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IGM Biosciences
S-1 2019-08-19 Public Filing
8-K 2019-09-20 Amend Bylaw, Regulation FD, Exhibits
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IGMS 2019-08-19
Part II
Item 13. Other Expenses of Issuance and Distribution.
Item 14. Indemnification of Directors and Officers.
Item 15. Recent Sales of Unregistered Securities.
Item 16. Exhibits and Financial Statement Schedules.
Item 17. Undertakings.
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IGM Biosciences Filing 2019-08-19

IGMS Filing


S-1 1 d741228ds1.htm REGISTRATION STATEMENT ON FORM S-1 Registration Statement on Form S-1
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Index to Financial Statements

As filed with the Securities and Exchange Commission on August 19, 2019

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

IGM Biosciences, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2834   77-0349194
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

325 E. Middlefield Road

Mountain View, CA 94043

(650) 965-7873

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Fred M. Schwarzer

Chief Executive Officer and President

IGM Biosciences, Inc.

325 E. Middlefield Road

Mountain View, CA 94043

(650) 965-7873

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

 

Kenneth A. Clark

Tony Jeffries

Jennifer Knapp

Wilson Sonsini Goodrich & Rosati, P.C.

650 Page Mill Road

Palo Alto, California 94304

(650) 493-9300

  

Jonie I. Kondracki

Charles S. Kim

David Peinsipp

Will H. Cai

Cooley LLP

101 California Street

San Francisco, California 94611

(415) 693-2000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.  

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  

 

 

CALCULATION OF REGISTRATION FEE

 

 

 

TITLE OF EACH CLASS OF
SECURITIES TO BE REGISTERED
  PROPOSED
MAXIMUM AGGREGATE
OFFERING PRICE (1)(2)
  AMOUNT OF
REGISTRATION FEE

Common Stock, $0.01 par value per share

  $100,000,000   $12,120

 

 

(1)    Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act.
(2)    Includes the aggregate offering price of additional shares that the underwriters have the option to purchase.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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Index to Financial Statements

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED                      , 2019

 

 

PRELIMINARY PROSPECTUS

                 Shares

 

LOGO

Common Stock

We are offering                 shares of our common stock. This is our initial public offering, and no public market currently exists for our common stock. We expect the initial public offering price to be between $                 and $                 per share. We have applied to list our common stock on the Nasdaq Global Select Market under the symbol “IGMS”.

We are an “emerging growth company” as defined under the federal securities laws and, as such, we have elected to comply with certain reduced reporting requirements for this prospectus and may elect to do so in future filings.

We have two classes of common stock: the voting common stock offered hereby and non-voting common stock. For a description of the rights of the voting common stock and non-voting common stock, please see “Description of Capital Stock” beginning on page 146 of this prospectus. We are offering voting common stock in this offering, and unless otherwise noted, all references in this prospectus to our “common stock” or “common shares” refers to our voting common stock.

Investing in our common stock involves a high degree of risk. Please read “Risk Factors” beginning on page 11 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

     PER SHARE      TOTAL  

Initial Public Offering Price

   $                          $                      

Underwriting Discounts and Commissions (1)

   $        $    

Proceeds to IGM Biosciences, Inc. before expenses

   $        $    

 

 

(1)    See “Underwriting” beginning on page 158 for additional information regarding underwriter compensation.

Delivery of the shares of common stock is expected to be made on or about                     , 2019. We have granted the underwriters an option for a period of 30 days to purchase an additional                 shares of our common stock. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable by us will be $                 , and the total proceeds to us, before expenses, will be $                 .

 

Jefferies   Piper Jaffray   Stifel   Guggenheim Securities

Prospectus dated                     , 2019


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TABLE OF CONTENTS

 

 

 

     PAGE  

PROSPECTUS SUMMARY

     1  

RISK FACTORS

     11  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     56  

MARKET, INDUSTRY AND OTHER DATA

     58  

USE OF PROCEEDS

     59  

DIVIDEND POLICY

     60  

CAPITALIZATION

     61  

DILUTION

     63  

SELECTED FINANCIAL DATA

     65  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     67  

BUSINESS

     78  

MANAGEMENT

     115  

EXECUTIVE COMPENSATION

     127  

CERTAIN RELATIONSHIPS AND RELATED PARTY AND OTHER TRANSACTIONS

     140  

PRINCIPAL STOCKHOLDERS

     143  

DESCRIPTION OF CAPITAL STOCK

     146  

SHARES ELIGIBLE FOR FUTURE SALE

     152  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF THE OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK

     154  

UNDERWRITING

     158  

LEGAL MATTERS

     166  

EXPERTS

     166  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     166  

INDEX TO FINANCIAL STATEMENTS

     F-1  

 

 

 

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Through and including                     , 2019 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

We and the underwriters have not authorized anyone to provide you any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date of this prospectus unless the information specifically indicates that another date applies, regardless of the time of delivery of this prospectus or of any sale of the shares of common stock offered hereby. Our business, financial condition, results of operations and prospects may have changed since that date.

For investors outside of the United States: we have not, and the underwriters have not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside of the United States.

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and financial statements included elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should carefully read this entire prospectus, including the information under the sections titled “Risk Factors,” “Special Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus, before making an investment decision. Unless the context requires otherwise, references in this prospectus to “IGM Biosciences,” “IGM,” the “Company,” “we,” “us” and “our” refer to IGM Biosciences, Inc.

Overview

We are a biotechnology company pioneering the development of engineered IgM antibodies for the treatment of cancer patients. IgM antibodies have inherent properties that we believe may enable them to bind more strongly to cancer cells than comparable IgG antibodies. We have created a proprietary IgM antibody technology platform that we believe is particularly well suited for developing T cell engagers, receptor cross-linking agonists and targeted cytokines. Our lead product candidate, IGM-2323, is a bispecific T cell engaging IgM antibody targeting CD20 and CD3 proteins, and we intend to dose the first patient in a Phase 1 clinical trial for the treatment of relapsed/refractory B cell Non-Hodgkin’s lymphoma (NHL) patients in 2019. Our second product candidate will be an IgM antibody targeting Death Receptor 5 (DR5) proteins, and we plan to file an investigational new drug application (IND) for the treatment of patients with solid and hematologic malignancies in 2020. We believe that we have the most advanced research and development program focused on engineered therapeutic IgM antibodies. We have created a portfolio of patents and patent applications, know-how and trade secrets directed to our platform technology, product candidates and manufacturing capabilities, and we retain worldwide commercial rights to all of our product candidates and the intellectual property related thereto.

Immunoglobulin G (IgG) and Immunoglobulin M (IgM) are classes of antibodies that are naturally produced by the human immune system and are distinguishable by their structural properties.

Structural Comparison of IgG and IgM Antibodies

 

LOGO



 

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IgM antibodies have 10 binding domains compared to 2 for IgG antibodies. This inherent biological advantage enables:

 

   

Stronger binding to cell surface targets, including those with low expression levels, which may result in better and more complete targeting of cancer cells;

 

   

Stronger binding to difficult targets, such as tumor associated carbohydrates and glycosylated proteins, which has the potential to expand the range of addressable cancer targets;

 

   

Greater ability to cross-link cell surface receptors, which may significantly enhance cellular signaling for killing cancer cells or stimulating T cells, which are a type of white blood cell that are an essential part of the immune system; and

 

   

Substantially greater ability to utilize the complement dependent cytotoxicity (CDC) mechanism of killing targeted cells, which kills cancer cells without requiring the presence of immune cells.

Despite these inherent biological advantages, while IgG antibodies have been broadly developed as therapeutics for cancer, we believe the therapeutic potential of engineered IgM antibodies has remained largely unexplored.

Our Platform

We created our IgM platform to expand upon the inherent properties of IgM antibodies and to allow for the rapid development of engineered therapeutic antibodies. Significantly, our IgM platform allows us to create IgM antibodies with higher affinity and avidity than naturally occurring IgM antibodies. We believe our platform also allows us to utilize the strong and durable binding of IgM antibodies to kill cancer cells with T cells, induce programmed death of cancer cells or deliver immune stimulating cytokines to the region of the bound cell.

The versatility of our IgM platform positions us to evaluate multiple approaches to treat patients with solid and hematologic malignancies. Our ability to develop engineered IgM antibodies against various targets allows for the creation of a broad and differentiated product pipeline. Our initial efforts are focused on three broad applications of IgM antibodies:

 

   

T cell engagers: T cell to cancer cell engagement, including CD20 x CD3, CD123 x CD3, CD38 x CD3 and solid tumor target x CD3 programs, which we believe may have the potential to kill cancer cells through T cell directed cellular cytotoxicity (TDCC) and CDC while maintaining a favorable tolerability profile.

 

   

Receptor cross-linking agonists: Tumor Necrosis Factor receptor Superfamily (TNFrSF) agonists, including DR5, which induces programmed death of cancer cells, as well as OX40, glucocorticoid-induced TNFr-related protein (GITR) and other TNFrSF members, which we believe may enhance the ability of the immune system to fight cancer.

 

   

Targeted cytokines: Targeted cytokine delivery, including interleukin-15 (IL-15), which we believe may be helpful in inducing and maintaining immune responses to cancer.

Our Pipeline

Our lead product candidate, IGM-2323, is a CD20 x CD3 bispecific IgM antibody for the treatment of patients with CD20-positive cancer. CD20 is a protein commonly expressed on the surface of NHL cells and chronic lymphocytic leukemia (CLL) cells, while CD3 is a protein expressed on the surface of T cells. IGM-2323 contains 10 binding domains for CD20 and one binding domain for CD3. In our preclinical studies, IGM-2323 strongly bound to CD20-positive cancer cells and induced potent T cell dependent and complement dependent cancer cell death, including those cells with low levels of CD20. In addition, we observed lower cytokine release with IGM-2323 relative to comparable IgG bispecific T cell engaging antibodies in our preclinical studies, which may result in reduced risk of the serious adverse effects of cytokine release syndrome (CRS). We plan to begin evaluating IGM-2323 in a Phase 1 clinical trial in relapsed/refractory B cell NHL patients, which is B cell NHL that has either not responded to initial treatment or responded to treatment but then returns, in 2019. Treatment with combination chemo-immunotherapy, such as with rituximab-based regimens, or high



 

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dose chemotherapy and bone marrow transplant, is generally effective and may cure approximately 50-70% of patients with aggressive B cell NHL. Indolent B cell NHL, which represents approximately 40% of B cell NHL cases, remains mostly incurable at advanced stages with current therapies.

Our second product candidate will be an IgM antibody targeting DR5 for the treatment of patients with solid and hematologic malignancies. DR5 receptors are expressed on a broad range of solid tumors as well as leukemias and lymphomas, but their intracellular apoptotic signaling requires efficient cross-linking of at least three DR5 receptors. Our DR5 IgM antibodies demonstrated significantly enhanced apoptotic signaling compared to an IgG antibody with the same binding domains, resulting in >1,000 fold increased potency in killing cancer cells from multiple cancer cell types in our studies outside of living organisms (in vitro) studies. In our preliminary studies in living organisms (in vivo), specifically cynomolgus monkeys, no untoward toxicity was observed with our DR5 IgM antibodies. We expect to file an IND for a DR5 IgM antibody in 2020.

The following table highlights our lead programs:

 

LOGO

The following table highlights discovery programs that we are prioritizing:

 

 

LOGO

We estimate that these discovery programs are at least two years away from clinical studies, assuming they meet our requirements for advancement. We do not anticipate advancing all of these programs into clinical testing, and some of these programs may be supplanted by other IgM discovery programs.

Our Team

Our management team and board of directors have decades of biotechnology experience and perspective in areas such as cancer biology, immunotherapy, immunology, antibody discovery, protein engineering and clinical development. They bring a strong history of leadership, innovation and research and development experience at leading companies, including Roche/Genentech, Amgen, Gilead Sciences, Celgene, Millennium Pharmaceuticals, Shire, Kite Pharma, Bavarian Nordic, Sutro Biopharma and Northern Biologics. Members of our team were involved in the discovery, development or commercialization of multiple therapeutics, including Tecentriq, Yescarta, Zydelig, Avastin, Lucentis, Vectibix, Activase, TNKase and Kogenate. Our team is further



 

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supported by a strong group of investors that share our commitment to developing IgM antibodies for the treatment of cancer patients. Since 2010, we have raised approximately $162.0 million through convertible preferred stock financings. Our key investors include Haldor Topsøe Holding A/S (HTH), a global leader in catalysis and chemical process technology, and leading institutional investors, Baker Brothers, Redmile Group, Janus Henderson Investors and Vivo Capital.

Our Strategy

Our strategy is to sustain and extend our global leadership in the development of engineered IgM antibodies for therapeutic use. We plan to achieve this by utilizing our proprietary IgM technology to develop antibodies with differentiated product profiles and the ability to address difficult to treat patients with cancers and other serious diseases. This strategy encompasses the following key elements:

 

   

Advance IGM-2323 through clinical development in B cell NHL to establish our IgM platform as the leading CD3 T cell engaging technology.

 

   

Progress a DR5 IgM antibody into clinical trials to establish the efficacy of our IgM antibodies in targeting members of the TNFrSF.

 

   

Utilize our proprietary T cell engaging and immune stimulating technologies to expand our pipeline of IgM antibody product candidates.

 

   

Build antibody manufacturing capabilities to support our future clinical trials and provide commercial supply for any approved product candidates.

 

   

Directly commercialize any approved product candidates in key markets alone or with strategic partners.

 

   

Continue to expand our intellectual property portfolio to further protect our IgM platform and our product candidates.

We believe that if we are successful in bringing an IgM antibody to market, particularly one that is more effective and safer than comparable IgG antibodies, we will significantly alter the course of future therapeutic antibody development.

Risks Associated with Our Business

Our business is subject to numerous risks and uncertainties, including those discussed more fully in the section titled “Risk Factors.” These risks include, but are not limited to, the following:

 

   

We are early in our development efforts and all of our product candidates are in preclinical development or early stage clinical development. If we are unable to advance our product candidates through clinical development, obtain regulatory approval and commercialize one or more of our product candidates, our business will be materially adversely affected and we may never generate any product revenue.

 

   

The use of engineered IgM antibodies is a novel and unproven therapeutic approach and our development of IGM-2323, our DR5 IgM antibody and our discovery programs may never lead to a marketable product.

 

   

Clinical trials are expensive, time consuming and difficult to design and implement and may fail to demonstrate adequate safety and efficacy of our product candidates. Furthermore, the results of previous preclinical studies and clinical trials may not be predictive of future results, and the results of our current and planned clinical trials may not satisfy the requirements of the FDA or comparable foreign regulatory authorities or provide the basis for regulatory approval.

 

   

If clinical trials for our product candidates are prolonged, delayed or stopped, we may be unable to seek or obtain regulatory approval and commercialize our product candidates on a timely basis, or at all, which would require us to incur additional costs and delay our receipt of any product revenue.

 

   

If we experience delays or difficulties in the enrollment of patients in clinical trials, including as a result of competition for patients, we will be unable to complete these trials on a timely basis, if at all.



 

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Our product candidates may have undesirable side effects that may delay or prevent marketing approval or, if approval is received, require them to be taken off the market, require them to include new safety warnings, contraindications or precautions, or otherwise limit their sales. No regulatory agency has made a determination that any of our product candidates are safe or effective for use by the general public for any indication.

 

   

We face significant competition from entities that have developed or may develop product candidates for the treatment of diseases that we are initially targeting, including companies developing novel treatments and technology platforms. If our competitors develop and market products that are more effective, safer or less expensive than our product candidates, our commercial opportunities will be negatively impacted.

 

   

The manufacturing of our product candidates is complex. We and our third-party manufacturers may encounter difficulties in production. If we encounter any such difficulties, our ability to supply our product candidates for clinical trials or, if approved, for commercial sale, could be delayed or halted entirely.

 

   

We may not be successful in our efforts to use and expand our IgM platform to build a pipeline of product candidates.

 

   

Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.

 

   

We have incurred significant losses since inception and anticipate that we will continue to incur losses for the foreseeable future. We have no products approved for commercial sale, and to date we have not generated any revenue or profit from product sales. We may never achieve or sustain profitability.

 

   

Even if this offering is successful, we will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not available, may require us to delay, scale back or cease our product development programs or operations.

 

   

Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. In addition, if we are unable to obtain, maintain and enforce patent and trade secret protection for our product candidates and related technologies, our business could be materially harmed.

Corporate Information

We were incorporated in Delaware in 1993 under the name Palingen, Inc. From 1993 to 2010, we were principally engaged in research related to naturally occurring IgM antibodies. In 2010, we received an initial equity investment from Haldor Topsøe Holding A/S (HTH), our current majority stockholder, changed our name to IGM Biosciences, Inc. and refocused our research and development efforts toward developing our IgM platform and engineering new IgM antibodies. In December 2017, we established a Danish holding company–IGM Biosciences A/S (Holdco); in April 2019, we dissolved Holdco. The capitalization information included in this prospectus is consistently presented as that of IGM Biosciences, Inc., even during the interim period when we had a holding company structure and our investors held their equity interests in Holdco.

Our principal executive offices are located at 325 E. Middlefield Road, Mountain View, California 94043, and our telephone number is (650) 965-7873. Our website address is www.igmbio.com. Information contained on, or that can be accessed through, our website is not incorporated by reference in this prospectus.

IGM Biosciences, the IGM logo and our other registered or common law trademarks, trade names or service marks appearing in this prospectus are owned by us. This prospectus contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus, including logos, artwork and other visual displays, generally appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.



 

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Emerging Growth Company Status

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act).

An emerging growth company may take advantage of certain reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

 

   

being permitted to present only two years of audited financial statements in addition to any required unaudited interim financial statements, with correspondingly reduced disclosure in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;

 

   

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the Sarbanes-Oxley Act);

 

   

reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports, proxy statements and registration statements; and

 

   

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments.

We will remain an emerging growth company until the earlier of (i) the last day of our first fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenues of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million under the rules of the U.S. Securities and Exchange Commission and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

We have elected to take advantage of certain of the reduced disclosure obligations in this prospectus and the registration statement of which this prospectus is a part, and we may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than, and not comparable to, information presented by other public reporting companies.

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. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting standards as of public company effective dates.



 

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The Offering

 

Common stock offered

                 shares

 

Underwriters’ option to purchase additional shares of common stock

                 shares

 

Total common stock and non-voting common stock to be outstanding immediately after this offering

                 shares (or                  shares if the underwriters exercise their option to purchase additional shares in full)

 

Use of proceeds

We estimate that our net proceeds from this offering of common stock will be approximately $        million (or approximately $        million if the underwriters exercise their option to purchase additional shares in full), assuming an initial public offering price of $            per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

  We expect to use the net proceeds from this offering, together with our existing cash and cash equivalents, to fund: (i) our Phase 1 clinical trial of IGM-2323 for the treatment of relapsed/refractory B cell NHL patients; (ii) IND-enabling studies and a Phase 1 clinical trial of our DR5 IgM antibody; (iii) the build out and expansion of our manufacturing facilities; and (iv) the development of our pipeline and discovery programs, as well as for working capital and other general corporate purposes. See the section of this prospectus titled “Use of Proceeds.”

 

Risk factors

See the section of this prospectus titled “Risk Factors” beginning on page 11 and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock.

 

Proposed Nasdaq Global Select Market trading symbol

“IGMS”

The number of shares of common stock and non-voting common stock that will be outstanding following this offering is based on 91,150,325 shares of common stock outstanding and 27,500,000 shares of non-voting common stock outstanding as of June 30, 2019 (including convertible preferred stock on an as-converted basis as well as 20,000,000 shares of our Series C convertible preferred stock issued after June 30, 2019 and 770,000 shares of restricted common stock subject to forfeiture), and excludes:

 

   

3,937,606 shares of common stock issuable upon the exercise of outstanding stock options granted under our 2010 Stock Plan (2010 Plan) as of June 30, 2019, with a weighted-average exercise price of $0.14 per share;

 

   

8,812,119 shares of common stock issuable upon the exercise of outstanding stock options granted under our 2018 Omnibus Incentive Plan (2018 Plan) as of June 30, 2019, with a weighted-average exercise price of $0.21 per share;

 

   

1,223,000 shares of common stock issuable upon the exercise of outstanding stock options granted under our 2018 Plan after June 30, 2019, with a weighted-average exercise price of $1.55 per share;



 

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            shares of common stock reserved for future issuance under our 2018 Plan, including the amendment thereto that will become effective in connection with this offering, and any additional shares that become available under our 2018 Plan pursuant to provisions thereof that automatically increase the share reserve under the plan each year; and

 

   

            shares of common stock reserved for future issuance under our 2019 Employee Stock Purchase Plan (ESPP), which will become effective in connection with this offering, and any additional shares that become available under our ESPP pursuant to provisions thereof that automatically increase the share reserve under the plan each year.

In addition, unless we specifically state otherwise, all information in this prospectus assumes:

 

   

the automatic conversion of all outstanding shares of our convertible preferred stock (including 20,000,000 shares of our Series C convertible preferred stock issued after June 30, 2019) into an aggregate of 86,290,538 shares of common stock and 27,500,000 shares of non-voting common stock, which will occur immediately prior to the completion of this offering pursuant to the terms of our amended and restated certificate of incorporation;

 

   

no exercise of outstanding stock options;

 

   

no exercise by the underwriters of their option to purchase additional shares of common stock; and

 

   

the filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering.



 

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Summary Financial Data

The following tables set forth a summary of our financial data as of and for the periods ended on the dates indicated. We have derived the summary statements of operations data for the years ended December 31, 2017 and 2018 from our audited financial statements included elsewhere in this prospectus. The summary statements of operations data for the six months ended June 30, 2018 and 2019, and the summary balance sheet data as of June 30, 2019, have been derived from our unaudited interim condensed financial statements included elsewhere in this prospectus. The unaudited interim condensed financial statements were prepared on the same basis as our audited financial statements and reflect, in the opinion of management, all adjustments, which include only normal, recurring adjustments that are necessary to present fairly the results for the interim periods presented. Our historical results are not necessarily indicative of the results that may be expected in any future period. You should read this data together with the information in the sections titled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

 

 

 

    YEAR ENDED DECEMBER 31,     SIX MONTHS ENDED JUNE 30,  
    2017     2018     2018     2019  
    (in thousands, except share and per share amounts)  
                (Unaudited)  

Statements of Operations Data:

       

Operating expenses:

       

Research and development

  $ 8,639     $ 18,962     $ 5,976     $ 14,215  

General and administrative

    2,508       3,829       1,224       3,673  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    11,147       22,791       7,200       17,888  
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (11,147     (22,791     (7,200     (17,888

Other income (expense), net

    93       80       59       (258
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (11,054   $ (22,711   $ (7,141   $ (18,146
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted (1)

  $ (3.82   $ (7.84   $ (2.47   $ (5.47
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares outstanding, basic and diluted (1)

    2,894,127       2,895,000       2,895,000       3,315,596  
 

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share, basic and diluted (unaudited) (1)

    $ (0.46     $ (0.27
   

 

 

     

 

 

 

Pro forma weighted-average common and non-voting common shares outstanding, basic and diluted (unaudited) (1)

      48,869,169         66,619,946  
   

 

 

     

 

 

 

 

 

(1)    See Note 10 to our financial statements and Note 9 to our unaudited condensed financial statements included elsewhere in this prospectus for an explanation of the method used to calculate historical and pro forma net loss per share, basic and diluted, and the weighted-average number of shares used in the computation of the per share amounts.


 

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     AS OF JUNE 30, 2019  
     ACTUAL     PRO FORMA (1)     PRO FORMA
AS ADJUSTED (2)(3)
 
           (unaudited)  
     (in thousands)  

Balance Sheet Data:

      

Cash and cash equivalents

   $ 42,672     $ 82,672     $              

Total assets

     48,517       88,431    

Accrued liabilities

     4,048       4,048    

Total liabilities

     6,701       6,701    

Convertible preferred stock

     122,785          

Accumulated deficit

     (82,218     (82,218  

Total stockholders’ (deficit) equity

     (80,969     81,730    

 

 

 

(1)    The pro forma balance sheet data above reflects (i) the issuance of 20,000,000 shares of our Series C convertible preferred stock and related gross proceeds of $40.0 million subsequent to June 30, 2019 and (ii) the automatic conversion of all outstanding shares of our convertible preferred stock (including the shares referenced in (i)) into an aggregate of 86,290,538 shares of common stock and 27,500,000 shares of non-voting common stock as if such conversion had occurred on June 30, 2019.
(2)    The pro forma as adjusted balance sheet data gives effect to (i) the pro forma adjustments set forth in footnote (1) above and (ii) the issuance and sale of                 shares of common stock in this offering at an assumed initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(3)    The pro forma as adjusted information above is illustrative only and may change based on the actual initial public offering price and other terms of this offering. Each $1.00 increase (decrease) in the assumed initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of cash and cash equivalents, total assets and total stockholders’ (deficit) equity by $                 million, assuming that the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered by us would increase (decrease) each of cash and cash equivalents, total assets and total stockholders’ (deficit) equity by $                 million, assuming the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.


 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and uncertainties, together with all of the other information contained in this prospectus, including our financial statements and related notes included elsewhere in this prospectus, before making an investment decision. The risks described below are not the only ones facing us. The occurrence of any of the following risks, or of additional risks and uncertainties not presently known to us or that we currently believe to be immaterial, could materially and adversely affect our business, financial condition or results of operations. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business and the Development and Commercialization of Our Product Candidates

We are early in our development efforts and all of our product candidates are in preclinical development or early stage clinical development. If we are unable to advance our product candidates through clinical development, obtain regulatory approval and commercialize one or more of our product candidates, our business will be materially adversely affected and we may never generate any product revenue.

We are early in our development efforts and have not yet completed the development of any of our product candidates. As a result, we are not currently permitted to market or sell any of our product candidates in any country, and we may never be able to do so in the future. We have a limited number of product candidates and discovery programs, all of which are in preclinical development or early stage clinical development. We have not commenced or completed any clinical trials, and we have not received marketing approval, for any of our product candidates. Our product candidates will require clinical development, evaluation of preclinical, clinical and manufacturing activities, marketing approval from government regulators, substantial investment and significant marketing efforts before we generate any revenues from product sales, if ever. We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals. Our ability to generate product revenue and achieve and sustain profitability depends on, among other things, obtaining regulatory approvals for our product candidates. Obtaining regulatory approval of our product candidates will depend on many factors, including, but not limited to, the following:

 

   

completing process development, manufacturing and formulation activities;

 

   

initiating, enrolling patients in and completing clinical trials of product candidates on a timely basis;

 

   

developing and maintaining adequate manufacturing capabilities either by ourselves or in connection with third-party manufacturers; and

 

   

demonstrating with substantial evidence the efficacy, safety and tolerability of product candidates to the satisfaction of the FDA or any comparable foreign regulatory authority for marketing approval.

Many of these factors are wholly or partially beyond our control, including clinical advancement, the regulatory submission process and changes in the competitive landscape. If we do not achieve one or more of these factors in a timely manner, we could experience significant delays or an inability to develop product candidates at all, and our business will be materially adversely affected.

The use of engineered IgM antibodies is a novel and unproven therapeutic approach and our development of IGM-2323, our DR5 IgM antibody and our discovery programs may never lead to a marketable product.

Our product candidates are based on engineered IgM antibody approaches that differ from current antibody therapies and are unproven. Our IgM antibodies ultimately may not be as safe or effective as IgG antibodies that have been approved or may in the future be approved by the FDA. Further, we are not aware of any therapeutic IgM antibodies that have been approved by the FDA. The scientific evidence to support the feasibility of developing our product candidates and discovery programs is both preliminary and limited. We may ultimately discover that our product candidates and discovery programs do not possess some of the properties that are necessary for therapeutic efficacy, and we may also discover that they do not possess those characteristics that we believe may be helpful for therapeutic effectiveness, including stronger binding that increases efficacy. Our IgM antibodies may also have significant undesirable characteristics, such as immunogenicity, which would limit their ability to be developed as effective and safe therapeutics. In addition, we may discover that our IgM antibodies are not as safe as IgG antibodies.

 

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We may not succeed in demonstrating safety and efficacy of these product candidates or discovery programs in clinical trials, notwithstanding results in preclinical studies. As a result, we may never succeed in developing a marketable product. We may discover that the half-life, tissue distribution or other pharmacodynamic or pharmacokinetic characteristics of our IgM antibodies render them unsuitable for the therapeutic applications we have chosen or are not competitive with IgG antibodies. We may also experience manufacturing, formulation or stability problems with one or more of our IgM antibodies which may render them unsuitable for use as therapeutic drug products.

The FDA has limited experience with IgM antibody-based therapeutics, which may increase the complexity, uncertainty and length of the regulatory approval process for our product candidates. For example, the FDA may require us to provide additional data to support our regulatory applications. We may never receive approval to market and commercialize any product candidate. Even if we obtain regulatory approval, the approval may be for targets, disease indications or patient populations that are not as broad as we intended or desired or may require labeling that includes significant use or distribution restrictions or safety warnings. We may be subject to post-marketing testing requirements to maintain regulatory approval. In addition, upon obtaining any marketing approvals, we may have difficulty in establishing the necessary sales and marketing capabilities to gain market acceptance.

Moreover, advancing IGM-2323, our DR5 IgM antibody and our discovery programs as novel products creates other significant challenges for us, including educating medical personnel regarding a novel class of engineered antibody therapeutics and their potential efficacy and safety benefits, as well as the challenges of incorporating our product candidates, if approved, into treatment regimens.

If any of our product candidates prove to be ineffective, unsafe or commercially unviable, our entire pipeline could have little, if any, value, and it may prove to be difficult or impossible to finance the further development of our pipeline. Any of these events would have a material and adverse effect on our business, financial condition, results of operations and prospects.

Clinical trials are expensive, time consuming and difficult to design and implement and may fail to demonstrate adequate safety and efficacy of our product candidates. Furthermore, the results of previous preclinical studies and clinical trials may not be predictive of future results, and the results of our current and planned clinical trials may not satisfy the requirements of the FDA or comparable foreign regulatory authorities or provide the basis for regulatory approval.

Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct preclinical development and then extensive clinical trials to demonstrate their safety and efficacy. Clinical testing is expensive and difficult to design and implement. Clinical testing can take many years to complete, and its ultimate outcome is uncertain.

A failure of one or more clinical trials can occur at any stage of the process. We will be required to demonstrate with substantial evidence through well-controlled clinical trials that our product candidates are safe and effective for use in a diverse patient population before we can seek regulatory approvals for their commercial sale. Our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional and expansive preclinical or clinical testing.

Positive or timely results from preclinical or early-stage trials do not ensure positive or timely results in future clinical trials or registrational clinical trials because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and comparable foreign regulatory authorities, despite having progressed through preclinical studies or initial clinical trials. Product candidates that have shown promising results in early clinical trials may still suffer significant setbacks in subsequent clinical trials or registration clinical trials. For example, a number of companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials.

Interim or preliminary data from clinical trials that we may conduct may not be indicative of the final results of the trial and are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data becomes available. Interim or preliminary data also remains subject to

 

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audit and verification procedures that may result in the final data being materially different from the interim or preliminary data. As a result, interim or preliminary data should be viewed with caution until the final data are available.

We do not know whether any clinical trials we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain marketing approval to market our product candidates.

If clinical trials for our product candidates are prolonged, delayed or stopped, we may be unable to seek or obtain regulatory approval and commercialize our product candidates on a timely basis, or at all, which would require us to incur additional costs and delay our receipt of any product revenue.

We intend to dose the first patient in a Phase 1 clinical trial of IGM-2323, our lead product candidate, for the treatment of relapsed/refractory B cell NHL patients in 2019, and we expect to file an IND for our second product candidate, an IgM antibody targeting DR5, for the treatment of patients with solid and hematological malignancies in 2020. We may experience delays in our ongoing or future preclinical studies or clinical trials, and we do not know whether future preclinical studies or clinical trials will begin on time, need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. The commencement or completion of these clinical trials could be substantially delayed or prevented by many factors, including:

 

   

further discussions with the FDA or comparable foreign regulatory authorities regarding the scope or design of our clinical trials;

 

   

the limited number of, and competition for, suitable study sites and investigators to conduct our clinical trials, many of which may already be engaged in other clinical trial programs with similar patients, including some that may be for the same indication as our product candidates;

 

   

any delay or failure to obtain timely approval or agreement to commence a clinical trial in any of the countries where enrollment is planned;

 

   

inability to obtain sufficient funds required for a clinical trial;

 

   

clinical holds on, or other regulatory objections to, a new or ongoing clinical trial;

 

   

delay or failure to manufacture sufficient supplies of the product candidate for our clinical trials;

 

   

delay or failure to reach agreement on acceptable clinical trial agreement terms or clinical trial protocols with prospective sites or clinical research organizations (CROs), the terms of which can be subject to extensive negotiation and may vary significantly among different sites or CROs;

 

   

delay or failure to obtain institutional review board (IRB) approval to conduct a clinical trial at a prospective site;

 

   

the FDA or other comparable foreign regulatory authorities may require us to submit additional data or impose other requirements before permitting us to initiate a clinical trial;

 

   

slower than expected rates of patient recruitment and enrollment;

 

   

failure of patients to complete the clinical trial;

 

   

the inability to enroll a sufficient number of patients in studies to ensure adequate statistical power to detect statistically significant treatment effects;

 

   

unforeseen safety issues, including severe or unexpected drug-related adverse effects experienced by patients, including possible deaths;

 

   

lack of efficacy during clinical trials;

 

   

termination of our clinical trials by one or more clinical trial sites;

 

   

inability or unwillingness of patients or clinical investigators to follow our clinical trial protocols;

 

   

inability to monitor patients adequately during or after treatment by us or our CROs;

 

   

our CROs or clinical study sites failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, deviating from the protocol or dropping out of a study;

 

   

the inability to produce or obtain sufficient quantities of a product candidate to complete clinical trials;

 

   

inability to address any noncompliance with regulatory requirements or safety concerns that arise during the course of a clinical trial;

 

   

the need to suspend, repeat or terminate clinical trials as a result of non-compliance with regulatory requirements, inconclusive or negative results or unforeseen complications in testing; and

 

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the suspension or termination of our clinical trials upon a breach or pursuant to the terms of any agreement with, or for any other reason by, any future strategic partners that have responsibility for the clinical development of any of our product candidates.

Changes in regulatory requirements, policies and guidelines may also occur and we may need to significantly modify our clinical development plans to reflect these changes with appropriate regulatory authorities. These changes may require us to renegotiate terms with CROs or resubmit clinical trial protocols to IRBs for re-examination, which may impact the costs, timing or successful completion of a clinical trial. Our clinical trials may be suspended or terminated at any time by us, the FDA, other regulatory authorities, the IRB overseeing the clinical trial at issue, any of our clinical trial sites with respect to that site, or us.

Any failure or significant delay in commencing or completing clinical trials for our product candidates, any failure to obtain positive results from clinical trials, any safety concerns related to our product candidates, or any requirement to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate would adversely affect our ability to obtain regulatory approval and our commercial prospects and ability to generate product revenue will be diminished.

If we experience delays or difficulties in the enrollment of patients in clinical trials, including as a result of competition for patients, we will be unable to complete these trials on a timely basis, if at all.

We may not be able to initiate or continue clinical trials for our product candidates if we are unable to identify and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or comparable foreign regulatory authorities. Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the severity of the disease under investigation, the proximity of subjects to clinical sites, continued enrollment of prospective patients by clinical trial sites, efforts to facilitate timely enrollment, the eligibility criteria for the trial, the design of the clinical trial, patient referral practices of physicians, ability to obtain and maintain patient consents, ability to monitor patients adequately during and after treatment, risk that enrolled subjects will drop out before completion and clinicians’ and patients’ perceptions as to the potential advantages and disadvantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.

In addition, our competitors, some of whom have significantly greater resources than we do, are conducting clinical trials for the same indications and seek to enroll patients in their studies that may otherwise be eligible for our clinical studies or trials, which could lead to slow recruitment and delays in our clinical programs. Further, since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which could further reduce the number of patients who are available for our clinical trials in these sites. Moreover, because our product candidates represent a departure from existing cancer treatments, potential patients and their doctors may be inclined to use conventional therapies, such as chemotherapy, IgG antibody therapy or CAR-T treatment, rather than enroll patients in our clinical trials.

Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether. If we are unable to enroll a sufficient number of patients that will complete clinical testing, we will be unable to seek or gain marketing approval for such product candidates and our business will be harmed. Even if we are able to enroll a sufficient number of patients in our clinical studies or trials, delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our product candidates.

Our product candidates may have undesirable side effects that may delay or prevent marketing approval or, if approval is received, require them to be taken off the market, require them to include new safety warnings, contraindications or precautions, or otherwise limit their sales. No regulatory agency has made a determination that any of our product candidates are safe or effective for use by the general public for any indication.

All of our product candidates and discovery programs are in preclinical development or early stage clinical development, and not all adverse effects of drugs can be predicted or anticipated. Unforeseen side effects from our product candidates could arise at any time during clinical development or, if approved by regulatory authorities, after the approved product has been marketed. We intend to dose the first patient in a Phase 1 clinical trial for our lead

 

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product candidate, IGM-2323 in 2019, and we do not yet have any safety data in humans. Our DR5 IgM antibody and our discovery programs are still in preclinical development and have not been tested on humans at all.

In our preclinical studies, we may observe undesirable characteristics of our product candidates. This may prevent us from advancing them into clinical trials, delay these trials or limit the extent of these trials. For example, we have observed some indications of toxicity at high doses in our in vitro studies in human hepatocytes and in vivo non-human primate studies for our DR5 IgM antibody. The dose levels where this in vitro toxicity was observed are significantly higher than the maximum dose levels we anticipate using in our clinical trials. Nonetheless, toxicity observations in clinical testing, if they occur, may limit our ability to develop a DR5 antibody or may constitute a dose limiting toxicity.

The results of future clinical trials may also show that IGM-2323, our DR5 IgM antibody and/or our discovery programs may cause undesirable or unacceptable side effects, which could interrupt, delay or halt clinical trials, and result in delay of, or failure to obtain, marketing approval from the FDA or comparable foreign regulatory authorities, or result in marketing approval from the FDA or comparable foreign regulatory authorities with restrictive label warnings or for limited patient populations, or result in potential product liability claims. No regulatory agency has made any determination that any of our product candidates or discovery programs is safe or effective for use by the general public for any indication.

Even if any of our product candidates receive marketing approval, if we or others later identify undesirable or unacceptable side effects caused by such products:

 

   

regulatory authorities may require us to take our approved product off the market;

 

   

regulatory authorities may require the addition of labeling statements, specific warnings, contraindication, precaution or field alerts to physicians and pharmacies;

 

   

we may be required to change the way the product is administered, limit the patient population who can use the product or conduct additional clinical trials;

 

   

we may be subject to limitations on how we may promote the product;

 

   

sales of the product may decrease significantly;

 

   

we may be subject to litigation or product liability claims; and

 

   

our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating revenue from the sale of any future products.

We face significant competition from entities that have developed or may develop product candidates for the treatment of diseases that we are initially targeting, including companies developing novel treatments and technology platforms. If our competitors develop and market products that are more effective, safer or less expensive than our product candidates, our commercial opportunities will be negatively impacted.

The development and commercialization of drugs and therapeutic biologics is highly competitive and subject to rapid and significant technological change. We are currently developing biotherapeutics that will compete with other drugs and therapies that currently exist or are being developed in the segments of the pharmaceutical, biotechnology and other related markets that develop immuno-oncology treatments. Product candidates we may develop in the future are also likely to face competition from other drugs and therapies, some of which we may not currently be aware. We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, universities, academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for the research, development, manufacturing and commercialization of cancer immunotherapies. Many of our competitors have significantly greater financial, manufacturing, marketing, drug development, technical and human resources and commercial expertise than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and in manufacturing pharmaceutical products. These companies also have significantly greater research and marketing capabilities than we do and may also have products that have been

 

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approved or are in late stages of development and collaborative arrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our product candidates obsolete. As a result of all of these factors, our competitors may succeed in obtaining patent protection or FDA or other regulatory approval or discovering, developing and commercializing products in our field before we do.

There are a large number of companies developing or marketing treatments for cancer, including most major pharmaceutical and biotechnology companies, as well as many smaller biotechnology companies. These treatments consist both of small molecule drug products, as well as biologics that work by using antibody therapeutic platforms to address specific cancer targets. In addition, many companies, including large pharmaceutical and biotechnology companies such as AbbVie, Amgen, AstraZeneca/MedImmune, Bristol-Myers Squibb, Merck, Novartis, Pfizer and Roche/Genentech, are also developing immuno-oncology treatments for cancer.

We face significant competition from pharmaceutical and biotechnology companies that target specific tumor-associated antigens using immune cells or other cytotoxic modalities. These generally include immune cell redirecting therapeutics (e.g., T cell engagers), adoptive cellular therapies (e.g., CAR-T), antibody drug conjugates, targeted radiopharmaceuticals, targeted immunotoxin and targeted cancer vaccines.

With respect to our lead product candidate, IGM-2323, we are aware of other companies with competing clinical stage therapeutics that target CD20 that include, but are not limited to, Roche/Genentech, Regeneron, Xencor and Genmab.

With respect to our second product candidate, our DR5 IgM antibody, we are aware of other companies with competing clinical stage therapeutics that target DR5 that include, but are not limited to, AbbVie, InhibRx, Genmab and Boehringer Ingelheim.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe effects, are more convenient or are less expensive than the products that we may develop. Our competitors also may obtain FDA or foreign regulatory approval for their products more rapidly than we may obtain approval for our product candidates, which could result in our competitors establishing a strong market position before we are able to enter the market.

Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and enrolling subjects for our clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. In addition, the biotechnology industry is characterized by rapid technological change. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our technologies or product candidates obsolete, less competitive or not economical.

The manufacturing of our product candidates is complex. We and our third-party manufacturers may encounter difficulties in production. If we encounter any such difficulties, our ability to supply our product candidates for clinical trials or, if approved, for commercial sale, could be delayed or halted entirely.

We have spent significant resources to date on developing our current manufacturing processes and know-how to produce sufficient yields and optimize functionality in conjunction with our contract manufacturer. We plan to construct our own manufacturing facility to produce our product candidates in sufficient quantities to conduct clinical trials and ultimately commercial supply for any approved products. To do so, we will need to scale our manufacturing operations, as we do not currently have the infrastructure or capability internally to manufacture sufficient yields needed to advance our product candidates and discovery programs in preclinical studies and clinical trials. Accordingly, we will be required to make significant investments to expand our manufacturing facilities in the future, and our efforts to scale our internal manufacturing capabilities may not succeed.

Also, historically IgM antibodies have been particularly difficult to manufacture and CMOs have limited experience in the manufacturing of IgM antibodies. The process of manufacturing our product candidates is extremely susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, vendor or operator error, contamination and inconsistency in yields, variability in product characteristics and difficulties in scaling the production process. On at least one occasion in the past, our contract manufacturer has failed to

 

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successfully complete a scheduled manufacturing run of our IgM antibodies as a result of their manufacturing process errors. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination.

All of our engineered antibodies are manufactured by culturing cells from a master cell bank. We have one master cell bank for each antibody manufactured in accordance with current good manufacturing practices (cGMPs) and multiple working cell banks. It is possible that we could lose multiple cell banks and have our manufacturing severely impacted by the need to replace the cell banks, and we may fail to have adequate backup should any particular cell bank be lost in a catastrophic event. Any adverse developments affecting manufacturing operations for our product candidates, if any are approved, may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Furthermore, it is too early to estimate our cost of goods sold. The actual cost to manufacture our product candidates could be greater than we expect because we are early in our development efforts and the use of engineered IgM antibodies is a novel therapeutic approach. Failure to develop our own manufacturing capacity may hamper our ability to further process improvement, maintain quality control, limit our reliance on contract manufacturers and protect our trade secrets and other intellectual property.

We may not be successful in our efforts to use and expand our IgM platform to build a pipeline of product candidates.

A key element of our strategy is to leverage our IgM platform to expand our pipeline of antibody product candidates. Although our research and development efforts to date have resulted in a pipeline of product candidates directed at various cancers, we may not be able to develop product candidates that are safe and effective. In addition, although we expect that our IgM platform will allow us to develop a steady stream of product candidates, we may not prove to be successful at doing so. Even if we are successful in continuing to build our pipeline, the potential product candidates that we identify may not be suitable for clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval or achieve market acceptance. If we do not successfully develop and begin to commercialize product candidates, we will not be able to generate any product revenue, which would adversely affect business.

We may expend our limited resources to pursue product candidates or indications that do not yield a successful product and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Due to the significant resources required for the development of our programs, we must focus our programs on specific product candidates and indications and decide which product candidates to pursue and advance and the amount of resources to allocate to each. Our decisions concerning the allocation of research, development, collaboration, management and financial resources toward particular product candidates or indications may not lead to the development of any viable commercial product and may divert resources away from better opportunities. Similarly, our potential decisions to delay, terminate or collaborate with third parties in respect of certain programs may subsequently also cause us to miss valuable opportunities. If we make incorrect determinations regarding the viability or market potential of any of our programs or product candidates or misread trends in the oncology or biotechnology industry, our business, financial condition and results of operations could be materially adversely affected. As a result, we may fail to capitalize on viable commercial products or profitable market opportunities, be required to forego or delay pursuit of opportunities with other product candidates or other indications that may later prove to have greater commercial potential than those we choose to pursue, or relinquish valuable rights to such product candidates through collaboration, licensing or other royalty arrangements in cases in which it would have been advantageous for us to invest additional resources to retain sole development and commercialization rights.

 

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Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.

We are highly dependent on the business, research and development and clinical expertise of Mr. Fred Schwarzer, our Chief Executive Officer, Dr. Bruce Keyt, our Chief Scientific Officer, Dr. Daniel Chen, our Chief Medical Officer, and Mr. Misbah Tahir, our Chief Financial Officer, as well as other members of our senior management, scientific and clinical team. Although we have entered into employment agreements with our executive officers, each of them may terminate their employment with us at any time. The loss of the services of our executive officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy.

To succeed, we must recruit, retain, manage and motivate qualified clinical, scientific, manufacturing, and sales and marketing personnel, and we face significant competition for experienced personnel. In addition, we will need to expand and effectively manage our managerial, operational, financial, development and other resources in order to successfully pursue our research, development and commercialization efforts for our existing and future product candidates. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited talent pool in our industry due to the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize products. Intense competition for attracting key skill-sets may limit our ability to retain and motivate these key personnel on acceptable terms.

Many of the other biotechnology companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and better prospects for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what we have to offer. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition to competition for personnel, the San Francisco Bay Area in particular is characterized by a high cost of living. We could in the future have difficulty attracting experienced personnel to our company and may be required to expend significant financial resources in our employee recruitment and retention efforts.

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. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.

Changes in methods of product candidate manufacturing or formulation may result in the need to perform new clinical trials, which would require additional costs and cause delay.

As product candidates are developed through preclinical to late-stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered along the way in an effort to optimize yield and manufacturing batch size, minimize costs and achieve consistent quality and results. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the altered materials. This could delay completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidates and jeopardize our ability to commence product sales and generate revenue.

The design or execution of our future clinical trials may not support regulatory approval.

The design or execution of a clinical trial can determine whether its results will support regulatory approval and flaws in the design or execution of a clinical trial may not become apparent until the clinical trial is well advanced. In some instances, there can be significant variability in safety or efficacy results between different trials of the same product candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We do not know whether any clinical trials that we may conduct will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market our product candidates.

 

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Further, the FDA and comparable foreign regulatory authorities have substantial discretion in the approval process and in determining when or whether regulatory approval will be obtained for any of our product candidates. Our product candidates may not be approved even if they achieve their primary endpoints in potential future Phase 3 clinical trials or registration trials. The FDA or comparable foreign regulatory authorities may disagree with our trial design and our interpretation of data from preclinical studies and clinical trials. In addition, any of these regulatory authorities may change requirements for the approval of a product candidate even after reviewing and providing comments or advice on a protocol for a pivotal Phase 3 clinical trial. In addition, any of these regulatory authorities may also approve a product candidate for fewer or more limited indications than we request or may grant approval contingent on the performance of costly post-marketing clinical trials. The FDA or comparable foreign regulatory authorities may not approve the labeling claims that we believe would be necessary or desirable for the successful commercialization of our product candidates. Failure to successfully obtain regulatory approval could have a material adverse impact on our business and financial performance.

Even if any of our product candidates receive regulatory approval, the approved products may not achieve broad market acceptance among physicians, patients, the medical community and third-party payors, in which case revenue generated from their sales would be limited.

Even if regulatory approval is obtained for a product candidate, we may not generate or sustain revenue from sales of the product due to factors such as whether the product can be sold at a competitive price and otherwise will be accepted in the market. The antibodies we are developing use relatively new technologies. Market participants with significant influence over acceptance of new treatments, such as physicians and third-party payors, may not adopt a product or treatment based on our technologies, and the medical community and third-party payors may not accept and use, or provide favorable reimbursement for, any product candidates developed by us. The commercial success of our product candidates will depend upon their acceptance among physicians, patients, the medical community and third-party payors. The degree of market acceptance of any of our product candidates will depend on a number of factors, including:

 

   

the efficacy and safety profile as demonstrated in clinical trials compared to alternative treatments;

 

   

limitations or warnings contained in the approved labeling for our product candidates;

 

   

changes in the standard of care for the targeted indications for our product candidates;

 

   

the clinical indications for which any product candidate is approved;

 

   

lack of significant adverse side effects;

 

   

the effectiveness of sales and marketing efforts;

 

   

availability and extent of coverage and adequate reimbursement, as well as pricing, by managed care plans and other third-party payors, including government authorities;

 

   

patients’ willingness to pay out-of-pocket in the absence of coverage and/or adequate reimbursement from third-party payors;

 

   

timing of market introduction of our product candidate as well as competitive products;

 

   

the potential and perceived advantages of our product candidate over alternative treatments;

 

   

the degree of cost-effectiveness of our product candidate;

 

   

availability of alternative therapies at similar or lower cost, including generic and over-the-counter products;

 

   

the extent to which any product candidate is approved for inclusion on formularies of hospitals and managed care organizations;

 

   

whether the product is designated under physician treatment guidelines as a first-line therapy or as a second or third-line therapy for particular indications;

 

   

whether our product candidate can be used effectively with other therapies to achieve higher response rates;

 

   

adverse publicity about our product candidate or favorable publicity about competitive products;

 

   

the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

 

   

the approval of other new therapies for the same indications;

 

   

relative convenience and ease of administration of our product candidates; and

 

   

potential product liability claims.

 

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If any of our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, patients, the medical community and third-party payors, we may not generate sufficient revenue from these products, and we may not become or remain profitable. In addition, efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful.

If we decide to seek orphan drug designation for one or more of our product candidates, we may be unsuccessful or may be unable to maintain the benefits associated with orphan drug designation for IGM-2323, our DR5 IgM antibody or future product candidates that we may develop. If our competitors are able to obtain orphan product exclusivity for their products in specific indications, we may not be able to have competing products approved in those indications by the applicable regulatory authority for a significant period of time.

Under the Orphan Drug Act, the FDA may designate a product candidate as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States. We may seek Orphan Drug Designation for certain indications for our product candidates in the future. Orphan Drug Designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.

Generally, if a product candidate with an Orphan Drug Designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA from approving another marketing application for the same drug for the same indication for seven years. Therefore, if our competitors are able to obtain orphan product exclusivity for their product candidates in the same indications we are pursuing, we may not be able to have competing products approved in those indications by the applicable regulatory authority for a significant period of time. There are also limited circumstances where the FDA may reduce the seven-year exclusivity for a product candidate with an orphan drug designation where other product candidates show clinical superiority to the product with orphan exclusivity or if the FDA finds that the holder of the orphan exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan product to meet the needs of patients with the disease or condition for which the drug was designated. Historically, development of IgM antibodies has been limited by difficulties in recombinant expression and manufacture of these antibodies; therefore, the FDA may determine that we cannot assure the availability of sufficient quantities of our product candidates to the extent necessary to support marketing exclusivity. As a result, even if one of our product candidates receives orphan exclusivity, the FDA can still approve other drugs that have a different active ingredient for use in treating the same indication or disease. Furthermore, the FDA can waive orphan exclusivity if we are unable to manufacture sufficient supply of our product.

Even if we obtain FDA approval of any of our product candidates, we may never obtain approval or commercialize such products outside of the United States, which would limit our ability to realize their full market potential.

In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy and approval standards. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approvals could result in significant delays, difficulties and costs for us and may require additional preclinical studies or clinical trials which would be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. Satisfying these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. In addition, our failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in other countries. We do not have any product candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, our target market will be reduced and our ability to realize the full market potential of our products will be harmed.

 

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Reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance. If reimbursement is not available or is not sufficient for our products, it is less likely that our products will be widely used.

Even if our product candidates are approved for sale by the appropriate regulatory authorities, market acceptance and sales of these products will depend on coverage and reimbursement policies and may be affected by future healthcare reform measures. Third-party payors, such as government healthcare programs, private health insurers and health maintenance organizations, decide which drugs they will cover and establish the level of reimbursement for such drugs. We cannot be certain that coverage and reimbursement will be available or adequate for any products that we develop. If coverage and adequate reimbursement is not available or is available on a limited basis, we may not be able to successfully commercialize any of our product candidates, if approved.

There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA, EMA or other regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution expenses. Interim reimbursement levels for new drugs, if applicable, may also be insufficient to cover our and any collaborator’s 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. Further, no uniform policy for coverage and reimbursement exists in the United States, and coverage and reimbursement can differ significantly from payor to payor. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future change to laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Our inability to promptly obtain coverage and adequate reimbursement from third-party payors, including 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 product candidates and our overall financial condition.

If the market opportunities for any product that we develop are smaller than we believe they are, our revenue may be adversely affected and our business may suffer.

We intend to initially focus our product candidate development on therapeutic IgM antibodies for the treatment of cancer patients. Our projections of addressable patient populations that have the potential to benefit from treatment with our product candidates are based on estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, physician interviews, patient foundations and market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. If any of the foregoing estimates are inaccurate, the market opportunities for any of our product candidates could be significantly diminished and have an adverse material impact on our business.

The market opportunities for our product candidates may be limited to those patients who are ineligible for or have failed prior treatments and may be small. The FDA often approves new cancer therapies only for use after one or more other treatments have failed. When cancer is detected early enough, first-line therapy, such as chemotherapy, hormone therapy or surgery, is sometimes adequate to treat the patient. If first-line therapy proves unsuccessful, second-line therapies, such as additional chemotherapy, radiation, antibody drugs, tumor targeted small molecules, or a combination of these therapies, may be administered. Third- or fourth-line therapies may include bone marrow transplantation, antibody and small molecule targeted therapies, more invasive forms of surgery, and new technologies. We may initially seek approval of our product candidates for patients who have failed one or more approved treatments. For instance, we intend to dose the first patient in a Phase 1 clinical trial for the treatment of relapsed/refractory B cell NHL patients in 2019. Even if we obtain regulatory approval and significant market share for IGM-2323, because the potential target population may be small, we may never achieve profitability without obtaining regulatory approval for additional indications. In addition, there is no guarantee that any of our product candidates, even if approved, would be approved as a particular line of treatment. In addition, even if any of our product candidates were approved for a particular line of treatment, we may have to conduct additional clinical trials prior to gaining approval as an earlier line of treatment.

 

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Even if we receive regulatory approval to commercialize any of our product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which will result in significant additional expense.

Any regulatory approvals that we receive for our product candidates may be subject to limitations on the approved indicated uses for which the product may be marketed or subject to certain conditions of approval, and may contain requirements for potentially costly post-approval trials, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the marketed product.

For any approved product, we will be subject to ongoing regulatory obligations and extensive oversight by regulatory authorities, including with respect to manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product. These requirements include submissions of safety and other post-approval information and reports, as well as continued compliance with cGMPs and current good clinical practices (cGCP) for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

 

   

restrictions on the marketing or manufacturing of the product;

 

   

withdrawal of the product from the market or voluntary or mandatory product recalls;

 

   

adverse publicity, fines, warning letters or holds on clinical trials;

 

   

refusal by the FDA, EMA or another applicable regulatory authority to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals;

 

   

product seizure or detention, or refusal to permit the import or export of products; and

 

   

injunctions or the imposition of civil or criminal penalties.

Occurrence of any of the foregoing could have a material and adverse effect on our business and results of operations. Further, the FDA’s or comparable foreign regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to generate revenue or achieve or sustain profitability.

If any product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.

We face an inherent risk of product liability lawsuits related to the testing of our product candidates in seriously ill patients, and will face an even greater risk if product candidates are approved by regulatory authorities and introduced commercially. Product liability claims may be brought against us by participants enrolled in our clinical trials, patients, health care providers or others using, administering or selling any of our future approved products. If we cannot successfully defend ourselves against any such claims, we may incur substantial liabilities. Regardless of their merit or eventual outcome, liability claims may result in:

 

   

decreased demand for any future approved products;

 

   

injury to our reputation;

 

   

withdrawal of clinical trial participants;

 

   

termination of clinical trial sites or entire trial programs;

 

   

increased regulatory scrutiny, including investigations by the FDA and other regulators of the safety and effectiveness of our products, our manufacturing processes and facilities or our marketing programs;

 

   

significant litigation costs;

 

   

substantial monetary awards to or costly settlement with patients or other claimants;

 

   

product recalls, a change in the indications for which they may be used or suspension or withdrawal of marketing approvals;

 

   

loss of revenue;

 

   

diversion of management and scientific resources from our business operations; and

 

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the inability to commercialize our product candidates.

If any of our product candidates are approved for commercial sale, we will be highly dependent upon consumer perceptions of us and the safety and quality of our products. We could be adversely affected if we are subject to negative publicity. We could also be adversely affected if any of our products or any similar products distributed by other companies prove to be, or are asserted to be, harmful to patients. Because of our dependence upon consumer perceptions, any adverse publicity associated with illness or other adverse effects resulting from patients’ use or misuse of our products or any similar products distributed by other companies could have a material adverse impact on our financial condition or results of operations.

We may need to have in place increased product liability coverage if and when we begin the commercialization of our product candidates. Insurance coverage is becoming increasingly expensive. As a result, we may be unable to maintain or obtain sufficient insurance at a reasonable cost to protect us against losses that could have a material adverse effect on our business. A successful product liability claim or series of claims brought against us, particularly if judgments exceed any insurance coverage we may have, could decrease our cash resources and adversely affect our business, financial condition and results of operation.

Our product candidates, for which we intend to seek approval, may face competition sooner than anticipated.

Our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of biosimilar products. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (ACA), created a new regulatory scheme authorizing the FDA to approve biosimilars. Under the ACA, 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.” Under this statutory scheme, an application for a biosimilar product may not be submitted to the FDA until four years following 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. 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 Biologics License Application (BLA) for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, efficacy and potency of their product. Furthermore, recent legislation has proposed that the 12-year exclusivity period for a referenced product may be reduced to seven years.

Acquisitions or joint ventures could increase our capital requirements, disrupt our business, cause dilution to our stockholders, cause us to incur debt or assume contingent liabilities and otherwise harm our business.

We evaluate various strategic transactions on an ongoing basis. We may acquire other businesses, products or technologies as well as pursue strategic alliances, joint ventures or investments in complementary businesses. Any of these transactions could be material to our financial condition and operating results and expose us to many risks, including:

 

   

disruption in our relationships with any strategic partners or suppliers as a result of such a transaction;

 

   

the assumption of additional indebtedness or contingent or otherwise unanticipated liabilities related to acquired companies;

 

   

the issuance of our equity securities;

 

   

difficulties integrating acquired personnel, technologies and operations into our existing business;

 

   

retention of key employees, the loss of key personnel and uncertainties in our ability to maintain key business relationships;

 

   

diversion of management time and focus from operating our business to management of strategic alliances or joint ventures or acquisition integration challenges;

 

   

risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or product candidates and marketing approvals;

 

   

increases in our expenses and reductions in our cash available for operations and other uses;

 

   

our inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs; and

 

   

possible write-offs or impairment charges relating to acquired businesses.

 

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Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries.

Also, the anticipated benefit of any strategic alliance, joint venture or acquisition may not materialize or such strategic alliance, joint venture or acquisition may be prohibited. Future credit arrangements may restrict our ability to pursue certain mergers, acquisitions, amalgamations or consolidations that we may believe to be in our best interest. Additionally, future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our financial condition. We cannot predict the number, timing or size of future joint ventures or acquisitions, or the effect that any such transactions might have on our operating results. Moreover, we may not be able to identify suitable acquisition opportunities, and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business.

Foreign governments tend to impose strict price controls, which may adversely affect our future profitability.

In most foreign countries, particularly those in the European Union, prescription drug pricing and reimbursement is subject to governmental control. In those countries that impose price controls, 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.

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 marketing approval for a product candidate in a particular country, but then be subject to price regulations that delay commercial launch of the product candidate, possibly for lengthy time periods, and negatively impact the revenue that are generated from the sale of the product in that country. If reimbursement of such product candidates is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, or if there is competition from lower priced cross-border sales, our profitability will be negatively affected.

We will need to grow our organization, and we may experience difficulty in managing this growth, which could disrupt our operations.

As of June 30, 2019, we had 42 employees. As our development and commercialization plans and strategies develop, and as we transition into operating as a public company, we expect to expand our employee base for managerial, operational, financial and other resources. Additionally, as our product candidates and discovery programs enter and advance through preclinical studies and any clinical trials, we will need to expand our development, manufacturing, regulatory and sales and marketing capabilities or contract with other organizations to provide these capabilities for us. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. Also, our management may need to divert a disproportionate amount of their attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, give rise to operational errors, loss of business opportunities, loss of employees and reduced productivity amongst remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of existing and additional product candidates and discovery programs. If our management is unable to effectively manage our expected growth, our expenses may increase more than expected, our ability to generate or grow revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our product candidates and compete effectively with others in our industry will depend on our ability to effectively expand our organization and manage any future growth.

Security breaches, loss of data and other disruptions could compromise sensitive information related to our business or protected health information or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation.

In the ordinary course of our business, we or our CROs may collect and store sensitive data, including legally protected health information, personally identifiable information, intellectual property and proprietary business

 

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information owned or controlled by us. We manage and maintain our applications and data by utilizing a combination of on-site systems, managed data center systems and cloud-based data center systems. These applications and data encompass a wide variety of business-critical information, including research and development information, commercial information and business and financial information. We face four primary risks relative to protecting this critical information, including loss of access risk, inappropriate disclosure risk, inappropriate modification risk and the risk of being unable to adequately monitor our controls over the first three risks.

The secure processing, storage, maintenance and transmission of this critical information are vital to our operations and business strategy, and we devote significant resources to protecting such information. Although we take measures to protect sensitive information from unauthorized access or disclosure, our information technology and infrastructure and that of any third-party billing and collections provider we may utilize, may be vulnerable to cybersecurity attacks by hackers or viruses or breaches due to employee error, malfeasance or other disruptions. Any such breach or interruption could compromise our networks and the information stored there could be accessed by unauthorized parties, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, such as the Health Insurance Portability and Accountability Act (HIPAA) as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH), mandatory notification and reporting obligations, additional regulatory oversight, significant regulatory penalties and remediation expenses. There is no guarantee that we can protect our systems from breach. Unauthorized access, loss or dissemination of information or any mechanical failure of our or our third-party service providers’ information technology systems could also disrupt our operations, including our ability to conduct our analyses, provide test results, bill payors or providers, process claims and appeals, conduct research and development activities, collect, process and prepare company financial information, provide information about any future products, manage the administrative aspects of our business and damage our reputation, any of which could adversely affect our business.

In addition, the interpretation and application of consumer, health-related and data protection laws in the United States, the European Union, and elsewhere are often uncertain, contradictory and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices. If so, this could result in government-imposed fines or orders requiring that we change our practices, which could adversely affect our business. In addition, these privacy regulations vary between states, may differ from country to country, and may vary based on whether testing is performed in the United States or in the local country. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices and compliance procedures in a manner adverse to our business.

Furthermore, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on other third parties for the manufacture of our product candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business.

Current and future legislation may increase the difficulty and cost for us to commercialize our product candidates, if approved, and affect the prices we may obtain.

The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change healthcare systems in ways that could affect our ability to sell any of our product candidates profitably, if such product candidates are approved for sale. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.

 

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In March 2010, the ACA was enacted, which includes measures that have significantly changed the way healthcare is financed by both governmental and private insurers, and continues to significantly impact the United States pharmaceutical industry. Among the provisions of the ACA of importance to the pharmaceutical industry are the following:

 

   

an annual, non-deductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs;

 

   

an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price (AMP), for most branded and generic drugs, respectively;

 

   

Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% point-of-sale discounts to negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period;

 

   

extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;

 

   

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;

 

   

requirement that applicable manufacturers and group purchasing organizations report annually to the Centers for Medicare & Medicaid Services (CMS), information regarding certain payments and other transfers of value given to physicians and teaching hospitals, and any ownership or investment interest that physicians, or their immediate family members, have in their company;

 

   

a requirement that manufacturers and authorized distributors of applicable drugs annually report information related to samples provided to practitioners;

 

   

expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance;

 

   

a licensure framework for follow-on biologic products;

 

   

a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and

 

   

establishment of a Center for Medicare & Medicaid Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. In addition, other legislative changes have been proposed and adopted since the ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year pursuant to the Budget Control Act of 2011, which began in 2013 and will remain in effect through 2027 unless additional Congressional action is taken. Moreover, there has recently been heightened governmental scrutiny over the manner in which drug manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. At the federal level, the Trump administration’s budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. The Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers.

 

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In the European Union similar political, economic and regulatory developments may affect our ability to profitably commercialize our current or any future products. In addition to continuing pressure on prices and cost containment measures, legislative developments at the European Union or member state level may result in significant additional requirements or obstacles that may increase our operating costs. In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. Our future products, if any, might not be considered medically reasonable and necessary for a specific indication or cost-effective by third-party payors, an adequate level of reimbursement might not be available for such products and third-party payors’ reimbursement policies might adversely affect our ability to sell any future products profitably.

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-approval testing and other requirements.

We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, our product candidates may lose any marketing approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business.

Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the Securities and Exchange Commission (SEC) and other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, in recent years, including in 2018 and 2019, the U.S. government shut down several times and certain regulatory agencies, such as the FDA and the SEC, had to furlough critical employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, upon completion of this offering and in our operations as a public company, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

Our business may become subject to economic, political, regulatory and other risks associated with international operations.

Our business may be subject to risks associated with conducting business internationally. While we have not taken any steps to enter into any non-U.S. markets, we may do so in the future. In addition, our future suppliers and collaborative and clinical trial relationships may be located outside the United States. Accordingly, our future results could be harmed by a variety of factors, including:

 

   

economic weakness, including inflation, or political instability in particular foreign economies and markets;

 

   

differing regulatory requirements for drug approvals in foreign countries;

 

   

potentially reduced protection for intellectual property rights;

 

   

difficulties in compliance with non-U.S. laws and regulations;

 

   

changes in non-U.S. regulations and customs, tariffs and trade barriers;

 

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changes in non-U.S. currency exchange rates and currency controls;

 

   

changes in a specific country’s or region’s political or economic environment;

 

   

trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or non-U.S. governments;

 

   

differing reimbursement regimes, including price controls;

 

   

negative consequences from changes in tax laws;

 

   

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

   

workforce uncertainty in countries where labor unrest is more common than in the United States;

 

   

difficulties associated with staffing and managing foreign operations, including differing labor relations;

 

   

production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

 

   

business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.

Our business and current and future relationships with customers and third-party payors in the United States and elsewhere will be subject, directly or indirectly, to applicable federal and state anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens, and diminished profits and future earnings.

Healthcare providers, physicians and third-party payors in the United States and elsewhere play a primary role in the recommendation and prescription of any product candidates for which we may obtain marketing approval. Our current and future arrangements with healthcare professionals, principal investigators, consultants, customers, and third-party payors and other entities may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act, that may constrain the business or financial arrangements and relationships through which we conduct clinical research on product candidates and market, sell and distribute any products for which we obtain marketing approval. In addition, we may be subject to transparency laws and patient privacy regulation by the federal government and by the U.S. states and foreign jurisdictions in which we conduct our business. The applicable federal, state and foreign healthcare laws that may affect our ability to operate include, but are not limited to, the following:

 

   

the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration (including any kickback, bribe or rebate), 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;

 

   

federal civil and criminal false claims laws, including the Federal False Claims Act, which can be enforced through civil whistleblower or qui tam actions, and civil monetary penalty laws, which impose criminal and civil penalties against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, 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;

 

   

HIPAA, which among other things, imposes criminal liability for knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or to obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of or payment for healthcare benefits, items or services relating to healthcare matters;

 

   

HIPAA, as amended by HITECH, and its implementing regulations, which imposes certain obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

 

   

the federal Open Payments program under the Physician Payments Sunshine Act, created under Section 6002 of the ACA and its implementing regulations requires certain manufacturers of covered drugs,

 

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devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) and applicable group purchasing organizations to report annually to CMS information related to “payments or other transfers of value” made to covered recipients, such as physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and further that such applicable manufacturers and applicable group purchasing organizations to report annually to CMS ownership and investment interests held by physicians (as defined above) and their immediate family members;

 

   

analogous state and foreign laws and regulations, including: state anti-kickback and false claims laws which may apply to our business practices, including, but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by state governmental and non-governmental third-party payors, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government; state laws that require drug manufacturers to track gifts and other remuneration and items of value provided to healthcare professionals and entities; state and local laws that require the registration of pharmaceutical sales representatives; and state laws that require drug manufacturers to report information relating to pricing and marketing information; and

 

   

state and foreign laws that govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus complicating compliance efforts.

Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, it is possible that some of our current and future business activities could be subject to challenge under one or more of such laws. In addition, recent healthcare reform legislation has strengthened these laws. For example, the ACA, among other things, amends the intent requirement of the U.S. federal Anti-Kickback Statute and certain criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of these statutes or specific intent to violate them in order to be in violation. Moreover, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws may 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. If our operations are found to be in violation of any of these laws or any other laws that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations, which could have a material adverse effect on our business. If any of the physicians or other providers or entities with whom we expect to do business, is found not to be in compliance with applicable laws, it may be subject to significant criminal, civil or administrative sanctions, including exclusions from participation in government healthcare programs, which could also materially affect our business.

We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets. We can face criminal liability and other serious consequences for violations which can harm our business.

We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the United Kingdom Bribery Act 2010, the Proceeds of Crime Act 2002, and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors, and other partners from authorizing, promising, offering, or providing, directly or indirectly, improper payments or anything else of value to

 

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recipients in the public or private sector. We may engage third parties for clinical trials outside of the United States, to sell our products abroad once we enter a commercialization phase, or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals. We may have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We can be held liable for the corrupt or other illegal activities of our employees, agents, contractors, and other partners, even if we do not explicitly authorize or have actual knowledge of such activities. Any violation of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences.

Our employees, independent contractors, principal investigators, consultants and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees and independent contractors, such as principal investigators, consultants and vendors, could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with federal and state health care fraud and abuse laws, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the health care industry are subject to extensive laws intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee and independent contractor misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a written code of business conduct and ethics which will be effective prior to the consummation of this offering, but it is not always possible to identify and deter employee or independent contractor misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

If we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.

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 research and development involves, and may in the future involve, the use of potentially hazardous materials and chemicals. Our operations may produce hazardous waste products. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards mandated by local, state and federal laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations and fire and building codes, including those governing laboratory procedures, exposure to blood-borne pathogens, use and storage of flammable agents and the handling of biohazardous materials. Although we maintain workers’ compensation insurance as prescribed by the State of California to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of these 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. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. Current or future laws and regulations may impair our research, development or commercialization efforts. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.

Business disruptions could seriously harm our business and financial condition and increase our costs and expenses.

Our operations, and those of our CROs, suppliers, and other contractors and consultants, could be subject to earthquakes, power shortages, telecommunications failures, failures or breaches of information technology systems, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics, and other natural or man-made disasters or business interruptions, for which we are partly uninsured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We currently rely on third party manufacturers to produce and process our product candidates. Our ability

 

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to obtain clinical supplies of our product candidates could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption.

All of our operations including our corporate headquarters are located in a single facility in Mountain View, California. Damage or extended periods of interruption to our facilities due to fire, natural disaster, power loss, communications failure, unauthorized entry or other events could cause us to cease or delay development of some or all of our product candidates. We do not carry sufficient insurance to compensate us for actual losses from interruption of our business that may occur, and any losses or damages incurred by us could harm our business.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred significant losses since inception and anticipate that we will continue to incur losses for the foreseeable future. We have no products approved for commercial sale, and to date we have not generated any revenue or profit from product sales. We may never achieve or sustain profitability.

We have incurred significant losses since our inception. Our net loss for the six months ended June 30, 2019 and the year ended December 31, 2018 was $18.1 million and $22.7 million, respectively. As of June 30, 2019, our accumulated deficit was approximately $82.2 million. We expect to continue to incur losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of, and seek regulatory approvals for, our product candidates, prepare for and begin to commercialize any approved product candidates and add infrastructure and personnel to support our product development efforts and operations as a public company. The net losses and negative cash flows incurred to date, together with expected future losses, have had, and likely will continue to have, an adverse effect on our shareholders’ deficit and working capital. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. The net losses we incur may fluctuate significantly from quarter-to-quarter such that a period-to-period comparison of our results of operations may not be a good indication of our future performance.

Because of the numerous risks and uncertainties associated with drug development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to generate product revenue or achieve profitability. For example, our expenses could increase if we are required by the FDA to perform clinical trials in addition to those that we currently expect to perform, or if there are any delays in completing our currently planned clinical trials or in the development of any of our product candidates.

Drug development is a highly speculative undertaking and involves a substantial degree of uncertainty. We have never generated any revenue from product sales and may never be profitable. Our ability to generate revenue and achieve profitability depends significantly on our ability to achieve a number of objectives.

Since the commencement of our operations, we have focused substantially all of our resources on conducting research and development activities, including drug discovery and preclinical studies, establishing and maintaining our intellectual property portfolio, the manufacturing of clinical and research material, developing our in-house manufacturing capabilities, hiring personnel, raising capital and providing general and administrative support for these operations. Since 2010, such activities have exclusively related to the research, development and manufacture of IgM antibodies and to building our proprietary IgM antibody technology platform. We are still in the early stages of developing our product candidates, and we have not completed development of any product candidate. As a result, we expect that it will be several years, if ever, before we generate revenue from product sales. Our ability to generate revenue and achieve profitability depends in large part on our ability, to successfully complete the development of, obtain the necessary regulatory approvals for, and commercialize, product candidates. We do not anticipate generating revenue from sales of products for the foreseeable future.

To generate product revenue and become and remain profitable, we must succeed in developing and commercializing product candidates with significant market potential. This will require us to be successful in a range of challenging activities for which we are only in the preliminary stages, including:

 

   

successfully completing preclinical and clinical development of our product candidates in a timely manner;

 

   

obtaining regulatory approval for such product candidates in a timely manner;

 

   

satisfying any post-marketing approval commitments required by applicable regulatory authorities;

 

   

developing an efficient, scalable and compliant manufacturing process for such product candidates, including expanding and maintaining manufacturing operations, commercially viable supply and

 

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manufacturing relationships with third parties to obtain finished products that are appropriately packaged for sale;

 

   

successfully launching commercial sales following any marketing approval, including the development of a commercial infrastructure, whether in-house or with one or more collaborators;

 

   

maintaining a continued acceptable safety profile following any marketing approval;

 

   

achieving commercial acceptance of such product candidates as viable treatment options by patients, the medical community and third-party payors;

 

   

addressing any competing technological and market developments;

 

   

identifying, assessing, acquiring and developing new product candidates;

 

   

obtaining and maintaining patent protection, trade secret protection and regulatory exclusivity, both in the United States and internationally;

 

   

protecting our rights in our intellectual property portfolio, including our licensed intellectual property;

 

   

negotiating favorable terms in any collaboration, licensing or other arrangements that may be necessary to develop, manufacture or commercialize our product candidates; and

 

   

attracting, hiring and retaining qualified personnel.

We may never succeed in these activities and may never generate revenue from product sales that is significant enough to achieve profitability. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become or remain profitable would depress our market value and could impair our ability to raise capital, expand our business, develop other product candidates, or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

Even if this offering is successful, we will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not available, may require us to delay, scale back or cease our product development programs or operations.

All of our product candidates and discovery programs are in preclinical development or early stage clinical development. Developing drug products, including conducting preclinical studies and clinical trials, is expensive. In order to obtain such regulatory approval, we will be required to conduct clinical trials for each indication for each of our product candidates, which will increase our expenses. We will continue to require additional funding beyond this contemplated offering to complete the development and commercialization of our product candidates, to continue to advance our discovery programs, to expand our manufacturing facilities and to satisfy additional costs that we expect to incur in connection with operating as a public company. Such funding may not be available on acceptable terms or at all.

As of June 30, 2019, we had $42.7 million in cash and cash equivalents. Additionally, in July 2019, we received cash of $40.0 million in connection with the issuance of our Series C convertible preferred stock. We estimate that our net proceeds from this offering will be approximately $             million, assuming an initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. Our estimate as to how long we expect the net proceeds from this offering, together with our existing cash and cash equivalents, to be able to continue to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned. In addition, because successful development of our product candidates is uncertain, we are unable to estimate the actual funds we will require to complete research and development and to commercialize our product candidates.

Our future funding requirements will depend on many factors, including but not limited to:

 

   

the initiation, scope, rate of progress, results and cost of our preclinical studies, clinical trials and other related activities for our product candidates;

 

   

the costs associated with manufacturing our product candidates, including expanding our own manufacturing facilities, and establishing commercial supplies and sales, marketing and distribution capabilities;

 

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the timing and cost of capital expenditures to support our research, development and manufacturing efforts;

 

   

the number and characteristics of other product candidates that we pursue;

 

   

the costs, timing and outcome of seeking and obtaining FDA and non-U.S. regulatory approvals;

 

   

our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make in connection with the licensing, filing, defense and enforcement of any patents or other intellectual property rights;

 

   

the timing, receipt and amount of sales from our potential products;

 

   

our need and ability to hire additional management, scientific and medical personnel;

 

   

the effect of competing products that may limit market penetration of our product candidates;

 

   

our need to implement additional internal systems and infrastructure, including financial and reporting systems;

 

   

the economic and other terms, timing and success of any collaboration, licensing, or other arrangements into which we may enter in the future, including the timing of receipt of any milestone or royalty payments under these agreements;

 

   

the compliance and administrative costs associated with being a public company; and

 

   

the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we expect to finance future cash needs primarily through a combination of public and private equity offerings, debt financings and strategic partnerships. We do not have any committed external source of funds. If sufficient funds on acceptable terms are not available when needed, or at all, we could be forced to significantly reduce operating expenses and delay, scale back or eliminate one or more of our clinical or discovery programs or our business operations.

Raising additional capital may cause dilution to our stockholders, including purchasers of our common stock in this offering, restrict our operations or require us to relinquish substantial rights.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available at all, may involve fixed payment obligations or agreements that include covenants limiting or restricting our ability to take specific actions such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise additional funds through partnerships, collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, product candidates, or future revenue streams, or grant licenses on terms that are not favorable to us. We cannot assure you that we will be able to obtain additional funding if and when necessary. If we are unable to obtain adequate financing on a timely basis, we could be required to delay, scale back or eliminate one or more of our clinical or discovery programs or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

Unstable market and economic conditions may have serious adverse consequences on our business and financial condition.

Global credit and financial markets have experienced extreme disruptions at various points over the last few decades, characterized by diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. If another such disruption in credit and financial markets and deterioration of confidence in economic conditions occurs, our business may be adversely affected. If the equity and credit markets were to deteriorate significantly in the future, it may make any necessary debt or equity financing more difficult to complete, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and share price and could require us to delay or abandon development or commercialization plans. In addition, there is a risk that one or more of our service providers, manufacturers or other partners would not survive or be able to meet their commitments to us under such circumstances, which could directly affect our ability to attain our operating goals on schedule and on budget.

 

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Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As of December 31, 2018, we had net operating loss (NOL) carryforwards available to reduce future taxable income, if any, for federal and California income tax purposes of approximately $25.8 million and $23.5 million, respectively. At December 31, 2018, we also had federal and California research and development tax credit carryforwards of $2.5 million and $1.9 million, respectively, available to offset future income tax, if any. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code), if a corporation undergoes an “ownership change,” the corporation’s ability to use its NOLs and other pre-change tax attributes such as research tax credits to offset its post-change taxable income or taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period. Although we have not yet completed a formal Section 382 study, we believe that we may have undergone an “ownership change” in the past and we may undergo one or more ownership changes as a result of this offering or future transactions in our stock. Consequently, we may be limited in our ability to use our NOL carryforwards and other tax assets to reduce taxes owed on the net taxable income that we earn. As a result, even if we attain profitability, any limitations on the ability to use our NOL carryforwards and other tax assets could adversely affect our future cash flows. In addition, the Tax Cuts and Jobs Act of 2017 (Tax Act) imposes certain limitations on the deduction of NOLs, including a limitation on use of NOLs generated in tax years that began on or after January 1, 2018 to offset 80% of taxable income and disallowance of carryback of post-2017 NOLs.

Changes in the U.S. taxation of international business activities or the adoption of other tax reform policies could materially impact our business, results of operations and financial condition.

Changes to U.S. tax laws that may be enacted in the future could impact the tax treatment of our foreign earnings. If we expand our international business activities, any changes in the U.S. taxation of such activities may increase our worldwide effective tax rate and adversely affect our business, results of operations and financial condition. On December 22, 2017, President Trump signed into law the Tax Act, which significantly revises the Code. The Tax Act, among other things, reduces the corporate tax rate from a top marginal rate of 34% to a flat rate of 21%, repeals the alternative minimum tax for corporations, limits the tax deduction for interest expense to 30% of adjusted taxable income (except for certain small businesses), eliminates U.S. tax on foreign earnings (subject to certain exceptions) and modifies or repeals many business deductions and credits (including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”).

Risks Related to Our Dependence on Third Parties

We currently rely on third-party manufacturers to produce our product candidates. Any failure by a third-party manufacturer to produce acceptable product candidates for us pursuant to our specifications and regulatory standards may delay or impair our ability to initiate or complete our clinical trials, obtain and maintain regulatory approvals or commercialize approved products.

We currently have limited in-house manufacturing experience and personnel. While we are in the process of designing and developing a cGMP manufacturing facility for the manufacture of clinical trial drug materials, we expect to continue to rely for some time on third parties to manufacture our product candidates for preclinical testing and clinical trials, in compliance with applicable regulatory and quality standards, and may do so for the commercial manufacture of some of our product candidates, if approved. To date, we have obtained bulk drug substance (BDS) for IGM-2323 from a single-source third-party contract manufacturer, and we expect to obtain BDS for our DR5 IgM antibody from a single-source third-party contract manufacturer as well. Any reduction or halt in supply of BDS from either of these contract manufacturers could severely constrain our ability to develop our product candidates until a replacement contract manufacturer is found and qualified. If we are unable to arrange for and maintain such third-party manufacturing sources that are capable of meeting regulatory standards, or fail to do so on commercially reasonable terms, we may not be able to successfully produce sufficient supply of product candidate or we may be delayed in doing so. If we were to experience an unexpected loss of supply of our product candidates, for any reason, whether as a result of manufacturing, supply or storage issues or otherwise, we could experience delays, disruptions, suspensions or terminations of, or be required to restart or repeat, any pending or ongoing clinical trials. Such failure or substantial delay or loss of supply could materially harm our business.

 

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Reliance on third-party manufacturers entails risks to which we may not be subject if we manufactured product candidates ourselves, including:

 

   

the possible failure of the third party to manufacture our product candidates according to our schedule, or at all, including if our third-party contractors give greater priority to the supply of other products over our product candidates or otherwise do not satisfactorily perform according to the terms of the agreements between us and them;

 

   

reliance on the third party for regulatory compliance and quality control and assurance and failure of the third party to comply with regulatory requirements;

 

   

the possibility of breach of the manufacturing agreement by the third party because of factors beyond our control (including a failure to manufacture our product candidates in accordance with our product specifications);

 

   

the possible mislabeling of clinical supplies, potentially resulting in the wrong dose amounts being supplied or active drug or placebo not being properly identified;

 

   

the possibility of clinical supplies not being delivered to clinical sites on time, leading to clinical trial interruptions, or of drug supplies not being distributed to commercial vendors in a timely manner, resulting in lost sales;

 

   

the possible misappropriation of our proprietary information, including our trade secrets and know-how; and

 

   

the possibility of termination or nonrenewal of the agreement by the third-party at a time that is costly or damaging to us.

In addition, the FDA, EMA and other regulatory authorities require that our product candidates be manufactured according to cGMP and similar foreign standards. Pharmaceutical manufacturers and their subcontractors are required to register their facilities or products manufactured at the time of submission of the marketing application and then annually thereafter with the FDA and certain state and foreign agencies. They are also subject to periodic unannounced inspections by the FDA, state and other foreign authorities. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain marketing approval for or market our product candidates, if approved. Any subsequent discovery of problems with a product, or a manufacturing or laboratory facility used by us or our strategic partners, may result in sanctions being imposed on us, including fines, injunctions, civil penalties, restrictions on the product or on the manufacturing or laboratory facility, including license revocation, marketed product recall, suspension of manufacturing, product seizure, voluntary withdrawal of the product from the market, operating restrictions or criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates and harm our business and results of operations.

We may have little to no control regarding the occurrence of third-party manufacturer incidents. Any failure by our third-party manufacturers to comply with cGMP or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of product candidates in a timely manner, would lead to a delay in, or failure to seek or obtain, regulatory approval of any of our product candidates. Furthermore, any change in manufacturer of our product candidates or approved products, if any, would require new regulatory approvals, which could delay completion of clinical trials or disrupt commercial supply of approved products.

Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to commercialize any product candidates that receive marketing approval on a timely and competitive basis.

In some cases, the technical skills or technology required to manufacture our product candidates may be unique or proprietary to the original manufacturer, we may have difficulty transferring such skills or technology to another third party and a feasible alternative many not exist. These factors would increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to have another third party manufacture our product candidates. If we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable

 

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regulations and guidelines. The delays associated with the verification of a new manufacturer could negatively affect our ability to develop product candidates in a timely manner or within budget.

We rely on third parties to monitor, support, conduct and oversee clinical trials of the product candidates that we are developing and, in some cases, to maintain regulatory files for those product candidates. We may not be able to obtain regulatory approval for our product candidates or commercialize any products that may result from our development efforts, or may miss expected deadlines, if we are not able to maintain or secure agreements with such third parties on acceptable terms, if these third parties do not perform their services as contractually required, or if these third parties fail to timely transfer any regulatory information held by them to us.

We rely on entities outside of our control, which may include academic institutions, CROs, hospitals, clinics and other third-party strategic partners, to monitor, support, conduct and oversee preclinical studies and clinical trials of our current and future product candidates. As a result, we have less control over the timing and cost of these studies and the ability to recruit trial subjects than if we conducted these trials with our own personnel.

If we are unable to maintain or enter into agreements with these third parties on acceptable terms, or if any such engagement is terminated prematurely, we may be unable to enroll patients on a timely basis or otherwise conduct our trials in the manner we anticipate. In addition, there is no guarantee that these third parties will devote adequate time and resources to our studies or perform as required by our contract or in accordance with regulatory requirements, including maintenance of clinical trial information regarding our product candidates. If these third parties fail to meet expected deadlines, fail to transfer to us any regulatory information in a timely manner, fail to adhere to protocols or fail to act in accordance with regulatory requirements or our agreements with them, or if they otherwise perform in a substandard manner or in a way that compromises the quality or accuracy of their activities or the data they obtain, then clinical trials of our product candidates may be extended or delayed with additional costs incurred, or our data may be rejected by the FDA, EMA or other regulatory agencies.

Ultimately, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities.

We and our CROs are required to comply with cGCP regulations and guidelines enforced by the FDA, the competent authorities of the member states of the European Union and comparable foreign regulatory authorities for products in clinical development. Regulatory authorities enforce these cGCP regulations through periodic inspections of clinical trial sponsors, principal investigators and clinical trial sites. If we or any of our CROs fail to comply with applicable cGCP regulations, the clinical data generated in our clinical trials may be deemed unreliable and our submission of marketing applications may be delayed or the FDA may require us to perform additional clinical trials before approving our marketing applications. Upon inspection, the FDA could determine that any of our clinical trials fail or have failed to comply with applicable cGCP regulations. In addition, our clinical trials must be conducted with product produced under the cGMP regulations enforced by the FDA, and our clinical trials may require a large number of test subjects. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process and increase our costs. Moreover, our business may be implicated if any of our CROs violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.

If any of our clinical trial sites terminate for any reason, we may experience the loss of follow-up information on patients enrolled in our ongoing clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. Further, our CROs are not required to work indefinitely or exclusively with us. Our existing agreements with our CROs may be subject to termination by the counterparty upon the occurrence of certain circumstances. If any CRO terminates its agreement with us, the research and development of the relevant product candidate would be suspended, and our ability to research, develop, and license future product candidates may be impaired. We may be required to devote additional resources to the development of our product candidates or seek a new collaboration partner, and the terms of any additional collaborations or other arrangements that we establish may not be favorable to us.

Switching or adding CROs or other suppliers can involve substantial cost and require extensive management time and focus. In addition, there is a natural transition period when a new CRO or supplier commences work. As a result,

 

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delays may occur, which can materially impact our ability to meet our desired clinical development timelines. If we are required to seek alternative supply arrangements, the resulting delays and potential inability to find a suitable replacement could materially and adversely impact our business.

We rely on third parties for various operational and administrative aspects of our business, including for certain cloud-based software platforms, which impact our financial, operational and research activities. If any of these third parties fail to provide timely, accurate and ongoing service or if the technology systems and infrastructure suffer outages that we are unable to mitigate, our business may be adversely affected.

We currently rely upon third party consultants and contractors to provide certain operational and administrative services. These services include tax advice and clinical and research consultation. The failure of any of these third parties to provide accurate and timely service may adversely impact our business operations. In addition, if such third-party service providers were to cease operations, temporarily or permanently, face financial distress or other business disruption, increase their fees or if our relationships with these providers deteriorate, we could suffer increased costs until an equivalent provider could be found, if at all, or we could develop internal capabilities, if ever. In addition, if we are unsuccessful in choosing or finding high-quality partners, if we fail to negotiate cost-effective relationships with them, or if we ineffectively manage these relationships, it could have an adverse impact on our business and financial performance.

Further, our operations depend on the continuing and efficient operation of our information technology, communications systems and infrastructure, and on “cloud-based” platforms. Any of these systems and infrastructure are vulnerable to damage or interruption from earthquakes, vandalism, sabotage, terrorist attacks, floods, fires, power outages, telecommunications failures, and computer viruses or other deliberate attempts to harm the systems. The occurrence of a natural or intentional disaster, any decision to close a facility we are using without adequate notice, or particularly an unanticipated problem at a cloud-based virtual server facility, could result in harmful interruptions in our service, resulting in adverse effects to our business.

Future strategic partnerships may be important to us. We will face significant competition in seeking new strategic partners.

We have limited capabilities for drug development and manufacturing and do not yet have any capability for sales, marketing or distribution. For some of our product candidates, we may in the future determine to collaborate with pharmaceutical and biotechnology companies for development and potential commercialization of therapeutic products. The competition for strategic partners is intense. Our ability to reach a definitive agreement for collaboration will depend, among other things, upon our assessment of the strategic partner’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed strategic partner’s evaluation of a number of factors. These factors may include the design or results of clinical trials, the likelihood of approval by the FDA or comparable foreign regulatory authorities, 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 strategic partner may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and whether such collaboration could be more attractive than the one with us for our product candidate.

Strategic partnerships are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future strategic partners. Even if we are successful in entering into collaboration, the terms and conditions of that collaboration may restrict us from entering into future agreements with other potential collaborators.

If we are unable to reach agreements with suitable strategic partners on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay 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 fund and undertake development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail

 

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to enter into strategic partnerships and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates or bring them to market or continue to develop our therapeutic platforms and our business may be materially and adversely affected. Any collaboration may be on terms that are not optimal for us, and we may not be able to maintain any new collaboration if, for example, development or approval of a product candidate is delayed, sales of an approved product candidate do not meet expectations or the partner terminates the collaboration. Any such collaboration, or other strategic transaction, may require us to incur non-recurring or other charges, and increase our near- and long-term expenditures and pose significant integration or implementation challenges or disrupt our management or business. Accordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, any transactions that we do complete may be subject to the foregoing or other risks and have a material and adverse effect on our business, financial condition, results of operations and prospects. Conversely, any failure to enter any collaboration or other strategic transaction that would be beneficial to us could delay the development and potential commercialization of our product candidates and have a negative impact on the competitiveness of any product candidate that reaches the market.

If we are unable to maintain future strategic partnerships, or if these strategic partnerships are not successful, our business could be adversely affected.

Any future strategic partnerships we enter into may pose a number of risks, including the following:

 

   

we may not be able to enter into critical strategic partnerships or enter them on favorable terms;

 

   

strategic partners have significant discretion in determining the effort and resources that they will apply to such a partnership, and they may not perform their obligations as agreed or expected;

 

   

strategic partners may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the partners’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;

 

   

strategic partners 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;

 

   

strategic partners could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates if the strategic partners believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than our product candidates;

 

   

product candidates discovered in collaboration with us may be viewed by our strategic partners as competitive with their own product candidates or products, which may cause strategic partners to cease to devote resources to the commercialization of our product candidates;

 

   

a strategic partner with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution of such product candidates;

 

   

disagreements with strategic partners, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive;

 

   

strategic partners 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 intellectual property or proprietary information or expose us to potential litigation;

 

   

strategic partners may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and

 

   

strategic partnerships may be terminated for the convenience of the partner and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates.

 

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Risks Related to Our Intellectual Property

Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.

Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Other entities may have or obtain patents or proprietary rights that could limit our ability to make, use, sell, offer for sale or import our future approved products or impair our competitive position.

Our research, development and commercialization activities may be subject to claims that we infringe or otherwise violate patents or other intellectual property rights owned or controlled by third parties. We are aware of third party patents and patent applications containing claims directed to most of our areas of product development, which patents and applications could potentially be construed to cover our product candidates and the use thereof to treat cancer patients. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that we may be subject to claims of infringement of the patent rights of third parties. There is no assurance that there are not third-party patents or patent applications of which we are aware, but which we do not believe are relevant to our business, which may, nonetheless, ultimately be found to limit our ability to make, use, sell, offer for sale or import our future approved products or impair our competitive position. Patents that we may ultimately be found to infringe could be issued to third parties. Third parties may have or obtain valid and enforceable patents or proprietary rights that could block us from developing product candidates using our technology. These patents may not expire before we receive marketing authorization for our product candidates, and they could delay the commercial launch of one or more future products. If our products were to be found to infringe any such patents, and we were unable to invalidate those patents, or if licenses for them are not available on commercially reasonable terms, or at all, our business, financial condition and results of operations could be materially harmed. Furthermore, even if a license is available, it may be non-exclusive, which could result in our competitors gaining access to the same intellectual property. Our failure to maintain a license to any technology that we require may also materially harm our business, financial condition and results of operations, and we would be exposed to a threat of litigation.

In the biotechnology industry, significant litigation and other proceedings regarding patents, patent applications, trademarks and other intellectual property rights have become commonplace both within and outside the United States including patent infringement lawsuits, oppositions, inter partes review (IPR) and post-grant review (PGR) proceedings before the United States Patent and Trademark Office (USPTO), or the applicable foreign patent counterpart. The types of situations in which we may become a party to such litigation or proceedings include:

 

   

we may initiate litigation or other proceedings against third parties seeking to invalidate the patents held by those third parties, to obtain a judgment that our products or processes do not infringe those third parties’ patents or to obtain a judgment that those parties’ patents are unenforceable;

 

   

if our competitors file patent applications that claim technology also claimed by us or our licensors, we or our licensors may be required to participate in derivation or opposition proceedings to determine the priority of invention, which could jeopardize our patent rights and potentially provide a third-party with a dominant patent position;

 

   

if third parties initiate litigation claiming that our processes or products infringe their patent or other intellectual property rights or initiate other proceedings, including post-grant proceedings such as oppositions, IPRs or PGRRs, we will need to defend against such proceedings; and

 

   

if a license to necessary technology is terminated, the licensor may initiate litigation claiming that our processes or products infringe or misappropriate their patent or other intellectual property rights and/or that we breached our obligations under the license agreement, and we would need to defend against such proceedings.

These lawsuits would be costly and could affect our results of operations and divert the attention of our management and scientific personnel. Some of our competitors may be able to sustain the cost of such litigation and proceedings more effectively than we can because of their substantially greater resources. There is a risk that a court would decide that we are infringing the third party’s patents and would order us to stop the activities covered by the patents. In that event, we may not have a viable alternative to the technology protected by the patent and may need

 

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to halt work on the affected product candidate or cease commercialization of an approved product. In addition, there is a risk that a court will order us to pay third party damages or some other monetary award, depending upon the jurisdiction. An adverse outcome in any litigation or other proceeding could subject us to significant liabilities to third parties, potentially including treble damages and attorneys’ fees if we are found to have willfully infringed, and we may be required to cease using the technology that is at issue or to license the technology from third parties. We may not be able to obtain any required licenses on commercially acceptable terms or at all. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or administrative proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise additional funds or on our business, results of operations, financial condition and prospects. Any of these outcomes could have a material adverse effect on our business.

If we are unable to obtain, maintain and enforce patent and trade secret protection for our product candidates and related technology, our business could be materially harmed.

Our strategy depends on our ability to identify, seek, obtain and maintain patent protection for our discoveries. As of June 30, 2019, our patent portfolio consisted of three granted patents, two allowed applications, 136 pending applications in active prosecution in 16 countries or regions, three pending Patent Cooperation Treaty (PCT) applications, and three pending unpublished provisional applications. Our patent portfolio is relatively small compared to many large and more established pharmaceutical and biotechnology companies that have patent portfolios consisting of hundreds, and in some case even thousands, of granted patents. As our patent portfolio grows, we expect patent protection will continue to be an important part of our strategy. The patent protection process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications, or maintain and enforce any patents that may issue from such patent applications, at a reasonable cost or in a timely manner or in all jurisdictions where protection may be commercially advantageous. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we have licensed from third parties. Therefore, our owned or in-licensed patents and patent applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. Our patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless, and until, patents issues from such applications, and then only to the extent the issued claims cover the technology. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our current and future product candidates in the United States or in other foreign countries or that effectively prevent third parties from commercializing competitive product candidates.

Moreover, the patent position of biotechnology companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. We may be subject to a third-party preissuance submission of prior art to the USPTO, and such prior art may affect the scope of any claims we ultimately get allowed or it may prevent our patent applications from issuing as patents. Further, the issuance of a patent does not ensure that it is valid or enforceable, nor is the issuance conclusive as to inventorship or the scope of any claims. Third parties may challenge the validity, enforceability or scope of our issued patents or claim that they should be inventors on such patents, and such patents may be narrowed, invalidated, circumvented, or deemed unenforceable and such third parties may gain rights to such patents. We could also become involved in reexamination, inter partes review, post-grant review, opposition or derivation proceedings, challenging our patent rights or the patent rights of others. In addition, changes in law may introduce uncertainty in the enforceability or scope of patents owned by biotechnology companies. If, our patents are narrowed, invalidated or held unenforceable, third parties may be able to commercialize our technology or products and compete directly with us without payment to us. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, and such prior art could potentially invalidate one or more of our patents or prevent a patent from issuing from one or more of our pending patent applications. There is also no assurance that there is not prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim in our patents and patent applications, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. Furthermore, even if our patents are unchallenged, they may not adequately protect our intellectual property, provide exclusivity for our product candidates, prevent others from designing around our claims or provide us with a

 

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competitive advantage. The legal systems of certain countries do not favor the aggressive enforcement of patents, and the laws of foreign countries may not allow us to protect our inventions with patents to the same extent as the laws of the United States. Because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publications of discoveries in scientific literature lag behind actual discoveries, we cannot be certain that we were the first to make the inventions claimed in our issued patents or pending patent applications, or that we were the first to file for protection of the inventions set forth in our patents or patent applications. As a result, we may not be able to obtain or maintain protection for certain inventions. Therefore, the issuance, validity, enforceability, scope and commercial value of our patents in the United States and in foreign countries cannot be predicted with certainty and, as a result, any patents that we own or license may not provide sufficient protection against competitors. We may not be able to obtain or maintain patent protection from our pending patent applications, from those we may file in the future, or from those we may license from third parties. Moreover, even if we are able to obtain patent protection, such patent protection may be of insufficient scope to achieve our business objectives. In addition, the issuance of a patent does not give us the right to practice the patented invention. Third parties may have blocking patents that could prevent us from marketing our own patented product and practicing our own patented technology.

Our patents covering one or more of our products or product candidates could be found invalid or unenforceable if challenged.

Any of our intellectual property rights could be challenged or invalidated despite measures we take to obtain patent and other intellectual property protection with respect to our product candidates and proprietary technology. For example, if we were to initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the United States and in some other jurisdictions, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld material information from the USPTO, or the applicable foreign counterpart, or made a misleading statement, during prosecution. A litigant or the USPTO itself could challenge our patents on this basis even if we believe that we have conducted our patent prosecution in accordance with the duty of candor and in good faith. The outcome following such a challenge is unpredictable.

With respect to challenges to the validity of our patents, for example, there might be invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on a product candidate. Even if a defendant does not prevail on a legal assertion of invalidity and/or unenforceability, our patent claims may be construed in a manner that would limit our ability to enforce such claims against the defendant and others. The cost of defending such a challenge, particularly in a foreign jurisdiction, and any resulting loss of patent protection could have a material adverse impact on one or more of our product candidates and our business.

Enforcing our intellectual property rights against third parties may also cause such third parties to file other counterclaims against us, which could be costly to defend, particularly in a foreign jurisdiction, and could require us to pay substantial damages, cease the sale of certain products or enter into a license agreement and pay royalties (which may not be possible on commercially reasonable terms or at all). Any efforts to enforce our intellectual property rights are also likely to be costly and may divert the efforts of our scientific and management personnel.

Our intellectual property rights will not necessarily provide us with competitive advantages.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:

 

   

others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of the patents that we own or have exclusively licensed;

 

   

others may independently develop similar or alternative technologies without infringing our intellectual property rights;

 

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issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;

 

   

we may obtain patents for certain compounds many years before we obtain marketing approval for products containing such compounds, and because patents have a limited life, which may begin to run prior to the commercial sale of the related product, the commercial value of our patents may be limited;

 

   

our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

 

   

we may fail to develop additional proprietary technologies that are patentable;

 

   

the laws of certain foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States, or we may fail to apply for or obtain adequate intellectual property protection in all the jurisdictions in which we operate; and

 

   

the patents of others may have an adverse effect on our business, for example by preventing us from marketing one or more of our product candidates for one or more indications.

Any of the aforementioned threats to our competitive advantage could have a material adverse effect on our business.

We may become involved in lawsuits to protect or enforce our patents and trade secrets, which could be expensive, time consuming and unsuccessful.

Third parties may seek to market biosimilar versions of any approved products. Alternatively, third parties may seek approval to market their own products similar to or otherwise competitive with our product candidates. In these circumstances, we may need to defend or assert our patents, including by filing lawsuits alleging patent infringement. If we were to initiate legal proceedings against a third party to enforce a patent covering our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for an invalidity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, written description or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable. In any of these types of proceedings, a court or agency with jurisdiction may find our patents invalid or unenforceable. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.

Even after they have issued, our patents and any patents that we license may be challenged, narrowed, invalidated or circumvented. If our patents are invalidated or otherwise limited or will expire prior to the commercialization of our product candidates, other companies may be better able to develop products that compete with ours, which could adversely affect our competitive business position, business prospects and financial condition. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

The following are examples of litigation and other adversarial proceedings or disputes that we could become a party to involving our patents or patents licensed to us:

 

   

we may initiate litigation or other proceedings against third parties to enforce our patent and trade secret rights;

 

   

third parties may initiate litigation or other proceedings seeking to invalidate patents owned by or licensed to us or to obtain a declaratory judgment that their product or technology does not infringe our patents or patents licensed to us;

 

   

third parties may initiate opposition, IPR or PGR proceedings challenging the validity or scope of our patent rights, requiring us and/or licensors to participate in such proceedings to defend the validity and scope of our patents;

 

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there may be a challenge or dispute regarding inventorship or ownership of patents or trade secrets currently identified as being owned by or licensed to us; or

 

   

third parties may seek approval to market biosimilar versions of our future approved products prior to expiration of relevant patents owned by or licensed to us under the Biologics Price Competition and Innovation Act of 2009, requiring us to defend our patents, including by filing lawsuits alleging patent infringement.

These lawsuits and proceedings would be costly and could affect our results of operations and divert the attention of our managerial and scientific personnel. Adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we or our licensors can. There is a risk that a court or administrative body would decide that our patents are invalid or not infringed or trade secrets not misappropriated by a third party’s activities, or that the scope of certain issued claims must be further limited. An adverse outcome in a litigation or proceeding involving our own patents or trade secrets could limit our ability to assert our patents or trade secrets against these or other competitors, affect our ability to receive royalties or other licensing consideration from our licensees, and may curtail or preclude our ability to exclude third parties from making, using and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition.

We may not be able to prevent, alone or with our licensors, infringement or misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. Any litigation or other proceedings to enforce our intellectual property rights may fail, and even if successful, may result in substantial costs and distract our management and other employees.

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. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have an adverse effect on the price of our common stock.

The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:

 

   

others may be able to develop a platform that is similar to, or better than, ours in a way that is not covered by the claims of our patents;

 

   

others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of our patents;

 

   

we might not have been the first to make the inventions covered by patents or pending patent applications;

 

   

we might not have been the first to file patent applications for these inventions;

 

   

any patents that we obtain may not provide us with any competitive advantages or may ultimately be found invalid or unenforceable; or

 

   

we may not develop additional proprietary technologies that are patentable or that afford meaningful trade secret protection.

Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.

Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products, including biosimilars. 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. 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.

 

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If we do not obtain protection under the Hatch-Waxman amendments and similar foreign legislation for extending the term of patents covering each of our product candidates, our business may be materially harmed.

Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. The Hatch-Waxman Act allows a maximum of one patent to be extended per FDA approved product as compensation for the patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only those claims covering such approved drug product, a method for using it or a method for manufacturing it may be extended. Patent term extension also may be available in certain foreign countries upon regulatory approval of our product candidates. However, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for that product will be shortened and our competitors may obtain approval to market competing products sooner. As a result, our revenue from applicable products could be reduced, possibly materially. Further, if this occurs, our competitors may take advantage of our investment in development and trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case.

If we are unable to protect the confidentiality of our trade secrets and proprietary information, the value of our technology and products could be adversely affected.

In addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, and other proprietary information. For example, we treat our proprietary computational technologies, including unpatented know-how and other proprietary information, as trade secrets. Trade secrets and know-how can be difficult to protect. Trade secrets and know-how can also in some instances be independently derived or reverse-engineered by a third party. We maintain the confidentiality of trade secrets and proprietary information, in part by entering into confidentiality agreements with our employees, consultants, strategic partners and others upon the commencement of their relationships with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. Our agreements with employees and our personnel policies also provide that any inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. However, we may not obtain these agreements in all circumstances, and even when we obtain these agreements, individuals with whom we have these agreements may not comply with their terms. Any of the parties to these agreements may breach such agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. We may also become involved in inventorship disputes relating to inventions and patents developed by our employees or consultants under such agreements. To the extent that our employees, consultants or contractors use technology or know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions. To the extent that an individual who is not obligated to assign rights in intellectual property to us is rightfully an inventor of intellectual property, we may need to obtain an assignment or a license to that intellectual property from that individual, or a third party or from that individual’s assignee. Such assignment or license may not be available on commercially reasonable terms or at all.

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 in the United States and certain foreign jurisdictions are less willing or unwilling to protect trade secrets. The disclosure of our trade secrets would impair our competitive position and may materially harm our business, financial condition and results of operations. Costly and time consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to maintain trade secret protection could adversely affect our competitive business position. In addition, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no

 

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right to prevent such third party, or those to whom they communicate such technology or information, 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, or if we otherwise lose protection for our trade secrets or proprietary know-how, the value of this information may be greatly reduced and our business and competitive position could be harmed. Adequate remedies may not exist in the event of unauthorized use or disclosure of our proprietary information.

We may be subject to claims that we or our employees or consultants have wrongfully used or disclosed alleged trade secrets or other proprietary information of our employees’ or consultants’ former employers or their clients.

We employ individuals who were previously or concurrently employed at research institutions and/or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers, or that patents and applications we have filed to protect inventions of these employees, even those related to one or more of our product candidates, are rightfully owned by their former or concurrent employer. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, trade secrets or other proprietary information could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such license may not be available on commercially reasonable terms or at all. A loss of key research personnel or their work product could limit our ability to commercialize, or prevent us from commercializing, our current or future technologies or product candidates, which could materially harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by regulations and governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents or applications will be due to the USPTO and various foreign patent offices at various points over the lifetime of our patents or applications. We have systems in place to remind us to pay these fees, and we rely on our outside patent annuity service to pay these fees automatically when due, but we must notify the provider of any new patents or applications. Additionally, the USPTO and various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our business.

We may be subject to claims challenging the inventorship of our patents and other intellectual property.

Although we are not currently experiencing any claims challenging the inventorship or ownership of our patents, we may in the future be subject to claims that former employees, strategic partners or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. While it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. For example, the assignment of intellectual property rights may not be self-executing or the assignment agreements may be breached, or we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

 

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Patent protection and patent prosecution for some of our product candidates may be dependent on, and the ability to assert patents and defend them against claims of invalidity may be maintained by, third parties.

There may be times in the future when certain patents that relate to our product candidates or any approved products are controlled by our licensees or licensors. Although we may, under such arrangements, have rights to consult with our strategic partners on actions taken as well as back-up rights of prosecution and enforcement, we have in the past and may in the future relinquish rights to prosecute and maintain patents and patent applications within our portfolio as well as the ability to assert such patents against infringers.

If any current or future licensee or licensor with rights to prosecute, assert or defend patents related to our product candidates fails to appropriately prosecute and maintain patent protection for patents covering any of our product candidates, or if patents covering any of our product candidates are asserted against infringers or defended against claims of invalidity or unenforceability in a manner which adversely affects such coverage, our ability to develop and commercialize any such product candidate may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products.

Changes in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.

The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in the interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. We cannot predict the breadth of claims that may be allowed or found to be enforceable in our patents or in third-party patents. The United States has enacted and is currently implementing wide-ranging patent reform legislation. Further, recent U.S. Supreme Court rulings have either narrowed the scope of patent protection available in certain circumstances or weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the validity, scope and value of patents, once obtained.

For our U.S. patent applications containing a priority claim after March 16, 2013, there is a greater level of uncertainty in the patent law. In September 2011, the Leahy-Smith America Invents Act, also known as the America Invents Act (AIA), was signed into law. The AIA includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have an adverse effect on our business. An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties disclosing or claiming the same invention. A third party that has filed, or does file a patent application in the USPTO after March 16, 2013 but before us, could be awarded a patent covering a given invention, even if we had made the invention before it was made by the third party. This requires us to be cognizant going forward of the time from invention to filing of a patent application.

Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and providing opportunities for third parties to file third party submissions of prior art to the USPTO during patent prosecution and to challenge any issued patent in the USPTO (e.g., via post-grant reviews or inter partes reviews). This applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal court necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action.

Depending on decisions by the U.S. Congress, the U.S. federal courts, the USPTO or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that may weaken our and our licensors’ ability to obtain new patents or to enforce existing patents we and our licensors or partners may obtain in the future.

 

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We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our current or future products, if any, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Recent United States Supreme Court cases have narrowed the scope of what is considered patentable subject matter, for example, in the areas of software and diagnostic methods involving the association between treatment outcome and biomarkers. This could impact our ability to patent certain aspects of our technology in the United States.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Additionally, the requirements for patentability may differ in certain countries, particularly developing countries. For example, unlike other countries, China has a heightened requirement for patentability, and specifically requires a detailed description of medical uses of a claimed drug. In India, unlike the United States, there is no link between regulatory approval of a drug and its patent status, and patenting of medical uses of a claimed drug are prohibited. In addition to India, certain countries in Europe and developing countries, including China, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license.

We will need to obtain FDA approval for any proposed product candidate names, and any failure or delay associated with such approval may adversely affect our business.

Any proprietary name or trademark we intend to use for our product candidates will require approval from the FDA regardless of whether we have secured a formal trademark registration from the USPTO. The FDA typically conducts a review of proposed product candidate names, including an evaluation of the potential for confusion with other product names and potential pharmacy dispensing errors. The FDA may also object to a product name if it believes the name inappropriately implies certain medical claims or contributes to an overstatement of efficacy. If the FDA objects to any product candidate names we propose, we may be required to adopt an alternative name for our product candidates. If we adopt an alternative name, we would lose the benefit of any existing trademark applications for such product candidate and may be required to expend significant additional resources in an effort to identify a suitable product name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in a timely manner or at all, which would limit our ability to commercialize our product candidates.

 

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Some of our discovery programs include antibodies that are licensed from third parties pursuant to limited research licenses. If we decide to further develop or commercialize these discovery programs as future product candidates, we may need to exercise our option to enter into a commercial license with one or more of these third parties. If we are unable to successfully enter into those commercial licenses or if we breach the terms of our existing research licenses or future commercial licenses, we would not have the ability to continue the development and potential commercialization of such discovery programs.

We have in-licensed certain antibodies for our discovery programs from third parties. Under these license agreements, we are able to research and initially develop discovery programs and are required to make certain annual payments. We also have the option to negotiate or enter into commercial license agreements with these third parties if we elect to continue development or commercialization of any product candidates incorporating the in-licensed antibodies. If we exercise our option to negotiate or enter into any commercial licenses with these third parties, we will likely be subject to various additional obligations, which may include obligations with respect to funding, development and commercialization activities, and payment obligations upon achievement of certain milestones and royalties on product sales. If any of our existing antibody research licenses or future commercial licenses are terminated or breached, we may:

 

   

lose our rights or options to research, develop or commercialize certain of our future product candidates;

 

   

not be able to secure patent or trade secret protection for certain of our future product candidates;

 

   

experience significant delays in the development or commercialization of certain of our future product candidates;

 

   

not be able to obtain other licenses that may allow us to continue to progress the applicable programs on acceptable terms, if at all; or

 

   

incur liability for damages.

Additionally, even if not terminated or breached, our intellectual property licenses may be subject to disagreements over contract interpretation which could narrow the scope of our rights to the relevant intellectual property or technology or increase our financial or other obligations. If we experience any of the foregoing, it could have a materially adverse effect on our business.

Risks Related to Our Common Stock and this Offering

Our share price is likely to be volatile and the market price of our common stock after this offering may drop below the price you pay.

You should consider an investment in our common stock as risky and invest only if you can withstand a significant loss and wide fluctuations in the market value of your investment. You may be unable to sell your common stock at or above the initial public offering price due to fluctuations in the market price of our common stock arising from changes in our operating performance or prospects. In addition, the stock market has recently experienced significant volatility, particularly with respect to pharmaceutical, biotechnology and other life sciences company stocks. The volatility of pharmaceutical, biotechnology and other life sciences company stocks often does not relate to the operating performance of the companies represented by the stock. Some of the factors that may cause the market price of our common stock to fluctuate or decrease below the price paid in this offering include:

 

   

results and timing of our preclinical studies and clinical trials and studies and trials of our competitors’ products;

 

   

failure or discontinuation of any of our development programs;

 

   

issues in manufacturing our product candidates or future approved products;

 

   

regulatory developments or enforcement in the United States and foreign countries with respect to our product candidates or our competitors’ products;

 

   

competition from existing products or new products that may emerge;

 

   

actual or anticipated changes in our growth rate relative to our competitors;

 

   

developments or disputes concerning patents or other proprietary rights;

 

   

introduction of technological innovations or new commercial products by us or our competitors;

 

   

announcements by us, our strategic partners or our competitors of significant acquisitions, strategic partnerships, joint ventures, or capital commitments;

 

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actual or anticipated changes in estimates or recommendations by securities analysts, if any cover our common stock;

 

   

fluctuations in the valuation of companies perceived by investors to be comparable to us;

 

   

public concern over our product candidates or any future approved products;

 

   

litigation;

 

   

future sales of our common stock by us, our insiders or our other stockholders;

 

   

expiration of market stand-off or lock-up agreements;

 

   

share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

 

   

additions or departures of key personnel;

 

   

changes in the structure of health care payment systems in the United States or overseas;

 

   

failure of any of our product candidates, if approved, to achieve commercial success;

 

   

economic and other external factors or other disasters or crises;

 

   

period-to-period fluctuations in our financial condition and results of operations, including the timing of receipt of any milestone or other payments under commercialization or licensing agreements;

 

   

announcements or expectations of additional financing efforts;

 

   

general market conditions and market conditions for biotechnology stocks;

 

   

overall fluctuations in U.S. equity markets; and

 

   

other factors that may be unanticipated or out of our control.

In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit and divert the time and attention of our management, which could seriously harm our business.

An active, liquid and orderly trading market for our common stock may not develop or be sustained. As a result, it may be difficult for you to sell your shares of our common stock.

There is currently no public market for our common stock. An active trading market for our shares may not develop or be sustained. If an active market for our common stock does not continue, it may be difficult for our stockholders to sell their shares without depressing the market price for the shares or sell their shares at or above the prices at which they acquired their shares or sell their shares at the time they would like to sell. The initial public offering price of our common stock will be determined through negotiations between us and the underwriters. The initial public offering price may not be indicative of the market price of our common stock after the offering, and the market value of our common stock may decrease from the initial public offering price. 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.

We are controlled by Haldor Topsøe Holding A/S and a concentrated group of stockholders, whose interests in our business may conflict with yours.

Upon completion of this offering, Haldor Topsøe Holding A/S (HTH), together with holders of 5% or more of our outstanding capital stock and their respective affiliates, will beneficially own approximately                  shares, or     %, of our outstanding capital stock, assuming no exercise of the underwriters’ options to purchase additional shares and assuming no exercise of outstanding options. Accordingly, our principal stockholders will be able to control most matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, including mergers and sales of all or substantially all of our assets. The interests of these principal stockholders may not always coincide with your interests or the interests of other stockholders and they may act in a manner that advances their best interests and not necessarily those of other stockholders. For example, our concentration of ownership could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could cause the market price of our common stock to decline or prevent our stockholders from realizing a premium over the market price for their shares of our common stock.

In addition, pursuant to nominating agreements entered into between us and each of (i) HTH, (ii) Baker Brothers Life Sciences L.P. and 667, L.P. (together, Baker Brothers) and (iii) Redmile Biopharma Investments II, L.P., RAF,

 

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L.P. and Redmile Strategic Master Fund, LP (together, Redmile), for up to 12 years following the completion of this offering, so long as HTH, Baker Brothers and Redmile, together with their respective affiliates, each beneficially own certain specified amounts of our capital stock, we will have the obligation to support the nomination of, and to cause our board of directors to include in the slate of nominees recommended to our stockholders for election, (i) two individuals designated by HTH, (ii) one individual designated by Baker Brothers and (iii) one individual designated by Redmile, subject to certain customary conditions and exceptions. For more information regarding the nominating agreements, see the section titled “Management—Board Composition.” Each of HTH, Baker Brothers and Redmile, and their respective affiliates, may therefore have influence over management and control over matters requiring stockholder approval, including the annual election of directors and significant corporate transactions following the completion of this offering.

The dual class structure of our common stock may limit your ability to influence corporate matters and may limit your visibility with respect to certain transactions.

The dual class structure of our common stock may also limit your ability to influence corporate matters. Holders of our common stock are entitled to one vote per share, while holders of our non-voting common stock are not entitled to any votes. Nonetheless, each share of our non-voting common stock may be converted at any time into one share of our common stock at the option of its holder by providing written notice to us, subject to the limitations provided for in our amended and restated certificate of incorporation to become effective upon the completion of this offering. Consequently, if holders of our non-voting common stock following this offering exercise their option to make this conversion, this will have the effect of increasing the relative voting power of those prior holders of our non-voting common stock, and correspondingly decreasing the voting power of the holders of our common stock, which may limit your ability to influence corporate matters. Additionally, stockholders who hold, in the aggregate, more than 10% of our common stock and non-voting common stock, but 10% or less of our common stock, and are not otherwise a Company insider, may not be required to report changes in their ownership due to transactions in our non-voting common stock pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and may not be subject to the short-swing profit provisions of Section 16(b) of the Exchange Act.

A significant portion of our total outstanding common stock is restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of our common stock in the public market could occur in the future. These sales, or the perception in the market that the holders of a large number of common stock intend to sell shares, could reduce the market price of our common stock and could impair our ability to raise additional capital through the sale of equity securities in the future. Immediately after completing this offering, we will have                 outstanding shares of common stock. This figure includes the shares sold in this offering, which are eligible to be resold in the public market immediately and the remaining                 shares that are currently restricted under securities laws or as a result of lock-up agreements but will be able to be resold as described in the “Shares Eligible for Future Sale” section of this prospectus. Moreover, holders of an aggregate of 113,790,538 shares of common stock have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. Certain of the holders of such registration right may not elect to sell any shares in this offering and therefore those holders could require us to file additional registration statements covering their shares in the future. We also intend to file a registration statement on Form S-8 to register all common stock that we may issue under our stock option plan, and, they therefore can be freely sold in the public market upon issuance and once vested, subject to the lock-up agreements described in the section titled “Underwriting.”

Our executive officers, directors and the holders of substantially all of our capital stock and securities convertible into or exchangeable for our capital stock have entered into market stand-off agreements with us and lock-up agreements with the underwriters under which they have agreed, subject to specific exceptions described in the section titled “Underwriting,” not to sell, directly or indirectly, any shares of common stock without the permission of the underwriters for a period of 180 days following the date of this prospectus. We refer to such period as the lock-up period. When the lock-up period expires, we and our securityholders subject to a lock-up agreement or market stand-off agreement will be able to sell our shares in the public market. In addition, the representatives of the underwriters may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements at any time and for any reason. See the section titled “Shares Eligible for Future Sale” for more information. Sales of

 

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a substantial number of such shares upon expiration of the lock-up and market stand-off agreements, the perception that such sales may occur, or early release of these agreements, could cause our market price to fall or make it more difficult for you to sell your common stock at a time and price that you deem appropriate. Even if a substantial number of sales of our common stock does not occur, the mere perception of the possibility of these sales could depress the market price of our common stock and have a negative effect on our ability to raise capital in the 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. We cannot assure you that analysts will cover us or provide favorable coverage. If no or few securities or industry analysts commence coverage of us, the trading price for our stock would be negatively impacted. If one or more of the analysts who cover us downgrade our stock or change their opinion of our common stock, our share price would likely decline. If one or more of these 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.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be significant deficiencies or material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. We have identified deficiencies in the past which we have taken steps to address. However, our efforts to remediate previous deficiencies may not be effective or prevent any future deficiency in our internal control over financial reporting. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

In connection with our evaluation of our internal controls over financial reporting, we expect to upgrade our finance and accounting systems. If we are unable to accomplish these objectives in a timely and effective manner, our ability to comply with the financial reporting requirements and other rules that apply to reporting companies could be adversely impacted. Any failure to maintain effective internal control over financial reporting could have a material adverse effect on our business, financial condition and results of operations and the trading price of our common stock.

We will be required to disclose material changes made in our internal controls and procedures on a quarterly basis and our management will be required to assess the effectiveness of these controls annually. Beginning with our second annual report on Form 10-K after we become a public company, we will be required to make a formal assessment of the effectiveness of our internal control over financial reporting, and once we cease to be an emerging growth company, we will be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, for as long as we are an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the JOBS Act), our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404.

To achieve compliance with Section 404 within the prescribed period, we will be engaging 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 our internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are designed and operating effectively, and implement a continuous reporting and improvement process for internal control over financial reporting.

 

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We could be an “emerging growth company” for up to five years. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. In addition, our management and independent registered public accounting firm did not perform an evaluation of our internal control over financial reporting as of December 31, 2017 or December 31, 2018 in accordance with the provisions of the Sarbanes-Oxley Act. Had we and our independent registered public accounting firm performed such an evaluation, control deficiencies may have been identified by management or our independent registered public accounting firm, and those control deficiencies could have also represented one or more material weaknesses. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.

We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to corporate governance standards.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, and these expenses may increase even more after we are no longer an “emerging growth company.” Our management and other personnel will need to devote a substantial amount of time and incur substantial expense in connection with compliance initiatives. For example, in anticipation of becoming a public company, we will need to adopt additional internal controls and disclosure controls and procedures, retain a transfer agent and adopt an insider trading policy. As a public company, we will bear all of the internal and external costs of preparing and distributing periodic public reports in compliance with our obligations under the securities laws.

In addition, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act and the related rules and regulations implemented by the SEC, and the Nasdaq Stock Market LLC (Nasdaq), have increased legal and financial compliance costs and will make some compliance activities more time consuming. We are currently evaluating these rules, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment will result in increased general and administrative expenses and may divert management’s time and attention from our other business activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed. In connection with this offering, we intend to increase our directors’ and officers’ insurance coverage which will increase our insurance cost. In the future, it may be more expensive or more difficult for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

Under the corporate governance standards of Nasdaq, a majority of our board of directors and each member of our audit committee must be an independent director no later than the first anniversary of the completion of this offering. We may encounter difficulty in attracting qualified persons to serve on our board of directors and the audit committee, and our board of directors and management may be required to divert significant time and attention and resources away from our business to identify qualified directors. If we fail to attract and retain the required number of independent directors, we may be subject to the delisting of our common stock from the Nasdaq Global Select Market.

We are an “emerging growth company,” and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” for up to five years following the completion of this offering, although, if we have more than $1.07 billion in annual revenue, if the market value of our common stock held by non-affiliates exceeds $700 million as of June 30 of any year, or we issue more than $1.0 billion of

 

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non-convertible debt over a three-year period before the end of that five-year period, we would cease to be an “emerging growth company” as of the following December 31. Investors could find our common stock less attractive if we choose to rely on these exemptions. 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. We have elected to use this extended transition period until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting standards as of public company effective dates. If some investors find our common stock less attractive as a result of any of our reliance on these exemptions, there may be a less active trading market for our common stock and our share price may be more volatile.

We do not anticipate paying cash dividends, and accordingly, stockholders must rely on share appreciation for any return on their investment.

We have never paid any dividends on our capital stock. We currently intend to retain our future earnings, if any, to fund the development and growth of our businesses and do not anticipate that we will declare or pay any cash dividends on our capital stock in the foreseeable future. See the section titled “Dividend Policy.” As a result, capital appreciation, if any, of our common stock will be your sole source of gain on your investment for the foreseeable future. Investors seeking cash dividends should not invest in our common stock.

Our management team will have broad discretion to use the net proceeds from this offering and its investment of these proceeds may not yield a favorable return. They may invest the proceeds of this offering in ways with which investors disagree.

Our management team will have broad discretion in the application of the net proceeds from this offering and could spend or invest the proceeds in ways with which our stockholders disagree. Accordingly, investors will need to rely on our management team’s judgment with respect to the use of these proceeds. We intend to use the proceeds from this offering in the manner described in the section titled “Use of Proceeds.” The failure by management to apply these funds effectively could negatively affect our ability to operate and grow our business.

We cannot specify with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering. In addition, the amount, allocation and timing of our actual expenditures will depend upon numerous factors, including any milestone payments received from any future strategic partnerships and royalties on sales of any future approved product. Accordingly, we will have broad discretion in using these proceeds. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value.

Investors in this offering will pay a much higher price than the book value of our common stock and therefore you will incur immediate and substantial dilution of your investment.

The initial public offering price will be substantially higher than the net tangible book value per common share based on the total value of our tangible assets less our total liabilities immediately following this offering. Therefore, if you purchase common stock in this offering, you will experience immediate and substantial dilution of approximately $         per share, representing the difference between our pro forma as adjusted net tangible book value per share after giving effect to this offering at an assumed initial public offering price of $         per share, the midpoint of the estimated price range set forth on the cover page of this prospectus. As of June 30, 2019, we have outstanding stock options to purchase 12,749,725 shares of our common stock, certain of which have exercise prices below the assumed initial public offering price. To the extent these outstanding options are ultimately exercised, you will experience further dilution. See the section titled “Dilution.”

 

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Delaware law and provisions in our amended and restated certificate of incorporation and bylaws that will become effective upon the completion of this offering might discourage, delay, or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our common stock.

Provisions in our amended and restated certificate of incorporation and bylaws that will become effective upon the completion of this offering may discourage, delay, or prevent a merger, acquisition, or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. Therefore, these provisions could adversely affect the price of our common stock. Among other things, our charter documents will:

 

   

establish that our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving staggered three year terms;

 

   

provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;

 

   

provide that our directors may only be removed for cause;

 

   

eliminate cumulative voting in the election of directors;

 

   

authorize our board of directors to issue shares of convertible preferred stock and determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval;

 

   

provide our board of directors with the exclusive right to elect a director to fill a vacancy or newly created directorship;

 

   

permit stockholders to only take actions at a duly called annual or special meeting and not by written consent;

 

   

prohibit stockholders from calling a special meeting of stockholders;

 

   

require that stockholders give advance notice to nominate directors or submit proposals for consideration at stockholder meetings;

 

   

authorize our board of directors, by a majority vote, to amend the bylaws; and

 

   

require the affirmative vote of at least 66 2/3% or more of the outstanding shares of common stock to amend many of the provisions described above.

In addition, Section 203 of the General Corporation Law of the State of Delaware (DGCL) prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

Any provision of our amended and restated certificate of incorporation, amended and restated bylaws, or Delaware law that has the effect of delaying or preventing a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock and could also affect the price that some investors are willing to pay for our common stock.

Our amended and restated bylaws that will become effective upon the completion of this offering provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated bylaws that will become effective upon the completion of this offering provide that the Court of Chancery of the State of Delaware is the exclusive forum for:

 

   

any derivative action or proceeding under Delaware statutory or common law brought on our behalf;

 

   

any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders;

 

   

any action asserting a claim against us arising under the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws; and

 

   

any action asserting a claim against us that is governed by the internal-affairs doctrine.

 

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This exclusive forum provision will not apply to any causes of action arising under the Securities Act or the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. This exclusive-forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to this provision. If a court were to find this exclusive-forum provision in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our business. Nothing in our amended and restated bylaws precludes stockholders that assert claims under the Securities Act of 1933, as amended (the Securities Act), or the Exchange Act, from bringing such claims in state or federal court, subject to applicable law.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts contained in this prospectus are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” or “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

 

   

the timing of the initiation, progress and potential results of our preclinical studies, clinical trials and our discovery programs;

 

   

our ability to utilize our lgM antibody platform to generate and advance additional product candidates;

 

   

our ability to advance product candidates into, and successfully complete, clinical trials;

 

   

the timing or likelihood of regulatory filings and approvals;

 

   

our estimates of the number of patients who suffer from the diseases we are targeting and the number of patients that may enroll in our clinical trials;

 

   

the commercializing of our product candidates, if approved;

 

   

our ability and the potential to successfully manufacture and supply our product candidates for clinical trials and for commercial use, if approved;

 

   

future strategic arrangements and/or collaborations and the potential benefits of such arrangements;

 

   

our anticipated use of our existing resources and the proceeds from this offering;

 

   

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing and our ability to obtain additional capital;

 

   

the sufficiency of our existing cash and cash equivalents to fund our future operating expenses and capital expenditure requirements;

 

   

our ability to retain the continued service of our key personnel and to identify, hire and retain additional qualified professionals;

 

   

the implementation of our business model, strategic plans for our business and product candidates;

 

   

the scope of protection we are able to establish and maintain for intellectual property rights, including our lgM platform, product candidates and discovery programs;

 

   

our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

 

   

the pricing, coverage and reimbursement of our product candidates, if approved; and

 

   

developments relating to our competitors and our industry, including competing product candidates and therapies.

These forward-looking statements are based on our management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management’s beliefs and assumptions and are not guarantees of future performance or development. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this prospectus. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information.

 

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You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to new information, actual results or changes in our expectations, except as required by law.

You should read this prospectus, as well as the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part, with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.

 

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MARKET, INDUSTRY AND OTHER DATA

This prospectus contains estimates, projections and other information concerning our business, our industry and the markets for our product candidates, including data regarding the estimated size of such markets and the incidence of certain medical conditions. We obtained the industry, market and similar data set forth in this prospectus from our internal estimates and research and from academic and industry research, publications, surveys and studies conducted by third parties, including governmental agencies. In some cases, we do not expressly refer to the sources from which this data is derived. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. While we believe that the data we use from third parties are reliable, we have not separately verified these data. Further, while we believe our internal research is reliable, such research has not been verified by any third party. You are cautioned not to give undue weight to any such information, projections and estimates.

 

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USE OF PROCEEDS

We estimate that the net proceeds from this offering will be approximately $        million, or $        million if the underwriters exercise their option to purchase additional shares of common stock from us in full, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, assuming an initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus.

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $        million, assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, would increase (decrease) our net proceeds from this offering by $        million, assuming the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to obtain additional capital to support our operations, establish a public market for our common stock and facilitate our future access to the public capital markets. We expect to use the net proceeds from this offering, together with our existing cash and cash equivalents, as follows:

 

   

approximately $        million to fund our Phase 1 clinical trial of IGM-2323 for the treatment of relapsed/refractory B cell NHL patients through                     ;

 

   

approximately $        million to fund IND-enabling studies and a Phase 1 clinical trial of our DR5 IgM antibody through                     ;

 

   

approximately $        million to fund the build out and expansion of our manufacturing facilities; and

 

   

the remaining proceeds to fund the development of our pipeline and our discovery programs, as well as for working capital and other general corporate purposes.

This expected use of the net proceeds from this offering represents our intentions based upon our current plans and prevailing business conditions, which could change in the future as such plans and conditions evolve. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we will actually spend on the uses set forth above. We may also use a portion of the net proceeds to acquire, license or invest in complementary products, technologies, intellectual property or businesses, although we have no present commitments or agreements to do so. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.

Based on our current business plans, we believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will be sufficient to fund our planned operations through                 . The expected net proceeds from this offering will not be sufficient for us to fund any of our product candidates through regulatory approval, and we will need to raise substantial additional capital to complete the development and commercialization of our product candidates. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development efforts, the status of and results from preclinical studies and clinical trials, our ability to take advantage of expedited programs or to obtain regulatory approvals and the timing and costs associated with the manufacture and supply of our current or any future product candidates, any collaborations that we may enter into with third parties and any unforeseen cash needs. For additional information regarding our potential capital requirements, including factors that could cause actual costs to vary from the estimates set forth above, see the section titled “Risk Factors.”

Pending our use of the net proceeds from this offering, we plan to invest the net proceeds in a variety of interest-bearing instruments, including money market funds, U.S. Treasury securities, corporate debt, U.S. Government agency securities and commercial paper.

 

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DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock to investors. We currently intend to retain all available funds and any future earnings to support operations and to finance the growth and development of our business. We do not intend to declare or pay any cash dividends on our capital stock in the foreseeable future. Any future determination to pay dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions and capital requirements. Our future ability to pay cash dividends on our capital stock may be limited by the terms of any future debt or preferred securities.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2019:

 

   

on an actual basis;

 

   

on a pro forma basis to reflect (i) the issuance of 20,000,000 shares of our Series C convertible preferred stock and related gross proceeds of $40.0 million subsequent to June 30, 2019 and (ii) the automatic conversion of all outstanding shares of our convertible preferred stock, (including the shares referenced in (i)) into an aggregate of 86,290,538 shares of common stock and 27,500,000 shares of non-voting common stock as if such conversion had occurred on June 30, 2019; and

 

   

on a pro forma as adjusted basis to reflect (i) the pro forma items described immediately above and (ii) the issuance and sale of                shares of common stock in this offering at an assumed initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this table together with the sections titled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

 

 

 

     AS OF JUNE 30, 2019  
     ACTUAL     PRO FORMA     PRO FORMA
AS ADJUSTED(1)
 
     (unaudited)  
    

(in thousands, except share

and per share amounts)

 

Cash and cash equivalents

   $ 42,672     $ 82,672     $    
  

 

 

   

 

 

   

 

 

 

Convertible preferred stock, par value $0.01 par value; 113,790,538 shares authorized and 93,790,538 shares issued and outstanding, actual; 0 shares authorized, issued and outstanding, pro forma and pro forma as adjusted

   $ 122,785     $     $    

Stockholders’ (deficit) equity:

      

Preferred stock, par value $0.01 per share; 0 shares authorized, issued and outstanding, actual;          shares authorized, 0 shares issued and outstanding, pro forma and pro forma as adjusted

              

Common stock, par value $0.01 per share; 222,500,000 shares authorized, 4,089,787 shares issued and outstanding, actual; 222,500,000 shares authorized, 90,380,325 shares issued and outstanding, pro forma;          shares authorized, shares issued and outstanding, pro forma as adjusted

     41       904    

Non-voting common stock, par value $0.01 per share; 27,500,000 shares authorized, no shares issued and outstanding, actual;                      shares authorized, 27,500,000 shares issued and outstanding, pro forma;          shares authorized, shares issued and outstanding, pro forma as adjusted

           275    

Additional paid-in capital

     1,208       162,769    

Due from related party

              

Accumulated deficit

     (82,218     (82,218  
  

 

 

   

 

 

   

Total stockholders’ (deficit) equity

     (80,969     81,730                     
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 41,816     $ 81,730     $    
  

 

 

   

 

 

   

 

 

 

 

 

 

(1) 

The pro forma as adjusted information above is illustrative only and may change based on the actual initial public offering price and other terms of this offering. Each $1.00 increase (decrease) in the assumed initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ (deficit) equity and total capitalization by approximately $                million, assuming the number of shares of common stock offered by us, as set forth on the cover page of this

 

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  prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered by us would increase (decrease) each of our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ (deficit) equity and total capitalization by approximately $                million, assuming the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

For purposes of this section, the number of shares of common stock and non-voting common stock that will be outstanding following this offering is based on 90,380,325 shares of common stock outstanding and 27,500,000 shares of non-voting common stock outstanding as of June 30, 2019 (including convertible preferred stock on an as-converted basis, as well as 20,000,000 shares of our Series C convertible preferred stock issued after June 30, 2019), and excludes:

 

   

3,937,606 shares of common stock issuable upon the exercise of outstanding stock options granted under our 2010 Plan as of June 30, 2019, with a weighted-average exercise price of $0.14 per share;

 

   

8,812,119 shares of common stock issuable upon the exercise of outstanding stock options granted under our 2018 Plan as of June 30, 2019, with a weighted-average exercise price of $0.21 per share;

 

   

770,000 shares of restricted common stock granted during 2018, none of which are vested as of June 30, 2019;

 

   

1,223,000 shares of common stock issuable upon the exercise of outstanding stock options granted under our 2018 Plan after June 30, 2019, with a weighted-average exercise price of $1.55 per share;

 

   

            shares of common stock reserved for future issuance under our 2018 Plan, including the amendment thereto that will become effective in connection with this offering, and any additional shares that become available under our 2018 Plan pursuant to provisions thereof that automatically increase the share reserve under the plan each year; and

 

   

            shares of common stock reserved for future issuance under our ESPP, which will become effective in connection with this offering, and any additional shares that become available under our ESPP pursuant to provisions thereof that automatically increase the share reserve under the plan each year.

 

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DILUTION

If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share immediately following the completion of this offering.

Our historical net tangible book value (deficit) as of June 30, 2019, was $(83.1) million, or $(20.31) per share of common stock, based on 4,089,787 shares of common stock and no shares of non-voting common stock outstanding as of June 30, 2019. Our net tangible book value (deficit) per share represents total tangible assets, excluding deferred offering costs, less total liabilities and our convertible preferred stock, all divided by the number of shares of common stock and non-voting common stock outstanding on June 30, 2019.

Our pro forma net tangible book value as of June 30, 2019 was $                million, or $                per share of common stock. Pro forma net tangible book value per share represents our net tangible book value per share on a pro forma basis, to reflect (i) the issuance of 20,000,000 shares of our Series C convertible preferred stock and related gross proceeds of $40.0 million subsequent to June 30, 2019 and (ii) the automatic conversion of all outstanding shares of our convertible preferred stock, (including the shares referenced in (i)) into an aggregate of 86,290,538 shares of common stock and 27,500,000 shares of non-voting common stock as if such conversion had occurred on June 30, 2019.

After giving effect to the sale by us of                 shares of common stock in this offering at an assumed initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2019 would have been $                million, or $                per share. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $                per share to our existing stockholders and an immediate dilution in pro forma as adjusted net tangible book value of $                per share to new investors participating in this offering. We determine dilution per share to investors participating in this offering by subtracting the pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by investors participating in this offering. The following table illustrates this dilution on a per share basis.

 

 

 

Assumed initial public offering price per share

     $                

Historical net tangible book value (deficit) per share as of June 30, 2019

   $ (20.31  

Pro forma change in net tangible book value (deficit) per share

    
  

 

 

   

Pro forma net tangible book value per share as of June 30, 2019

    

Increase in pro forma net tangible book value per share attributable to new investors purchasing shares of our common stock in this offering

    
  

 

 

   

Pro forma as adjusted net tangible book value per share following this offering

    
    

 

 

 

Dilution in net tangible book value per share to new investors in this offering

     $    
    

 

 

 

 

 

The dilution information discussed above is illustrative only and may change based on the actual initial public offering price and other terms of this offering. Each $1.00 increase (decrease) in the assumed initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by $                per share and increase (decrease) the dilution to new investors by $                per share, in each case assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered by us would increase (decrease) our pro forma as adjusted net tangible book value by approximately $                per share and decrease (increase) the dilution to new investors by approximately $                per share, in each case assuming the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

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If the underwriters exercise their option to purchase additional shares of common stock in full, our pro forma net tangible book value per share, as adjusted to give effect to this offering, would be $                per share, and the dilution in pro forma net tangible book value per share to investors in this offering would be $                per share.

The following table summarizes, as of June 30, 2019, on a pro forma as adjusted basis as described above, the number of shares of our common stock and non-voting common stock (including 20,000,000 shares issuable upon conversion of our Series C convertible preferred stock issued after June 30, 2019), the total consideration and the average price per share (i) paid to us by existing stockholders and (ii) to be paid by new investors purchasing common stock in this offering at an assumed initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 

 

 

     SHARES PURCHASED     TOTAL CONSIDERATION     WEIGHTED-
AVERAGE PRICE
PER SHARE
 
     NUMBER      PERCENT     AMOUNT      PERCENT  

Existing stockholders before this offering

                                $                                 $                    

New investors participating in this offering

             $    
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

        100.0   $          100.0  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

If the underwriters exercise their option to purchase additional shares of common stock in full, existing stockholders after this offering would own    % of the total number of shares of common stock outstanding following this offering, and new investors would own     % of the total number of shares of common stock outstanding after this offering.

For purposes of this section, the number of shares of common stock and non-voting common stock that will be outstanding following this offering is based on 90,380,325 shares of common stock outstanding and 27,500,000 shares of non-voting common stock outstanding as of June 30, 2019 (including convertible preferred stock on an as-converted basis, as well as 20,000,000 shares of our Series C convertible preferred stock issued after June 30, 2019), and excludes:

 

   

3,937,606 shares of common stock issuable upon the exercise of outstanding stock options granted under our 2010 Plan as of June 30, 2019, with a weighted-average exercise price of $0.14 per share;

 

   

8,812,119 shares of common stock issuable upon the exercise of outstanding stock options granted under our 2018 Plan as of June 30, 2019, with a weighted-average exercise price of $0.21 per share;

 

   

770,000 shares of restricted common stock granted during 2018, none of which are vested as of June 30, 2019;

 

   

1,223,000 shares of common stock issuable upon the exercise of outstanding stock options granted under our 2018 Plan after June 30, 2019, with a weighted-average exercise price of $1.55 per share;

 

   

            shares of common stock reserved for future issuance under our 2018 Plan, including the amendment thereto that will become effective in connection with this offering, and any additional shares that become available under our 2018 Plan pursuant to provisions thereof that automatically increase the share reserve under the plan each year; and

 

   

            shares of common stock reserved for future issuance under our ESPP, which will become effective in connection with this offering, and any additional shares that become available under our ESPP pursuant to provisions thereof that automatically increase the share reserve under the plan each year.

To the extent that any outstanding stock options are exercised, or new stock options are issued under our equity incentive plans, or we issue additional equity or convertible debt securities in the future, there will be further dilution to investors participating in this offering. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

 

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SELECTED FINANCIAL DATA

The following tables set forth our selected financial data as of and for the periods ended on the dates indicated. We have derived the selected statements of operations data for the years ended December 31, 2017 and 2018 and the selected balance sheet data as of December 31, 2017 and 2018 from our audited financial statements included elsewhere in this prospectus. The selected statements of operations data for the six months ended June 30, 2018 and 2019, and the balance sheet data as of June 30, 2019, have been derived from our unaudited interim condensed financial statements included elsewhere in this prospectus. The unaudited interim condensed financial statements were prepared on the same basis as our audited financial statements and reflect, in the opinion of management, all adjustments, which include only normal, recurring adjustments that are necessary to present fairly the unaudited interim condensed financial statements. Our historical results are not necessarily indicative of the results that may be expected in any future period. You should read this data together with the information in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus. The selected financial data in this section are not intended to replace the financial statements and are qualified in their entirety by the financial statements and related notes appearing at the end of this prospectus.

 

 

 

     YEAR ENDED DECEMBER 31,     SIX MONTHS ENDED JUNE 30,  
     2017     2018     2018     2019  
     (in thousands, except share and per share amounts)  
           (Unaudited)  

Statements of Operations Data:

        

Operating expenses:

        

Research and development

   $ 8,639     $ 18,962     $ 5,976     $ 14,215  

General and administrative

     2,508       3,829       1,224       3,673  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     11,147       22,791       7,200       17,888  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (11,147     (22,791     (7,200     (17,888

Other income (expense), net

     93       80       59       (258
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (11,054   $ (22,711   $ (7,141   $ (18,146
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted (1)

   $ (3.82   $ (7.84   $ (2.47   $ (5.47
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares outstanding, basic and diluted (1)

     2,894,127       2,895,000       2,895,000       3,315,596  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share, basic and diluted (unaudited) (1)

     $ (0.46     $ (0.27
    

 

 

     

 

 

 

Pro forma weighted-average common and non-voting common shares outstanding, basic and diluted (unaudited) (1)

       48,869,169         66,619,946  
    

 

 

     

 

 

 

 

 

(1)   See Note 10 to our financial statements and Note 9 to our unaudited condensed financial statements included elsewhere in this prospectus for an explanation of the method used to calculate historical and pro forma net loss per share, basic and diluted, and the weighted-average number of shares used in the computation of the per share amounts.

 

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     AS OF DECEMBER 31,       AS OF JUNE 30,    
     2017     2018     2019  
     (in thousands)  

Balance Sheet Data:

      

Cash and cash equivalents(1)

   $ 432     $ 1,887     $ 42,672  

Total assets

     1,390       3,979       48,517  

Accrued liabilities

     507       3,582       4,048  

Total liabilities

     1,110       8,890       6,701  

Convertible preferred stock

     40,783       60,917       122,785  

Accumulated deficit

     (41,361     (64,072     (82,218

Total stockholders’ (deficit) equity

     (40,503     (65,828     (80,969

 

 

 

(1)    The cash and cash equivalents balance as of June 30, 2019 does not include the $40.0 million received by the Company in July 2019 for the sale of 20,000,000 shares of the Company’s Series C convertible preferred stock.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the section titled “Selected Financial Data” and our financial statements and related notes included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, include forward-looking statements that involve risks and uncertainties. You should review the section titled “Risk Factors” for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a biotechnology company pioneering the development of engineered IgM antibodies for the treatment of cancer patients. IgM antibodies have inherent properties that we believe may enable them to bind more strongly to cancer cells than comparable IgG antibodies. We have created a proprietary IgM antibody technology platform that we believe is particularly well suited for developing T cell engagers, receptor cross-linking agonists and targeted cytokines. Our lead product candidate, IGM-2323, is a bispecific T cell engaging IgM antibody targeting CD20 and CD3 proteins, and we intend to dose the first patient in a Phase 1 clinical trial for the treatment of relapsed/refractory B cell Non-Hodgkin’s lymphoma (NHL) patients in 2019. Our second product candidate will be an IgM antibody targeting Death Receptor 5 (DR5) proteins, and we plan to file an investigational new drug application (IND) for the treatment of patients with solid and hematologic malignancies in 2020. We believe that we have the most advanced research and development program focused on engineered therapeutic IgM antibodies. We have created a portfolio of patents and patent applications, know-how and trade secrets directed to our platform technology, product candidates and manufacturing capabilities, and we retain worldwide commercial rights to all of our product candidates and the intellectual property related thereto.

Since the commencement of our operations, we have focused substantially all of our resources on conducting research and development activities, including drug discovery and preclinical studies, establishing and maintaining our intellectual property portfolio, the manufacturing of clinical and research material, developing our in-house manufacturing capabilities, hiring personnel, raising capital and providing general and administrative support for these operations. Since 2010, such activities have exclusively related to the research, development and manufacture of IgM antibodies and to building our proprietary IgM antibody technology platform. We do not have any products approved for sale, and we have not generated any revenue from product sales.

We have incurred significant net losses to date. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our current or future product candidates. Our net losses were $11.1 million and $22.7 million in 2017 and 2018, respectively, and $7.1 million and $18.1 million for the six months ended June 30, 2018 and June 30, 2019, respectively. As of June 30, 2019, we had an accumulated deficit of $82.2 million. These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, and our net losses may fluctuate significantly from period to period, depending on the timing of and expenditures on our planned research and development activities.

We expect our expenses and capital requirements will increase substantially in connection with our ongoing activities as we:

 

   

advance the development of IGM-2323;

 

   

advance the development of our DR5 IgM antibody;

 

   

expand our pipeline of IgM antibody product candidates;

 

   

continue to invest in our IgM antibody technology platform;

 

   

build out and expand our in-house manufacturing capabilities;

 

   

maintain, protect and expand our intellectual property portfolio, including patents, trade secrets and know-how;

 

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seek marketing approvals for any product candidates that successfully complete clinical trials;

 

   

establish a sales, marketing, and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval and related commercial manufacturing build-out;

 

   

implement operational, financial and management information systems; and

 

   

attract, hire and retain additional clinical, scientific, management and administrative personnel.

Furthermore, following the completion of this offering, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, insurance, investor relations and other administrative and professional services expenses that we did not incur as a private company.

As a result, we will require substantial additional capital to develop our product candidates and fund operations for the foreseeable future. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.

From 2010 through December 31, 2018, we raised aggregate gross proceeds of approximately $65.0 million from the sale of $60.0 million of shares of our convertible preferred stock and $5.0 million from the issuance of an unsecured promissory note. As of December 31, 2018, we had cash and cash equivalents of $1.9 million and $5.0 million in debt outstanding under our promissory note. From January through June 2019, we raised an additional $15.0 million under our promissory note. In June 2019, we entered into an agreement to issue and sell $102.0 million of shares of our Series C convertible preferred stock, which includes $20.0 million in settlement of all of the principal amounts outstanding under our promissory note. As of June 30, 2019, $62.0 million of gross proceeds were received, which includes $20.0 million in settlement of all of the principal amounts outstanding under a promissory note held by Haldor Topsøe Holding A/S (HTH). In July 2019, we received the remaining gross proceeds of $40.0 million.

We were incorporated in Delaware in 1993 under the name Palingen, Inc. From 1993 to 2010, we were principally engaged in research related to naturally occurring IgM antibodies. In 2010, we received an initial equity investment from HTH, our current majority stockholder, changed our name to IGM Biosciences, Inc. and refocused our research and development efforts toward developing our IgM platform and engineering new IgM antibodies. In December 2017, we established a Danish holding company—IGM Biosciences A/S (Holdco); in April 2019, we dissolved Holdco. The capitalization information included in this prospectus is consistently presented as that of IGM Biosciences, Inc. even during the interim period when we had a holding company structure and our investors held their equity interests in Holdco.

Components of Results of Operations

Revenue

To date, we have not generated any revenue and do not expect to generate any revenue from the sale of products in the near future.

Operating expenses

Research and development

Research and development expenses consist primarily of costs incurred for the discovery and development of product candidates, which include:

 

   

Direct expenses consisting of:

 

   

Fees paid to third parties such as consultants, contractors and contract research organizations (CROs), for animal studies and other costs related to preclinical and planned clinical studies;

 

   

Costs related to acquiring and manufacturing research and clinical trial materials, including under agreements with third parties such as contract manufacturing organizations (CMOs), and other vendors;

 

   

Costs related to the preparation of regulatory submissions; and

 

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Expenses related to laboratory supplies and services;

 

   

Indirect expenses consisting of:

 

   

Personnel-related expenses, including salaries, benefits and stock-based compensation expense, for personnel in our research and development functions; and

 

   

Depreciation of equipment and facilities expenses.

We expense research and development costs in the periods in which they are incurred. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered and as services are performed. All direct research and development expenses are tracked by stage of development. We do not track our indirect research and development costs by product candidate or program.

We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities to advance our product candidates and our clinical programs, expand our product candidate pipeline and continue to build out and expand our in-house manufacturing capabilities. The process of conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming. To the extent that our product candidates continue to advance into clinical trials, as well as advance into larger and later stage clinical trials, our expenses will increase substantially and may become more variable. The actual probability of success for our product candidates may be affected by a variety of factors, including the safety and efficacy of our product candidates, investment in our clinical programs, manufacturing capability and competition with other products. As a result of these variables, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in achieving regulatory approval for any of our product candidates.

General and administrative

Our general and administrative expenses consist primarily of personnel-related expenses for personnel in our executive, finance, corporate and other administrative functions, intellectual property, facilities and other allocated expenses, other expenses for outside professional services, including legal, human resources, audit and accounting services, and insurance costs. Personnel-related expenses consist of salaries, benefits and stock-based compensation. We expect our general and administrative expenses to increase for the foreseeable future as we increase our headcount to support our continued research activities and development of product candidates and as a result of operating as a public company, including compliance with the rules and regulations of the SEC and those of any national securities exchange on which our securities are traded, legal, auditing, additional insurance expenses, investor relations activities and other administrative and professional services. We also expect our intellectual property expenses to increase as we expand our intellectual property portfolio.

Other income (expense), net

Other income (expense), net includes sublease income, interest income earned on our cash, cash equivalents and restricted cash balances and interest expense incurred on unsecured promissory notes.

 

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Results of Operations

Comparison of the Six Months Ended June 30, 2018 and 2019

 

 

 

     SIX MONTHS ENDED JUNE 30,          CHANGE       
             2018                     2019          
     (in thousands)  

Operating expenses:

      

Research and development

   $ 5,976     $ 14,215     $ 8,239  

General and administrative

     1,224       3,673       2,449  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     7,200       17,888       10,688  
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (7,200     (17,888     (10,688

Other income (expense), net

     59       (258     (317
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (7,141   $ (18,146   $ (11,005
  

 

 

   

 

 

   

 

 

 

 

 

 

 

Research and development expenses

The following table summarizes our research and development expenses incurred during the periods indicated:

 

 

 

     SIX MONTHS ENDED JUNE 30,      CHANGE  
         2018              2019      
     (in thousands)  

Direct expenses

        

Clinical stage program (1)

   $ 1,134      $ 5,330      $ 4,196  

Preclinical stage programs

     2,085        3,721        1,636  

Indirect expenses

        

Personnel-related

     2,096        3,932        1,836  

Depreciation and facilities

     661        1,232        571  
  

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 5,976      $ 14,215      $ 8,239  
  

 

 

    

 

 

    

 

 

 

 

 

(1)   Includes direct expenses related to our lead product candidate, IGM-2323, for which we intend to dose the first patient in a Phase 1 clinical trial in 2019.

Research and development expenses were $6.0 million for the six months ended June 30, 2018, compared to $14.2 million for the six months ended June 30, 2019. The increase of $8.2 million was driven by an increase in expenses to advance our product candidates, including $4.2 million of expenses related to our clinical stage program, which consisted of preclinical and manufacturing expenses incurred in the development of our lead product candidate, IGM-2323, and start-up expenses for its Phase 1 clinical trial for which we intend to dose the first patient in 2019, and $1.6 million related to our preclinical stage programs. Personnel-related expenses, including stock-based compensation, increased by $1.8 million due to an increase in headcount.

General and administrative expenses

General and administrative expenses were $1.2 million for the six months ended June 30, 2018 compared to $3.7 million for the six months ended June 30, 2019. The increase of $2.4 million was primarily due to a $1.2 million increase in accounting and consulting services related to our financial statement audit, a $0.4 million increase in personnel-related expenses, a $0.3 million increase in recruitment expenses and a $0.2 million increase in legal and advisory fees.

Other income (expense), net

Other income, net was $0.1 million for the six months ended June 30, 2018 compared to other expense, net of $0.3 million for the six months ended June 30, 2019. The decrease of $0.3 million was primarily due to an increase in interest expense resulting from an interest-bearing unsecured promissory note.

 

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Comparison of the Years Ended December 31, 2017 and 2018

 

 

 

     YEAR ENDED DECEMBER 31,     CHANGE  
             2017                     2018          
     (in thousands)  

Operating expenses:

      

Research and development

   $ 8,639     $ 18,962     $ 10,323  

General and administrative

     2,508       3,829       1,321  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     11,147       22,791       11,644  
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (11,147     (22,791     (11,644

Other income, net

     93       80       (13
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (11,054   $ (22,711   $ (11,657
  

 

 

   

 

 

   

 

 

 

 

 

Research and development expenses

The following table summarizes our research and development expenses incurred during the periods indicated:

 

 

 

     YEAR ENDED DECEMBER 31,           CHANGE       
             2017                      2018          
     (in thousands)  

Direct expenses

        

Clinical stage program (1)

   $ 1,168      $ 7,359      $ 6,191  

Preclinical stage programs

     3,229        5,394        2,165  

Indirect expenses

        

Personnel-related

     2,889        4,743        1,854  

Depreciation and facilities

     1,353        1,466        113  
  

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 8,639      $ 18,962      $ 10,323  
  

 

 

    

 

 

    

 

 

 

 

 

(1)   Includes direct expenses related to our lead product candidate, IGM-2323, for which we intend to dose the first patient in Phase 1 clinical trial in 2019.

Research and development expenses were $8.6 million in 2017 compared to $19.0 million in 2018. The increase of $10.3 million was driven by an increase in expenses to advance our product candidates, including $6.2 million of expenses related to our clinical stage program, which consisted of preclinical and clinical expenses and expenses incurred in the development of our lead product candidate, IGM-2323 and the preparation for its Phase 1 clinical trial, and $2.2 million related to our preclinical stage programs. Personnel-related expenses, including stock-based compensation, increased by $1.9 million due to an increase in headcount.

General and administrative expenses

General and administrative expenses were $2.5 million in 2017 compared to $3.8 million in 2018. The increase of $1.3 million was primarily due to a $0.7 million increase in legal and advisory fees, a $0.3 million increase in recruitment expenses and a $0.2 million increase in personnel-related expenses.

Other income, net

Other income, net was $93,000 in 2017 compared to $80,000 in 2018. The decrease of $13,000 was primarily due to an increase in interest expense resulting from an interest-bearing unsecured promissory note.

Liquidity and Capital Resources

Liquidity

Due to our significant research and development expenditures, we have generated operating losses since our inception. We have funded our operations primarily through the sale of convertible preferred stock and the issuance of unsecured promissory notes. As of June 30, 2019, we had cash and cash equivalents of $42.7 million. Additionally, in July 2019, we received cash of $40.0 million in connection with the issuance of our Series C convertible preferred stock. As of June 30, 2019, we had an accumulated deficit of $82.2 million.

 

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Future Funding Requirements

Our primary uses of cash are to fund operating expenses, which consist primarily of research and development expenditures related to our programs and related personnel costs. The timing and amount of our future funding requirements depends on many factors, including the following:

 

   

the initiation, scope, rate of progress, results and cost of our preclinical studies, clinical trials and other related activities for our product candidates;

 

   

the costs associated with manufacturing our product candidates, including building out and expanding our own manufacturing facilities, and establishing commercial supplies and sales, marketing and distribution capabilities;

 

   

the timing and cost of capital expenditures to support our research, development and manufacturing efforts;

 

   

the number and characteristics of other product candidates that we pursue;

 

   

the costs, timing and outcome of seeking and obtaining FDA and non-U.S. regulatory approvals;

 

   

our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make in connection with the licensing, filing, defense and enforcement of any patents or other intellectual property rights;

 

   

the timing, receipt and amount of sales from our potential products;

 

   

our need and ability to hire additional management, scientific and medical personnel;

 

   

the effect of competing products that may limit market penetration of our product candidates;

 

   

our need to implement additional internal systems and infrastructure, including financial and reporting systems;

 

   

the economic and other terms, timing and success of any collaboration, licensing, or other arrangements into which we may enter in the future, including the timing of receipt of any milestone or royalty payments under these agreements;

 

   

the compliance and administrative costs associated with being a public company; and

 

   

the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

Based on our current operating plan, our current cash and cash equivalents, together with the proceeds from the sale and issuance of our Series C preferred stock, are expected to be sufficient to fund our ongoing operations for at least the following 12 months, without giving effect to any anticipated proceeds from this offering. However, we have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

In addition, we will require additional funding in order to complete development of our product candidates and commercialize our products, if approved. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. There can be no assurance that, in the event we require additional financing, such financing will be available at terms acceptable to us, if at all. Failure to generate sufficient cash flows from operations, raise additional capital, and reduce discretionary spending should additional capital not become available could have a material adverse effect on our ability to achieve our intended business objectives. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated preclinical studies and clinical trials. To the extent that we raise additional capital through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams or research programs at an earlier stage of development or on less favorable terms than we would otherwise choose or to grant licenses on terms that may not be favorable to us. If we do raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to obtain

 

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additional funding from these or other sources, it may be necessary to significantly reduce our rate of spending through reductions in staff and delaying, scaling back, or stopping certain research and development programs.

Cash Flows

The following summarizes our cash flows for the periods indicated:

 

 

 

     YEAR ENDED DECEMBER 31,     SIX MONTHS ENDED JUNE 30,  
             2017                     2018                     2018                     2019          
     (in thousands)     (in thousands)  

Cash used in operating activities

   $ (10,357   $ (20,044   $ (7,962   $ (17,669

Cash used in investing activities

     (385     (788     (321     (1,148

Cash provided by financing activities

     8,068       22,337       8,876       59,602  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents and restricted cash

   $ (2,674   $ 1,505     $ 593     $ 40,785  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

Cash used in operating activities

For the six months ended June 30, 2019, cash used in operating activities was $17.7 million, which consisted of a net loss of $18.1 million and a net change of $0.3 million in our net operating assets and liabilities, partially offset by $0.8 million in non-cash charges. The net change in our operating assets and liabilities was primarily due to a decrease of accrued liabilities of $1.1 million and an increase of prepaid expenses of $0.8 million, partially offset by an increase in accounts payable of $1.4 million. The non-cash charges primarily consisted of stock-based compensation of $0.3 million and accrued interest on related party loan of $0.3 million.

For the six months ended June 30, 2018, cash used in operating activities was $8.0 million, which consisted of a net loss of $7.1 million and a net change of $1.0 million in our net operating assets and liabilities, partially offset by $0.2 million in non-cash charges. The net change in our operating assets and liabilities was primarily due to an increase in prepaid expenses of $0.6 million and a decrease in accounts payable of $0.2 million, and a decrease in income tax payable of $0.1 million. The non-cash charges primarily consisted of depreciation of $0.1 million.

In 2018, cash used in operating activities was $20.0 million, which consisted of a net loss of $22.7 million, partially offset by a net change of $2.2 million in our net operating assets and liabilities and $0.5 million in non-cash charges. The net change in our operating assets and liabilities was primarily due to an increase in accrued liabilities of $2.8 million resulting from an increase in research and development activities. This was partially offset by an increase in prepaid expenses of $0.3 million primarily associated with prepayments made for ongoing research and development activities conducted by third-party service providers. The non-cash charges primarily consisted of depreciation of $0.3 million and stock-based compensation of $0.2 million.

In 2017, cash used in operating activities was $10.4 million, which consisted of a net loss of $11.1 million, partially offset by a net change of $0.4 million in our net operating assets and liabilities and $0.3 million in non-cash charges. The net change in our operating assets and liabilities was primarily due to an increase in accrued liabilities of $0.3 million resulting from an increase in research and development activities. The non-cash charges primarily consisted of depreciation of $0.2 million and stock-based compensation of $0.1 million.

Cash used in investing activities

Cash used in investing activities was $1.1 million and $0.3 million for the six months ended June 30, 2019 and 2018, respectively, related to the purchases of lab equipment for research and development activities.

Cash used in investing activities was $0.8 million and $0.4 million in 2018 and 2017, respectively, related to the purchase of property and equipment.

Cash provided by financing activities

For the six months ended June 30, 2019, cash provided by financing activities was $59.6 million, which consisted primarily of $42.0 million of proceeds from the issuance of shares of our Series C convertible preferred stock $15.0 million of proceeds from the issuance of an unsecured promissory note to a related party which was subsequently

 

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settled as Series C convertible preferred stock in June 2019, and the receipt of a $2.5 million receivable that was due from a related party.

For the six months ended June 30, 2018, cash provided by financing activities was $8.9 million, which consisted of a loan from a related party of $5.0 million and proceeds from related party capital contribution of $3.9 million.

In 2018, cash provided by financing activities was $22.3 million, which consisted primarily of $17.3 million in proceeds from the issuance of shares of our Series B convertible preferred stock and $5.0 million from the issuance of an unsecured promissory note.

In 2017, cash provided by financing activities was $8.1 million, which consisted of proceeds from the issuance of shares of our Series B convertible preferred stock.

Contractual Obligations and Other Commitments

The following table summarizes our contractual obligations and other commitments as of June 30, 2019:

 

 

 

     PAYMENTS DUE BY PERIOD  
     LESS THAN
1 YEAR
     1 TO 3
YEARS
     3 TO 5
YEARS
     MORE THAN
5 YEARS
     TOTAL  
     (in thousands)  

Contractual obligations:

              

Operating lease obligations (1)

   $ 1,785      $ 3,871      $ 4,107      $ 1,780      $ 11,543  

 

 

(1)    Payments due for our lease of office, laboratory and manufacturing space in Mountain View, California. The payments represent gross operating lease obligations and exclude sublease income.

In addition, we enter into agreements in the normal course of business with CROs, CMOs and other vendors for research and development services for operating purposes, which are generally cancelable upon written notice. These payments are not included in this table of contractual obligations.

We have not included milestone or royalty payments or other contractual payment obligations in the table above as the timing and amount of such obligations are unknown or uncertain. See Note 4 to our financial statements and our unaudited condensed financial statements included elsewhere in this prospectus.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Critical Accounting Polices and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated, and reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in the Note 2 to our financial statements and our unaudited condensed financial statements included elsewhere in this prospectus, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

Accrued Research and Development Expenses

We record accruals for estimated costs of research, preclinical, clinical and manufacturing development, which are significant components of research and development expenses. A substantial portion of our ongoing research and

 

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development activities is conducted by third-party service providers, CROs and CMOs. Our contracts with the CROs and CMOs generally include fees such as initiation fees, reservation fees, costs related to animal studies and safety tests, verification run costs, materials and reagents expenses, taxes, etc. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. We accrue the costs incurred under agreements with these third parties based on estimates of actual work completed in accordance with the respective agreements. We determine the estimated costs through discussions with internal personnel and external service providers as to the progress, or stage of completion or actual timeline (start-date and end-date) of the services and the agreed-upon fees to be paid for such services. For the periods presented, there have been no material differences from our estimated accrued research and development expenses to actual expenses.

Stock-based Compensation

We account for stock-based compensation by measuring and recognizing compensation expense for all share-based awards made to employees and directors based on estimated grant-date fair values. We use the straight-line method to allocate compensation cost to reporting periods over the requisite service period, which is generally the vesting period, and estimates the fair value of share-based awards to employees and directors using the Black-Scholes option-pricing valuation model. The Black-Scholes model requires the input of subjective assumptions, including fair value of common stock, expected term, expected volatility, risk-free interest rate and expected dividends, which are described in greater detail below. We account for forfeitures as they occur. Stock-based compensation awarded to non-employees for the years ended December 31, 2017 and 2018, and the six months ended June 30, 2019, was not material. Disclosures related to stock-based compensation have been included for employee stock-based compensation only. As a result of the adoption of ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, effective January 1, 2019, there is no change in the measurement and recognition of the compensation expense between employee and non-employee during the six months ended June 30, 2019.

Fair Value of Common Stock—Historically, as there has been no public market for our common stock, the fair value of our common stock was determined by our board of directors based in part on valuations of our common stock prepared by a third-party valuation firm. See the subsection titled “Fair Value of Common Stock” below.

Expected Term—The expected term of the options represents the average period the stock options are expected to remain outstanding. As we do not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior, the expected term of options granted is derived from the average midpoint between the weighted average vesting and the contractual term, also known as the simplified method.

Expected Volatility—Since we are not yet a public company and do not have any trading history for our common stock, the expected volatility is based on the historical volatilities of the common stock of comparable publicly traded companies. We selected companies with comparable characteristics, including enterprise value, risk profiles, position within the industry, and, where applicable, with historical share price information sufficient to meet the expected life of our stock-based awards. We will continue to apply this process until enough historical information regarding the volatility of our own stock price becomes available.

Risk-Free Interest Rate—The risk-free interest rate is based on the yield of zero-coupon U.S. Treasury notes as of the grant date with maturities commensurate with the expected term of the awards.

Expected Dividends—The expected dividends assumption is based on our expectation of not paying dividends in the foreseeable future; therefore, we used an expected dividend yield of zero.

Assumptions we used in applying the Black-Scholes option-pricing model to determine the estimated fair value of our stock options granted involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our equity-based compensation could be materially different.

Fair Value of Common Stock

Historically, for all periods prior to this initial public offering, the fair values of the shares of common stock underlying our share-based awards were estimated on each grant date by our board of directors or a committee

 

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thereof. Given the absence of a public trading market for our common stock, our board of directors and committee exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock, including our stage of development; our actual operating results and financial performance; progress of our research and development efforts; conditions in the industry and economy in general; the rights, preferences and privileges of our convertible preferred stock relative to those of our common stock; the likelihood of achieving a liquidity event for the holders of our common stock, such as an initial public offering or a sale of our company, given prevailing market conditions; equity market conditions affecting comparable public companies; the lack of marketability of our common stock and the results of independent third-party valuations prepared in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (Guide). The Guide identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date.

For valuations prior to December 31, 2018, we used the option-pricing method (OPM). Under the OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The estimated fair values of the preferred and common stock are inferred by analyzing these options. Specifically, we use the OPM backsolve method to estimate the fair value of our common stock, which derives the implied equity value for one type of equity security from a contemporaneous transaction involving another type of security, shares of our Series B convertible preferred stock in this instance. We used the OPM backsolve method because we were at an early stage of development and future liquidity events were difficult to forecast. We applied a discount for lack of marketability to account for a lack of access to an active public market.

For our valuation as of June 30, 2019, we used a combination of the OPM and the probability weighted expected return method (PWERM) and considered two types of future event scenarios: an initial public offering and remaining private. PWERM is a scenario-based analysis that estimates value per share based on the probability weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class. This method is generally considered appropriate to use when there are several distinct scenarios to be considered. We determined the relative probability of each type of future event scenario based on an analysis of market conditions at the time, including then-current initial public offering valuations of similarly situated companies, and expectations as to the timing and likely prospects of the future-event scenarios.

To derive the fair value of the common stock for each scenario using the hybrid PWERM and OPM, we calculated the proceeds to the common stockholders based on the preferences and priorities of the preferred and common stock. We then applied a discount for lack of marketability to the common stock to account for the lack of access to an active public market.

Application of these approaches involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of future events. Changes in any or all of these estimates and assumptions, or the relationships between those assumptions, impact our valuations as of each valuation date and may have a material impact on the valuation of common stock.

The assumptions underlying these valuations represent our management’s best estimate, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different. Following the completion of the offering, the fair value of our common stock will be determined based on the quoted market price of our common stock.

The intrinsic value of all outstanding options as of                    , 2019 was $             million, $            million of which related to unvested options as of such date, based on the estimated fair value of our common stock of $             per share, the midpoint of the price range set forth on the cover page of this prospectus.

 

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Quantitative and Qualitative Disclosures about Market Risk

The primary objectives of our investment activities are to ensure liquidity and to preserve capital. We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. There was no material foreign currency risk for the six months ended June 30, 2019 or the years ended December 31, 2017 and 2018. We held cash and cash equivalents of $1.9 million and $42.7 million as of December 31, 2018 and June 30, 2019, respectively. We generally hold our cash in interest-bearing money market accounts. We held interest-bearing liabilities of $5.0 million as of December 31, 2018 in the form of an unsecured promissory note, which bore interest at a rate of 3.6% per year, and held no interest-bearing liabilities as of June 30, 2019. Historical fluctuations in interest rates have not been significant for us. Due to the short-term maturities of our cash equivalents, an immediate 10% relative change in interest rates would not have a material effect on the fair market value of our cash equivalents.

Recent Accounting Pronouncements

See Note 2 to our financial statements and our unaudited condensed financial statements included elsewhere in this prospectus for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition of results of operations.

Emerging Growth Company Status

We are an emerging growth company (EGC), as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act). We will remain an EGC until the earliest of: (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the completion of our IPO; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which generally is when a company has more than $700 million in market value of its stock held by non-affiliates, has been a public company for at least 12 months and has filed one annual report on Form 10-K. Under the JOBS Act, emerging growth companies may delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not EGCs. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if as an EGC we intend to rely on such exemptions, we are not required to, among other things: (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002; (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (iii) 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 (auditor discussion and analysis); and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.

 

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BUSINESS

Overview

We are a biotechnology company pioneering the development of engineered IgM antibodies for the treatment of cancer patients. IgM antibodies have inherent properties that we believe may enable them to bind more strongly to cancer cells than comparable IgG antibodies. We have created a proprietary IgM antibody technology platform that we believe is particularly well suited for developing T cell engagers, receptor cross-linking agonists and targeted cytokines. Our lead product candidate, IGM-2323, is a bispecific T cell engaging IgM antibody targeting CD20 and CD3 proteins, and we intend to dose the first patient in a Phase 1 clinical trial for the treatment of relapsed/refractory B cell Non-Hodgkin’s lymphoma (NHL) patients in 2019. Our second product candidate will be an IgM antibody targeting Death Receptor 5 (DR5) proteins, and we plan to file an investigational new drug application (IND) for the treatment of patients with solid and hematologic malignancies in 2020. We believe that we have the most advanced research and development program focused on engineered therapeutic IgM antibodies. We have created a portfolio of patents and patent applications, know-how and trade secrets directed to our platform technology, product candidates and manufacturing capabilities, and we retain worldwide commercial rights to all of our product candidates and the intellectual property related thereto.

Immunoglobulin G (IgG) and Immunoglobulin M (IgM) are classes of antibodies that are naturally produced by the human immune system and are distinguishable by their structural properties.

Structural Comparison of IgG and IgM Antibodies

LOGO

IgM antibodies have 10 binding domains compared to 2 for IgG antibodies. This inherent biological advantage enables:

 

   

Stronger binding to cell surface targets, including those with low expression levels, which may result in better and more complete targeting of cancer cells;

 

   

Stronger binding to difficult targets, such as tumor associated carbohydrates and glycosylated proteins, which has the potential to expand the range of addressable cancer targets;

 

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Greater ability to cross-link cell surface receptors, which may significantly enhance cellular signaling for killing cancer cells or stimulating T cells, which are a type of white blood cell that are an essential part of the immune system; and

 

   

Substantially greater ability to utilize the complement dependent cytotoxicity (CDC) mechanism of killing targeted cells, which kills cancer cells without requiring the presence of immune cells.

Despite these inherent biological advantages, while IgG antibodies have been broadly developed as therapeutics for cancer, we believe the therapeutic potential of engineered IgM antibodies has remained largely unexplored.

Our Platform

We created our IgM platform to expand upon the inherent properties of IgM antibodies and to allow for the rapid development of engineered therapeutic antibodies. Significantly, our IgM platform allows us to create IgM antibodies with higher affinity and avidity than naturally occurring IgM antibodies. We believe our platform also allows us to utilize the strong and durable binding of IgM antibodies to kill cancer cells with T cells, induce programmed death of cancer cells or deliver immune stimulating cytokines to the region of the bound cell.

The versatility of our IgM platform positions us to evaluate multiple approaches to treat patients with solid and hematologic malignancies. Our ability to develop engineered IgM antibodies against various targets allows for the creation of a broad and differentiated product pipeline. Our initial efforts are focused on three broad applications of IgM antibodies:

 

   

T cell engagers: T cell to cancer cell engagement, including CD20 x CD3, CD123 x CD3, CD38 x CD3 and solid tumor target x CD3 programs, which we believe may have the potential to kill cancer cells through T cell directed cellular cytotoxicity (TDCC) and CDC while maintaining a favorable tolerability profile.

 

   

Receptor cross-linking agonists: Tumor Necrosis Factor receptor Superfamily (TNFrSF) agonists, including DR5, which induces programmed death of cancer cells, as well as OX40, glucocorticoid-induced TNFr-related protein (GITR) and other TNFrSF members, which we believe may enhance the ability of the immune system to fight cancer.

 

   

Targeted cytokines: Targeted cytokine delivery, including interleukin-15 (IL-15), which we believe may be helpful in inducing and maintaining immune responses to cancer.

Our Pipeline

Our lead product candidate, IGM-2323, is a CD20 x CD3 bispecific IgM antibody for the treatment of patients with CD20-positive cancer. CD20 is a protein commonly expressed on the surface of NHL cells and chronic lymphocytic leukemia (CLL) cells, while CD3 is a protein expressed on the surface of T cells. IGM-2323 contains 10 binding domains for CD20 and one binding domain for CD3. In our preclinical studies, IGM-2323 strongly bound to CD20-positive cancer cells and induced potent T cell dependent and complement dependent cancer cell death, including those cells with low levels of CD20. In addition, we observed lower cytokine release with IGM-2323 relative to comparable IgG bispecific T cell engaging antibodies in our preclinical studies, which may result in reduced risk of the serious adverse effects of cytokine release syndrome (CRS). We plan to begin evaluating IGM-2323 in a Phase 1 clinical trial in relapsed/refractory B cell NHL patients, which is B cell NHL that has either not responded to initial treatment or responded to treatment but then returns, in 2019. Treatment with combination chemo-immunotherapy, such as with rituximab-based regimens, or high dose chemotherapy and bone marrow transplant, is generally effective and may cure approximately 50-70% of patients with aggressive B cell NHL. Indolent B cell NHL, which represents approximately 40% of B cell NHL cases, remains mostly incurable at advanced stages with current therapies.

Our second product candidate will be an IgM antibody targeting DR5 for the treatment of patients with solid and hematologic malignancies. DR5 receptors are expressed on a broad range of solid tumors as well as leukemias and lymphomas, but their intracellular apoptotic signaling requires efficient cross-linking of at least three DR5 receptors. Our DR5 IgM antibodies demonstrated significantly enhanced apoptotic signaling compared to an IgG antibody with the same binding domains, resulting in >1,000 fold increased potency in killing cancer cells from multiple cancer cell types in our studies outside of living organisms (in vitro) studies. In our preliminary studies in living organisms (in vivo), specifically cynomolgus monkeys, no untoward toxicity was observed with our DR5 IgM antibodies. We expect to file an IND for a DR5 IgM antibody in 2020.

 

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The following table highlights our lead programs:

LOGO

The following table highlights discovery programs that we are prioritizing:

 

LOGO

We estimate that these discovery programs are at least two years away from clinical studies, assuming they meet our requirements for advancement. We do not anticipate advancing all of these programs into clinical testing, and some of these programs may be supplanted by other IgM discovery programs.

Our Team

Our management team and board of directors have decades of biotechnology experience and perspective in areas such as cancer biology, immunotherapy, immunology, antibody discovery, protein engineering and clinical development. They bring a strong history of leadership, innovation and research and development experience at leading companies, including Roche/Genentech, Amgen, Gilead Sciences, Celgene, Millennium Pharmaceuticals, Shire, Kite Pharma, Bavarian Nordic, Sutro Biopharma and Northern Biologics. Members of our team were involved in the discovery, development or commercialization of multiple therapeutics, including Tecentriq, Yescarta, Zydelig, Avastin, Lucentis, Vectibix, Activase, TNKase and Kogenate. Our team is further supported by a strong group of investors that share our commitment to developing IgM antibodies for the treatment of cancer patients. Since 2010, we have raised approximately $162.0 million through convertible preferred stock financings. Our key investors include Haldor Topsøe Holding A/S (HTH), a global leader in catalysis and chemical process technology, and leading institutional investors, Baker Brothers, Redmile Group, Janus Henderson Investors and Vivo Capital.

Our Strategy

Our strategy is to sustain and extend our global leadership in the development of engineered IgM antibodies for therapeutic use. We plan to achieve this by utilizing our proprietary IgM technology to develop antibodies with differentiated product profiles and the ability to address difficult to treat patients with cancers and other serious diseases. This strategy encompasses the following key elements:

 

   

Advance IGM-2323 through clinical development in B cell NHL to establish our IgM platform as the leading CD3 T cell engaging technology. IGM-2323 will be our first clinical stage product candidate developed using our IgM platform and we believe it will be the only engineered therapeutic IgM antibody in active

 

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clinical development at that time. The FDA has accepted our IND for IGM-2323 and we intend to dose the first patient in a Phase 1 clinical trial as a monotherapy for the treatment of relapsed/refractory B cell NHL patients in 2019. We plan on initially developing IGM-2323 for both aggressive and indolent lymphomas as a single agent in relapsed/refractory patients. Further development may include other CD20 expressing hematologic malignancies, such as CLL, and combination therapy in treatment-naïve lymphoma.

 

   

Progress a DR5 IgM antibody into clinical trials to establish the efficacy of our IgM antibodies in targeting members of the TNFrSF. We plan to file an IND for our second product candidate in 2020 and, if accepted, to advance it into clinical trials in solid and hematologic malignancies. We plan on initially developing our DR5 IgM antibody as a single agent in solid and hematologic malignancies that have failed standard treatment. Further development will include combination with other therapies, which may include a broad range of treatment-resistant solid and hematologic malignancies.

 

   

Utilize our proprietary T cell engaging and immune stimulating technologies to expand our pipeline of IgM antibody product candidates. Our IgM platform enables us to rapidly create a broad pipeline of product candidates. We are currently prioritizing: CD3 T cell engaging antibodies; T cell stimulating antibodies, including antibodies that target T cell stimulatory members of the TNFrSF; and antibodies that are intended to deliver IL-15 to a target to enhance cancer immune responses while limiting systemic toxicity. We will prioritize product candidates based on a range of factors, including strength of preclinical data, single agent clinical benefit, efficiency of clinical development paths and market opportunities.

 

   

Build antibody manufacturing capabilities to support our future clinical trials and provide commercial supply for any approved product candidates. Manufacturing IgM antibodies is a complex process and represents a critical component to our long-term success. We have invested significant resources developing our manufacturing processes and know-how to enable us to manufacture our IgM antibodies at scale. We believe developing our internal manufacturing capacity is important to enable further process improvements, maintain quality control, limit our reliance on contract manufacturers and protect our trade secrets and other intellectual property. We plan to build out and expand our own manufacturing facilities to produce our product candidates in sufficient quantities to conduct clinical trials and manufacture commercial supply for approved products.

 

   

Directly commercialize any approved product candidates in key markets alone or with strategic partners. We retain exclusive worldwide commercial rights to all of our product candidates and intend to pursue clinical development programs with the goal of obtaining regulatory approval in the United States and internationally. We intend to directly commercialize our product candidates in key markets either alone or with partners and may enter into strategic collaborations or other partnerships to accelerate our development timelines and maximize the worldwide commercial potential of any approved product candidates.

 

   

Continue to expand our intellectual property portfolio to further protect our IgM platform and our product candidates. We believe we are the global leader in the development of engineered IgM antibodies for therapeutic use, and we have created an extensive intellectual property portfolio to protect our leadership and novel approaches in this field. The intellectual property surrounding our IgM platform consists of patents and patent applications, trade secrets and know-how, and we plan to expand this portfolio as we continue to develop our IgM platform.

We believe that if we are successful in bringing an IgM antibody to market, particularly one that is more effective and safer than comparable IgG antibodies, we will significantly alter the course of future therapeutic antibody development.

Our Differentiated Approach and Proprietary Platform

We are developing IgM antibodies that have properties which we believe may enable them to bind more strongly to cancer cells than comparable IgG antibodies in many therapeutic applications. IgM antibodies have 10 binding domains compared to 2 for IgG antibodies, which results in far greater binding power to a cell surface target.

Over the past 40 years, the biotechnology industry’s development of antibodies has yielded effective therapeutic drugs for the treatment of patients with a variety of diseases including cancer, autoimmune diseases and infectious diseases. According to market research, there were over 70 approved antibody related therapies generating over

 

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$120 billion in reported worldwide sales in 2018. All of these antibodies are members of the IgG class. We are pioneering the development of new therapies based on the IgM class of antibodies. Our near and medium term efforts are focused on oncology, but we believe our IgM antibodies could have therapeutic applications across a wide range of diseases.

There are two measures of target binding strength that are generally used in connection with antibodies:

 

   

Affinity—the binding strength of each individual binding domain of the antibody bound to the target; and

 

   

Avidity—the combined binding strength of all of the binding domains of the antibody bound to the target.

The greater number of binding domains of an IgM antibody results in far greater avidity to a cell surface target compared with an IgG antibody with the same affinity per binding domain. The greater number of binding domains also allows IgM antibodies to bind more cell surface targets in close proximity with a single antibody. The inherent biological advantages of IgM antibodies enable:

 

   

Stronger binding to cell surface targets, including those with low expression levels, which may result in better and more complete targeting of cancer cells;

 

   

Stronger binding to difficult targets, such as tumor associated carbohydrates and glycosylated proteins, which has the potential to expand the range of addressable cancer targets;

 

   

Greater ability to cross-link cell surface receptors, which may significantly enhance cellular signaling for killing cancer cells or stimulating T cells; and

 

   

Substantially greater ability to utilize the complement dependent cytotoxicity (CDC) mechanism of killing targeted cells, which kills cancer cells without requiring the presence of immune cells.

Development of IgM antibodies has been historically limited by difficulties encountered in the recombinant expression and manufacture of these antibodies. Through our focused efforts over the last eight years, we have developed a broad range of skills, knowledge and trade secrets that have allowed us to successfully express and manufacture a wide range of IgM antibodies.

We created our IgM platform to expand upon the inherent qualities of IgM antibodies and to allow for the rapid development of engineered therapeutic antibodies. Through our efforts, we have developed a wide variety of proprietary methods and techniques designed to achieve the following goals:

 

   

Expression and manufacture: Overcome the traditional difficulties the pharmaceutical industry has experienced in recombinantly expressing and manufacturing IgM antibodies;

 

   

Engineered IgM antibodies: Create IgM antibodies recombinantly, by transferring IgG binding domains to IgMs, to include the benefits of high affinity and high specificity IgG variable regions;

 

   

Bispecific platform: Create bispecific antibodies with the benefits of the high avidity of 10 binding domains to one target combined with one binding domain to a second target;

 

   

Improved half-life: Extend the serum half-life of recombinantly generated IgM antibodies; and

 

   

Complement modulation: Modulate the CDC mechanism of IgM antibodies.

 

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We believe that our IgM platform creates significant competitive advantages and can serve as the foundation for the development of a broad range of IgM based therapeutic drugs. The following table compares the key properties of IgG antibodies to those of naturally occurring IgM antibodies, as well as to our engineered IgM antibodies:

Properties of IgG vs IgM Antibodies

 

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Our Antibodies

T cell Engagers

We have been able to utilize the natural features of IgM antibodies to create unique and patent protected bispecific T cell engagers, which we believe may have the potential to kill cancer cells through TDCC and CDC while maintaining a favorable tolerability profile. Bispecific T cell engagers are designed to simultaneously target a desired tumor associated antigen on a cancer cell and CD3 (a protein that is expressed on the surface of T cells) and redirect the T cells to kill the cancer cells. In contrast to other bispecific antibody formats that bind to one or two target molecules on the surface of the cancer cell and to one CD3 molecule on the surface of the T cell, our IgM bispecific format provides 10 binding domains to the cancer cell and one binding domain to CD3. We believe that our IgM bispecific antibodies may successfully bind to cancer cells for longer periods and with more avidity compared to IgG bispecific antibodies, which may prove to be particularly advantageous for those cancer cells that express relatively lower amounts of the targeted protein on their surface.

 

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Illustrated in the table below are several classes of bispecific T cell engaging antibodies currently in development: (i) single chain antibodies being developed by third parties that have one target binding domain and one CD3 binding domain that are small in size; (ii) antibodies being developed by third parties using IgG formats that have one or two target binding domains for the cancer cell (two binding domains increases target binding avidity) and one CD3 binding domain; and (iii) our IgM antibody with 10 target binding domains for the cancer cell (10 binding domains produces higher target binding avidity) and one CD3 binding domain.

Properties of Cancer Cell Target x CD3 T Cell Engager Antibodies

 

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In our in vitro studies, IgM antibodies bind antigens with high avidity that results in the IgM antibody remaining attached to the target for longer periods of time than an IgG antibody. We believe that this durable binding property will translate to an increased residence time on cancer cells and will increase the chance that a T cell will find and kill the cancer cell while the T cell engager is bound to the cancer cell.

While IgG bispecific T cell engaging antibodies have demonstrated evidence of clinical benefit across several cancer types, serious adverse events and tolerability issues have been reported, including cytokine release syndrome (CRS). CRS is characterized by fever, hypotension, blood coagulation abnormalities and capillary leak. Potentially life threatening effects of CRS include cardiac dysfunction, organ failure, respiratory distress syndrome and neurologic toxicity. Such findings have also been associated with other T cell engaging approaches, including Chimeric Antigen Receptor-T cell therapies (CAR-T). Patient deaths have resulted from CRS in the clinical testing of IgG bispecific T cell engaging antibodies and CAR-T. These serious adverse events can also result in dose limiting toxicities of IgG bispecific T cell engaging antibodies and potentially limit the optimal efficacy of these therapeutic agents. The potential for CRS can also result in the need for high levels of patient monitoring, expense and inconvenience.

Our IgM based CD20 x CD3 bispecific antibody has shown no apparent CRS symptoms in our non-human primate studies at tested doses significantly higher than doses currently safely achievable with IgG bispecific antibodies. In addition, in human blood cell ex vivo studies, we observed a much lower cytokine release profile for our IgM based CD20 x CD3 bispecific antibody compared to an IgG bispecific antibody with the same CD20 and CD3 binding domains.

 

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Receptor Cross-linking Agonists

We are also using our IgM platform to develop IgM antibodies that bind to members of the TNFrSF. Members of the TNFrSF must be bound in clusters of at least three in order to send a strong biological signal to the cell. This family includes targets that will cause the death of cancer cells, such as DR5, and targets that will cause the proliferation of T cells, such as OX40 and GITR.

Receptor Cross-linking Agonist IgG vs IgM Antibodies

 

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There have been multiple attempts to create IgG based therapeutic antibodies directed at DR5, OX40 and GITR. However, since IgG antibodies naturally bind only two DR5, OX40 or GITR cell surface proteins, their bivalent nature inherently limits their signaling efficacy. In contrast, we are utilizing the 10 binding domains of IgM antibodies to more efficiently cross-link these molecules on the cell surface. In multiple in vitro cell studies, we have observed that IgM antibodies have much greater potency than IgG antibodies with the same binding domains.

Targeted Cytokines

We are leveraging our IgM platform to create bispecific IgM antibodies with high avidity to selected cell surface targets to deliver potent, immune stimulating cytokines. These IgM antibodies will initially target the delivery of IL-15 to induce immune cell stimulation and proliferation. Targeted delivery of cytokines is designed to reduce systemic toxicities of cytokine therapy while enhancing immune system activity in the tumor microenvironment. Stimulation of the IL-15 pathway may be important in strengthening and maintaining both the endogenous and the synthetic T cell immune responses.

We believe that our IgM platform has certain inherent advantages for this application. Importantly, we believe that the high avidity and long-lasting binding of our IgM antibodies may help to effectively bind and deliver the cytokine to the target cell for an extended period. We also believe that the high avidity of the IgM antibodies may allow binding and delivery of the cytokine to cells that have relatively low density of the surface target. Also, the ability of IgM antibodies to cross-link T cell stimulating targets such as OX40 and GITR may provide very potent T cell stimulation when combined with IL-15 delivery. Targeted IL-15 may also provide complementary effects when combined in a treatment regimen with our T cell engaging antibodies, such as CD20 x CD3 or our solid tumor T cell engagers.

Our Product Candidates

We are leveraging our IgM platform to discover and develop product candidates for the treatment of cancer patients. Our lead product candidate, IGM-2323, is a CD20 x CD3 bispecific IgM antibody designed to treat patients with

 

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B cell NHL and other B cell malignancies. Our second product candidate will be an IgM antibody targeting DR5 for the treatment of patients with solid and hematologic malignancies.

 

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IGM-2323: CD20 x CD3 Bispecific IgM Antibody

Our lead product candidate, IGM-2323, is a CD20 x CD3 bispecific IgM antibody designed to treat patients with B cell NHL and other B cell malignancies. Our initial therapeutic goal with IGM-2323 is to safely and effectively treat relapsed/refractory B cell NHL patients. CD20 is a protein that is frequently expressed on the surface of malignant B cells, while CD3 is a protein that is expressed on the surface of T cells and is an essential activating molecule of the T cell. IGM-2323 has 10 binding domains to CD20 and a single binding domain to CD3 (specifically CD3e). In addition, IGM-2323 contains a human serum albumin molecule attached to the Joining chain (J chain) to enhance its pharmacokinetic properties. The J chain naturally occurs in IgM antibodies and joins the IgM subunits into pentameric antibodies.

IGM-2323 is designed to simultaneously and stably bind a CD20 expressing cancer cell as well as CD3 on a cytotoxic T cell, bringing both cells into close proximity. This interaction mimics the normal T cell activation pathway leading the T cell to recognize and kill the cancer cell by releasing cytotoxic biochemicals (perforins and granzymes) that penetrate and perforate the cancer cell. The TDCC mediated killing mechanism of IGM-2323 on CD20 expressing cancer cells is shown in the diagram below.

IGM-2323 Binding to a CD20 Positive Cancer Cell and Inducing TDCC

 

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Schematic diagram of IGM-2323 binding a CD20 expressing B cancer cell and a CD3 expressing T cell for T cell directed cellular cytotoxicity (TDCC). Shown is the IGM-2323 induced T cell release (degranulation) of cytotoxic biochemicals from T cell lytic granules in close proximity to the cancer cell to induce perforin pore formation in the cell membrane, allowing cell entry of the cytotoxic biochemicals and induction of cancer cell death.

IGM-2323 also employs an additional mechanism to kill CD20 expressing cancer cells, known as complement dependent cytotoxicity (CDC). CDC is a mechanism by which antibodies can mediate specific targeted cell killing by activating the complement system. Components of the complement system are naturally present in humans, and IgM antibodies are the most efficient antibodies at engaging the complement system for CDC, with an approximately 100

 

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fold increase in CDC relative to comparable IgG CD20 antibodies. The CDC mediated killing mechanism of CD20 expressing cancer cells by IGM-2323 is shown in the diagram below.

IGM-2323 Binding to a CD20 Positive Cancer Cell and Inducing CDC

 

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Schematic diagram of IGM-2323 binding a CD20 expressing B cancer cell and recruiting components of the complement system from the serum to induce complement dependent cytotoxicity (CDC) through formation of a membrane attack complex.

We believe the dual mechanisms of action of IGM-2323, both TDCC and CDC, may further enhance its efficiency in eliminating CD20 expressing cancer cells and may decrease the likelihood of cancer escape or resistance.

Non-Hodgkin’s Lymphoma

B cell NHL is a group of blood cell cancers that affect the lymphatic system. NHL is among the most common cancers in the United States and Europe with more than an estimated 74,000 and 115,000 new cases diagnosed in 2018, respectively. In the United States, NHL is expected to cause approximately 20,000 cancer-related deaths in 2019. CD20 expressing B cell derived lymphomas constitute approximately 85% of NHL cases. The natural progression of NHL varies widely across multiple forms, including aggressive forms, such as diffuse large B cell lymphoma, and more slowly growing indolent forms, such as follicular lymphoma.

Systemic chemo-immunotherapy (alkylator based chemotherapy plus monoclonal antibody (mAb) therapy directed at the B cell antigen CD20) is the current standard of care of treatment for advanced stage disease in most NHL patients. This standard of care for B cell NHL generally includes treatment with the CD20 IgG antibody rituximab. While this treatment is generally effective, a significant percentage of patients are either initially refractory to rituximab treatment or eventually relapse following rituximab treatment. For instance, some patients may enter treatment with relatively low CD20 expression on their cancer cells and present with refractory disease. Other patients may have early success with rituximab treatment, yet eventually develop resistance to rituximab treatment due to selection pressure towards the survival of relatively lower CD20 expressing cancer cells resulting from the rituximab therapy. Treatment with combination chemo-immunotherapy, such as with rituximab, or high dose chemotherapy and bone marrow transplant, is generally effective and may cure approximately 50-70% of patients with aggressive B cell NHL. Indolent B cell NHL, which represents approximately 40% of cases, remains mostly incurable at advanced stages with current therapies.

For patients with B cell NHL that is relapsed/refractory to CD20 therapy, additional therapeutic options are used and include synthetic immune approaches, such as CAR-T. While these approaches have been demonstrated to lead to high response rates, they have also been associated with life-threatening and sometimes fatal toxicities, including severe CRS and severe neurotoxicity. Additionally, the number of weeks required to produce the CAR-T treatment

 

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product and the high cost of treatment limit access to such treatment. Other therapeutic options generally do not improve survival outcomes, and the majority of relapsed/refractory patients succumb to their disease. As a result, there is an acute need for therapeutic advances that are able to target the lower levels of CD20 expressed on the surface of relapsed/refractory B cell NHL. Additionally, drugs that are well tolerated and effective enough to be utilized as initial therapy of B cell NHL, where the opportunity to achieve cures is highest, are also needed.

Preclinical Data

In contrast to other bispecific antibody formats that bind to one or two cell CD20 molecules on the surface of the cancer cell and to one CD3 molecule on the surface of the T cell, IGM-2323 has 10 binding domains to CD20 and one binding domain to CD3. The figure below shows the results of our in vitro studies that demonstrate the enhanced binding power of IGM-2323 to a CD20 expressing B cell cancer line compared to a bispecific IgG antibody. As shown in the figure below, IGM-2323 was able to achieve approximately 70x stronger binding as compared to a bispecific IgG antibody with the same CD20 and CD3 binding domains at equal concentrations. We believe that IGM-2323 with its 10 binding domains for CD20 may successfully bind to CD20 expressing cancer cells with more avidity compared to an IgG bispecific antibody with only one binding domain for CD20, which may prove to be particularly advantageous for those cancer cells that express relatively lower amounts of CD20 on the cancer cell surface.

Relative Binding Strength of IGM-2323 and an IgG Version of IGM-2323 to CD20 Expressing Cells

 

 

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Human CD20 expressing B cells (Ramos cell line) was incubated for 30 minutes with increasing concentrations of either IGM-2323 or a bispecific IgG version with the same CD20 and CD3 binding domains and antibody binding was determined by flow cytometry. Shown are the means ± 1 standard deviation values of the maximum value obtained in the assay (100%). Similar results were obtained in three repeat assays.

In our in vitro studies, IgM antibodies bind antigens with high avidity that results in the IgM antibody remaining attached to the target for longer periods of time than an IgG antibody. We believe that this durable binding property will translate to an increased residence time on cancer cells and will increase the chance that a T cell will find and kill the cancer cell while the T cell engager is bound to the cancer cell. This is exemplified in the figure below, where it was observed that IGM-2323 killed approximately 68% more cancer cells than the bispecific IgG antibody administered at equal concentrations with a ratio of one T cell to five cancer cells. This in vitro study demonstrates that a B cell cancer line is killed more efficiently by IGM-2323 than a bispecific IgG antibody under conditions where T cells are limited in number.

 

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Relative Killing of a B cell Cancer Line by IGM-2323 vs an IgG Bispecific Antibody

 

 

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A mixture of lymphoma cells (Ramos cell line) and human T cells were incubated with either IGM-2323 or a bispecific CD20 x CD3 IgG antibody at a ratio of one T cell to five cancer cells for 48 hours. Cell killing was evaluated by flow cytometry and means + 1 standard deviations are shown and is representative of two repeat studies.

Also due to the 10 binding domains to CD20, we believe that IGM-2323 may perform well in those clinical circumstances in which CD20 expression has been reduced due to prior treatment with rituximab. This performance has been modeled by laboratory studies which were designed to mimic the clinical situation in which CD20 target expression on cancer cells is reduced, such as in cancers that have relapsed or are resistant to the standard of care therapy rituximab. As shown in the figure below, in our laboratory studies with these rituximab resistant cells, IGM-2323 had up to 1,000 fold increased potency in killing resistant cancer cells compared to rituximab.

Relative Killing Activity of IGM-2323 and Rituximab Using a Rituximab Resistant B cell Cancer Line

 

 

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A rituximab resistant Ramos B cell cancer line was incubated with increasing concentrations of IGM-2323 or rituximab in the presence of human complement, T cells and natural killer (NK) cells from human peripheral blood mononuclear cell preparations for 48 hours and cell killing was evaluated by flow cytometry. Shown are the means + 1 standard deviations of a representative study from three repeat studies.

While IgG bispecific T cell engaging antibodies have demonstrated evidence of clinical benefit across several tumor types, serious adverse events and tolerability issues have been reported, including CRS. CRS is characterized by fever, hypotension, blood coagulation abnormalities and capillary leak. Potentially life threatening effects of CRS include cardiac dysfunction, organ failure, respiratory distress syndrome and neurologic toxicity. Such findings have also been associated with other T cell engaging approaches, including CAR-T. Patient deaths have also resulted from CRS in the clinical testing of IgG bispecific T cell engaging antibodies and CAR-T. These serious adverse events can also result in dose limiting toxicities of IgG bispecific T cell engaging antibodies and potentially limit the optimal

 

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efficacy of these therapeutic agents. The potential for CRS can also result in the need for high levels of patient monitoring, expense and inconvenience.

In addition to enhanced binding to low CD20 expressing tumors, IGM-2323 has been shown to have a lower cytokine release profile associated with the TDCC mechanism of action compared to an IgG based CD20 x CD3 antibody with the same CD20 and CD3 binding domains, when tested in vitro with human T cells and human B cells. Shown in the figure below is the expression of inflammatory cytokines interferon gamma (IFNg), tumor necrosis factor alpha (TNFa), IL-6 and IL-2 released after incubation of CD20 expressing B cells, T cells and IGM-2323 or a comparable bispecific IgG antibody.

Comparison of Cytokine Release from IgM Bispecific IGM-2323 and

an IgG Version of IGM-2323 in vitro

 

 

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Human peripheral blood cells containing CD20 expressing B cells, T cells and NK cells were incubated for approximately 24 hours with increasing concentrations of IgM bispecific IGM-2323 and an IgG version with the same CD20 and CD3 binding domains in vitro. Shown are the means + 1 standard deviation levels of cytokines released into the culture medium from a representative study from two repeat studies.

We have evaluated the potential of the IGM-2323 bispecific format to kill CD20 expressing B cells in mouse studies. In a disseminated lymphoma mouse study using human B cell line Raji with human peripheral blood T cells, IGM-2323 dosed at 0.5 mg/kg improved survival in mice with 90% surviving to 46 days whereas no mice survived beyond day 25 when treated with vehicle.

We have also evaluated IGM-2323 in non-human primate studies. As shown below, a dose dependent depletion of B cells from blood was observed with IGM-2323 (CDC mechanism only) and a modified version of IGM-2323 that interacts with monkey T cells (TDCC and CDC mechanisms). These studies established (i) that IGM-2323 can mediate CDC-dependent depletion of CD20 positive B cells in vivo, and (ii) that the addition of TDCC to CDC, as mediated by the modified version of IGM-2323 in monkeys, improves the potency of B cell depletion by roughly 20 fold.

 

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Dose-dependent B cell depletion (CD19+) in non-human primates

 

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Non-human primates were treated with single doses of IGM-2323 or a slightly modified version of IGM-2323 that interacts with monkey CD3, at doses ranging from 0.01 to 25 mg/kg. Depletion of B cells was analyzed by flow cytometry at 24 hours post dose using the B cell marker CD19. There were two animals per group, and mean values ± 1 standard deviation are shown compared to baseline values prior to treatment (100%). Data from three studies were compiled and fitted to a four parameter curve. This data indicates an approximately 20-fold enhanced potency with combined TDCC and CDC mechanisms.

Repeated dosing of the modified version of IGM-2323 has also been evaluated in non-human primate GLP studies. Data from these studies, shown below, demonstrated that the modified version of IGM-2323 could efficiently eliminate B cells in the blood, as well as in secondary B cell tissues such as spleen and lymph nodes. An alternative marker of B cells, CD19, was used in these studies to prevent potential interference in B cell detection by the IgM binding to CD20. We observed no evidence of toxicity up to the maximum studied repeat dose of 25 mg/kg, which is two-fold greater than the intended maximal clinical dose of IGM-2323. We believe these data support clinical development of IGM-2323 as a potential treatment for CD20 expressing B cell malignancies while maintaining limited toxicity.

 

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B cell Depletion (CD19+) in Non-human Primates

 

 

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Cynomolgus monkeys were treated every three days with either vehicle or a slightly modified version of IGM-2323 that interacts with non-human primate CD3 at 5 mg/kg or 25 mg/kg. Peripheral blood was analyzed by flow cytometry for CD19 expressing B cells and the mean values + 1 standard deviation are shown compared to baseline values prior to treatment. The number of animals per group was: vehicle n=10; 5 mg/kg, n=6; and 25 mg/kg, n=10.

Histologic Images of B cell Killing (CD19 and CD20) in Non-human Primates

 

 

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Cynomolgus monkeys were injected every three days with either vehicle or a slightly modified version of IGM-2323 that interacts with non-human primate CD3 at 5 mg/kg. Immunohistochemistry was used to detect CD19 and CD20 positive B cells in non-human primate spleen and mesenteric lymph nodes from a control animal or an animal that received four doses at 5 mg/kg of the modified version of IGM-2323 is shown at day 11 post treatment initiation and is representative data from six animals evaluated per group.

 

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Clinical Development Plan

We plan to develop IGM-2323 as a treatment for patients diagnosed with CD20-expressing malignancies. We intend to dose the first patient in a Phase 1 clinical trial to evaluate IGM-2323 in relapsed/refractory B cell NHL patients in 2019. In this planned multi-center open label trial, we expect to study IGM-2323 initially as a single agent, where it will be administered intravenously at a planned fixed-dose, as part of a dose escalation in single patient cohorts followed by 3+3-based protocol, up to a planned dose of 1000 mg, in patients with relapsed/refractory B cell NHL. IGM-2323 will be administered three times per cycle (each cycle is 21 days) for a period of four cycles. The dose limiting toxicity window will be evaluated in the first cycle. The objective of this Phase 1 study is to provide an initial assessment of the safety, pharmacokinetics and preliminary efficacy of IGM-2323 in relapsed/refractory B cell NHL patients. If the therapy appears to be safe and tolerable and significant evidence of efficacy, such as durable complete responses, is observed, we will expand the clinical testing of IGM-2323 in additional relapsed/refractory patients expected to express CD20 on their cancer cells, including diffuse large B cell lymphoma and/or relapsed/refractory follicular lymphoma, and potentially further to relapsed/refractory chronic lymphocytic leukemia. Additional combination studies adding IGM-2323 to standard of care regimens in earlier lines of treatment may be developed based upon initial results from this planned Phase 1 study.

Death Receptor 5 Agonist IgM Antibody

Our second product candidate will be an IgM antibody targeting DR5 for the treatment of patients with solid and hematologic malignancies. DR5 is a member of the TNFrSF and is often expressed on the surface of cancer cells. Similar to other members of the TNFrSF, strong signaling to effect a biological response requires that three or more DR5 receptor proteins be cross-linked together on the surface of a cancer cell through the binding of either the natural DR5 ligand (TRAIL) or an antibody or other therapeutic drug that can efficiently cross-link the DR5 receptors. Binding and cross-linking of DR5 receptors sends a signal to the cancer cell to induce programmed death of cancer cells, also known as apoptosis.

DR5 Signaling to Induce Programmed Death of Cancer Cells

 

 

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Solid and Hematologic Malignancies

DR5 is expressed in a broad range of solid tumors (e.g., colon, gastric, pancreatic, lung, breast and prostate tumors) as well as leukemias and lymphomas. Although DR5 is expressed on some normal cells in the body, cancer cells have been shown to be more sensitive to DR5 signaling compared to cells of healthy tissues. Various IgG DR5 antibodies have been tested in early stage clinical trials by other companies, but these IgG antibodies failed to demonstrate adequate efficacy. As IgG DR5 antibodies only bind to two DR5 receptors, these IgG antibodies may not have created sufficient cross-linking of DR5 to send an efficient apoptotic signal to the cancer cells, which may account for the relatively small number of monotherapy responses observed in the clinical trials of these IgG antibodies. In contrast, DR5 IgM antibodies have the capacity for multivalent binding of DR5, which results in cross-linked DR5 receptors on the cell surface.

Preclinical Data

In our laboratory studies, shown in the figure below, multiple DR5 IgM antibodies showed significantly enhanced in vitro efficacy compared to an IgG antibody with the same binding domains, often resulting in at least >1,000 fold increased potency in killing cancer cells from multiple cancer cell types with encouraging in vitro toxicity data. As shown in the figures below, we observed that multiple different engineered DR5 IgM antibodies were able to kill

 

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cancer cells at concentrations of 5,000-12,000 fold less than DR5 IgG antibodies with the same binding domains at equal concentrations.

Cell Line Killing Comparison of DR5 IgG and IgM Antibodies with Five Different Binding Domains

 

 

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Human colon cancer cell line Colo205 was incubated in vitro with either DR5 IgG antibodies or IgM antibodies with the same binding domains at increasing concentrations. The ability of the antibodies to kill the cancer cells was tested after 24 hours of incubation. Shown are means + 1 standard deviations of the percent viable (surviving cancer cells) cells at each antibody concentration tested. Studies were repeated between 2-6 times with similar results.

We have also demonstrated superior cancer cell killing by DR5 IgM antibodies in multiple in vivo tumor models compared with IgG antibodies. In these in vivo studies of human colorectal tumors, we observed that engineered DR5 IgM antibodies were able to significantly improve the killing of colorectal tumors resulting in at least a 2-3 fold delay in tumor growth, with some mice being tumor-free, as compared to DR5 IgG antibodies at equal concentrations. This ability to kill cancer cells was significantly enhanced when IgM antibodies were tested in combination with common chemotherapeutic drugs. In multiple in vitro studies on human hepatocytes, our DR5 IgM antibody did not induce toxicity at doses that are expected to be therapeutically active. In preliminary studies in cynomolgus monkeys, our DR5 IgM antibody did not induce toxicities when tested at doses up to 10 mg/kg.

Clinical Development Plan

Based on the encouraging activity observed in multiple in vitro and in vivo studies, we believe that our DR5 IgM antibodies may produce effective apoptotic signaling in cancer cells and have the potential to treat patients with solid and hematological malignancies, either as a stand-alone agent or in combination with chemotherapeutic drugs or other apoptotic pathway agents. We plan to file an IND for a DR5 IgM antibody in 2020 in order to begin clinical testing in solid and hematologic malignancies. The proposed multi-center open label Phase 1 clinical trial would study our DR5 IgM antibody intravenously administered as part of a staggered monotherapy and in combination with chemotherapy 3+3 dose escalation in Phase 1 patients with solid tumor and hematologic malignancies. The objective of this Phase 1 clinical trial would be to provide an initial assessment of pharmacokinetics, safety, biomarker evaluation and preliminary efficacy of our DR5 IgM antibody both as a single agent and in combination with a defined chemotherapy regimen, based on standard cancer response criteria. Additional combination studies in different indications with different combination regimens expected to act synergistically with our DR5 IgM antibody may be developed based upon initial results from this planned Phase 1 clinical trial. We may also decide to enter more than one DR5 antibody into initial clinical trials.

 

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Research and Discovery Programs

The following table highlights discovery programs that we are prioritizing:

 

 

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We estimate that these discovery programs are at least two years away from clinical studies, assuming they meet our requirements for advancement. We do not anticipate advancing all of these programs into clinical testing, and some of these programs may be supplanted by other IgM discovery programs.

T cell Engaging Antibodies

We have begun conducting research on a broad range of cancer cell targets with our proprietary bispecific T cell engaging IgM antibodies. We believe that our IgM platform will allow for treatment with a relatively favorable cytokine release profile with respect to a variety of cancer cell targets, including those targets which are expressed at a relatively low level on the surface of cancer cells.

Our initial T cell engaging research and development efforts are focused on the following targets:

CD123 x CD3

Acute myeloid leukemia (AML) is the leading cause of leukemia mortality in the United States, with more than 20,000 new patients diagnosed per year and a five-year survival of less than 30%. This five-year survival rate further decreases to approximately 10% in patients over 60 years old. Few advances have been made in the treatment of AML patients within the last 40 years, and current treatment options primarily consist of intense chemotherapy and stem cell transplantation.

Several different approaches have been taken to target cell surface molecules on AML cells to utilize T cells to kill AML cells. One such surface molecule, CD123 (also known as IL-3 receptor alpha chain), is expressed on the cancer cells of more than 90% of AML patients. In addition, CD123 is often highly expressed on the cancer cells of patients who have genetic mutations associated with a very poor prognosis. CD123 is also a clinically validated target for certain hematological malignancies. In 2018, a CD123 targeting therapeutic tagraxofusp (IL-3 recombinantly fused to a truncated diphtheria toxin) was approved by the FDA for blastic plasmacytoid dendritic cell neoplasms and is in clinical trials for additional hematological malignancies.

Phase 1 clinical studies have been conducted with CD123 x CD3 bispecific antibodies by other companies. Although early signs of clinical efficacy have been reported in some patients, severe CRS and some patient deaths have also been observed with these T cell engaging antibodies directed at CD123. We believe that the cytokine release profile of our IgM platform may allow us to effectively treat these patients with an acceptable tolerability profile. In vitro TDCC assays using CD123 expressing AML cell lines have demonstrated that a CD123 x CD3 IgM antibody can induce potent T cell redirected killing of AML cancer cell lines. Studies are currently underway to examine if this bispecific antibody also exhibits low levels of cytokine release, similar to IGM-2323.

 

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CD38 x CD3

Multiple myeloma (MM) is a malignant disease caused by mature antibody producing B cells hyper-proliferating in the bone marrow. In the United States in 2019, an estimated 32,000 new cases of MM are expected to be diagnosed and approximately 13,000 deaths are expected to be associated with the disease. Although advances have been made in the treatment of MM, most patients eventually relapse after treatment, and the five-year survival rate is approximately 50%.

CD38 is a cell surface protein that has been shown to be effective and important in the treatment of MM patients. It can be expressed at high levels on the surface of MM cells, and it is the target of the monospecific IgG based antibody daratumumab, which has been approved for the treatment of patients with relapsed or refractory MM. Although most patients initially respond to CD38 monospecific IgG antibodies, either as monotherapies or in combination with other drugs, a significant number of these patients eventually develop progressive disease. As with CD20, we believe that bispecific T cell engagers directed at CD38 may be able to effectively treat some of these relapsed/refractory patients. In vitro studies with CD38 expressing MM cell lines have demonstrated that CD38 x CD3 IgM antibodies can induce potent TDCC killing of MM cancer cell lines, and these IgM bispecific antibodies were shown to be more potent in vitro than an IgG antibody that uses the antibody-dependent cellular cytotoxicity (ADCC) mechanism of killing.

Other Cancer Cell Targets x CD3

The high avidity provided by the 10 binding domains of our IgM platform may also provide significant advantages in the treatment of patients with solid tumors compared with IgG based bispecific formats. For example, our high avidity format may allow us to target cancer cells that express relatively low cell surface levels of the targeted tumor associated antigen. It may also allow us to target difficult solid tumor targets such as carbohydrates and glycosylated proteins that are challenging to bind with low affinity IgG antibodies. Our candidate selection strategy is to prioritize well characterized tumor targets where we believe an IgM bispecific antibody may have significant advantages over standard IgG bispecific approaches.

Receptor Cross-linking Agonists

We are also conducting research on additional TNFrSF agonist targets with the goal of enhancing the activity and proliferation of T cells in order to improve immune system responses to cancer. T cells express certain activation molecules on their surface, and stimulation of these activation targets can enhance T cell activation and proliferation, which can be helpful in inducing stronger immune responses to cancer. The TNFrSF includes several of these T cell activator proteins, including OX40 and GITR. As with DR5, these members of the TNFrSF must be bound in clusters of at least three in order to send a strong biological signal to enhance immune responses.

As with DR5, there have been multiple attempts to create IgG-based therapeutic antibodies directed at OX40 and GITR. However, since bivalent IgG antibodies naturally bind only two OX40 or GITR cell surface proteins, their bivalent nature inherently limits their signaling efficacy. In contrast, we are utilizing the 10 binding domains of IgM antibodies to efficiently cross-link these molecules on the T cell surface. Using in vitro testing systems, we have observed that IgM antibodies have much greater potency than IgG antibodies with the same binding domains.

OX40

OX40 is a stimulatory molecule expressed on T cells shortly after the initiation of T cell activation. When OX40 is bound by its natural ligand, OX40L, which is expressed on antigen presenting cells such as dendritic cells or macrophages, it results in a signal to the T cell that stimulates proliferation, cytokine production and memory T cell generation.

As with other members of the TNFrSF, at least three OX40 molecules must be bound and efficiently cross-linked on the cell surface to produce a productive signal in the T cell. Shown below is an in vitro study demonstrating the greater ability of an IgM antibody in producing a functional signal in an OX40 activity reporter cell line assay compared to an IgG antibody.

 

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Comparative Signaling Potential of IgM and IgG Antibodies Targeting OX40 in an Activity Reporter Cell Line

 

 

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A human reporter cell line, U2OS, expressing OX40 and a luciferase reporter gene activated by a downstream signaling component of OX40, NFkB, was used to measure OX40 activity. The reporter cell line was incubated with increasing concentrations of OX40 IgM or IgG antibodies with the same binding domains. OX40 activity, as indicated by increasing levels of NFkB-induced luciferase gene expression that produced luminescence, was evaluated after approximately 16 hours. Shown are mean + standard error of the mean OX40 activity, as measured by relative luminescence units x 105, and is a representative study from three repeat studies.

Furthermore, as shown below, when tested in vitro, the IgM OX40 antibodies increased cytokine production by human T cells (shown is cytokine TNFa) beyond that of IgG antibodies with the same binding domains.

An OX40 IgM Antibody Enhances TNFa Secretion above that of an IgG Antibody with Human T cells

 

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Human T cells in peripheral blood mononuclear preparations were stimulated with CD3 antibodies and a co-stimulatory agonist (TLR9 agonist) and were incubated with increasing concentrations of OX40 IgG or IgM antibodies with the same binding domains. Two separate antibody sequences were tested in IgG and IgM formats. Cytokine tumor necrosis factor alpha (TNFa) levels were measured after three days. Shown are means + standard error of mean fold change in TNFa secretion in one donor, which are representative of 4 individual donors studied.

GITR

Glucocorticoid-induced TNFr-related protein (GITR) is a cell surface molecule expressed on both activated T cells and immunosuppressive regulatory T cells (T-regs). T-regs are a subset of T cells which block other T cells from seeking out and killing tumors. The natural ligand of GITR, GITRL, is expressed on antigen presenting cells such as dendritic cells and macrophages, and it is able to create the dual benefit of causing effector T cells to proliferate and produce immunostimulatory cytokines and inhibiting the effect of immunosuppressive T-regs.

 

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Similar to DR5 and other members of the TNFrSF, cross-linking of GITR receptors is required for effective biological signaling. As GITR is also expressed on immunosuppressive T-regs, we compared a GITR IgM antibody to a comparable IgG antibody in the presence of these immunosuppressive T-regs. In our in vitro tests, as shown below, a GITR IgM antibody significantly increased the immune stimulatory cytokine production (shown as IFNg production below) and proliferation of the CD4+ T cells compared to an IgG antibody with the same binding domain.

Human CD4+ T cell Proliferation and IFNg Secretion are Significantly Enhanced by GITR IgM Antibodies

 

 

LOGO    LOGO

In vitro differentiated T-regs were incubated with human CD4+ T cells in the ratio of 1:4 in the presence of CD3 antibodies. GITR IgM or IgG antibodies at 40 ng/mL were incubated with the co-culture and effects on CD4 proliferation or IFNg secretion into the media were evaluated after four days. Shown are mean values + standard error of the mean from a representative study from 3 donors.

Targeted Cytokines

Our IgM platform also allows us to deliver payloads, including immune system stimulating cytokines, which are targeted with the strong and durable binding power of the 10 binding domains of an IgM antibody.

IL-15

Our first targeted cytokine is expected to be IL-15. In nature, IL-15 stimulates T cells and NK cells to proliferate and maintain their long-term survival. Our IgM platform allows us to attach IL-15 to the J chain of a targeting IgM antibody. We believe that this targeted delivery system for IL-15 will lead to the proliferation of T cells and NK cells in the area of the cells targeted by the IgM antibody.

 

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PD-L1 Targeting IgM Antibody with IL-15

 

 

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Schematic diagram of a PD-L1 IgM antibody (green binding domains) with IL-15 (red oval) attached to the J chain and subsequent binding to PD-L1 expressing cells and activation of CD8 T cells and NK cell proliferation with IL-15.

As a proof of concept IL-15 delivery molecule, we created a PD-L1 IgM antibody with IL-15 attached to the J chain. This PD-L1 x IL-15 bispecific antibody dramatically enhanced the proliferation of CD8 T cells and NK cells in our in vitro testing. As shown in the figures below, we observed that a PD-L1 IgM antibody with IL-15 attached to the joining chain increased proliferation in approximately 60% of CD8 T cells and 80% of NK cells, while a PD-L1 IgM antibody without IL-15 attached to the joining chain did not increase proliferation in CD8 T cells and NK cells.

Comparative Activity of the PD-L1 IgM Antibody with and without IL-15 Fused to the J Chain

 

 

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The PD-L1 IgM antibody with and without IL-15 fused to the J chain was incubated at increasing concentrations with human peripheral blood mononuclear cells in vitro and the proliferation of CD8+ effector T cell and NK cells was evaluated after three to four days. Shown is a representative study from >10 repeat studies.

 

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Third-Party Agreements

We have entered into agreements pursuant to which we are evaluating antibody sequences from third parties. Under these agreements, we are able to research and initially develop some of our discovery programs and are required to make certain annual payments. These payments are not expected to exceed $500,000 in the aggregate in 2019. We also have the option to negotiate or enter into commercial license agreements with these third parties if we elect to continue development or commercialization of any product candidates resulting from these agreements. If we exercise our option to negotiate or enter into any commercial licenses with these third parties, we will be subject to additional payment obligations upon achievement of certain development, regulatory, commercialization and other milestones and low single digit royalty payments on product sales.

Manufacturing and Supply

We do not currently operate a current good manufacturing practice (cGMP) manufacturing facility. We rely, and expect to continue to rely for some time, on third parties for the manufacture of our product candidates for preclinical and clinical testing. We also rely, and expect to continue to rely, on third parties to package, label, store and distribute our investigational product candidates.

We have spent significant resources developing our current manufacturing processes and know-how to produce sufficient yields and optimize functionality in conjunction with our contract manufacturing partners. Typically, we use Chinese hamster ovary (CHO) cells to produce IgM and bispecific IgM antibodies by transfecting those cells with plasmid genes for heavy chain (HC), light chain (LC) and J chain (JC) domains. To construct a bispecific IgM we use a modified JC plasmid gene that includes a single chain fragment variable (scFv) domain. The IgM pentamers, containing HC, LC and JC in an appropriate ratio (10:10:1), are assembled within the CHO cells, and secreted into the cell supernatant, all of which are contained in a large single-use bioreactor. The product IgM is harvested and purified to homogeneity using methods and processes developed by us. Our processes provide for cost-effective purification and formulation stability in the manufacturing of IgM antibodies.

We are in the process of designing and building a cGMP manufacturing facility expected to be adequate for the manufacture of clinical trial drug materials. Once this facility becomes operational, we expect to manufacture future clinical product candidates primarily using our facility. We expect to continue to manufacture clinical materials for our first two product candidates, IGM-2323 and our DR5 IgM antibody, at outside partners for some extended period of time.

Subject to the clinical trial success of our product candidates, we plan to design and build a commercial manufacturing facility for the future commercial manufacturing of some or all of our commercial products.

To date, we have obtained bulk drug substance (BDS) for IGM-2323 from a single-source third-party contract manufacturer. While any reduction or halt in supply of BDS from this contract manufacturer could limit our ability to develop our product candidates until a replacement contract manufacturer is found and qualified, we believe that we have sufficient BDS to support our current clinical trial programs. Filling and finishing of the BDS for IGM-2323 has been completed at another third-party contract manufacturer.

We also expect to obtain BDS for our DR5 IgM antibody from a single-source third-party contract manufacturer, and we expect that filling and finishing of the BDS for our DR5 IgM antibody will be completed at a third-party contract manufacturer.

All of our product candidates are manufactured from of a master cell bank of that antibody’s production cell line. We have or intend to have one master cell bank for each product candidate that was or will be produced and tested in accordance with cGMP and applicable regulations. Each master cell bank is or will be stored in two independent locations, and we intend to produce working cell banks for each product candidate later in product development. It is possible that we could lose multiple cell banks from multiple locations and have our manufacturing severely impacted by the need to replace the cell banks. However, we believe we have adequate backup should any particular cell bank be lost in a catastrophic event.

 

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Competition

The pharmaceutical and biotechnology industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face potential competition from many different sources, including major multinational pharmaceutical companies, established biotechnology companies, speciality pharmaceutical companies, universities, academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for the research, development, manufacturing and commercialization of cancer immunotherapies. Any product candidates that we successfully develop and commercialize will compete with new immunotherapies and other drug products that may become available in the future.

We compete in the segments of the pharmaceutical, biotechnology and other related markets that develop cancer treatments. There are many other companies that have commercialized and/or are developing immuno-oncology treatments for cancer, including large pharmaceutical and biotechnology companies, such as AbbVie, Amgen, AstraZeneca/MedImmune, Bristol-Myers Squibb, Merck, Novartis, Pfizer and Roche/Genentech.

We face significant competition from pharmaceutical and biotechnology companies that target specific tumor-associated antigens using immune cells or other cytotoxic modalities. These generally include immune cell redirecting therapeutics (e.g., T cell engagers), adoptive cellular therapies (e.g., CAR-T), antibody drug conjugates, targeted radiopharmaceuticals, targeted immunotoxin and targeted cancer vaccines.

With respect to our lead product candidate, IGM-2323, we are aware of other companies with competing clinical stage therapeutics that target CD20, which include, but are not limited to, Roche/Genentech, Regeneron, Xencor and Genmab.

With respect to our second product candidate, our DR5 IgM antibody, we are aware of other companies with competing clinical stage therapeutics that target DR5, which include, but are not limited to, AbbVie, InhibRx, Genmab and Boehringer Ingelheim.

Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved drugs than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and enrolling subjects for our clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

We could see a reduction or elimination of our commercial opportunity if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we or our collaborators may develop. Our competitors also may obtain FDA or foreign regulatory approval for their products more rapidly than we may obtain approval for product candidates, which could result in our competitors establishing a strong market position before we or our collaborators are able to enter the market. The key competitive factors affecting the success of all our product candidates, if approved, are likely to be their efficacy, safety, convenience, price, the effectiveness of companion diagnostics, if required, the level of biosimilar or generic competition and the availability of reimbursement from government and other third-party payors.

Intellectual Property

The proprietary nature and protection of our platforms, product candidates and discovery programs, as well as our processes and know-how, are important to our business. We have sought patent protection in the United States and internationally for our platform technologies, research discoveries and product candidates. For our product candidates, we seek to pursue patent protection covering compositions of matter, methods of use including various treatment indications and methods of creation and manufacture. Throughout the innovation process, and continuing into the product development process, we also plan to seek to identify additional means of obtaining patent

 

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protection that would potentially enhance our commercial success, including obtaining patent protection for additional methods of use, such as additional medical indications, for our product candidates, treatment methods for specific patient populations using our product candidates and methods and tests to identify those patient populations, and the manufacture of our product candidates. We also seek to obtain patent protection for refinements and enhancements to our platform technologies. Our policy is to pursue, maintain and defend patent rights in strategic areas and to protect the technology, inventions, and improvements that are commercially important to the development of our business. We may also rely on trade secrets that may be important to the development of our business, and we may seek to protect and maintain the confidentiality of proprietary information to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.

To date, we have spent considerable effort securing intellectual property rights, including rights related to our platform technology and product candidates. Our patent portfolios covering our platform technology, product candidates, and related discovery programs, are summarized below.

Proprietary Technologies

As of June 30, 2019, our patent portfolio related to our proprietary technologies includes seven patent families directed to our multivalent antibody platform, and includes issued U.S. and European patents directed to our modified J chain technology. The platform portfolio includes two granted patents, two allowed applications, 45 pending applications in active prosecution in 15 countries or regions, two pending Patent Cooperation Treaty (PCT) applications, and one pending unpublished provisional application. These patent families are projected to expire between 2034 and 2039, absent any patent term adjustments or extensions. We wholly own the rights to these patent families. Summaries of relevant published patent families are provided below.

The “Modified J Chain” family includes disclosure and claims related to IgM, IgA, and hybrid multimeric antibodies that include a J chain, where the J chain has been modified to include a binding moiety, e.g., an antibody or antibody fragment, or any other protein or non-protein moiety that can bind to a cognate binding partner (including antibody drug conjugates). The application family also includes disclosure and claims related to methods of making and using multimeric antibody molecules comprising a modified J chain, e.g., bispecific IgM antibodies. This patent family has a projected expiration date of April 2, 2035, absent any patent term adjustments or extensions. The Modified J Chain patent family includes granted patents in the United States and Europe (validated in Austria, Belgium, Switzerland, Germany, Denmark, Spain, Finland, France, Great Britain, Hungary, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Sweden, and Slovenia), and is allowed in Mexico. As of June 30, 2019, the patent family also includes pending patent applications in the United States (two applications), Australia, Brazil, Canada, China, Europe, Hong Kong (registered through the European Patent Office), India, Israel, Japan, South Korea, New Zealand, Russia, Singapore, and South Africa. The granted U.S. and European claims are directed to IgM antibodies (in the United States) and IgM, IgA and hybrid antibodies (in Europe) comprising a modified J chain with a binding moiety fused or chemically conjugated to selected regions of the J chain. The allowed claims in Mexico are similar to the granted European claims. Related claims are being prosecuted in the pending applications.

Two later-filed patent families are related to our “Modified J Chain” family. These two patent families both have a projected expiration date of September 30, 2036, absent any patent term adjustments or extensions. Patent applications in the first of these two families includes disclosure and claims related to multimeric antibodies (e.g., IgM, IgA, or hybrid multimeric antibodies) that include a modified J chain, where the modified J chain includes a binding moiety that modulates a T cell inhibitory pathway, e.g., CTLA4, PD-1, TIM3, LAG3, BTLA, VISTA and TIGIT. Patent applications in this family are pending in the United States, China, Europe, and Japan. Patent applications in the second of these two families includes disclosure and claims related to multimeric antibodies (e.g., IgM, IgA or hybrid multimeric antibodies) that include a modified J chain, where the modified J chain includes a moiety that affects adsorption, distribution, metabolism, and/or excretion (ADME) of the multimeric antibody. Exemplary moiety types include, but are not limited to, proteins that increase antibody serum half-life, proteins that affect receptor-mediated transcytosis, and proteins that increase retention of the multimeric antibody in an extravascular space. Patent applications in this family are pending in the United States, Australia, Canada, China, Europe, Hong Kong (registered through the European Patent Office), and Japan.

 

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We also own an international patent application, filed under the Patent Cooperation Treaty (PCT) that includes disclosure and claims related to J chain and IgM Fc mutations that inhibit binding of IgM to certain multimeric Ig receptors including the Fcaµ receptor, the Fcµ receptor, and the polymeric Ig receptor. The claims are related to IgM and IgM-derived antibodies that include these mutations, and have substantially increased serum half-lives relative to wild type IgM antibodies. This patent application has a projected expiration date of March 1, 2039, absent any patent term adjustments or extensions. The application is in the international PCT stage and will enter national stage prosecution on or before September 1 or October 1, 2020, depending on the jurisdiction.

Our platform technology portfolio also includes an international patent application, filed under the PCT that includes disclosure and claims related to IgM antibody Fc modifications that affect the ability of the IgM antibody to trigger CDC. The patent application discloses and claims single and combined human IgM Fc amino acid substitutions that reduce and/or completely inhibit IgM’s typical CDC activity. This application has a projected expiration date of April 6, 2038, absent any patent term adjustments or extensions. The application is in the international PCT stage and will enter national stage prosecution on or before October 7 or November 7, 2019, depending on the jurisdiction.

We also own two patent families that include disclosure and claims related to multispecific IgM and IgA antibodies, respectively, where the multispecificity of the assembled IgM or IgA binding domains is created through knobs into holes or salt bridge modifications of the IgM or IgA heavy chain constant regions. The multispecific IgM patent family is titled “Constant Chain Modified Bispecific, Penta- and Hexavalent IgM Antibodies,” and is projected to expire on September 4, 2034, absent any patent term adjustments or extensions. As of June 30, 2019, a patent application from this family is allowed in the United States, with claims related to bispecific IgM antibodies with specific heavy and light chain mutations to facilitate formation of bispecific binding regions. Related patent applications are pending in Australia, Brazil, Canada, China, Europe, India, Japan, and South Korea. The multispecific IgA patent family is titled “IgA Multi-specific Binding Molecules,” and is projected to expire on February 10, 2035, absent any patent term adjustments or extensions. Patent applications in this patent family are pending in the United States, Australia, Brazil, Canada, China, Europe, Hong Kong (registered through the European Patent Office), India, Japan, and South Korea.

Product Candidates and Discovery Pipeline

Our product candidates and discovery pipeline patent portfolio includes 11 patent families with claims directed to our product candidates. These include one patent family with claims directed to IGM-2323 and two patent families with claims directed to our DR5 IgM antibody. Our product portfolio also includes a granted U.S. patent with claims directed to IgM antibody superagonists specific for TNFrSF targets. As of June 30, 2019, our product portfolio includes one granted patent, 79 applications in active prosecution in 14 countries or regions, one pending PCT application and two unpublished pending U.S. provisional applications. These patent families are projected to expire between 2036 and 2040, absent any patent term adjustments or extensions. We wholly own the rights to these patent families. Summaries of published patent families relevant to our product candidates and our discovery pipeline are provided below.

The patent family directed to IGM-2323 has a projected expiration date of March 4, 2036, absent any patent term adjustments or extensions. This patent family includes claims directed to multimeric antibodies, e.g., IgM and IgA antibodies, that include the IGM-2323 antigen binding domains and methods of treating cancer patients with such antibodies. This patent family further discloses antibodies that include a modified J chain, where the modified J chain includes an antigen-binding domain specific for CD3-epsilon. This patent family, in combination with the “Modified J Chain” application family discussed above, includes claims directed to the IGM-2323 composition, as well as methods of making and using the same. Patent applications in this family are pending in the United States, Australia, Brazil, Canada, China, Europe, India, Israel, Japan, South Korea, New Zealand, Singapore, and Hong Kong (registered through the European Patent Office).

Our patent portfolio also includes five patent families owned by us directed to our TNFrSF superagonist technology and product candidates. The first patent family includes disclosure and claims directed to multimeric superagonist antibodies that bind to any TNFrSF target. This family also includes disclosure and claims directed multimeric superagonist antibodies that bind to DR5 that relate to our DR5 IgM antibody product candidate. The application, which we own, has a projected expiration date of January 20, 2036, absent any patent term adjustments or extensions, and includes a U.S. patent that has granted, which is generically directed to IgM-based TNFrSF superagonists and their use in treating cancer patients. In addition, claims directed to DR5-targeted multimeric

 

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superagonists and specifically our DR5 IgM antibody are pending in the United States. The patent family is also pending in Australia, Canada, China, Europe, Hong Kong (registered through the European Patent Office), India, Israel, Japan, South Korea, New Zealand, Singapore, with claims relating broadly to TNFrSF superagonists and also to DR5 superagonists.

The other four patent families are each directed to a specific TNFrSF target, OX40, GITR, CD137/4-1BB, and CD40, respectively, and have projected expiration dates of either July 19, 2037 or July 20, 2037, absent any patent term adjustments or extensions. The OX40 family has a projected expiration date of July 20, 2037, absent any patent term adjustments or extensions, and includes claims directed to a variety of different multimeric OX40 superagonist antibodies and their use for treating cancer patients. Patent applications in this family are pending in the United States, Australia, Canada, China, Europe India, Israel, Japan, Mexico, and New Zealand. The GITR family has a projected expiration date of July 20, 2037, absent any patent term adjustments or extensions, and includes claims directed to a variety of different multimeric GITR superagonist antibodies and their use for treating cancer patients. Patent applications in this family are pending in the United States, Australia, Canada, China, Europe India, Israel, Japan, Mexico, and New Zealand. The CD137/4-1BB family has a projected expiration date of July 19, 2037, absent any patent term adjustments or extensions, and includes claims directed to a variety of different multimeric CD137/4-1BB superagonist antibodies and their use for treating cancer patients. Patent applications in this family are pending in the United States, Australia, Canada, and Europe. The CD40 family has a projected expiration date of July 19, 2037, absent any patent term adjustments or extensions, and includes claims directed to a variety of different multimeric CD40 superagonist antibodies and their use for treating cancer patients. Patent applications in this family are pending in the United States, Australia, Canada, and Europe.

Our patent portfolio also includes an international PCT application directed to combination cancer therapies that include a DR5 superagonist antibody, e.g., our DR5 IgM antibody, in combination with a chemotherapeutic agent, e.g., irinotecan, gemcitabine, or venetoclax. This application has a projected expiration date of February 25, 2039, absent any patent term adjustments or extensions. The application is in the international PCT stage and will enter national stage prosecution on or before August 26 or September 26, 2020, depending on the jurisdiction.

As part of our research pipeline, our patent portfolio also includes a patent family related to the identification and characterization of novel PD-L1 antibodies. This application family, titled “Anti-PD-L1 Antibodies,” has a projected expiration date of May 9, 2037, absent any patent term adjustments or extensions. Patent applications in this family are pending in the United States, Australia, Canada, China, Europe, Hong Kong (registered through the European Patent Office), India, Israel, Japan, South Korea, New Zealand, and Singapore.

Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of our current and future product candidates and the methods used to develop and manufacture them, as well as successfully defending these patents against any third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our product candidates depends on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our product candidates, discovery programs and processes.

The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, the patent term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Amendments permit a patent term extension of up to five years beyond the expiration of the patent, insofar as the patent covers the FDA-approved product. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to an approved drug may be extended and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended. Similar provisions are available in foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our product candidates receive FDA approval, we expect to apply for patent term extensions on

 

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patents covering those products. While we plan to seek patent term extensions on any of our issued patents in any jurisdiction where these are available, there is no guarantee that the applicable authorities, including the FDA in the United States, will agree with our assessment of whether such extensions should be granted and, if granted, the length of such extensions.

In addition to patent protection, we also rely on trademark registration, trade secrets, know how, other proprietary information and continuing technological innovation to develop and maintain our competitive position. We seek to protect and maintain the confidentiality of proprietary information to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. Although we take steps to protect our proprietary information and trade secrets, including through contractual means with our employees and consultants, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. We may therefore not be able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specified circumstances. Our agreements with employees also provide that all inventions conceived by the employee in the course of employment with us or from the employee’s use of our confidential information are our exclusive property. However, such confidentiality agreements and invention assignment agreements can be breached and we may not have adequate remedies for any such breach.

The patent positions of biotechnology companies like ours are generally uncertain and involve complex legal, scientific and factual questions. Our commercial success will also depend in part on not infringing upon the proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require us to alter our development, commercial strategies, drugs or processes, or to obtain licenses or cease certain activities. Our breach of any license agreements or our failure to obtain a license to proprietary rights required to develop or commercialize our future products may have a material adverse impact on us. If third parties prepare and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in derivation proceedings in the USPTO to determine priority of invention.

For more information on these risks and other comprehensive risks related to our intellectual property, see the section titled “Risk Factors—Risks Relating to Our Intellectual Property.”

Government Regulation

The FDA and other regulatory authorities at federal, state and local levels, as well as in foreign countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring and post-approval reporting of biologics such as those we are developing. We, along with third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure of our product candidates.

U.S. Biologics Regulation

The process required by the FDA before biologic product candidates may be marketed in the United States generally involves the following:

 

   

completion of preclinical laboratory tests and animal studies performed in accordance with the FDA’s current Good Laboratory Practices (GLP) regulation;

 

   

submission to the FDA of an IND, which must become effective before clinical trials may begin and must be updated annually or when significant changes are made;

 

   

approval by an independent institutional review board (IRB) or ethics committee at each clinical site before the trial is commenced;

 

   

performance of adequate and well-controlled human clinical trials to establish the safety, purity and potency of the proposed biologic product candidate for its intended purpose;

 

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preparation of and submission to the FDA of a Biologics License Application (BLA) after completion of all pivotal clinical trials;

 

   

satisfactory completion of an FDA Advisory Committee review, if applicable;

 

   

a determination by the FDA within 60 days of its receipt of a BLA to file the application for review;

 

   

satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the proposed product is produced to assess compliance with cGMPs and to assure that the facilities, methods and controls are adequate to preserve the biological product’s continued safety, purity and potency, and of selected clinical investigation sites to assess compliance with good clinical practices (GCPs); and

 

   

FDA review and approval of a BLA to permit commercial marketing of the product for particular indications for use in the United States.

Preclinical and Clinical Development

Prior to beginning the first clinical trial with a product candidate, we must submit an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol or protocols for preclinical studies and clinical trials. The IND also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology and pharmacodynamic characteristics of the product, chemistry, manufacturing and controls information, and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical study. 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 separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site, and must monitor the study until completed. Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives. Some studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. There are also requirements governing the reporting of ongoing preclinical studies and clinical trials and clinical study results to public registries.

For purposes of BLA approval, human clinical trials are typically conducted in three sequential phases that may overlap.

 

   

Phase 1. The investigational product is initially introduced into healthy human subjects or patients with the target disease or condition. These studies are designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational product in humans, to identify possible side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness.

 

   

Phase 2. The investigational product is administered to a limited patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side effects and safety risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3 clinical trials.

 

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Phase 3. The investigational product is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval.

In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain more information about the product. These so-called Phase 4 studies may be made a condition to approval of the BLA. Concurrent with clinical trials, companies may complete additional animal studies and develop additional information about the biological characteristics of the product candidate, and must finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final product, or for biologics, the safety, purity and potency. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

BLA Submission and Review

Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, nonclinical studies and clinical trials are submitted to the FDA as part of a BLA requesting approval to market the product for one or more indications. The BLA must include all relevant data available from pertinent preclinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls, and proposed labeling, among other things. The submission of a BLA requires payment of a substantial application user fee to the FDA, unless a waiver or exemption applies.

Once a BLA has been submitted, the FDA’s goal is to review standard applications within ten months after it accepts the application for filing, or, if the application qualifies for priority review, six months after the FDA accepts the application for filing. In both standard and priority reviews, the review process is often significantly extended by FDA requests for additional information or clarification. The FDA reviews a BLA to determine, among other things, whether a product is safe, pure and potent and the facility in which it is manufactured, processed, packed or held meets standards designed to assure the product’s continued safety, purity and potency. The FDA may convene an advisory committee to provide clinical insight on application review questions. Before approving a BLA, the FDA will typically 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 a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCPs. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

After the FDA evaluates a BLA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A Complete Response letter will describe all of the deficiencies that the FDA has identified in the BLA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the Complete Response letter without first conducting required inspections, testing submitted product lots and/or reviewing proposed labeling. In issuing the Complete Response letter, the FDA may recommend actions that the applicant might take to place the BLA in condition for approval, including requests for additional information or clarification. The FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.

 

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If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the BLA with a Risk Evaluation and Mitigation Strategy (REMS) to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to manage a known or potential serious risk associated with a product and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace. The FDA may require one or more Phase 4 post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and may limit further marketing of the product based on the results of these post-marketing studies.

Expedited Development and Review Programs

The FDA offers a number of expedited development and review programs for qualifying product candidates. The fast track program is intended to expedite or facilitate the process for reviewing new products that meet certain criteria. Specifically, new products are eligible for fast track designation if they are intended to treat patients with a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a fast track product has opportunities for frequent interactions with the review team during product development and, once a BLA is submitted, the product may be eligible for priority review. A fast track product may also be eligible for rolling review, where the FDA may consider for review sections of the BLA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the BLA, the FDA agrees to accept sections of the BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the BLA.

A product intended to treat patients with a serious or life-threatening disease or condition may also be eligible for breakthrough therapy designation to expedite its development and review. A product can receive breakthrough therapy designation if preliminary clinical evidence indicates that the product, alone or in combination with one or more other drugs or biologics, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the fast track program features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an organizational commitment to expedite the development and review of the product, including involvement of senior managers.

Any marketing application for a biologic submitted to the FDA for approval, including a product with a fast track designation and/or breakthrough therapy designation, may be eligible for other types of FDA programs intended to expedite the FDA review and approval process, such as priority review and accelerated approval. A product is eligible for priority review if it has the potential to provide a significant improvement in the treatment, diagnosis or prevention of a serious disease or condition. For original BLAs, priority review designation means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date (as compared to ten months under standard review).

Additionally, products studied for their safety and effectiveness in treating patients with serious or life-threatening diseases or conditions may receive accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, 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. As a condition of accelerated approval, the FDA will generally require the sponsor to perform adequate and well-controlled post-marketing clinical studies to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product.

 

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Fast track designation, breakthrough therapy designation, priority review and RMAT designation do not change the standards for approval but may expedite the development or approval process. 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.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat patients with a rare disease or condition, which is 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 for which there is no reasonable expectation that the cost of developing and making available in the United States a drug or biologic for this type of disease or condition will be recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before submitting a BLA. After the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. The orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review or approval process.

If a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusive approval (or exclusivity), which means that the FDA may not approve any other applications, including a full BLA, to market the same biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Orphan drug exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the BLA application fee.

A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.

Post-approval Requirements

Any 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 record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of 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. There also are continuing user fee requirements, under which the FDA assesses an annual program fee for each product identified in an approved BLA. Biologic manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMPs, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMPs and impose reporting 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 compliance with cGMPs and other aspects of regulatory compliance.

 

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The FDA may withdraw 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 studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:

 

   

restrictions on the marketing or manufacturing of a product, complete withdrawal of the product from the market or product recalls;

 

   

fines, warning letters or holds on post-approval clinical studies;

 

   

refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of existing product approvals;

 

   

product seizure or detention, or refusal of the FDA to permit the import or export of products;

 

   

consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs;

 

   

mandated modification of promotional materials and labeling and the issuance of corrective information;

 

   

the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety information about the product; or

 

   

injunctions or the imposition of civil or criminal penalties.

The FDA closely regulates the marketing, labeling, advertising and promotion of biologics. A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA 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. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products.

Biosimilars and Reference Product Exclusivity

The Patient Protection and Affordable Care Act (ACA) includes a subtitle called the BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-approved reference biological product. To date, a number of biosimilars have been licensed under the BPCIA, and numerous biosimilars have been approved in Europe. The FDA has issued several guidance documents outlining an approach to review and approval of biosimilars.

Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical study or studies. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product in any given patient and, for products that are administered multiple times to an individual, the biologic and the reference biologic may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. Complexities associated with the larger, and often more complex, structures of biological products, as well as the processes by which such products are manufactured, pose significant hurdles to implementation of the abbreviated approval pathway that are still being worked out by the FDA.

Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing that applicant’s own

 

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preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of its 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.

The BPCIA is complex and continues to be interpreted and implemented by the FDA. In addition, government proposals have sought to reduce the 12-year reference product exclusivity period. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. As a result, the ultimate impact, implementation, and impact of the BPCIA are subject to significant uncertainty.

Other Healthcare Laws and Compliance Requirements

Pharmaceutical companies are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which they conduct their business. Such laws include, without limitation: the federal Anti-Kickback Statute, the federal False Claims Act, the Health Insurance Portability and Accountability Act (HIPAA) and similar foreign, federal and state fraud and abuse, transparency and privacy laws.

The federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering or paying remuneration, to induce, or in return for, either the referral of an individual, or the purchase or recommendation of an item or service for which payment may be made under any federal healthcare program. The term remuneration has been interpreted broadly to include anything of value, including stock options. The federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers and formulary managers, among others, on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, but they are drawn narrowly and practices that involve remuneration, such as consulting agreements, that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Our practices may not in all cases meet all of the criteria for protection under a statutory exception or regulatory safe harbor. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act.

Civil and criminal false claims laws, including the federal False Claims Act, which can be enforced through civil whistleblower or qui tam actions, and civil monetary penalty laws, which can be enforced through civil whistleblower or qui tam actions, prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment to the federal government, including federal healthcare programs, that are false or fraudulent. For example, the federal False Claims Act prohibits any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. Several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product.

HIPAA created additional federal criminal statutes that prohibit, among other things, executing a scheme to defraud any healthcare benefit program, including private third-party payors, and making false statements relating to healthcare matters. In addition, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (HITECH), and their implementing regulations, impose certain requirements on HIPAA covered entities, which include certain healthcare providers, healthcare clearing houses and health plans, and individuals and entities that provide services on their behalf that involves individually identifiable health information, known as business associates, relating to the privacy, security and transmission of individually identifiable health information.

The U.S. federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance

 

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Program, with specific exceptions, to annually report to the Center for Medicare & Medicaid Services (CMS) information related to payments or other transfers of value made to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.

We are also subject to additional similar U.S. state and foreign law equivalents of each of the above federal laws, which, in some cases, differ from each other in significant ways, and may not have the same effect, thus complicating compliance efforts. If our operations are found to be in violation of any of such laws or any other governmental regulations that apply, we may be subject to penalties, including, without limitation, significant civil, criminal and administrative penalties, damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid or similar programs in other countries or jurisdictions, integrity oversight and reporting obligations to resolve allegations of non-compliance, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits and the curtailment or restructuring of our operations.

Coverage and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any pharmaceutical or biological product for which we obtain regulatory approval. Sales of any product, if approved, depend, in part, on the extent to which such product will be covered by third-party payors, such as federal, state, and foreign government healthcare programs, commercial insurance and managed healthcare organizations, and the level of reimbursement, if any, for such product by third-party payors. Decisions regarding whether to cover any of our product candidates, if approved, the extent of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis. Further, no uniform policy for coverage and reimbursement exists in the United States, and coverage and reimbursement can differ significantly from payor to payor. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement rates, but also have their own methods and approval process apart from Medicare determinations. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.

For products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. Additionally, separate reimbursement for the product itself or the treatment or procedure in which the product is used may not be available, which may impact physician utilization.

In addition, the U.S. government, state legislatures and foreign governments have continued implementing cost-containment programs, including price controls, restrictions on coverage and reimbursement and requirements for substitution of generic products. Third-party payors are increasingly challenging the prices charged for medical products and services, examining the medical necessity and reviewing the cost effectiveness of pharmaceutical or biological products, medical devices and medical services, in addition to questioning safety and efficacy. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit sales of any product that receives approval. Decreases in third-party reimbursement for any product or a decision by a third-party not to cover a product could reduce physician usage and patient demand for the product. No regulatory authority has granted approval for a personalized cancer immunotherapy based on a vaccine approach, and there is no model for reimbursement of this type of product.

Healthcare Reform

The United States and some foreign jurisdictions are considering or have enacted a number of reform proposals to change the healthcare system. There is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by federal and state legislative initiatives, including those designed to limit the pricing, coverage, and reimbursement of pharmaceutical and biopharmaceutical products, especially under government-funded health care programs, and increased governmental control of drug pricing.

The ACA, which was enacted in March 2010, substantially changed the way healthcare is financed by both governmental and private insurers in the United States, and significantly affected the pharmaceutical industry. The

 

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ACA contains a number of provisions of particular import to the pharmaceutical and biotechnology industries, including, but not limited to, those governing enrollment in federal healthcare programs, 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, a new licensure framework for follow on biologic products, and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. For example, the Tax Cuts and Jobs Act of 2017 (Tax Act) was enacted, which, among other things, removes penalties for not complying with ACA’s individual mandate to carry health insurance, effective January 1, 2019. On December 14, 2018, the Texas District Court Judge ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the ACA are invalid as well. While the Texas District Court Judge, as well as the Trump administration and CMS, have stated that the ruling will have no immediate effect, and on December 30, 2018 the Texas District Court Judge issued an order staying the judgment pending appeal, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the ACA will impact the ACA. Since the enactment of the Tax Act, there have been additional amendments to certain provisions of the ACA, and the Trump administration and Congress may continue to seek to modify, repeal, or otherwise invalidate all, or certain other provisions of, the ACA.

Other legislative changes have been proposed and adopted since the ACA was enacted, including aggregate reductions of Medicare payments to providers of 2% per fiscal year and reduced payments to several types of Medicare providers. These reductions went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2027 unless additional action is taken by Congress.

Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. At the federal level, the Trump administration’s budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Further, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. The U.S. Department of Health and Human Services has solicited feedback on certain of these measures and, additionally, is immediately implementing others under its existing authority. For example, in September 2018, CMS announced that it will allow Medicare Advantage Plans the option to use step therapy for Part B drugs beginning January 1, 2019. Additionally, CMS issued a final rule, effective on July 9, 2019, that requires direct-to-consumer television advertisements of prescription drugs and biological products, for which payment is available through or under Medicare or Medicaid, to include in the advertisement the Wholesale Acquisition Cost, or list price, of that drug or biological product if it is equal to or greater than $35 for a monthly supply or usual course of treatment. Prescription drugs and biological products that are in violation of these requirements will be included on a public list. 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, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical 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.

Additionally, the Right to Try Act, which was enacted on May 30, 2018, provides a federal framework for certain patients with life-threatening diseases to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA

 

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expanded access program. There is no obligation for a drug manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act.

Employees

As of June 30, 2019, we had 42 employees, 40 of whom are full-time employees and 35 of whom were engaged in research and development activities. None of our employees are represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our employees to be good.

Property

We currently lease approximately 34,000 square feet of office, laboratory and manufacturing space in Mountain View, California under a lease that expires in May 2025. We believe this space is sufficient to meet our near-term needs and that any additional space we may require will be available on commercially reasonable terms.

Legal Proceedings

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not currently a party to any material legal proceedings. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity, reputational harm and other factors.

 

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MANAGEMENT

Executive Officers, Key Employees and Directors

The following table sets forth certain information regarding our executive officers, key employees and directors as of August 1, 2019:

 

 

 

NAME

   AGE     

POSITION(S)

Executive Officers:

     

Fred Schwarzer

     67      Chief Executive Officer, President and Director

Daniel Chen, M.D., Ph.D.

     50      Chief Medical Officer

Bruce Keyt, Ph.D.

     66      Chief Scientific Officer

Misbah Tahir

     44      Chief Financial Officer

Key Employees:

     

Ramesh Baliga, Ph.D.

     51      Vice President, Discovery Biology

Stephen Carroll, Ph.D.

     68      Vice President, Preclinical Sciences

Wayne Godfrey, M.D.

  </