of value made to physicians and teaching hospitals as well as ownership or investment interests held
by physicians and their immediate family members;
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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness
research, along with funding for such research;
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creation of the Independent Payment Advisory Board, which, if and when impaneled, will have authority to recommend certain
changes to the Medicare program that could result in reduced payments for prescription drugs; and
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establishment of a Center for Medicare and Medicaid Innovation at CMS to test innovative payment and service delivery models
to lower Medicare and Medicaid spending, potentially including prescription drug spending.
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Other legislative changes have been proposed
and adopted since the ACA was enacted. These changes include the Budget Control Act of 2011, which, among other things, led to
aggregate reductions to Medicare payments to providers of up to 2% per fiscal year that started in 2013 and will stay in effect
through 2024 unless additional Congressional action is taken, and the American Taxpayer Relief Act of 2012, which, among other
things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government
to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and
other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain
regulatory approval or the frequency with which any such product candidate is prescribed or used. Further, there have been several
recent U.S. congressional inquiries and proposed state and federal legislation designed to, among other things, bring more transparency
to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare
and reform government program reimbursement methodologies for drug products.
These healthcare reforms, as well as other healthcare reform measures
that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous
coverage criteria, new payment methodologies and additional downward pressure on the price for any approved product and/or the
level of reimbursement physicians receive for administering any approved product. Reductions in reimbursement levels may negatively
impact the prices or the frequency with which products are prescribed or administered. Any reduction in reimbursement from Medicare
or other government programs may result in a similar reduction in payments from private payors. Since enactment of the ACA, there
have been numerous legal challenges and Congressional actions to repeal and replace provisions of the law. In May 2017, the U.S.
House of Representatives passed legislation known as the American Health Care Act of 2017. In the U.S., Senate legislation has
been proposed to replace the ACA known as the Better Care Reconciliation, to repeal the ACA without companion legislation to replace
it, or to enact a “skinny” version of the Better Care Reconciliation Act of 2017. In addition, the Senate considered
proposed healthcare reform legislation known as the Graham-Cassidy bill. None of these measures was passed by the U.S. Senate.
The Trump Administration has also taken
executive actions to undermine or delay implementation of the ACA. In January 2017, President Trump signed an Executive Order directing
federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation
of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health
insurers, or manufacturers of pharmaceuticals or medical devices. In October 2017, the President signed a second Executive Order
allowing for the use of association health plans and short-term health insurance, which may provide fewer health benefits than
the plans sold through the ACA exchanges. At the same time, the Administration announced that it will discontinue the payment of
cost-sharing reduction (CSR) payments to insurance companies until Congress approves the appropriation of funds for such CSR payments.
The loss of the CSR payments is expected to increase premiums on certain policies issued by qualified health plans under the ACA.
A bipartisan bill to appropriate funds for CSR payments was introduced in the Senate, but the future of that bill is uncertain.
More recently, with enactment of the Tax Cuts and Jobs Act of 2017
in December 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires most Americans
to carry a minimal level of health insurance, will become effective in 2019. According to the Congressional Budget Office, the
repeal of the individual mandate will cause 13 million fewer Americans to be insured in 2027 and premiums in insurance markets
may rise. Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018
that delayed the implementation of certain ACA-mandated fees, including the so-called “Cadillac” tax on certain high
cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and
the medical device excise tax on non-exempt medical devices. The Congress will likely consider other legislation to replace elements
of the ACA, during the next Congressional session.
Further, there have been several recent
U.S. congressional inquiries and proposed federal and proposed and enacted state legislation designed to, among other things, bring
more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs
of drugs under Medicare and reform government program reimbursement methodologies for drug products. At the federal level, Congress
and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to
control drug costs. At the state level, individual states are increasingly aggressive in 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. In addition, regional health care authorities and individual hospitals
are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their
prescription drug and other health care programs. These measures could reduce the ultimate demand for our products, once approved,
or put pressure on our product pricing.
Foreign Regulation
Although we do not currently market any of our products outside
the United States and have no current plans to engage in product commercialization outside the United States, we may decide to
do so in the future. In order to market any product outside of the United States, we would need to comply with numerous and varying
regulatory requirements of other countries regarding safety and efficacy and governing, among other things, clinical trials, marketing
authorization, commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we would
need to obtain the necessary approvals by the comparable regulatory authorities of foreign countries before we can commence clinical
trials or marketing of the product in those countries. The approval process varies from country to country and can involve additional
product testing and additional administrative review periods, and may be otherwise complicated by some of our products and product
candidates being controlled substances. The time required to obtain approval in other countries might differ from and be longer
than that required to obtain FDA approval. Regulatory approval in one country does not ensure regulatory approval in another, but
a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others.
Pharmaceutical Coverage, Pricing
and Reimbursement
Significant uncertainty exists as to the
coverage and reimbursement status of any drug products for which we obtain regulatory approval. Sales of any of our product candidates,
if approved, will depend, in part, on the extent to which the costs of the products will be covered by third party payors, including
government health programs such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process
for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the price
or reimbursement rate that the payor will pay for the drug product once coverage is approved. Third party payors may limit coverage
to specific drug products on an approved list, or formulary, which might not include all of the approved drugs for a particular
indication.
In order to secure coverage and reimbursement
for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate
the medical necessity and cost- effectiveness of the product, in addition to the costs required to obtain FDA or other comparable
regulatory approvals. Our product candidates may not be considered medically necessary or cost-effective. A payor’s decision
to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Third party reimbursement
may not be sufficient to enable us to maintain price levels high enough to realize an appropriate return on our investment in product
development.
The containment of healthcare costs has
become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort. Third party
payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and
cost-effectiveness of medical products and services, in addition to their safety and efficacy. If these third party payors do not
consider our products to be cost-effective compared to other available therapies, they may not cover our products after approval
as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products at an
appropriate return on investment. The U.S. government, state legislatures and foreign governments have shown significant interest
in implementing cost-containment programs to limit the growth of government-paid health care costs, including price controls, restrictions
on reimbursement and requirements for substitution of generic products for branded prescription drugs. Adoption of such controls
and measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments
for pharmaceuticals such as the drug product candidates that we are developing and could adversely affect our net revenue and results.
Pricing and reimbursement schemes vary
widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement price has
been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular
product candidate to currently available therapies. For example, the European Union provides options for its member states to restrict
the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of
medicinal products for human use. European Union member states may approve a specific price for a drug product or it may instead
adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market. Other
member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward
pressure on health care costs in general, particularly prescription drugs, has become intense. As a result, increasingly high barriers
are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert
competitive pressure that may reduce pricing within a country. There can be no assurance that any country that has price controls
or reimbursement limitations for drug products will allow favorable reimbursement and pricing arrangements for any of our products.
The marketability of any products for which
we receive regulatory approval for commercial sale may suffer if the government and third party payors fail to provide adequate
coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect will continue
to increase the pressure on drug pricing. Coverage policies, third party reimbursement rates and drug pricing regulation may change
at any time. In particular, the PPACA and a related reconciliation bill, which we collectively refer to as the Affordable Care
Act or ACA, contain provisions that may reduce the profitability of drug products, including, for example, increased rebates for
covered outpatient drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts
for certain Medicare Part D beneficiaries, and annual fees based on pharmaceutical companies’ share of sales to federal health
care programs. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory
approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
New Legislation and Regulations
From time to time, legislation is drafted,
introduced and passed in Congress that could significantly change the statutory provisions governing the testing, approval, manufacturing
and marketing of products regulated by the FDA. For example, the FDASIA and PPACA provisions discussed above were enacted in 2012
and 2010, respectively.
Numerous statements made by President Trump
and members of the U.S. Congress indicate that it is likely that legislation will be passed by Congress and signed into law by
President Trump that repeals the PPACA, in whole or in part, and/or introduces a new form of health care reform. It is unclear
at this point what the scope of such legislation will be and when it will become effective. Because of the uncertainty surrounding
this replacement health care reform legislation, we cannot predict with any certainty the likely impact of the PPACA’s repeal
or the adoption of any other health care reform legislation on our business. Whether or not there is alternative health care legislation
enacted in the United States, there is likely to be significant disruption to the health care market in the coming months and years.
In addition to potential for new legislation,
FDA regulations and policies are often revised or interpreted by the agency in ways that may significantly affect our business
and our products. It is impossible to predict whether further legislative changes will be enacted, or FDA regulations, guidance,
policies or interpretations changed or what the impact of such changes, if any, may be.
Segment and Geographic Information
Operating segments are defined as components
of an enterprise engaging in business activities from which it may earn revenues and incur expenses, for which discrete financial
information is available and whose operating results are regularly reviewed by the chief operating decision maker in deciding how
to allocate resources and in assessing performance. We view our operations and manage our business in one operating segment and
all of our operations are in North America.
Employees
As of February 28, 2018, we had 39 employees,
including 11 in research and development, 1 in clinical development, 16 in manufacturing and 11 in general and administrative functions.
None of our employees is subject to a collective bargaining agreement or represented by a labor or trade union. We believe that
our relations with our employees are good.
Corporate Information
We were incorporated in the State of Delaware
on May 8, 1997. Our principal executive offices are located at 4233 Technology Drive, Durham, North Carolina 27704, and our telephone
number is (919) 287-6300.
Available Information
We file with the Securities and Exchange
Commission, or SEC, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information
statements and amendments to reports filed or furnished pursuant to Sections 13(a), 14 and 15(d) of the Securities Exchange Act
of 1934, as amended. The public may obtain these filings at the SEC’s Public Reference Room at 100 F Street, NE, Washington,
DC 20549 or by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding Argos and other companies that file materials with the SEC electronically.
As soon as practicable after filing with the SEC, copies of our reports on Forms 10-K, Forms 10-Q and Forms 8-K may also be obtained,
free of charge, electronically through the investor relations portion of our web site, www.argostherapeutics.com/investor-relations/sec-filings/default.aspx.
We webcast any earnings calls we have on
our investor relations website. Additionally, we provide notifications of news or announcements regarding our financial performance,
including SEC filings, investor events and press and earnings releases, on the investor relations portion of our website. Further
corporate governance information, including our corporate governance guidelines, board committee charters, Code of Business Conduct
and Ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial
officer, or persons performing similar functions, is also available on our investor relations website under the heading “Corporate
Governance.” The contents of our website are not intended to be incorporated by reference into this Annual Report on Form
10-K or in any other report or document we file with the SEC.
Item 1A. Risk Factors
We operate in a dynamic and rapidly changing
business environment that involves multiple risks and substantial uncertainty. The following discussion addresses risks and uncertainties
that could cause, or contribute to causing, actual results to differ from expectations in material ways. In evaluating our business,
investors should pay particular attention to the risks and uncertainties described below and in other sections of this Annual Report
on Form 10-K and in our subsequent filings with the SEC. These risks and uncertainties, or other events that we do not currently
anticipate or that we currently deem immaterial also may affect our results of operations, cash flows and financial condition.
The trading price of our common stock could also decline due to any of these risks, and you could lose all or part of your investment.
Risks Related to the Development and
Regulatory Approval of Our Product Candidates
We have depended heavily on the success of our two product
candidates, rocapuldencel-T and AGS-004. Clinical trials of our product candidates may not be successful. If we are unable to commercialize
our product candidates or experience significant delays in doing so, our business will be materially harmed.
We currently have no products approved
for sale. We have invested a significant portion of our efforts and financial resources in the development of rocapuldencel-T for
the treatment of metastatic renal cell carcinoma, or mRCC, and other cancers and AGS-004 for the treatment of HIV.
Our ability to generate product revenues, which we do not expect
will occur for at least the next several years, if ever, will depend heavily on the successful development and commercialization
of rocapuldencel-T and AGS-004 and any other product candidates we develop, if we determine to proceed with its development. The
success of our product candidates will depend on several factors, including the following:
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successful completion of clinical trials, including clinical results that are statistically significant as well as clinically
meaningful in the context of the indications for which we are developing our product candidates;
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receipt of marketing approvals from the FDA and similar regulatory authorities outside the United States;
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establishing a facility for the commercial manufacture of products based on our Arcelis precision immunotherapy technology
platform;
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maintaining patent and trade secret protection and regulatory exclusivity for our product candidates, both in the United States
and internationally;
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launching commercial sales of the products, if and when approved, whether alone or in collaboration with others;
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commercial acceptance of our products, if and when approved, by patients, the medical community and third party payors;
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obtaining and maintaining healthcare coverage and adequate reimbursement;
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effectively competing with other therapies; and
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a continued acceptable safety profile of the products following any marketing approval.
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In February 2017, we announced that the Independent Data Monitoring
Committee, or IDMC, for our pivotal Phase 3 ADAPT clinical trial of rocapuldencel-T in combination with sunitinib / standard-of-care
for the treatment of mRCC recommended that the trial be discontinued for futility based on its planned interim data analysis. The
IDMC concluded that the trial was unlikely to demonstrate a statistically significant improvement in overall survival in the combination
treatment arm, utilizing the intent-to-treat population at the pre-specified number of 290 events (deaths), the original primary
endpoint of the study. Notwithstanding the IDMC’s recommendation, we determined to continue to conduct the trial while we
analyzed interim data from the trial. Following a meeting with the FDA, we determined to continue the ADAPT trial until at least
the pre-specified number of 290 events occurs and to submit to the FDA a protocol amendment to increase the pre-specified number
of events for the primary analysis of overall survival in the trial beyond 290 events. We believe that extending our evaluation
of rocapuldencel-T beyond 290 events in the trial could enhance our ability to observe rocapuldencel-T’s expected delayed
treatment effect.
We are currently finalizing an amendment
to the ADAPT protocol, including an amended primary endpoint analysis, and plan to submit it to the FDA prior to the interim data
analysis planned for the second quarter of 2018, at which time approximately 55 new events (deaths) are expected to have occurred
subsequent to the February 2017 interim analysis. We are planning to include the following four co-primary endpoints in the amended
ADAPT protocol:
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Overall
survival for all randomized patients when approximately 375 events have occurred (under the same analysis that was originally
planned for 290 events);
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The
percentage of patients surviving at least five years;
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Overall
survival for patients who remained alive at the time of the February 2017 interim analysis, to be evaluated when approximately
155 new events have occurred; and
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Overall
survival for all patients for whom at least 12 months of follow-up is available (excluding patients who died or were lost to follow-up
within the first 12 months after enrollment).
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In connection with our amendment of the ADAPT protocol, the
special protocol assessment, or the SPA, for the ADAPT trial ceased to be in effect. The FDA also may not accept our proposed protocol
amendment, including the amended primary endpoint analysis.
If we do not achieve 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,
which would materially harm our business.
If clinical trials of our product candidates, such as
our ADAPT trial of rocapuldencel-T, fail to demonstrate safety and efficacy to the satisfaction of the FDA or similar regulatory
authorities outside the United States or do not otherwise produce positive results, we may incur additional costs or experience
delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
Before obtaining regulatory approval for the sale of our product
candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans.
Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome.
A failure of one or more of our clinical trials can occur at any stage of testing. The outcome of preclinical testing and early
clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily
predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and
many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials
have nonetheless failed to obtain marketing approval of their products.
To date, we have not completed a randomized clinical trial of
rocapuldencel-T against a placebo or a comparator therapy. Our phase 2 trial of rocapuldencel-T was a single arm trial in which
only 21 patients received the combination of rocapuldencel-T and sunitinib. Our ADAPT trial of rocapuldencel-T is a randomized
trial designed to compare directly the combination of rocapuldencel-T and sunitinib or another therapy to treatment with sunitinib
or another therapy monotherapy. Under the original protocol for the trial, the data from the trial needed to demonstrate an increase
in median overall survival of approximately six months for the rocapuldencel-T plus sunitinib / targeted therapy arm as compared
to the sunitinib / targeted therapy monotherapy control arm at 290 events (deaths) in the intent to treat population in order to
show statistical significance and achieve the original primary endpoint of the trial.
Based on the February 2017 interim analysis, the IDMC concluded
that the trial was unlikely to demonstrate a statistically significant improvement in overall survival in the combination treatment
arm, utilizing the intent-to-treat population, the original primary endpoint of the trial. However, even demonstration of statistical
significance and achievement of the primary endpoint of the trial would not assure approval by the FDA or similar regulatory authorities
outside the United States. Notwithstanding the IDMC’s recommendation, we determined to continue the ADAPT trial until at
least the pre-specified number of 290 events occurs and to submit to the FDA a protocol amendment to increase the pre-specified
number of events for the primary analysis of overall survival in the trial beyond 290 events. We believe that extending our evaluation
of rocapuldencel-T beyond 290 events in the trial could enhance our ability to observe rocapuldencel-T’s expected delayed
treatment effect.
We are currently finalizing an amendment
to the protocol for the ADAPT trial, including an amended primary endpoint analysis, and plan to submit it to the FDA prior to
the interim data analysis planned for the second quarter of 2018, at which time approximately 55 new events (deaths) are expected
to have occurred subsequent to the February 2017 interim analysis. We are planning to include the following four co-primary endpoints
in the amended ADAPT protocol:
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Overall
survival for all randomized patients when approximately 375 events have occurred (under the same analysis that was originally
planned for 290 events);
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The
percentage of patients surviving at least five years;
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Overall
survival for patients who remained alive at the time of the February 2017 interim analysis, to be evaluated when approximately
155 new events have occurred; and
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Overall
survival for all patients for whom at least 12 months of follow-up is available (excluding patients who died or were lost to follow-up
within the first 12 months after enrollment).
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In connection with our amendment of the ADAPT protocol,
the SPA, for the ADAPT trial ceased to be in effect. The FDA has not advised us whether our proposed protocol amendment,
including the amended primary endpoint analysis, would be acceptable to the FDA. As a result, even if we achieve each of the
co-primary endpoints in the trial, there can be no assurance that the FDA or similar regulatory authorities outside the
United States would grant marketing approval of rocapuldencel-T. In originally designing the ADAPT trial we considered other
reported clinical trials and data from the International Metastatic Renal Cell Carcinoma Database Consortium, or the
Consortium. However, results from two different trials or between a trial and an analysis of a treatment database often
cannot be reliably compared. Accordingly, patients in our ADAPT trial who received treatment with sunitinib / targeted
therapy monotherapy had not had, as of the February 2017 interim analysis, results similar to patients studied in other
clinical trials of sunitinib or to patients in the Consortium database who were treated with sunitinib or other therapies. If
the patients in our ADAPT trial who received sunitinib / targeted therapy monotherapy have results which are better than the
results that occurred in other clinical trials of sunitinib or the results described in the Consortium database, we may not
demonstrate a sufficient clinical benefit from rocapuldencel-T in combination with sunitinib and other therapies to allow the
FDA to approve rocapuldencel-T for marketing. Moreover, if the patients in our ADAPT trial who received the combination of
rocapuldencel-T and sunitinib / targeted therapy have results which are worse than the results that occurred in our Phase 2
clinical trial, we may not demonstrate a sufficient benefit from the combination therapy to allow the FDA to approve
rocapuldencel-T for marketing.
For drug and biological products, the FDA
typically requires the successful completion of two adequate and well-controlled clinical trials to support marketing approval
because a conclusion based on two such trials will be more reliable than a conclusion based on a single trial. In the case of rocapuldencel-T,
we intended to seek approval based upon the results of a single pivotal Phase 3 clinical trial, our ADAPT trial, because rocapuldencel-T
is intended for life threatening disease. The FDA reviewed our plans to conduct our ADAPT trial under its SPA process. In February
2013, the FDA advised us in a letter that it had completed its review of our plans under the SPA process. The FDA also informed
us that in order for a single trial to support approval of an indication, the trial must be well conducted, and the results of
the trial must be internally consistent, clinically meaningful and statistically persuasive. In connection with our amendment of
the ADAPT protocol to increase the pre-specified number of events for the primary analysis of overall survival in the trial beyond
290 events, the SPA for the ADAPT trial ceased to be in effect.
As a general matter, if we are required to conduct additional
clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully
complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or
are only modestly positive or if there are safety concerns, we may:
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be delayed in obtaining marketing approval for our product candidates;
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not obtain marketing approval at all;
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obtain approval for indications or patient populations that are not as broad as intended or desired;
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obtain approval with labeling that includes significant use restrictions or safety warnings, including boxed warnings;
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be subject to additional post-marketing testing requirements;
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be subject to restrictions on how the product is distributed or used; or
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have the product removed from the market after obtaining marketing approval.
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If we experience any of a number
of possible unforeseen events in connection with our clinical trials, potential marketing or commercialization of our product candidates
could be delayed or prevented.
We may experience numerous unforeseen events during, or as a
result of, clinical trials that could delay or prevent our ability to receive regulatory approval or commercialize our product
candidates. For example, in February 2017, we announced that the IDMC for our pivotal Phase 3 ADAPT clinical trial of rocapuldencel-T
in combination with sunitinib / standard-of-care for the treatment of mRCC had recommended that the trial be discontinued for futility
based on its planned interim data analysis. Unforeseen events that could delay or prevent our ability to receive regulatory approval
or commercialize our product candidates include:
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regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct
a clinical trial at a prospective trial site;
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we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols
with prospective trial sites;
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clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may
require us, to conduct additional clinical trials or abandon product development programs;
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the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment
in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate
than we anticipate; for example, in our Phase 2b clinical trial of AGS-004, we experienced a higher dropout rate than we anticipated
due to the higher than expected number of patients who did not complete the full 12 week antiretroviral treatment interruption
required by the protocol for the trial;
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our third party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in
a timely manner, or at all;
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we may decide, or regulators or institutional review boards may require us or our investigators to, suspend or terminate clinical
research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being
exposed to unacceptable health risks;
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the cost of clinical trials of our product candidates may be greater than we anticipate; and
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the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates
may be insufficient or inadequate.
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In addition, the patients recruited for clinical trials of our
product candidates may have a disease profile or other characteristics that are different than we expect and different than the
clinical trials were designed for, which could adversely impact the results of the clinical trials. For instance, our Phase 2 combination
therapy clinical trial of rocapuldencel-T in combination with sunitinib was originally designed to enroll patients with favorable
disease risk profiles and intermediate disease risk profiles and with a primary endpoint of complete response rate. However, the
actual trial population consisted entirely of patients with intermediate disease risk profiles and poor disease risk profiles.
This is a population for which published research has shown that sunitinib alone, as well as other of the therapies for mRCC, rarely
if ever produce complete responses in mRCC, and in our Phase 2 clinical trial in this population, the combination therapy of rocapuldencel-T
and sunitinib did not show a complete response rate that met the endpoint of the trial.
Our product development costs will also increase if we experience
delays in testing or obtaining marketing approvals. We do not know whether any clinical trials will begin as planned, will need
to be restructured or will be completed on schedule, or at all. For example, in response to our submission of an investigational
new drug application, or IND, for AGS-004, the FDA raised safety concerns regarding the analytical treatment interruption contemplated
by our protocol for our Phase 2 clinical trial of AGS-004, and required a one-year safety follow-up after the final dose for each
patient. This resulted in the need for an amendment to the trial protocol and a four-month delay prior to initiating the Phase
2 clinical trial in the United States. In addition, the IDMC for our pivotal Phase 3 ADAPT clinical trial of rocapuldencel-T in
combination with sunitinib/standard-of-care for the treatment of mRCC recommended that the trial be discontinued for futility based
on its planned interim data analysis. Notwithstanding the IDMC’s recommendation, we determined to continue to conduct the
trial while we analyzed interim data from the trial. Following a meeting with FDA in May 2017
,
we determined to continue the ADAPT trial until at least the pre-specified number of 290 events occurs and to submit to the FDA
a protocol amendment to increase the pre-specified number of events for the primary analysis of overall survival in the trial beyond
290 events. We believe that extending our
evaluation of rocapuldencel-T beyond 290 events in the trial could enhance our
ability to observe rocapuldencel-T’s expected delayed treatment effect.
We are currently finalizing an amendment
to the ADAPT protocol, including an amended primary endpoint analysis, and plan to submit it to the FDA prior to the interim data
analysis planned for the second quarter of 2018, at which time approximately 55 new events (deaths) are expected to have occurred
subsequent to the February 2017 interim analysis. We are planning to include the following four co-primary endpoints in the amended
ADAPT protocol:
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Overall
survival for all randomized patients when approximately 375 events have occurred (under the same analysis that was originally
planned for 290 events);
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The
percentage of patients surviving at least five years;
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Overall
survival for patients who remained alive at the time of the February 2017 interim analysis, to be evaluated when approximately
155 new events have occurred; and
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Overall
survival for all patients for whom at least 12 months of follow-up is available (excluding patients who died or were lost to follow-up
within the first 12 months after enrollment).
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In connection with our amendment of the ADAPT protocol, the
special protocol assessment, or the SPA, for the ADAPT trial ceased to be in effect. The FDA also may not accept our proposed protocol
amendment, including the amended primary endpoint analysis.
In addition to additional costs, significant clinical trial
delays also could 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 and impair our ability to commercialize our product candidates and may
harm our business and results of operations.
If we experience delays or difficulties in the enrollment
of patients in our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for
our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials
as required by the FDA or similar regulatory authorities outside the United States. In particular, the recommendation by the IDMC
that the ADAPT study be terminated for futility may negatively impact our ability to enroll patients in future clinical trials
of rocapuldencel-T.
Our competitors may have ongoing clinical trials for product
candidates that could be competitive with our product candidates, and patients who would otherwise be eligible for our clinical
trials may instead enroll in clinical trials of our competitors’ product candidates. For example, during the Phase 1/2 monotherapy
clinical trial of rocapuldencel-T that we conducted, our ability to enroll patients in the trial was adversely affected by the
FDA’s approval of sorafenib and sunitinib, because patients did not want to receive, and physicians were reluctant to administer,
rocapuldencel-T as an experimental monotherapy once new therapies that showed efficacy in clinical trials were introduced to the
market and became widely available.
Patient enrollment is affected by other factors including:
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severity of the disease under investigation;
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eligibility criteria for the trial in question;
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perceived risks and benefits of the product candidate under study;
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efforts to facilitate timely enrollment in clinical trials;
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patient referral practices of physicians;
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the ability to monitor patients adequately during and after treatment; and
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proximity and availability of clinical trial sites for prospective patients.
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The actual amount of time for full enrollment of our clinical
trials could be longer than planned. Enrollment delays in any of our clinical trials may result in increased development costs
for our product candidates, which would cause the value of the company to decline and limit our ability to obtain additional financing.
Our inability to enroll a sufficient number of patients for any of our other clinical trials would result in significant delays
or may require us to abandon one or more clinical trials altogether.
We are developing AGS-004 for use in combination with
latency reversing drugs to eradicate HIV. If latency reversing drugs are not successfully developed for HIV on a timely basis or
at all, we will be unable to develop AGS-004 for this use or will be delayed in doing so. In addition, because there are currently
no products approved for HIV eradication, we cannot be certain of the clinical trials that we will need to conduct or the regulatory
requirements that we will need to satisfy in order to obtain marketing approval of AGS-004 for this purpose.
We are focusing our development program for AGS-004 on the use
of AGS-004 in combination with latency reversing drugs, including vorinostat, to eradicate HIV. We plan to rely on these latency
reversing drugs because we recognize that the ultimate objective of virus eradication is unlikely to be achieved with immunotherapy
alone because the immune system is not able to recognize the HIV virus in latently infected cells with a low level or lack of expression
of HIV antigens.
Several companies and academic groups are evaluating latency
reversing drugs that can potentially activate latently infected cells to increase viral antigen expression and make the cells vulnerable
to elimination by the immune system. We are not a party to any arrangements with these companies or academic groups. If these companies
or academic groups determine not to develop latency reversing drugs for this purpose because the drugs do not sufficiently increase
viral antigen expression or have unacceptable toxicities, or these companies or academic groups otherwise determine to collaborate
with other developers of immunotherapies on a combination therapy for complete virus eradication, we will not be able to complete
our AGS-004 development program. In addition, if these companies or academic groups do not proceed with such development on a timely
basis, our AGS-004 program correspondingly would be delayed.
A number of the latency reversing drugs being evaluated for
use in HIV patients are currently approved in the United States and elsewhere for use in the treatment of specified cancer indications.
For instance, vorinostat is approved for cutaneous T-cell lymphoma. If these drugs are not approved by the FDA or equivalent foreign
regulatory authorities for use in HIV, the FDA and these other regulatory authorities may not approve AGS-004 without the latency
reversing drug having received marketing approval for HIV. If the FDA and these other regulatory authorities approve AGS-004 without
the approval of the latency reversing drug for HIV, the use of AGS-004 in combination with the latency reversing drug for virus
eradication would require sales of the latency reversing drug for off-label use. In such event, the success of the combination
of AGS-004 and the latency reversing drug would be subject to the willingness of physicians, patients, healthcare payors and others
in the medical community to use the latency reversing drug for off-label use and of government authorities and third party payors
to pay for the combination therapy. In addition, we would be limited in our ability to market the combination for its intended
use if the latency reversing drug were to be used off-label.
Currently, there are no products approved for the eradication
of HIV. As a result, we cannot be certain as to the clinical trials we will need to conduct or the regulatory requirements that
we will need to satisfy in order to obtain marketing approval of AGS-004 for the eradication of HIV.
If serious adverse or inappropriate side effects are identified
during the development of our product candidates, we may need to abandon or limit our development of some of our product candidates.
All of our product candidates are still in preclinical or clinical
development and their risk of failure is high. It is impossible to predict when or if any of our product candidates will prove
effective or safe in humans or will receive regulatory approval. If our product candidates are associated with undesirable side
effects or have characteristics that are unexpected, we may need to abandon their development or limit development to certain uses
or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable
from a risk-benefit perspective. In addition, such effects or characteristics could cause an institutional review board or regulatory
authorities to interrupt, delay or halt clinical trials of one or more of our product candidates, require us to conduct additional
clinical trials or other tests or studies, and could result in a more restrictive label, or the delay or denial of marketing approval
by the FDA or comparable foreign regulatory authorities.
Our Arcelis-based product candidates are immunotherapies
that are based on a novel technology utilizing a patient’s own tissue. This may raise development issues that we may not
have anticipated or be able to resolve, regulatory issues that could delay or prevent approval or personnel issues that may prevent
us from further developing and commercializing our product candidates.
Rocapuldencel-T and AGS-004 are based on our novel Arcelis precision
immunotherapy technology platform. In the course of developing this platform and these product candidates, we have encountered
difficulties in the development process. For example, we terminated the development of MB-002, the predecessor to rocapuldencel-T,
when the results from the initial clinical trial of MB-002 indicated that the product candidate only corrected defects in the production
of one of two critical cytokines required for effective immune response. In addition, in February 2017, the IDMC for our ADAPT
clinical trial of rocapuldencel-T in combination with sunitinib / standard-of-care recommended that the trial be discontinued for
futility based on its planned interim data analysis. There can be no assurance that additional development problems will not arise
in the future which we may not have anticipated or be able to resolve or which may cause significant delays in development.
In addition, regulatory approval of novel product candidates
such as our Arcelis-based product candidates manufactured using novel manufacturing processes such as ours can be more expensive
and take longer than for other, more well-known or extensively studied pharmaceutical or biopharmaceutical products, due to our
and regulatory agencies’ lack of experience with them. The FDA has only approved a few individualized immunotherapy products
to date. This lack of experience may lengthen the regulatory review process, require us to conduct additional studies or clinical
trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval
and commercialization of these product candidates or lead to significant post-approval limitations or restrictions.
The novel nature of our product candidates also means that fewer
people are trained in or experienced with product candidates of this type, which may make it difficult to find, hire and retain
capable personnel for research, development and manufacturing positions.
Development of our individualized Arcelis-based product
candidates is subject to significant uncertainty because each product candidate is derived from source material that is inherently
variable. This variability could reduce the effectiveness of our Arcelis-based product candidates, delay any FDA approval of any
of our Arcelis-based product candidates, cause us to change our manufacturing methods and adversely affect the commercial success
of any approved Arcelis-based products.
The disease samples from the patients to be treated with our
Arcelis-based products vary from patient to patient. This inherent variability may adversely affect our ability to manufacture
our products because each tumor or virus sample that we receive and process will yield a different product. As a result, we may
not be able to consistently produce a product for every patient and we may not be able to treat all patients effectively. Such
inconsistency could delay FDA or other regulatory approval of our Arcelis-based product candidates or, if approved, adversely affect
market acceptance and use of our Arcelis-based products. If we have to change our manufacturing methods to address any inconsistency,
we may have to perform additional clinical trials, which would delay FDA or other regulatory approval of our Arcelis-based product
candidates and increase the costs of development of our Arcelis-based product candidates.
The inherent variability of the disease samples from the patients
to be treated with our Arcelis-based products may further adversely affect our ability to manufacture our products because variability
in the source material for our product candidates, such as tumor cells or viruses, may cause variability in the composition of
other cells in our product candidates. Such variability in composition or purity could adversely affect our ability to establish
acceptable release specifications and the development and regulatory approval processes for our product candidates may be delayed,
which would increase the costs of development of our Arcelis-based product candidates.
If we are not able to obtain, or if there are delays in
obtaining, required regulatory approvals, we will not be able to commercialize our product candidates, and our ability to generate
revenue will be materially impaired.
Failure to obtain regulatory approval for any of our product
candidates will prevent us from commercializing the product candidate. We have not received regulatory approval to market any of
our product candidates in any jurisdiction. We have only limited experience in filing and supporting the applications necessary
to gain regulatory approvals and expect to rely on third party contract research organizations to assist us in this process. Securing
FDA approval requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each
therapeutic indication to establish the product candidate’s safety and efficacy. Securing FDA approval also requires the
submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the FDA. 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 regulatory approval or prevent or limit commercial use.
The process of obtaining regulatory approvals, both in the United
States and abroad, is expensive, may take many years if additional clinical trials are required, if approval is obtained at all,
and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates
involved. To date, the FDA has only approved a few individualized immunotherapy products. Changes in clinical guidelines or regulatory
approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes
in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. The
FDA has substantial discretion in the approval process and may refuse to accept any application or may decide that our data are
insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of
the data obtained from preclinical and clinical testing could delay, limit or prevent regulatory approval of a product candidate.
Any regulatory approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render
the approved product not commercially viable.
If we experience delays in obtaining approval or if we fail
to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed and our ability
to generate revenues will be materially impaired.
Failure to obtain regulatory approval in international
jurisdictions would prevent our product candidates from being marketed abroad.
We are a party to arrangements with third parties, and intend
to enter into additional arrangements with third parties, under which they would market our products outside the United States.
In order to market and sell our products in the European Union and many other jurisdictions, we or such third parties must obtain
separate regulatory approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among
countries and can involve additional testing. The time required to obtain approval may differ substantially from that required
to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated
with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the product be approved
for reimbursement before the product can be approved for sale in that country. We or these third parties may not obtain approvals
from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval
by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States
does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We may not be able to file
for regulatory approvals and may not receive necessary approvals to commercialize our products in any market.
Additionally, on June 23, 2016, the electorate in the United
Kingdom voted in favor of leaving the European Union, commonly referred to as Brexit. On March 29, 2017, the country formally notified
the European Union of its intention to withdraw pursuant to Article 50 of the Lisbon Treaty. Since a significant proportion of
the regulatory framework in the United Kingdom is derived from European Union directives and regulations, the referendum could
materially impact the regulatory regime with respect to the approval of our product candidates in the United Kingdom or the European
Union. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent
us from commercializing our product candidates in the United Kingdom and/or the European Union and restrict our ability to generate
revenue and achieve and sustain profitability. If any of these outcomes occur, we may be forced to restrict or delay efforts to
seek regulatory approval in the United Kingdom and/or European Union for our product candidates, which could significantly and
materially harm our business.
A fast track designation by the FDA may not actually lead
to a faster development, regulatory review or approval process.
If a product is intended for the treatment of a serious or life-threatening
condition and the product demonstrates the potential to address an unmet need for this condition, the treatment sponsor may apply
for FDA fast track designation. In April 2012, the FDA notified us that we obtained fast track designation for rocapuldencel-T
for the treatment of mRCC. Fast track designation does not ensure that we will experience a faster development, regulatory review
or approval process compared to conventional FDA procedures. Additionally, the FDA may withdraw fast track designation if it believes
that the designation is no longer supported by data from our clinical development program.
The efforts of the Trump Administration to pursue regulatory
reform may limit the FDA’s ability to engage in oversight and implementation activities in the normal course, and that could
negatively impact our business.
The Trump Administration has taken several executive actions,
including the issuance of a number of executive orders, that could impose significant burdens on, or otherwise materially delay,
the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking,
issuance of guidance, and review and approval of marketing applications. On January 30, 2017, President Trump issued an executive
order, applicable to all executive agencies, including the FDA, that requires that for each notice of proposed rulemaking or final
regulation to be issued in fiscal year 2017, the agency shall identify at least two existing regulations to be repealed, unless
prohibited by law. These requirements are referred to as the “two-for-one” provisions. This executive order includes
a budget neutrality provision that requires the total incremental cost of all new regulations in the 2017 fiscal year, including
repealed regulations, to be no greater than zero, except in limited circumstances. For fiscal years 2018 and beyond, the executive
order requires agencies to identify regulations to offset any incremental cost of a new regulation. In interim guidance issued
by the Office of Information and Regulatory Affairs within the Office of Management and on February 2, 2017, the administration
indicates that the “two-for-one” provisions may apply not only to agency regulations, but also to significant agency
guidance documents. It is difficult to predict how these requirements will be implemented, and the extent to which they will impact
the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on FDA’s ability
to engage 0in oversight and implementation activities in the normal course, our business may be negatively impacted.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant losses since our inception.
We expect to incur losses for at least the next several years and may never achieve or maintain profitability.
Since inception, we have incurred significant operating losses.
Our net loss was $74.8 million for the year ended December 31, 2015, $53.0 million for the year ended December 31, 2016 and $40.6
million for the year ended December 31, 2017. As of December 31, 2017, we had an accumulated deficit of $372.6 million.
As
a result of our historical operating losses and expected future negative cash flows from operations, we have concluded that there
is substantial doubt about our ability to continue as a going concern.
To date, we have financed our operations primarily
through public offerings of common stock, private placements of common stock, preferred stock and warrants, convertible debt financings,
debt from financial institutions, government contracts, government and other third party grants and license and collaboration agreements.
We have devoted substantially all of our efforts to research and development, including clinical trials. We have not completed
development of any product candidates.
We have devoted a significant portion of our financial resources
to the development of rocapuldencel-T and expect this to continue as we continue the ADAPT trial. The continued development of
rocapuldencel-T will necessarily impact the amount of expenses we incur and the size of our operating losses for the foreseeable
future.
As we proceed with the development of our product candidates,
including rocapuldencel-T, provided we are able to raise the capital necessary to fund such development, we anticipate that our
expenses will increase substantially if and as we:
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continue our ADAPT trial of rocapuldencel-T for the treatment of mRCC or initiate other clinical trials of rocapuldencel-T for
the treatment of mRCC;
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continue to support the ongoing investigator-initiated clinical trial of AGS-004;
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support any planned investigator-initiated clinical trials of rocapuldencel-T and AGS-004;
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initiate and conduct additional trials of rocapuldencel-T and AGS-004 for the treatment of cancers and HIV;
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seek regulatory approvals for our product candidates that successfully complete clinical trials;
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establish a facility for the commercial manufacture of products based on our Arcelis precision immunotherapy technology platform;
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establish a sales, marketing and distribution infrastructure to commercialize products for which we may obtain regulatory approval;
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maintain, expand and protect our intellectual property portfolio;
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continue our other research and development efforts;
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hire additional clinical, quality control, scientific and management personnel; and
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add operational, financial and management information systems and personnel, including personnel to support our product development
and planned commercialization efforts.
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To become and remain profitable, we must develop and eventually
commercialize a product or products with significant market potential. This development and commercialization will require us to
be successful in a range of challenging activities, including successfully completing preclinical testing and clinical trials of
our product candidates, obtaining regulatory approval for these product candidates, building out and equipping a commercial manufacturing
facility and manufacturing, marketing and selling those products for which we may obtain regulatory approval. We are only in the
preliminary stages of some of these activities. We may never succeed in these activities and may never generate revenues that are
significant or large enough to achieve profitability.
Even if we do achieve profitability, we may not be able to sustain
or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value
of the company and could impair our ability to raise capital, expand our business, maintain our research and development efforts
or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.
We are making a determination as to the next steps for
the rocapuldencel-T clinical program that could significantly impact our future operations and financial position.
We are in the process of making a determination
as to the next steps for the rocapuldencel-T clinical program. In February 2017, the IDMC for the ADAPT trial recommended that
the trial be discontinued for futility based on its planned interim data analysis. The IDMC concluded that the trial was unlikely
to demonstrate a statistically significant improvement in overall survival in the combination treatment arm, utilizing the intent-to-treat
population at the pre-specified number of 290 events (deaths), the original primary endpoint of the study. Notwithstanding the
IDMC’s recommendation, we determined to continue to conduct the trial while we analyzed interim data from the trial. Following
a meeting with the FDA, we determined to continue the ADAPT trial until at least the pre-specified number of 290 events occurs,
and have submitted to the FDA a protocol amendment to increase the pre-specified number of events for the primary analysis of overall
survival in the trial beyond 290 events.
We are engaged in discussions
with the FDA regarding our development program for rocapuldencel-T and the ADAPT protocol.
We also may consider changes to our current business strategy
and future operations. We are reviewing alternatives with a goal of maximizing the value of our company. We could determine to
engage in one or more potential transactions, such as the sale of our company, a strategic partnership with one or more parties
or the licensing, sale or divestiture of some of our assets or proprietary technologies, or to continue to operate our business
in accordance with our existing business strategy. Pending any decision to change strategic direction, we are continuing to conduct
our ongoing clinical trials while managing our cash position. We cannot provide any commitment as to the timing of our determination
or the strategy we may adopt. If we determine to change our business strategy or to seek to engage in a strategic transaction,
our future business, prospects, financial position and operating results could be significantly different than those in historical
periods or projected by our management. Because of the significant uncertainty regarding our future plans, we are not able to accurately
predict the impact of a potential change in our existing business strategy.
We will need substantial additional funding. If we are
unable to raise capital when needed, we would be forced to delay, reduce, terminate or eliminate our product development programs,
including establishing a commercial manufacturing facility or our commercialization efforts and to take other actions to reduce
our operating expenses.
We have no external sources of funds other than our contract
with the NIH and NIAID for the development of AGS-004, and we expect our expenses to increase in connection with our ongoing activities,
particularly as we continue our ADAPT trial of rocapuldencel-T for the treatment of mRCC; and if we decide to initiate other clinical
trials of rocapuldencel-T for mRCC, support ongoing investigator-initiated clinical trial of AGS-004; support planned investigator-initiated
clinical trials of rocapuldencel-T and AGS-004; initiate and conduct additional clinical trials of rocapuldencel-T and AGS-004
for the treatment of cancers and HIV; undertake development of the group of PD1 monoclonal antibodies which we recently secured
an exclusive option to in-license, if we decide to exercise that option; and seek regulatory approval for our product candidates
and establish a commercial manufacturing facility or otherwise arrange for commercial manufacturing. In addition, if we obtain
regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales,
marketing, manufacturing and distribution. Furthermore, we expect to continue to incur additional costs associated with operating
as a public company. Accordingly, we will need to obtain substantial additional funding if we wish to continue our operations.
If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce, terminate or eliminate
our product development programs or our commercialization efforts and to take other actions to reduce our operating expenses.
We have outstanding debt payable to Pharmstandard International
S.A., or Pharmstandard, a collaborator and our largest stockholder, in the aggregate principal amount of $6.0 million; Invetech
Pty Ltd, or Invetech, in the aggregate principal amount of $5.2 million; Saint-Gobain Performance Plastics Corporation, or Saint-Gobain,
in the aggreggate principal amount of $2.4 million; and Medinet Co. Ltd., or Medinet, in the aggregate principal amount of $4.0
million.
We do not currently have sufficient cash resources to pay all
of our accrued obligations in full or to continue our business operations beyond the end of 2018. Therefore, we will need to raise
additional capital prior to such time in order to continue to operate our business beyond that time. Alternatively, we may seek
to engage in one or more potential transactions, such as the sale of our company, a strategic partnership with one or more parties
or the licensing, sale or divestiture of some of our assets or proprietary technologies, but there can be no assurance that we
will be able to enter into such a transaction or transactions on a timely basis or on terms that are favorable to us, or at all.
Under these circumstances, we may instead determine to dissolve and liquidate our assets or seek protection under the bankruptcy
laws. If we decide to dissolve and liquidate our assets or to seek protection under the bankruptcy laws, it is unclear to what
extent we will be able to pay our obligations, and, accordingly, it is further unclear whether and to what extent any resources
will be available for distributions to stockholders.
In 2017, we received several deficiency letters from the Listing
Qualifications Department of The Nasdaq Stock Market notifying us that we were not in compliance with various requirements for
continued listing on The Nasdaq Global Market, including the $50 million minimum market value of listed securities requirement,
the $1.00 minimum bid price, and the $15 million minimum market value of publicly held shares requirement. In October 2017, we
received two letters from The Nasdaq Global Market with respect to these deficiencies providing that, unless we requested a hearing
before a Nasdaq Hearing Panel, our common stock would be delisted. In January 2018, we had a hearing before a Listing Qualifications
Panel, or the Panel, at which we requested continued listing pending our return to compliance with such requirements. On January
17, 2018, we received a determination from Nasdaq indicating that our listing would be transferred from The Nasdaq Global Market
to The Nasdaq Capital Market, provided that we demonstrated, on or before February 2, 2018, a closing bid price of $1.00 or more
for a minimum of ten prior consecutive trading days, that, on or before April 24, 2018, we satisfied the $2.5 million stockholders’
equity requirement and demonstrated our ability to maintain compliance with the minimum stockholders’ equity requirement
through the end of fiscal 2018, among other actions, and that we continued to meet the requirements for continued listing on The
Nasdaq Capital Market. On February 15, 2018, we received formal notice from Nasdaq indicating that we have evidenced full compliance
with the minimum $1.00 bid price requirement for continued listing on The Nasdaq Capital Market. We are not currently in
compliance with the stockholders’ equity requirement. If we are unable to regain compliance to the satisfaction of the Panel
and our common stock is delisted from trading, our ability to raise capital to continue to fund our operations by selling shares
and our ability to acquire other companies or technologies by using our shares as consideration will be impaired.
Our future capital requirements will depend on many factors,
including:
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our decision as to our next steps with respect to the development of rocapuldencel-T and our Phase 3 ADAPT clinical trial;
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the progress and results of any investigator initiated clinical trials of rocapuldencel-T that we may support;
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the progress and results of the ongoing investigator-initiated clinical trial of AGS-004 in combination with vorinostat for
HIV eradication and the planned investigator-initiated clinical trial of AGS-004 that we support and our ability to obtain additional
funding under our NIH and NIAID contract for our AGS-004 program;
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the development, initiation and support of additional clinical trials of rocapuldencel-T in mRCC or other indications and AGS-004
in HIV;
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the scope, progress, results and costs of preclinical development, laboratory testing and clinical
trials for our other product candidates or for the PD1 monoclonal antibodies which we have an option to in-license, should we decide
to exercise our option;
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the costs and timing of establishing a commercial manufacturing facility or of alternative arrangements for commercial manufacturing
and any costs and liabilities associated with financing arrangements entered into to fund the costs of these activities;
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the costs, timing and outcome of regulatory submissions and review of our product candidates;
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the costs of commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our
product candidates for which we receive regulatory approval;
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the potential need to repay the $4.0 million in principal currently remaining outstanding under the loan under our license
agreement with Medinet Co. Ltd. and its wholly-owned subsidiary, MEDcell Co., LTD, which we refer to together as Medinet;
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payments due under our agreement with Medpace for the conduct of the ADAPT clinical trial;
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revenue, if any, received from commercial sales of our product candidates, should any of our product candidates be approved
by the FDA or a similar regulatory authority outside the United States;
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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights
and defending intellectual property-related claims;
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the extent to which we acquire or invest in other businesses, products and technologies;
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our ability to obtain government or other third party funding for the development of our product candidates; and
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our ability to establish collaborations on favorable terms, if at all, particularly arrangements to develop, market and distribute
rocapuldencel-T outside North America and arrangements for the development and commercialization of our non-oncology product candidates,
including AGS-004.
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Conducting preclinical testing and clinical trials is a time-consuming,
expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required
to obtain regulatory approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial
success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available
for several years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives.
Additional financing may not be available to us on acceptable terms, or at all.
Our independent registered public accounting firm included
an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements
included in our Annual Report on Form 10-K for the year ended December 31, 2017.
Our report from our independent registered public accounting
firm for the year ended December 31, 2017 includes an explanatory paragraph stating that our losses from operations and required
additional funding to finance our operations raise substantial doubt about our ability to continue as a going concern. If we are
unable to obtain sufficient funding, our business, prospects, financial condition and results of operations will be materially
and adversely affected, and we may be unable to continue as a going concern. If we are unable to continue as a going concern, we
may have to liquidate our assets and may receive less than the value at which those assets are carried on our audited financial
statements, and it is likely that investors will lose all or a part of their investment. If we seek additional financing to fund
our business activities in the future and there remains substantial doubt about our ability to continue as a going concern, investors
or other financing sources may be unwilling to provide additional funding to us on commercially reasonable terms or at all.
Raising additional capital may cause dilution to our existing
stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
Until such time, if ever, as we can generate
substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, government
contracts, government and other third party grants or other third party funding, marketing and distribution arrangements and other
collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale
of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms of these securities
may include liquidation or other preferences that adversely affect your rights as a stockholder. For example, since 2016 we have
issued and sold securities in several PIPE financings, under a sales agreement with Cowen, and in a public follow-on offering,
each of which have resulted in dilution to our existing stockholders. Additionally, during 2017 we issued both secured and unsecured
convertible debt and raised equity capital under our sales agreement with Cowen, which have resulted in further dilution to our
stockholders.
Debt financing, if available, may involve agreements that include
covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures
or declaring dividends.
We may also seek to collaborate with third parties for the manufacturing,
development or commercialization of rocapuldencel-T outside of North America. We also may seek government or other third party
funding for the continued development of AGS-004 and to collaborate with third parties for the development and commercialization
of AGS-004. If we raise additional funds through government or other third party funding, marketing and distribution arrangements
or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights
to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not
be favorable to us. If the loan from Medinet becomes due and we do not repay it, we have agreed to grant Medinet a non-exclusive,
royalty-bearing license to make and sell Arcelis products in Japan for the treatment of cancer.
Our ability to use our net operating loss carry-forwards
and tax credit carryforwards may be limited.
The utilization of the net operating loss and tax credit carryforwards
may be subject to limitation under the rules regarding a change in stock ownership as determined by the Internal Revenue Code,
and state and foreign tax laws. Section 382 of the Internal Revenue Code of 1986, as amended, imposes annual limitations on
the utilization of net operating loss carryforwards, other tax carryforwards, and certain built-in losses upon an ownership change
as defined under that section. In general terms, an ownership change may result from transactions that increase the aggregate ownership
of certain of our stockholders by more than 50 percentage points over a three-year testing period. If we have undergone a Section 382
ownership change, an annual limitation would be imposed on certain of our tax attributes, including net operating loss and capital
loss carryforwards, and certain other losses, credits, deductions or tax basis. We believe that we experienced an ownership change
during 2014 under Section 382. Due to the Section 382 limitation resulting from the ownership change, $28.2 million of our U.S.
federal net operating losses are expected to expire unused. Additionally, our U.S. federal tax credits and state net operating
losses may be limited. The amount of U.S. federal net operating losses expected to expire due to the Section 382 limitation has
not been recognized in our consolidated financial statements as of December 31, 2017. We may also experience ownership changes
in the future as a result of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability
to use our pre-change net operating loss carry-forwards and other tax credit carryforwards to offset U.S. federal taxable income
may be subject to limitations, which potentially could result in increased future tax liability to us. Under the newly enacted
federal income tax law, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely,
but the deductibility of such federal net operating losses is limited. It is uncertain how various states will respond to the newly
enacted federal tax law.
Risk Related to the Commercialization
of our Product Candidates
We have no history of commercializing pharmaceutical products,
which may make it difficult to evaluate the prospects for our future viability.
Our operations to date have been limited to financing and staffing
our company, developing our technology and product candidates and establishing collaborations. We have not yet demonstrated an
ability to successfully complete a pivotal clinical trial, compile an acceptable regulatory submission, obtain marketing approvals,
manufacture a commercial scale product or conduct sales and marketing activities necessary for successful product commercialization.
Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a history of
successfully developing and commercializing pharmaceutical products.
In addition, we may encounter unforeseen expenses, difficulties,
complications, delays and other known and unknown factors. We will need to transition at some point from a company with research
and development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.
Even if rocapuldencel-T or AGS-004 receives regulatory
approval, it may fail to achieve the degree of market acceptance by physicians, patients, healthcare payors and others in the medical
community necessary for commercial success.
We have never commercialized a product candidate. Even if rocapuldencel-T
or AGS-004 receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare
payors and others in the medical community. Gaining market acceptance for our Arcelis-based products may be particularly difficult
as, to date, the FDA has only approved a few individualized immunotherapies and our Arcelis-based products are based on a novel
technology. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenues
and we may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will
depend on a number of factors, including:
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efficacy and potential advantages compared to alternative treatments;
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the ability to offer our product candidates for sale at competitive prices;
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convenience and ease of administration compared to alternative treatments;
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the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
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the strength of sales, marketing and distribution support;
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the approval of other new products for the same indications;
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the ability of our product to be combined with emerging standards of care;
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availability and amount of reimbursement from government payors, managed care plans and other third party payors;
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adverse publicity about the product or favorable publicity about competitive products;
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clinical indications for which the product is approved; and
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the prevalence and severity of any side effects.
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If any of our product candidates receives marketing approval
and we, or others, later discover that the product is less effective than previously believed or causes undesirable side effects
that were not previously identified, our ability to market the product could be compromised.
Clinical trials of our product candidates are conducted in carefully
defined subsets of patients who have agreed to enter into clinical trials. Consequently, it is possible that our clinical trials
may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any, in a broader
patient population or alternatively fail to identify undesirable side effects. If, following approval of a product candidate, we,
or others, discover that the product is less effective than previously believed or causes undesirable side effects that were not
previously identified, any of the following adverse events could occur:
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regulatory authorities may withdraw their approval of the product or seize the product;
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we may be required to recall the product or change the way the product is administered;
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additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular product;
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regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;
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we may be required to create a Medication Guide outlining the risks of the previously unidentified side effects for distribution
to patients;
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additional restrictions may be imposed on the distribution or use of the product via a risk evaluation and mitigation strategy,
or REMS;
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we could be sued and held liable for harm caused to patients;
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the product may become less competitive; and
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our reputation may suffer.
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Any of these events could have a material and adverse effect
on our operations and business and could adversely impact our stock price.
If we are unable to establish sales and marketing capabilities
or enter into agreements with third parties to sell and market our product candidates, we may not be successful in commercializing
our product candidates if and when they are approved.
We have only limited commercial capabilities and have no experience
in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for any approved product, we must
either develop a sales and marketing organization, outsource these functions to third parties or enter into collaborations or other
arrangements with third parties for the distribution or marketing of our product candidates should such candidates receive marketing
approval.
There are risks involved with both establishing our own sales
and marketing capabilities and entering into arrangements with third parties to perform these services. For example, recruiting
and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a product
candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason,
we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would
be lost if we cannot retain or reposition our sales and marketing personnel.
Factors that may inhibit our efforts to commercialize our products
on our own include:
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our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
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the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any future products;
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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;
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unforeseen costs and expenses associated with creating an independent sales and marketing organization; and
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inability to establish customer service and access services, including potential supply chain and specialty pharmacy arrangements.
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If we enter into arrangements with third parties to perform
sales, marketing and distribution services, our product revenues or the profitability of these product revenues to us are likely
to be lower than if we were to market and sell any products that we develop ourselves. In addition, we may not be successful in
entering into arrangements with third parties to sell and market our product candidates or doing so on terms that are favorable
to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and
attention to sell and market our products effectively. If we do not establish sales and marketing capabilities successfully, either
on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.
We face substantial competition, which may result in others discovering, developing
or commercializing products before or more successfully than we do.
The development and commercialization of new drug products is
highly competitive. We face competition with respect to our current product candidates, and will face competition with respect
to any products that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical
companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently
market and sell products or are pursuing the development of products for the treatment of the disease indications for which we
are developing our product candidates. Potential competitors also include academic institutions, government agencies and other
public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements
for research, development, manufacturing and commercialization.
Some of these competitive products and
therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely
different approaches. Many marketed therapies for the indications that we are currently pursuing, or indications that we may in
the future seek to address using our Arcelis precision immunotherapy technology platform, are widely accepted by physicians, patients
and payors, which may make it difficult for us to replace them with any products that we successfully develop and are permitted
to market.
The FDA has approved several targeted therapies as monotherapies
for mRCC, including Nexavar (sorafenib), marketed by Bayer Healthcare Pharmaceuticals, Inc. and Onyx Pharmaceuticals, Inc.; Sutent
(sunitinib) and Inlyta (axitinib), marketed by Pfizer, Inc.; Avastin (bevacizumab), marketed by Genentech, Inc., a member of the
Roche Group; Votrient (pazopanib) and Afinitor (everolimus), marketed by Novartis Pharmaceuticals Corporation; Torisel (temsirolimus),
marketed by Pfizer and most recently, Opdivo (nivolumab), marketed by Bristol-Myers Squibb and Cabometyx (cabozantinib), marketed
by Exelixis, for second-line mRCC. In addition, we estimate that there are numerous therapies for mRCC in clinical development
by many public and private biotechnology and pharmaceutical companies targeting numerous different cancer types and stages. A number
of these are in late stage development including Opdivo (nivolumab) plus Yervoy (ipilimumab) in combination for first-line mRCC,
which recently demonstrated favorable data compared to sunitinib in a Phase 3 trial. If a standalone therapy for mRCC were developed
that demonstrated improved efficacy over currently marketed first-line therapies with a favorable safety profile and without the
need for combination therapy, such a therapy might pose a significant competitive threat to rocapuldencel-T.
We are currently conducting our ADAPT trial of rocapuldencel-T
plus sunitinib / targeted therapy. We elected to study rocapuldencel-T in clinical trials in combination with sunitinib due in
part to sunitinib being the current standard-of-care for first-line treatment of mRCC. Although we do not expect to seek FDA approval
of rocapuldencel-T solely in combination with sunitinib and have provided that, under the protocol for the ADAPT trial, investigators
may discontinue sunitinib due to disease progression or toxicity and initiate second-line treatment with other approved compatible
therapies, if we obtain approval of rocapuldencel-T by the FDA, such FDA approval may be limited to the combination of rocapuldencel-T
and sunitinib. In such event, the commercial success of rocapuldencel-T would be linked to the commercial success of sunitinib.
As a result, if sunitinib ceases to be the standard-of-care for first-line treatment of mRCC or another event occurs that adversely
affects sales of sunitinib, the commercial success of rocapuldencel-T may be adversely affected.
We estimate that there are numerous other cancer immunotherapy
products in clinical development by many public and private biotechnology and pharmaceutical companies targeting numerous different
cancer types. A number of these product candidates are in late-stage clinical development or have recently been approved in different
cancer types, including two recently approved checkpoint inhibitor-based immunotherapies, nivolumab which is marketed by Bristol-Myers
Squibb, and pembrolizumab, which is marketed by Merck. These newer immunotherapies are in addition to the targeted therapies, chemotherapeutics,
radiation therapy, hormonal therapies and cytokine-based therapies used in the treatment in a wide range of oncology indications.
There are also numerous FDA-approved treatments for HIV, primarily
antiretroviral therapies marketed by large pharmaceutical companies. Generic competition has developed in this market as patent
exclusivity periods for older drugs have expired, with more than 15 generic drugs currently on the market. The presence of these
generic drugs is resulting in price pressure in the HIV therapeutics market and could affect the pricing of AGS-004. Currently,
there are no approved therapies for the eradication of HIV. We expect that major pharmaceutical companies that currently market
antiretroviral therapy products or other companies that are developing HIV product candidates may seek to develop products for
the eradication of HIV.
Our competitors may develop products that are more effective,
safer, more convenient or less costly than any that we are developing or that would render our product candidates obsolete or non-competitive.
Our competitors may also obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for
ours.
Many of our competitors have significantly greater financial
resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining
regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology
and device industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and
other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with
large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management
personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies
complementary to, or necessary for, our programs.
Even if we are able to commercialize any product candidates,
the products may become subject to unfavorable pricing regulations, third party reimbursement practices or healthcare reform initiatives,
which would harm our business.
The regulations that govern marketing approvals, pricing and
reimbursement for new drug products vary widely from country to country. In the United States, recently passed legislation may
significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals.
Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period
begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains
subject to continuing governmental control even after initial approval is granted. As a result, we might obtain regulatory approval
for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product,
possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product in that
country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if
our product candidates obtain regulatory approval.
Our ability to commercialize any products successfully also
will depend in part on the extent to which reimbursement for these products and related treatments will be available from government
health administration authorities, private health insurers and other organizations. Government authorities and third party payors,
such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish
reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities
and third party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications.
Increasingly, third party payors are requiring that drug companies provide them with predetermined discounts from list prices and
are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any product
that we commercialize and, if reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for,
or the price of, any product candidate for which we obtain marketing approval. Obtaining reimbursement for our products may be
particularly difficult because of the higher prices often associated with drugs administered under the supervision of a physician.
If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any
product candidate for which we obtain marketing approval.
There may be significant delays in obtaining reimbursement for
newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or similar regulatory
authorities outside the United States. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in
all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement
levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement
rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels
already set for lower cost drugs, and may be incorporated into existing payments for other services. Net prices for drugs may be
reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation
of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States.
Third party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies.
Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved
products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to
commercialize products and our overall financial condition.
Product liability lawsuits against us could cause us to
incur substantial liabilities and to limit commercialization of any products that we may develop.
We face an inherent risk of product liability exposure related
to the testing of our product candidates in human clinical trials and will face an even greater risk if we commercially sell any
products that we may develop. These risks may be even greater with respect to our Arcelis-based products which are manufactured
using a novel technology. None of our product candidates has been widely used over an extended period of time, and therefore our
safety data are limited. We derive the raw materials for manufacturing of our Arcelis-based product candidates from human cell
sources, and therefore the manufacturing process and handling requirements are extensive and stringent, which increases the risk
of quality failures and subsequent product liability claims.
If we cannot successfully defend ourselves against claims that
our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome,
liability claims may result in:
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decreased demand for any product candidates or products that we may develop;
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injury to our reputation and significant negative media attention;
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withdrawal of clinical trial participants;
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significant costs to defend the related litigation;
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substantial monetary awards to trial participants or patients;
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the inability to commercialize any products that we may develop.
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We currently hold $10.0 million in product liability insurance
coverage, which may not be adequate to cover all liabilities that we may incur. We will need to increase our insurance coverage
when we begin commercializing our product candidates, if ever. Insurance coverage is increasingly expensive. We may not be able
to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
We may expend our limited resources to pursue a particular
product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for
which there is a greater likelihood of success.
Because we have limited financial and managerial resources,
we focus on research programs and product candidates for specific indications. As a result, we may forego or delay pursuit of opportunities
with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation
decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on
current and future research and development programs and product candidates for specific indications may not yield any commercially
viable products.
We have based our research and development efforts on our Arcelis
precision immunotherapy technology platform. Notwithstanding our large investment to date and potential future expenditures in
our Arcelis precision immunotherapy technology platform, we have not yet developed, and may never successfully develop, any marketed
drugs using this approach. As a result of pursuing the development of product candidates using our Arcelis precision immunotherapy
technology platform, we may fail to develop product candidates or address indications based on other scientific approaches that
may offer greater commercial potential or for which there is a greater likelihood of success.
If we do not accurately evaluate the commercial potential or
target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration,
licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development
and commercialization rights to such product candidate.
Risks Related to Our Dependence on Third
Parties
Our reliance on government funding adds uncertainty to
our research and commercialization efforts and may impose requirements that increase the costs of commercialization and production
of our government-funded product candidates.
Our current development of AGS-004 for HIV is primarily funded
by the NIH. We are dependent upon further government funding for continued development of AGS-004. However, increased pressure
on governmental budgets may reduce the availability of government funding for programs such as AGS-004. In addition, contracts
and grants from the U.S. government and its agencies include provisions that give the government substantial rights and remedies,
many of which are not typically found in commercial contracts, including provisions that allow the government to:
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terminate agreements, in whole or in part, for any reason or no reason;
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reduce or modify the government’s obligations under such agreements without the consent of the other party;
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claim rights, including intellectual property rights, in products and data developed under such agreements;
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impose U.S. manufacturing requirements for products that embody inventions conceived or first reduced to practice under such
agreements;
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suspend or debar the contractor or grantee from doing future business with the government or a specific government agency;
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pursue criminal or civil remedies under the False Claims Act, False Statements Act and similar remedy provisions specific to
government agreements; and
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limit the government’s financial liability to amounts appropriated by the U.S. Congress on a fiscal-year basis, thereby
leaving some uncertainty about the future availability of funding for a program even after it has been funded for an initial period.
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Government agreements normally contain additional terms and
conditions that may increase our costs of doing business, reduce our profits, and expose us to liability for failure to comply
with these terms and conditions. These include, for example:
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specialized accounting systems unique to government contracts and grants;
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mandatory financial audits and potential liability for price adjustments or recoupment of government funds after such funds
have been spent;
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public disclosures of certain contract and grant information, which may enable competitors to gain insights into our research
program; and
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mandatory socioeconomic compliance requirements, including labor standards, non-discrimination and affirmative action programs
and environmental compliance requirements.
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We expect to depend on collaborations with third parties
for the development and commercialization of our product candidates. If those collaborations are not successful, we may not be
able to capitalize on the market potential of these product candidates.
We intend to commercialize rocapuldencel-T independently in
North America and to collaborate with other third parties to manufacture, develop or commercialize rocapuldencel-T outside North
America. We have entered into an exclusive license agreement with Pharmstandard for the development and commercialization of rocapuldencel-T
in Russia and the other states comprising the Commonwealth of Independent States and an exclusive license agreement with Green
Cross Corp., or Green Cross, for the development and commercialization of rocapuldencel-T for the treatment of mRCC in South Korea
and an exclusive license agreement with Lummy (Hong Kong) Co. Ltd., or Lummy HK, for the development, manufacture and commercialization
of rocapuldencel-T in China, Hong Kong, Taiwan and Macau. We have also entered into a license agreement with Medinet under which
we granted Medinet an exclusive license to manufacture in Japan rocapuldencel-T for the purpose of development and commercialization
for the treatment of mRCC.
We also plan to seek government or other third party funding
for continued development of AGS-004 and to collaborate with third parties to develop and commercialize AGS-004. Our likely collaborators
for any development, distribution, marketing, licensing or broader collaboration arrangements include large and mid-size pharmaceutical
companies, regional and national pharmaceutical companies and biotechnology companies.
Under our existing arrangements we have limited control, and
under any additional arrangements we may enter into with 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 our product candidates. 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.
Collaborations involving our product candidates would pose the
following risks to us:
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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 our product candidates 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 products or product candidates 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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a collaborator 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 have the right to conduct clinical trials of our product candidates without our consent and could conduct
trials with flawed designs that result in data that adversely affect our clinical trials, our ability to obtain marketing approval
for our product candidates or market acceptance of our product candidates.;
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collaborators may hold rights that could preclude us from commercializing our products in certain territories. For example,
we have granted Medinet an exclusive license to manufacture in Japan rocapuldencel-T for the treatment of mRCC. If we and Medinet
are unable to agree to the terms of a supply agreement, we will not be able to sell rocapuldencel-T in Japan unless we repurchase
these rights from Medinet;
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collaborators may not properly maintain or defend our intellectual property 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; and
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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. For example, in 2009, our collaboration with Kyowa Hakko Kirin Co.,
Ltd. with respect to rocapuldencel-T and AGS-004 was terminated by our collaborator.
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Collaboration agreements may not lead to development or commercialization
of product candidates in the most efficient manner, or at all. In addition, there have been a significant number of recent business
combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. 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 could be delayed, diminished or terminated.
If we are not able to establish additional collaborations,
we may have to alter any development and commercialization plans.
Our drug development programs and any potential commercialization
of our product candidates will require substantial additional cash to fund expenses. For some of our product candidates, we may
collaborate with pharmaceutical and biotechnology companies for the development and commercialization of those product candidates.
For example, we have entered into license agreements with third parties to develop, manufacture and/or commercialize rocapuldencel-T
in Russia and the other states comprising the Commonwealth of Independent States, South Korea, Japan, China, Hong Kong, Taiwan
and Macau, and we may seek to collaborate with other third parties to develop and commercialize rocapuldencel-T in other parts
of the world. We also intend to collaborate with third parties to develop and commercialize AGS-004.
We face significant competition in seeking appropriate collaborators.
Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s
resources and expertise, the terms and conditions of the proposed collaboration, and the proposed collaborator’s evaluation
of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA
or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs
and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence
of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard
to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product
candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could
be more attractive than the one with us for our product candidate. We may also be restricted under existing license agreements
from entering into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate
and document. We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all.
If we are not able to obtain such funding or enter into collaborations
for our product candidates, we may have to curtail the development of such product candidates, reduce or delay a candidate’s
development program or one or more of our other development programs, delay its potential commercialization or reduce the scope
of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at
our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may
need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient
funds, we may not be able to further develop these product candidates or bring these product candidates to market and generate
product revenue.
We rely on third parties to conduct our clinical trials,
and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.
We do not independently conduct clinical trials of our product
candidates. We rely on third parties, such as contract research organizations, clinical data management organizations, medical
institutions and clinical investigators, to perform this function. Our reliance on these third parties for clinical development
activities reduces our control over these activities but does not relieve us of our oversight responsibilities as sponsor of the
trial. We remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational
plan and protocols for the trial. Moreover, the FDA and other regulatory authorities require us to comply with standards, commonly
referred to as Good Clinical Practice, for conducting, recording and reporting the results of clinical trials to assure that data
and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected.
We also are required to register ongoing clinical trials and post the results of certain completed clinical trials on a government-sponsored
database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and
criminal sanctions. Furthermore, these third parties may also have relationships with other entities, some of which may be our
competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct
our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be
delayed in obtaining, regulatory approvals for our product candidates and will not be able to, or may be delayed in our efforts
to, successfully commercialize our product candidates.
For instance, in December 2015 we received a notice from Health
Canada that one of the sites at which we were conducting our Phase 3 ADAPT trial in Canada had been found to be non-compliant with
Good Clinical Practice in Canada and that if the issues raised in the notice were not corrected, Health Canada could suspend our
authorization to conduct the ADAPT trial at all sites in Canada. We submitted a response to Health Canada and subsequently received
a Completion of Response notice from Health Canada stating that our corrective actions were satisfactory and that the matter was
officially closed.
We also rely on other third parties to store and distribute
product supplies for our clinical trials. Any performance failure on the part of our existing or future distributors could delay
clinical development or regulatory approval of our product candidates or commercialization of our products, producing additional
losses and depriving us of potential product revenue.
Risks Related to the Manufacturing of Our Product Candidates
We will need to establish a facility to manufacture our
Arcelis-based products on a commercial scale. We do not have experience in manufacturing Arcelis-based products on a commercial
scale. If, due to our lack of manufacturing experience, we cannot manufacture our Arcelis-based products on a commercial scale
successfully or manufacture sufficient product to meet our expected commercial requirements, our business may be materially harmed.
We currently have manufacturing suites in our Technology Drive
and Patriot Center leased facilities in Durham, North Carolina. We manufacture our Arcelis-based product candidates for research
and development purposes and for clinical trials at these facilities.
In 2017, we entered into a ten-year lease agreement with two
five-year renewal options for 40,000 square feet of manufacturing and office space at the Center for Technology Innovation, or
CTI, on the Centennial Campus of North Carolina State University in Raleigh, North Carolina. We had intended to utilize this facility
to manufacture rocapuldencel-T to support submission of a BLA to the FDA and to support initial commercialization of rocapuldencel-T.
In addition, to provide for capacity expansion beyond the initial
few years following potential launch of rocapuldencel-T, we had planned to build-out and equip a second facility, which we refer
to as the Centerpoint facility. In August 2014, we entered into a ten-year lease agreement with renewal options for the Centerpoint
facility. Under the lease agreement, we agreed to lease certain land and an approximately 125,000 square-foot building to be constructed
in Durham County, North Carolina. We initially intended this facility to house our corporate headquarters and commercial manufacturing
before we entered into the lease for the CTI facility. The shell of the new facility was constructed on a build-to-suit basis in
accordance with agreed upon specifications and plans and was completed in June 2015. However, the build-out and equipping of the
interior of the facility was suspended as we pursued financing arrangements to support the further build out of the facility.
Due to the IDMC recommendation in February
2017 to discontinue the ADAPT trial, we reassessed our manufacturing plans. In March 2017, we entered into a lease termination
agreement with the landlord of our CTI facility terminating our lease of the CTI facility as of March 17, 2017. In November 2017,
we and the landlord of the Centerpoint facility entered into a lease termination agreement terminating our lease of the Centerpoint
facility and the landlord successfully completed the sale of the facility to a third party. We believe that our Technology Drive
and Patriot Center facilities are sufficient for the manufacture of rocapuldencel-T and AGS-004 to support our ongoing clinical
trials and any likely near-term clinical trials that we may initiate.
We expect that we would establish both manual and automated
manufacturing processes in our commercial manufacturing facility if we determine to establish such facility. We had decided to
delay the implementation of our automated manufacturing process until after initial commercialization of rocapuldencel-T, and thus
planned to seek marketing approval of rocapuldencel-T and, if approved, to initially commercially supply rocapuldencel-T using
our manual manufacturing process. Prior to implementing commercial manufacturing of rocapuldencel-T, we would be required to demonstrate
that our commercial manufacturing facility is constructed and operated in accordance with current good manufacturing practice.
We would also be required to show the comparability between rocapuldencel-T that we produce using the manual processes in our current
facility and rocapuldencel-T produced using the manual process in the commercial manufacturing facility.
If we transition to automated manufacturing processes, we expect
our automated manufacturing processes will be based on existing functioning prototypes of automated devices for the production
of commercial quantities of our Arcelis-based product candidates. These devices can be used to perform substantially all steps
required for the manufacture of our Arcelis-based product candidates.
We do not have experience in manufacturing products on a commercial
scale. In addition, because we are aware of only a few companies that have manufactured an individualized immunotherapy product
for commercial sale, there are limited precedents from which we can learn. We may encounter difficulties in the manufacture of
our Arcelis-based products due to our limited manufacturing experience. These difficulties could delay the build-out and equipping
of a commercial manufacturing facility and regulatory approval of the manufacture of our Arcelis-based products using the facility,
increase our costs or cause production delays or result in us not manufacturing sufficient product to meet our expected commercial
requirements, any of which could damage our reputation and hurt our profitability. If we are unable to successfully increase our
manufacturing capacity to commercial scale, our business may be materially adversely affected.
If we fail to establish commercial manufacturing operations
in compliance with regulatory requirements, or augment our manufacturing personnel, we may not be able to initiate commercial operations
or produce sufficient product to meet our expected commercial requirements. We have delayed the implementation of our automated
manufacturing process and may not be able to use such process on a timely basis or at all.
In order to meet our business plan, which contemplated manufacturing
our product first using manual processes and later using automated processes for the commercial requirements of rocapuldencel-T
and any other Arcelis-based product candidates that might be approved, we planned to build out and equip a leased commercial manufacturing
facility and add manufacturing personnel in advance of any regulatory submission for approval of rocapuldencel-T. If we determine
to continue our plan to establish a commercial manufacturing facility, we will require substantial capital expenditures and additional
regulatory approvals. In addition, it will be costly and time consuming to recruit necessary additional personnel.
If we are unable to successfully build out and equip a commercial
manufacturing facility in compliance with regulatory requirements or hire and train additional necessary manufacturing personnel
appropriately, our filing for regulatory approval of our product candidates may be delayed or denied.
We plan to delay the implementation of our automated manufacturing
process until we complete the clinical development of rocapuldencel-T and secure additional funding. Thus, if we are able to successfully
complete the clinical development of rocapuldencel-T and obtain marketing approval, we plan to initially commercially supply rocapuldencel-T
using manual manufacturing processes. Prior to implementing commercial manufacturing of rocapuldencel-T, we will be required to
demonstrate that the commercial manufacturing facility is constructed and operated in accordance with current Good Manufacturing
Practice, or cGMP. If we continue the development of rocapuldencel-T, we will also be required to show the comparability between
rocapuldencel-T that we produce using the manual processes in our current facility and rocapuldencel-T produced using the manual
process in the new facility.
Our implementation of automated processes could take longer,
particularly if we are unable to achieve any of the required tasks on a timely basis, or at all. Work under our collaboration with
Invetech and Saint-Gobain to develop the equipment and disposables necessary to implement the automated manufacturing processes
for Arcelis-based products is not expected to resume until we are able to successfully complete the clinical development of rocapuldencel-T
and obtain marketing approval. If Invetech or Saint-Gobain are delayed in resumption of the projects or do not perform as expected
under the agreements or the projects with Invetech or Saint-Gobain are unsuccessful for any other reason, our timelines for the
implementation of our automated manufacturing processes could be further delayed and our business could be adversely affected.
Prior to implementing the automated manufacturing processes
for Arcelis-based products, we will be required to:
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demonstrate that the disposable components and sterilization and packaging methods used in the manufacturing process are suitable
for use in manufacturing in accordance with current good manufacturing practice, or cGMP, and current Good Tissue Practices, or
cGTP;
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build and validate processing equipment that complies with cGMP and cGTP;
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equip a commercial manufacturing facility to accommodate the automated manufacturing process;
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perform process testing with final equipment, disposable components and reagents to demonstrate that the methods are suitable
for use in cGMP and cGTP manufacturing;
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demonstrate consistency and repeatability of the automated manufacturing processes in the production of rocapuldencel-T in
our new facility to fully validate the manufacturing and control process using the actual automated cGMP processing equipment;
and
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demonstrate comparability between rocapuldencel-T that we produce using our manual processes and rocapuldencel-T produced using
the automated processes.
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We will need regulatory approval to use the automated manufacturing
processes for commercial purposes. If the FDA requires us to conduct a bridging study to demonstrate comparability between rocapuldencel-T
that we produce manually and rocapuldencel-T produced using the automated processes, the implementation of the automated manufacturing
processes and the filing for such approval will likely be delayed.
If we are unable to successfully implement the automated processes
required and demonstrate comparability between the rocapuldencel-T that we produce manually and the rocapuldencel-T produced using
the automated processes, our filing for regulatory approval of the commercial use of our automated manufacturing processes may
be delayed or denied and we may not be able to initiate commercial manufacturing using our automated manufacturing processes. In
such event, our commercial manufacturing costs will be higher than anticipated and we may not be able to manufacture sufficient
product to meet our expected commercial requirements.
Lack of coordination internally among our employees and
externally with physicians, hospitals and third- party suppliers and carriers, could cause manufacturing difficulties, disruptions
or delays and cause us to not have sufficient product to meet our clinical trial requirements or potential commercial requirements.
Manufacturing our Arcelis-based product candidates requires
coordination internally among our employees and externally with physicians, hospitals and third party suppliers and carriers. For
example, a patient’s physician or clinical site will need to coordinate with us for the shipping of a patient’s disease
sample and leukapheresis product to our manufacturing facility in a timely manner, and we will need to coordinate with them for
the shipping of the manufactured product to them. Such coordination involves a number of risks that may lead to failures or delays
in manufacturing our Arcelis-based product candidates, including:
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failure to obtain a sufficient supply of key raw materials of suitable quality;
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difficulties in manufacturing our product candidates for multiple patients simultaneously;
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difficulties in obtaining adequate patient-specific material, such as tumor samples, virus samples or leukapheresis product,
from physicians;
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difficulties in completing the development and validation of the specialized assays required to ensure the consistency of our
product candidates;
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failure to ensure adequate quality control and assurances in the manufacturing process as we increase production quantities;
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difficulties in the timely shipping of patient-specific materials to us or in the shipping of our product candidates to the
treating physicians due to errors by third party carriers, transportation restrictions or other reasons;
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destruction of, or damage to, patient-specific materials or our product candidates during the shipping process due to improper
handling by third party carriers, hospitals, physicians or us;
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destruction of, or damage to, patient-specific materials or our product candidates during storage at our facilities; and
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destruction of, or damage to, patient-specific materials or our product candidates stored at clinical and future commercial
sites due to improper handling or holding by clinicians, hospitals or physicians.
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If we are unable to coordinate appropriately, we may encounter
delays or additional costs in achieving our clinical and commercialization objectives, including in obtaining regulatory approvals
of our product candidates and supplying product, which could materially damage our business and financial position.
If our existing manufacturing facilities or any commercial
manufacturing facility that we use are damaged or destroyed, or production at one of these facilities is otherwise interrupted,
our business and prospects would be negatively affected.
We currently lease two manufacturing facilities. If we establish
a commercial manufacturing facility, it will be our only commercial manufacturing facility in North America. If our existing manufacturing
facilities or a commercial manufacturing facility that we decide to build out and equip, or the equipment in either of these facilities,
is damaged or destroyed, we likely would not be able to quickly or inexpensively replace our manufacturing capacity and possibly
would not be able to replace it at all. Any new facility needed to replace either our existing manufacturing facility or a new
commercial manufacturing facility would need to comply with the necessary regulatory requirements, need to be tailored to our specialized
automated manufacturing requirements and require specialized equipment. We would need FDA approval before selling any products
manufactured at a new facility. Such an event could delay our clinical trials or, if any of our product candidates are approved
by the FDA, reduce or eliminate our product sales.
We maintain insurance coverage to cover damage to our property
and equipment and to cover business interruption and research and development restoration expenses. If we have underestimated our
insurance needs with respect to an interruption in our clinical manufacturing of our product candidates, we may not be able to
adequately cover our losses.
Risks Related to Our Intellectual Property
If we fail to comply with our obligations under our intellectual
property licenses with third parties, we could lose license rights that are important to our business.
We are a party to a number of intellectual property license
agreements with third parties, including with respect to each of rocapuldencel-T and AGS-004, and we may enter into additional
license agreements in the future. Our existing license agreements impose, and we expect that future license agreements will impose,
various diligence, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with our obligations
under these licenses, our licensors may have the right to terminate these license agreements, in which event we might not be able
to market any product that is covered by these agreements, or to convert the license to a non-exclusive license, which could materially
adversely affect the value of the product candidate being developed under the license agreement. Termination of these license agreements
or reduction or elimination of our licensed rights may result in our having to negotiate new or reinstated licenses with less favorable
terms.
If we are unable to obtain and maintain patent protection
for our technology and products, or if our licensors are unable to obtain and maintain patent protection for the technology or
products that we license from them, or if the scope of the patent protection obtained is not sufficiently broad, our competitors
could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize
our technology and products may be adversely affected.
Our success depends in large part on our and our licensors’
ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary technology
and products. We and our licensors have sought to protect our proprietary position by filing patent applications in the United
States and abroad related to our novel technologies and products that are important to our business. This process is expensive
and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable
cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development
efforts before it is too late to obtain patent protection. Moreover, in some circumstances, we do not have the right to control
the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology or products that
we license from third parties and are reliant on our licensors. Therefore, we cannot be certain that these patents and applications
will be prosecuted and enforced in a manner consistent with the best interests of our business. If such licensors fail to maintain
such patents, or lose rights to those patents, the rights we have licensed may be reduced or eliminated.
The patent position of biotechnology and pharmaceutical companies
generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation.
As a result, the issuance, scope, validity, enforceability and commercial value of our and our licensors’ patent rights are
highly uncertain. Our and our licensors’ pending and future patent applications may not result in patents being issued which
protect our technology or products or which effectively prevent others from commercializing competitive technologies and products.
Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the
value of our patents or narrow the scope of our patent protection.
Third parties could practice our inventions in territories where
we do not have patent protection. Furthermore, the laws of foreign countries may not protect our rights to the same extent as the
laws of the United States. For example, we own or exclusively license patents relating to our process of manufacturing an individualized
drug product. A U.S. patent may be infringed by anyone who, without authorization, practices the patented process in the United
States or imports a product made by a process covered by the U.S. patent. In foreign countries, however, importation of a product
made by a process patented in that country may not constitute an infringing activity, which would limit our ability to enforce
our process patents against importers in that country. Furthermore, the legal systems of certain countries, particularly certain
developing countries, do not favor the enforcement of patents and other intellectual property protection. This could make it difficult
for us to stop the infringement of our patents or the misappropriation of our other intellectual property rights. If competitors
are able to use our technologies, our ability to compete effectively could be harmed.
Furthermore, publications of discoveries in the scientific literature
often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not
published until 18 months after filing, or in some cases not at all. Therefore we cannot be certain that we or our licensors were
the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors
were the first to file for patent protection of such inventions.
Assuming the other requirements for patentability are met, in
the United States, the first to invent the claimed invention is entitled to the patent, while outside the United States, the first
to file a patent application is generally entitled to the patent. Under the America Invents Act, or AIA, enacted in September 2011,
the United States moved to a first inventor to file system in March 2013. The United States Patent and Trademark Office only recently
finalized the rules relating to these changes and courts have yet to address the new provisions. These changes could increase the
costs and uncertainties surrounding the prosecution of our patent applications and the enforcement or defense of our patent rights.
Furthermore, we may become involved in interference proceedings, opposition proceedings, or other post-grant proceedings, such
as reissue, reexamination or inter partes review proceedings, which may challenge our patent rights or the patent rights of others.
An adverse determination in any such proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow
third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our
inability to manufacture or commercialize products without infringing third party patent rights.
Even if our owned and licensed patent applications issue as
patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with
us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents
by developing similar or alternative technologies or products in a non-infringing manner. The issuance of a patent is not conclusive
as to its scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices
in the United States and abroad. Such challenges may result in patent claims being narrowed, invalidated or held unenforceable,
which could limit our ability to or stop or prevent us from stopping others from using or commercializing similar or identical
technology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time
required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might
expire before or shortly after such candidates are commercialized. For example, certain of the U.S. patents we exclusively licensed
from Duke University expired in 2016 and the European and Japanese patents exclusively licensed from Duke University expired in
April 2017. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from
commercializing products similar or identical to ours.
We may become involved in lawsuits to protect or enforce
our patents, which could be expensive, time consuming and unsuccessful.
Competitors may infringe our patents. To counter such infringement
or unauthorized use, we may be required to file infringement claims against third parties, which can be expensive and time consuming.
In addition, during an infringement proceeding, a court may decide that the patent rights we are asserting are invalid or unenforceable,
or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology
in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or
interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property
litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.
In addition, our licensors may have rights to file and prosecute such claims and we are reliant on them.
Third parties may initiate legal proceedings alleging
that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse
effect on the success of our business.
Our commercial success depends upon our ability and the ability
of our collaborators to develop, manufacture, market and sell our product candidates and use our proprietary technologies without
infringing the proprietary rights of third parties. We cannot ensure that third parties do not have, or will not in the future
obtain, intellectual property rights such as granted patents that could block our ability to operate as we would like. There may
be patents in the United States or abroad owned by third parties that, if valid, may block our ability to make, use or sell our
products in the United States or certain countries outside the United States, or block our ability to import our products into
the United States or into certain countries outside the United States.
We may become party to, or threatened with, future adversarial
proceedings or litigation regarding intellectual property rights with respect to our products and technology. For example, third
parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. If we
are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third
party to continue developing and marketing our products and technology. However, we may be unable to obtain any required license
on commercially reasonable terms or even obtain a license at all. Even if we were able to obtain a license, it could be non-exclusive,
thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to
cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages. A finding
of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations,
which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of
third parties could have a similar negative impact on our business.
We have research licenses to certain reagents and their use
in the development of our product candidates. We would need commercial licenses to these reagents for any of our product candidates
that receive approval for sale in the United States. We believe that commercial licenses to these reagents will be available. However,
if we are unable to obtain any such commercial licenses, we may be unable to commercialize our product candidates without infringing
the patent rights of third parties. If we did seek to commercialize our product candidates without a license, these third parties
could initiate legal proceedings against us.
We may be subject to claims that our employees have wrongfully
used or disclosed alleged trade secrets of their former employers.
Many of our employees were previously employed at universities
or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure
that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims
that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information,
of any such employee’s former employer. Litigation may be necessary to defend against these claims. If we fail in defending
any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if
we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
Intellectual property litigation could cause us to spend
substantial resources and distract our personnel from their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings
relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management
personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions
or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it
could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase
our operating losses and reduce the resources available for development activities. We may not have sufficient financial or other
resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such
litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from
the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to
compete in the marketplace.
If we are unable to protect the confidentiality of our
trade secrets, our business and competitive position would be harmed.
In addition to seeking patents for some of our technology and
products, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain
our competitive position. The types of protections available for trade secrets are particularly important with respect to our Arcelis
precision immunotherapy technology platform’s manufacturing capabilities, which involve significant unpatented know-how.
We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who
have access to them, such as our employees, corporate collaborators, outside scientific collaborators, sponsored researchers, contract
manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment
agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose
our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches.
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming,
and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to
protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we
would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were
to be disclosed to or independently developed by a competitor, our competitive position would be harmed.
Risks Related to Legal Compliance Matters
Any product candidate for which we obtain marketing approval
could be subject to restrictions or 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 products, when and if any of them are approved.
Any product candidate for which we obtain marketing approval,
along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such
product, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements
include submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements
relating to quality control, quality assurance and corresponding maintenance of records and documents, cGTP requirements, requirements
regarding the distribution of samples to physicians and recordkeeping. Even if regulatory approval of a product candidate is granted,
the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of
approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product.
The FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved
indications and in accordance with the provisions of the approved label. The FDA imposes stringent restrictions on manufacturers’
communications regarding off-label use and if we do not market our products for their approved indications, we may be subject to
enforcement action for off-label marketing. In addition, later discovery of previously unknown problems with our products, manufacturers
or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:
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restrictions on such products, manufacturers or manufacturing processes;
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restrictions on the marketing of a product;
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restrictions on product distribution;
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requirements to conduct post-marketing clinical trials;
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warning or untitled letters;
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withdrawal of the products from the market;
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refusal to approve pending applications or supplements to approved applications that we submit;
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fines, restitution or disgorgement of profits or revenue;
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suspension or withdrawal of regulatory approvals;
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refusal to permit the import or export of our products;
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injunctions or the imposition of civil or criminal penalties.
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Our relationships with customers and third party payors
will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to
criminal sanctions, civil penalties, program exclusion, contractual damages, reputational harm and diminished profits and future
earnings.
Healthcare providers, physicians and third party payors play
a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future
arrangements with third party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws
and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute
our products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations,
include the following:
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the federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting,
offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral
of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal
and state healthcare programs such as Medicare and Medicaid;
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the federal False Claims Act imposes civil penalties, including civil whistleblower or qui tam actions, against individuals
or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false
or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
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the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for
Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit
program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security
and transmission of individually identifiable health information;
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the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact
or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;
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the federal transparency requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care and
Education Reconciliation Act of 2010, the PPACA, or the Health Care Reform Law will require manufacturers of drugs, devices, biologics
and medical supplies to report to the Department of Health and Human Services information related to physician payments and other
transfers of value and physician ownership and investment interests; and
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analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements
and claims involving healthcare items or services reimbursed by non-governmental third party payors, including private insurers,
and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines
and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report
information related to payments to physicians and other health care providers or marketing expenditures.
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Some state laws require pharmaceutical companies to comply with
the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal
government and may require drug manufacturers to report information related to payments and other transfers of value to physicians
and other healthcare providers or marketing expenditures. State and foreign laws also govern the privacy and security of health
information in some circumstances, many of which differ from each other in significant ways and often are not preempted by the
federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, thus complicating compliance efforts.
Efforts to ensure that our business arrangements with third
parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental
authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving
applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these
laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative
penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment
or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business
are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including
exclusions from government funded healthcare programs.
Numerous statements made by President Trump and members of the
U.S. Congress indicate that it is likely that legislation will be passed by Congress and signed into law by President Trump that
repeals the PPACA, in whole or in part, and/or introduces a new form of health care reform. It is unclear at this point what the
scope of such legislation will be and when it will become effective. Because of the uncertainty surrounding this replacement health
care reform legislation, we cannot predict with any certainty the likely impact of the PPACA’s repeal or the adoption of
any other health care reform legislation on our financial condition or operating results. Whether or not there is alternative health
care legislation enacted in the United States, there is likely to be significant disruption to the health care market in the coming
months and years.
Recently enacted and future legislation may increase the
difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may
obtain.
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 of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably
sell any product candidates for which we obtain marketing approval.
In the United States, the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003, or Medicare Modernization Act, changed the way Medicare covers and pays for pharmaceutical products.
The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based
on average sales prices for physician administered drugs. In addition, this legislation provided authority for limiting the number
of drugs that will be covered in any therapeutic class in certain cases. Cost reduction initiatives and other provisions of this
and other more recent legislation could decrease the coverage and reimbursement that is provided for any approved products. While
the Medicare Modernization Act applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage
policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results
from the Medicare Modernization Act or other more recent legislation may result in a similar reduction in payments from private
payors.
In March 2010, former President Obama signed into law the Health
Care Reform Law, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending,
enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose
new taxes and fees on the health industry and impose additional health policy reforms. Effective October 1, 2010, the Health
Care Reform Law revises the definition of “average manufacturer price” for reporting purposes, which could increase
the amount of Medicaid drug rebates to states. Further, the new law imposes a significant annual fee on companies that manufacture
or import branded prescription drug products. Substantial new provisions affecting compliance have also been enacted, which may
affect our business practices with health care practitioners. We will not know the full effects of the Health Care Reform Law until
applicable federal and state agencies issue regulations or guidance under the new law. Although it is too early to determine the
effect of the Health Care Reform Law, the new law appears likely to continue the pressure on pharmaceutical pricing, especially
under the Medicare program, and may also increase our regulatory burdens and operating costs. In addition, with the new Administration
and Congress, there will likely be additional administrative or legislative changes, including modification, repeal, or replacement
of all, or certain provisions of, the ACA. In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, or
the Budget Resolution, that authorizes the implementation of legislation that would repeal portions of the ACA. The Budget Resolution
is not a law; however, it is widely viewed as the first step toward the passage of legislation that would repeal certain aspects
of the ACA. Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities
and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the
ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers
of pharmaceuticals or medical devices.
At the same time, Congress has focused on additional legislative changes, including in
particular repeal and replacement of certain provisions of the ACA. For example, with enactment of the Tax Cuts and Jobs Act of
2017, in December 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires most
Americans to carry a minimal level of health insurance, will become effective in 2019. According to the Congressional Budget Office,
the repeal of the individual mandate will cause 13 million fewer Americans to be insured in 2027 and premiums in insurance markets
may rise. Further, each chamber of the Congress has put forth multiple bills designed to repeal or repeal and replace portions
of the ACA. Although none of these measures has been enacted by Congress to date, Congress may consider other legislation to repeal
and replace elements of the ACA. The Congress will likely consider other legislation to replace elements of the ACA, during the
next Congressional session.
The Trump Administration has also taken executive actions to
undermine or delay implementation of the ACA. In January 2017, President Trump signed an Executive Order directing federal agencies
with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any
provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers,
or manufacturers of pharmaceuticals or medical devices. In October 2017, the President signed a second Executive Order allowing
for the use of association health plans and short-term health insurance, which may provide fewer health benefits than the plans
sold through the ACA exchanges. At the same time, the Administration announced that it will discontinue the payment of cost-sharing
reduction (CSR) payments to insurance companies until Congress approves the appropriation of funds for such CSR payments. The loss
of the CSR payments is expected to increase premiums on certain policies issued by qualified health plans under the ACA. A bipartisan
bill to appropriate funds for CSR payments was introduced in the Senate, but the future of that bill is uncertain.
The costs of prescription pharmaceuticals in the United States
has also been the subject of considerable discussion in the United States, and members of Congress and the Administration have
stated that they will address such costs through new legislative and administrative measures. The pricing of prescription pharmaceuticals
is also subject to governmental control outside the United States. In these countries, pricing negotiations with governmental authorities
can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in
some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates to
other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set
at unsatisfactory levels, our ability to generate revenues and become profitable could be impaired.
Legislative and regulatory proposals have been made to expand
post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure 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 U.S. 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.
With the enactment of the Biologics Price Competition and Innovation
Act of 2009, or BPCIA, as part of the Health Care Reform Law, an abbreviated pathway for the approval of biosimilar and interchangeable
biological products was created. The new 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. Under the BPCIA, an application for a biosimilar product cannot be submitted to the FDA until four
years, or approved by the FDA until 12 years, after the original brand product identified as the reference product was approved
under a BLA. The new law is complex and is only beginning to be interpreted and implemented by the FDA. As a result, its ultimate
impact, implementation and meaning is subject to uncertainty. While it is uncertain when any such processes may be fully adopted
by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.
We believe that if any of our product candidates were to be
approved as biological products under a BLA, such approved products should qualify for the four-year and 12-year periods of exclusivity.
However, there is a risk that the U.S. Congress could amend the BPCIA to significantly shorten these exclusivity periods as proposed
by President Obama, or that the FDA will not consider our product candidates to be reference products for competing products, potentially
creating the opportunity for generic competition sooner than anticipated. Moreover, the extent to which a biosimilar, once approved,
will be substituted for any one of our reference products 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.
If we fail to comply with environmental, health and safety
laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on
the success of our business.
We are subject to numerous environmental, health and safety
laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of
hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and radioactive
and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the
disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event
of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and
any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.
Although we maintain workers’ compensation insurance to
cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this
insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability
or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive
materials.
In addition, we may incur substantial costs in order to comply
with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may
impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial
fines, penalties or other sanctions.
Risks Related to Organizational Employee
Matters
Our future success depends on our ability to retain our
chief executive officer and other key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on Jeffrey Abbey, our president and
chief executive officer, Charles Nicolette, our vice president of research and development and chief scientific officer, and Richard
Katz, our vice president and chief financial officer, as well as the other principal members of our management and scientific teams.
Although we have formal employment agreements with each of our executive officers, these agreements do not prevent our executives
from terminating their employment with us at any time. We do not maintain “key person” insurance for any of our executives
or other employees. The loss of the services of any of these persons could impede the achievement of our research, development
and commercialization objectives.
Recruiting and retaining qualified personnel is critical to
our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous
pharmaceutical and biotechnology companies for similar personnel, our setback with respect to rocapuldencel-T, the implementation
of our workforce action plan and our limited cash resources. We also experience competition for the hiring of scientific and clinical
personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and
clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and
advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other
entities that may limit their availability to us.
Risks Related to Our Common Stock
Our executive officers, directors, affiliates of all officers
and directors and other of our affiliates who own our outstanding common stock have the ability to significantly influence matters
submitted to stockholders for approval.
Our executive officers, directors, affiliates of our executive
officers and directors and other of our affiliates beneficially own, in the aggregate, shares representing approximately 26.77%
of our outstanding common stock as of February 28, 2018. As a result, if these stockholders were to choose to act together, they
would be able to significantly influence matters submitted to our stockholders for approval, as well as our management and affairs.
For example, these persons, if they choose to act together, could significantly influence the election of directors and approval
of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay
or prevent an acquisition of our company on terms that other stockholders may desire.
Our largest stockholder, Pharmstandard, could exert significant
influence over us and could limit your ability to influence the outcome of key transactions, including any change of control.
Our largest stockholder, Pharmstandard, beneficially owns, in
the aggregate, shares representing approximately 18.83% of our outstanding common stock as of February 28, 2018. Pharmstandard
is also the holder of the $6.0 million principal amount of a secured convertible note that we issued in June 2017, although the
ability of Pharmstandard to exercise its conversion option is limited to the extent such exercise would cause Pharmstandard’s
ownership in our Company to exceed 39.9%. In addition, two members of our board of directors are closely associated with Pharmstandard.
As a result, we expect that Pharmstandard will be able to exert significant influence over our business. Pharmstandard may have
interests that differ from your interests, and it may vote in a way with which you disagree and that may be adverse to your interests.
The concentration of ownership of our capital stock may have the effect of delaying, preventing or deterring a change of control
of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale
of our company and may adversely affect the market price of our common stock.
Provisions in our corporate charter documents and under
Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts
by our stockholders to replace or remove our current management.
Provisions in our corporate charter and our bylaws may discourage,
delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions
in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might
be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition,
because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate
or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders
to replace members of our board of directors. Among other things, these provisions:
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establish a classified board of directors such that not all members of the board are elected at one time;
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allow the authorized number of our directors to be changed only by resolution of our board of directors;
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limit the manner in which stockholders can remove directors from the board;
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establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations
to our board of directors;
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require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders
by written consent;
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limit who may call stockholder meetings;
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authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a
“poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing
acquisitions that have not been approved by our board of directors; and
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require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend
or repeal certain provisions of our charter or bylaws.
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Moreover, because we are incorporated in Delaware, we are governed
by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of
our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in
which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed
manner.
An active trading market for our common stock may not
be sustained, and investors may not be able to resell their shares at or above the price they paid. In addition, if we fail
to meet the requirements for continued listing on The Nasdaq Capital Market, our common stock could be delisted from trading, which
would decrease the liquidity of our common stock and our ability to raise additional capital.
Although our common stock is currently listed on The Nasdaq
Capital Market, an active trading market for our shares may not be sustained. If an active market for our common stock is not sustained,
it may be difficult for you to sell your shares without depressing the market price for the shares or sell your shares at all.
Any inactive trading market for our common stock may also impair our ability to raise capital to continue to fund our operations
by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.
In 2017, we received several deficiency letters from the Listing Qualifications Department
of The Nasdaq Stock Market notifying us that we were not in compliance with various requirements for continued listing on The Nasdaq
Global Market and that, unless we requested a hearing before the Panel, trading of our common stock would be suspended at the opening
of business on November 6, 2017. As a result, we requested a hearing, and in January 2018, we had a hearing before the Panel at
which we requested the transfer of our listing to The Nasdaq Capital Market and presented our plan to evidence compliance with
various requirements for continued listing on The Nasdaq Capital Market. On January 17, 2018, we received a determination from
Nasdaq indicating that our listing would be transferred from The Nasdaq Global Market to The Nasdaq Capital Market, provided that
we demonstrated, on or before February 2, 2018, a closing bid price of $1.00 or more for a minimum of ten prior consecutive trading
days, that, on or before April 24, 2018, we satisfied the $2.5 million stockholders’ equity requirement and demonstrated
our ability to maintain compliance with the minimum stockholders’ equity requirement through the end of fiscal 2018, among
other actions, and that we continued to meet the requirements for continued listing on The Nasdaq Capital Market. On February 15,
2018, we received formal notice from Nasdaq indicating that we have evidenced full compliance with the minimum $1.00 bid price
requirement for continued listing on The Nasdaq Capital Market. We are not currently in compliance with the stockholders’
equity requirement
If we fail to regain compliance with the conditions set by the
Panel or otherwise do not comply with the continued listing requirements of The Nasdaq Capital Market and our common stock is delisted
by Nasdaq by the April 24, 2018 deadline, our common stock may be eligible to trade on the OTC Bulletin Board or another over-the-counter
market. Any such alternative would likely result in it being more difficult for us to raise additional capital through the public
or private sale of equity securities and for investors to dispose of, or obtain accurate quotations as to the market value of,
the common stock and could result in a decrease in the trading price of our common stock. We may also face other material adverse
consequences in such event, such as negative publicity, a decreased ability to obtain additional financing, diminished investor
and/or employee confidence, and the loss of business development opportunities, some or all of which may contribute to a further
decline in our stock price. In addition, there can be no assurance that the common stock would be eligible for trading on any such
alternative exchange or markets.
If our stock price continues to be volatile, purchasers
of our common stock could incur substantial losses.
Our stock price has been volatile. For example, our stock has
traded in a range from a low price per share of $0.81 and a high price per share of $113.66 during the period of from January
1, 2017 through March 30, 2018 on a post-split adjusted basis. The stock market in general and the market for biotechnology companies
in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies.
The market price for our common stock may be influenced by many factors, including:
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our determination with regard to the next steps for our rocapuldencel-T clinical program based on our discussions with the
FDA;
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results of clinical trials of our product candidates or those of our competitors, such as the interim
data analysis that we plan to conduct in the second quarter of 2018;
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the success of competitive products or technologies;
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potential approvals of our product candidates for marketing by the FDA or equivalent foreign regulatory authorities or our
failure to obtain such approvals;
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regulatory or legal developments in the United States and other countries;
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the results of our efforts to commercialize our product candidates;
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developments or disputes concerning patents or other proprietary rights;
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the recruitment or departure of key personnel;
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the level of expenses related to any of our product candidates or clinical development programs;
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the results of our efforts to discover, develop, acquire or in-license additional product candidates or products;
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actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities
analysts;
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variations in our financial results or those of companies that are perceived to be similar to us;
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changes in the structure of healthcare payment systems;
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market conditions in the pharmaceutical and biotechnology sectors and issuance of new or changed securities analysts’
reports or recommendations;
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general economic, industry and market conditions; and
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the other factors described in this “Risk Factors” section.
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In addition, pharmaceutical companies have experienced significant
share price volatility in recent years, and securities class action litigation, shareholder derivative litigation, or other proceedings
often follow a decline in the market price of a company’s securities. For instance, in March 2017, a purported stockholder
of our company filed a putative class action lawsuit against us, our chief executive officer, our chief financial officer, and
our vice president of finance generally alleging that the defendants violated the federal securities laws by, among other things,
making material misstatements or omissions concerning the progress of the ADAPT Phase 3 clinical trial of rocapuldencel-T, the
planned biologics licensing application for rocapuldencel-T and the prospects for approval. This matter was dismissed in September
2017. If we face such litigation or proceedings, it could result in substantial costs and a diversion of management’s attention
and resources.
We will continue to incur increased costs as a result
of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives
and corporate governance practices.
As a public company, and particularly after we are no longer
an emerging growth company, we will continue to 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 The Nasdaq Capital Market 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
will need to continue to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations
will increase our legal and financial compliance costs and make some activities more time-consuming and costly.
We cannot predict or estimate the amount of additional costs
we may incur to continue to operate as a public company, nor can we predict the timing of such costs. These rules and regulations
are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application
in practice may evolve over time as new guidance is provided by regulatory and governing bodies which could result in continuing
uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we
are required to furnish a report by our management on our internal control over financial reporting. However, while we remain an
emerging growth company, we will not be required to include an attestation report on internal control over financial reporting
issued by our independent registered public accounting firm. To achieve compliance with Section 404 of the Sarbanes-Oxley Act of
2002 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial
reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially
engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial
reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as
documented and implement a continuous reporting and improvement process for internal control over financial reporting. If we identify
one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in
the reliability of our financial statements.
We are an “emerging growth company,” and the
reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We are an “emerging growth company,” as defined
in the JOBS Act, and may remain an emerging growth company for up to five years following our initial public offering in February
2014. For so long as we remain an emerging growth company, we are permitted and plan to rely on exemptions from certain disclosure
requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not
being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, not being
required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory
audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial
statements, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding
advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In this
Annual Report on Form 10-K for the year ended December 31, 2017, we have not included all of the executive compensation related
information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our
common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result,
there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, the JOBS Act provides that an emerging growth company
can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging
growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we
will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Because we do not anticipate paying any cash dividends
on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.
We have never declared or paid cash dividends on our capital
stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business.
In addition, the terms of future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any,
of our common stock will be your sole source of gain for the foreseeable future.
If securities or industry analysts do not publish research
or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.
The trading market for our common stock will depend on the research
and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts.
There can be no assurance that analysts will cover us, or provide favorable coverage. If one or more analysts downgrade our stock
or change their opinion of our stock to be less favorable, our share price would likely decline. In addition, if one or more analysts
cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which
could cause our share price or trading volume to decline.