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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______ to ______.

 

Commission File Number: 001-38552

 

PROVENTION BIO, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware   81-5245912
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

55 Broad Street, 2nd Floor

Red Bank, New Jersey

  07701
(Address of registrant’s principal executive offices)   (Zip code)

 

(908) 336-0360

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class   Trading Symbol(s)   Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value per share   PRVB   The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

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

 

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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of the close of business on May 2, 2022, 64,040,216 common shares, $0.0001 par value per share, of the registrant were issued and outstanding.

 

 

 

 
 

 

Provention Bio, Inc.

Form 10-Q

For the Quarter Ended March 31, 2022

 

Table of Contents

 

Item   Page
       
PART I. Financial information    
       
1. Condensed Consolidated Financial Statements   5
  Condensed Consolidated Balance Sheets at March 31, 2022 (unaudited) and December 31, 2021   5
  Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three months ended March 31, 2022 and 2021   6
  Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three months ended March 31, 2022 and 2021   7
  Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2022 and 2021   8
  Notes to Condensed Consolidated Financial Statements (unaudited)   9
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   26
3. Quantitative and Qualitative Disclosures About Market Risk   35
4. Controls and Procedures   36
       
PART II. Other Information    
1. Legal Proceedings   37
1A. Risk Factors   37
2. Unregistered Sales of Equity Securities and Use of Proceeds   76
3. Defaults Upon Senior Securities   76
4. Mine Safety Disclosures   76
5. Other Information   76
6. Exhibits   76
  Signatures   77

 

2

 

 

FORWARD-LOOKING STATEMENTS AND RISK FACTOR SUMMARY

 

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including, among others, statements regarding the impact of the ongoing COVID-19 pandemic on our business; the timing progress and potential success of our ongoing and planned clinical trials; our ongoing and planned engagements with regulatory agencies relating to, and the expected timing of regulatory review of, or decisions relating to, our product candidates; execution of our business plans; and our current expectations regarding the ability of our cash, cash equivalents and marketable securities to fund our projected operating requirements into the first quarter of 2023, are forward-looking statements. The words “believe,” “may,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

 

These forward-looking statements are subject to a number of risks, uncertainties and assumptions. 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 herein may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

 

Some of the key factors that could cause actual results to differ from our expectations include the following risks related to our business:

 

  Our teplizumab Biologics License Application (“BLA”) resubmission in February 2022 for the delay of clinical type 1 diabetes (“T1D”) in at-risk individuals (“At-Risk Indication”), which the U.S. Food and Drug Administration (“FDA”) deemed to be complete and accepted for review on March 17, 2022 and for which the FDA assigned a user fee goal date of August 17, 2022, may not be ultimately approved by the FDA. Our BLA resubmission and other regulatory efforts may not be successful in addressing, to the FDA’s satisfaction, the deficiencies identified in the FDA’s July 2021 Complete Response Letter (“CRL”) for our original teplizumab BLA for an At-Risk Indication, including product quality and pharmacokinetic (“PK”) comparability considerations. Additionally, our BLA resubmission and our regulatory efforts may not successfully address the FDA’s requests and requirements discussed at our January 2022 Type B meeting. For example, although we included in the BLA resubmission, as requested by the FDA, a proposed adjusted 14-day dosing regimen based on PK modeling and clinical data for teplizumab to match exposure of our planned commercial product to drug product used in historical clinical trials, the FDA’s PK comparability concerns may not be addressed to their satisfaction which could result in another CRL for our BLA resubmission. Furthermore, as a result of any final resolutions to address the FDA’s considerations related to PK comparability in connection with the teplizumab BLA resubmission for an At-Risk Indication, the FDA may require that we further characterize the teplizumab planned commercial product in the PROTECT Trial, including potentially requiring additional research, analysis, clinical data or clinical trials, to support a regulatory pathway for a newly diagnosed indication of teplizumab.
  We are completely dependent on third parties to manufacture our product candidates, with no, to limited, redundancies in our supply chain, and the commercialization of our product candidates, if approved, could be halted, delayed or made less profitable if those third parties fail to comply with regulatory requirements, fail to obtain manufacturing approval from the FDA or comparable foreign regulatory authorities, fail to provide us with sufficient quantities of our product candidates, or fail to do so at acceptable quality levels or prices.
  We have incurred substantial operating losses in each year since our inception and expect to continue to incur substantial losses for the foreseeable future and we may never become profitable or, if achieved, be able to sustain profitability. Our net losses and significant cash used in operating activities have raised substantial doubt regarding our ability to continue as a going concern.
  We need to raise additional funding to support our business plans and operations. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate certain, or all, of our product development programs or commercialization efforts.
  We are a small company that relies on third parties for execution of our business operations and plans, including contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”) for conducting our clinical trials, manufacturing and testing our investigational and planned commercial drug products, including any additional work the FDA may require relating to product quality and PK comparability for teplizumab. If these parties fail to perform their contractual obligations or fail to comply with our requirements or the requirements of regulatory authorities our business plans and operations may be negatively, and materially, impacted.
  The outbreak of the COVID-19 pandemic has caused delays to our clinical trials and could impact the quality or quantity of data we are able to collect or otherwise negatively impact the execution of our clinical trials. Moreover, the longer the pandemic persists, the more impact it may have on our clinical trials and other business plans and timelines, including any product launch plans if we successfully obtain approval for our teplizumab BLA resubmission for an At-Risk Indication in the United States, or obtain approval for teplizumab from other competent authorities, including the European Commission in the European Union and the Medicines and Healthcare Products Regulatory Agency (“MHRA”) in the United Kingdom. In addition, the COVID-19 pandemic has caused substantial disruption in the financial markets and may adversely impact economies worldwide, both of which could result in adverse effects on our business, operations and ability to raise capital.
  Clinical drug development involves a risky, lengthy and expensive process with an uncertain outcome. Although prior pre-clinical and clinical studies, data and analysis may support our belief in the potential of our pipeline of products, the results of our ongoing clinical trials for them may not be positive or supportive of our beliefs. We may encounter substantial delays in completing our ongoing clinical trials or starting any new clinical trials, which in turn may require additional costs, or we may fail to demonstrate adequate safety and efficacy to the satisfaction of applicable regulatory authorities for our product candidates, which could negatively and materially impact our business.

 

3

 

 

  The FDA may conduct additional site-inspections at any of our CMOs which, depending on timing and outcomes, could negatively impact timing of or regulatory decisions relating to any BLA resubmission.
  We are a clinical-stage biopharmaceutical company with a limited operating history.
  We have a limited number of product candidates and may not be able to acquire additional product candidates in the future.
  We have received breakthrough therapy designation and priority review from the FDA, a PRIority MEdicines (“PRIME”) designation from the European Medicines Agency (“EMA”), and the UK’s Innovation Passport from the MHRA for teplizumab and we may pursue such expedited pathways for other product candidates, however, expedited development or regulatory review paths may not actually lead to a faster development or regulatory review or approval process.
  We may not be able to obtain orphan drug marketing exclusivity for our product candidates.
  We may be unable to obtain or maintain governmental approvals to market our product candidates in the United States, European Union, United Kingdom or in other jurisdictions.
  The FDA, EMA or comparable foreign regulatory authorities could require the clearance, CE marking or approval of a companion diagnostic device for teplizumab for use in at-risk individuals, as a post-marketing commitment or otherwise, or the FDA may require other post-marketing commitments, which may require substantial financial resources and could delay regulatory approval or commercialization of teplizumab.
  Even if we receive regulatory approval for teplizumab or any of our product candidates, we may not be able to successfully commercialize any approved products, and the revenue that we generate from sales, if any, may be limited.
  We have never commercialized a product and are in the process of building and scaling our business for potential commercialization of a first product candidate, including building our compliance, medical affairs and commercial organizations, which, if we are not able to do so successfully could negatively impact our business, including the potential for a successful commercialization of our product candidates.
  We currently have a limited commercial organization. If we are unable to establish satisfactory sales and commercial support and marketing capabilities, we may not successfully commercialize any of our product candidates, if approved.
  We depend on rights to certain pharmaceutical compounds that are licensed to us, and any loss of our rights to them could prevent us from developing, commercializing or selling our product candidates if approved.
  We are generally a virtual company and may be unable to adequately protect our information technology systems from cyber-attacks, which could result in the disclosure of confidential information, damage our reputation, and subject us to significant financial and legal exposure.
  We may be unable to protect our intellectual property rights or may infringe on the intellectual property rights of others.
  If product liability, securities law related, patent or other lawsuits are brought against us, we may incur substantial costs and liabilities and may be required to limit commercialization of our product candidates, if approved. See Part II, Item 1 Legal Proceedings for additional information.

 

The forward-looking statements included herein are made only as of the date hereof. 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. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligations to update publicly any forward-looking statements for any reason after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations.

 

We may from time to time provide estimates, projections and other information concerning our industry, the general business environment, and the markets for certain diseases, including estimates regarding the potential size of those markets and the estimated incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events, circumstances or numbers, including actual disease prevalence rates and market size, may differ materially from the information reflected in this Quarterly Report. Unless otherwise expressly stated, we obtain industry, business information, market data, prevalence information and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources, in some cases applying our own assumptions and analysis that may, in the future, prove not to have been accurate.

 

4

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

PROVENTION BIO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

   March 31, 2022   December 31, 2021 
   (unaudited)     
ASSETS          
Current assets:          
Cash and cash equivalents  $74,910   $78,190 
Marketable securities   10,132    16,921 
Prepaid expenses and other current assets   6,744    5,985 
Total current assets   91,786    101,096 
           
Non-current assets:          
Marketable securities   28,316    32,021 
Fixed assets, net   1,874    2,011 
Operating lease right-of-use assets   362    373 
Other assets   120    120 
Total non-current assets   30,672    34,525 
Total assets  $122,458   $135,621 
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $7,238   $3,546 
Accrued expenses and other current liabilities   12,434    13,646 
Deferred revenue   7,374    5,599 
Total current liabilities   27,046    22,791 
           
Deferred revenue, net of current portion   651    1,506 
Operating lease liabilities, long-term   555    590 
Total liabilities   28,252    24,887 
           
Commitments and contingencies (Note 6)   -    - 
           
Stockholders’ equity:          
Preferred stock, $0.0001 par value; 25,000,000 shares authorized; no shares issued or outstanding at March 31, 2022 and December 31, 2021        
Common stock, $0.0001 par value; 150,000,000 shares authorized; 63,763,647 shares issued and outstanding at March 31, 2022; 63,374,738 shares issued and outstanding at December 31, 2021   6    6 
Additional paid-in capital   408,956    402,941 
Accumulated other comprehensive loss   (714)   (139)
Accumulated deficit   (314,042)   (292,074)
Total stockholders’ equity   94,206    110,734 
Total liabilities and stockholders’ equity  $122,458   $135,621 

 

The accompanying unaudited notes are an integral part of the condensed consolidated financial statements.

 

5

 

 

PROVENTION BIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)

(in thousands, except per share data)

 

   2022   2021 
   Three Months Ended March 31, 
   2022   2021 
Collaboration revenue  $580   $ 
           
Operating expenses:          
Research and development   17,355    19,687 
General and administrative   12,306    12,781 
Total operating expenses   29,661    32,468 
           
Loss from operations   (29,081)   (32,468)
Interest income, net   57    28 
Loss before income tax benefit   (29,024)   (32,440)
Income tax benefit   7,056     
Net loss  $(21,968)  $(32,440)
           
Net loss per common share, basic and diluted  $(0.35)  $(0.52)
Weighted average common shares outstanding, basic and diluted   63,400    62,263 
           
Net loss  $(21,968)  $(32,440)
Other comprehensive loss:          
Unrealized loss on marketable securities   (575)   (1)
Total comprehensive loss  $(22,543)  $(32,441)

 

The accompanying unaudited notes are an integral part of the condensed consolidated financial statements.

 

6

 

 

PROVENTION BIO, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (unaudited)

(in thousands, except per share data)

 

    Shares     Amount     Capital     Loss     Deficit     Equity  
                      Accumulated              
                Additional     Other           Total  
    Common Stock     Paid-In     Comprehensive     Accumulated     Stockholders’  
    Shares     Amount     Capital     Loss     Deficit     Equity  
                                     
Balance at December 31, 2021     63,375     $ 6     $ 402,941     $ (139 )   $ (292,074 )   $ 110,734  
Issuance of common stock in connection with at-the-market stock sales, net of issuance costs     380             2,682                   2,682  
Issuance of common stock in connection with stock option exercises     9             18                   18  
Unrealized loss on marketable securities, net of tax                       (575 )           (575 )
Stock-based compensation                 3,315                   3,315  
Net loss                             (21,968 )     (21,968 )
Balance at March 31, 2022     63,764     $ 6     $ 408,956     $ (714 )   $ (314,042 )   $ 94,206  

 

   Common Stock  

Additional

Paid-In

  

Accumulated

Other

Comprehensive

   Accumulated  

Total

Stockholders’

 
   Shares   Amount   Capital   Loss   Deficit   Equity 
                         
Balance at December 31, 2020   56,518   $6   $288,725   $(15)  $(177,642)  $111,074 
Issuance of common stock in connection with underwritten public offering, net of issuance costs   6,838        102,329            102,329 
Issuance of common stock in connection with stock option exercises   19        48            48 
Unrealized loss on marketable securities, net of tax               (1)       (1)
Stock-based compensation           2,857            2,857 
Net loss                   (32,440)   (32,440)
Balance at March 31, 2021   63,375   $6   $393,959   $(16)  $(210,082)  $183,867 

 

The accompanying unaudited notes are an integral part of the condensed consolidated financial statements.

 

7

 

 

PROVENTION BIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

 

   2022   2021 
   Three Months Ended March 31, 
   2022   2021 
Operating activities          
Net loss  $(21,968)  $(32,440)
Adjustments to reconcile net loss to net cash used in operating activities:          
Stock-based compensation expense   3,315    2,857 
Amortization of premium and discounts on marketable securities   156    175 
Non-cash operating lease expense   (18)   14 
Depreciation   137    73 
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets   (209)   284 
Accounts payable   3,692    715 
Accrued interest receivable   163    83 
Accrued expenses and other current liabilities   (1,218)   4,752 
Deferred revenue   920    7,000 
Net cash used in operating activities   (15,030)   (16,487)
           
Investing activities          
Purchase of marketable securities       (12,397)
Maturities of marketable securities   9,600    4,820 
Purchase of fixed assets       (250)
Net cash provided by (used in) investing activities   9,600    (7,827)
           
Financing activities          
Proceeds from underwritten public offering, net       102,329 
Proceeds from at-the-market stock sales, net   2,132     
Proceeds from stock option exercises   18    48 
Net cash provided by financing activities   2,150    102,377 
           
Net (decrease) increase in cash and cash equivalents   (3,280)   78,063 
Cash and cash equivalents at beginning of period   78,190    102,294 
Cash and cash equivalents at end of period  $74,910   $180,357 
           
Supplemental disclosure of cash flow information:          
Operating cash flows used for operating leases  $55   $23 

Supplemental disclosure of non-cash financing activities:

          
Proceeds from unsettled at-the-market stock sales, net  $

550

   $ 

 

The accompanying unaudited notes are an integral part of the condensed consolidated financial statements.

 

8

 

 

PROVENTION BIO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(tabular dollars and shares in thousands, except per share data)

 

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

Business

 

Provention Bio, Inc. (the “Company”), is a clinical-stage biopharmaceutical company dedicated to intercepting and preventing immune-mediated diseases. Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. The Company’s business is subject to significant risks and uncertainties and will be dependent on raising substantial additional capital before it becomes profitable, and it may never achieve profitability. The Company was incorporated in 2016 under the laws of the State of Delaware.

 

Basis of presentation

 

The accompanying unaudited consolidated financial information as of March 31, 2022 and for the three months ended March 31, 2022 and 2021 has been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The Condensed Consolidated Balance Sheet as of December 31, 2021 was derived from the Company’s audited financial statements. These interim financial statements should be read in conjunction with the notes to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K (“Annual Report”) for 2021, as filed with the SEC on February 24, 2022.

 

In the opinion of management, the unaudited consolidated financial information as of March 31, 2022 and for the three months ended March 31, 2022 and 2021, reflects all adjustments, which are normal recurring adjustments, necessary to present a fair statement of the financial position, results of operations and cash flows of the Company. The results of operations for the three months ended March 31, 2022 and 2021 are not necessarily indicative of the operating results for the full fiscal year or any future period.

 

2. LIQUIDITY AND GOING CONCERN

 

The accompanying unaudited consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business, and do not include any adjustments that may result from the outcome of this uncertainty. The Company has incurred recurring losses since inception and as of March 31, 2022, the Company had an accumulated deficit of $314.0 million. To date, the Company has not generated any revenues from commercial product sales and has financed its operations primarily through equity offerings.

 

The Company has devoted substantially all of its financial resources and efforts to research and development and pre-commercial activities. Although the Company had cash, cash equivalents and marketable securities of approximately $113.4 million as of March 31, 2022, the Company expects to continue to incur significant expenses and increasing operating losses over the next several years due to, among other things, costs related to research funding, development of its product candidates, strategic alliances, the development of its administrative and commercial organization and pre-commercial activities for teplizumab. The Company’s net losses may fluctuate significantly from quarter to quarter and year to year. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date these consolidated financial statements are issued.

 

The Company’s cash requirements for the remainder of 2022 and into 2023 will be impacted by a number of factors, the most significant of which are expenses related to teplizumab, including costs, timing and outcome of the Company’s regulatory activities, costs to build out the Company’s commercial infrastructure and pre-commercial activities for teplizumab, and if approval is received from the FDA, commercial sales activities, the PROTECT clinical trial, manufacturing activities for teplizumab and any potential milestone payments that may become due upon a potential regulatory approval of teplizumab by the FDA. Following the acceptance of the Company’s resubmitted BLA for teplizumab by the FDA in March 2022, the Company plans to further increase its pre-commercial spending to prepare for the potential commercial launch of teplizumab in the second half of 2022. Other factors include costs related to the Company’s other ongoing clinical trials, such as the Phase 2b PROACTIVE clinical study of PRV-015 in celiac disease and the Phase 2a PREVAIL-2 clinical study of PRV-3279 in lupus, which was initiated in January 2022.

 

9

 

 

The Company believes, based on its current operating plans, which include the Company’s plans to prepare for a potential commercialization of teplizumab if approved by the FDA, and other factors described above, that its cash, cash equivalents and marketable securities of $113.4 million as of March 31, 2022 will be sufficient to fund its operations into the first quarter of 2023. The Company has based these estimates on assumptions that may differ from actual results, and the Company’s available capital resources could be consumed faster than it currently expects.

 

The Company will require substantial additional financing to fund its operations, to continue to execute its strategy, and to continue as a going concern. The Company may raise capital through public or private equity or debt financings. The sale of equity or other securities may result in dilution to the Company’s stockholders and certain of those securities may have rights senior to those of the Company’s existing shares. If the Company raises additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict the Company’s operations. Any other third-party funding arrangement could require the Company to relinquish valuable rights. The source, timing and availability of any future financing will depend principally upon market conditions, and, more specifically, on the progress of the Company’s clinical development programs. Funding may not be available when needed, at all, or on terms acceptable to the Company. Lack of necessary funds may require the Company, among other things, to delay, scale back or eliminate some or all of the Company’s planned operations.

 

Depending on the timing and outcome of the Company’s regulatory activities and the status of its plans to prepare for a potential regulatory approval of teplizumab by the FDA, the Company may encounter near-term liquidity needs that could impact its cash runway. If the Company’s teplizumab BLA resubmission is approved by the FDA, factors that could impact its cash runway include, but are not limited to, changes to estimated costs of commercialization and potential milestone payments that may be triggered under the Company’s current agreements, including with MacroGenics.

 

The Company has established an at-the-market program (the “2021 ATM Program”) through which the Company may sell, from time to time at its sole discretion, up to $150.0 million of shares of its common stock. During the quarter ended March 31, 2022, the Company sold 379,909 shares of its common stock for aggregate net proceeds of approximately $2.7 million, net of $0.3 million in sales commissions and other offering expenses, under the 2021 ATM Program.

 

In January 2021, the Company completed an underwritten public offering in which it sold 6,250,000 shares of common stock at a public offering price of $16.00 per share. In February 2021, the underwriters partially exercised their option to purchase an additional 587,500 shares at a price of $16.00 per share. In the aggregate, total net proceeds from this underwritten public offering were $102.3 million, after deducting underwriting discounts and commissions of $6.6 million and other offering expenses of $0.5 million.

 

3. SIGNIFICANT ACCOUNTING POLICIES

 

A summary of the significant accounting policies followed by the Company in the preparation of the consolidated financial statements is as follows:

 

Use of estimates

 

The process of preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates and changes in estimates may occur.

 

10

 

 

Segment and geographic information

 

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating and reporting segment.

 

In October 2021, the Company incorporated Provention Bio Limited, a wholly-owned private limited subsidiary, in the United Kingdom. The Company incorporated this subsidiary to facilitate the potential future submission of a Marketing Authorization Application (“MAA”) for teplizumab, to the Medicines and Healthcare Products Regulatory Agency (“MHRA”).

 

Cash, cash equivalents and concentration of credit risk

 

The Company considers only those investments which are highly liquid, readily convertible to cash, or that mature within 90 days from the date of purchase to be cash equivalents. Marketable securities are those investments with original maturities in excess of 90 days. The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents are valued at cost, which approximates their fair value.

 

The Company has no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other hedging arrangements. The Company holds cash and cash equivalents in banks in excess of FDIC insurance limits. However, the Company believes risk of loss is minimal as the cash and cash equivalents are held by large, highly-rated financial institutions.

 

Marketable securities

 

The Company considers securities with original maturities of greater than 90 days to be available for sale securities. Available for sale securities are classified as either current or non-current assets based on the nature of the securities and their availability for use in current operations. Securities with an effective maturity greater than one year from the balance sheet date are classified as non-current. Available for sale securities are recorded at fair value and unrealized gains and losses are recorded within accumulated other comprehensive income. The estimated fair value of the available for sale securities is determined based on quoted market prices or rates for similar instruments. In addition, the cost of debt securities in this category is adjusted for amortization of premium and accretion of discount to maturity.

 

On a quarterly basis, the Company reviews the status of each security in an unrealized loss position, to evaluate the existence of potential credit losses. The Company first considers whether it intends to sell, or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company considers a number of factors to determine if the decline in fair value has resulted from credit losses or other factors, including but not limited to: (1) the extent of the decline; (2) changes to the rating of the security by a rating agency; (3) any adverse conditions specific to the security; and (4) other market conditions that may affect the fair value of the security. If this assessment indicates that a credit loss exists and the present value of cash flows expected to be collected is less than the amortized cost basis, an allowance for credit losses is required for the credit loss. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. As of March 31, 2022, the Company has not recognized any impairment or credit losses on its available for sale securities.

 

Financial instruments

 

Cash, cash equivalents and marketable securities are reflected in the accompanying consolidated financial statements at fair value. The carrying amount of accounts payable and accrued expenses, including accrued research and development expenses, approximates fair value due to the short-term nature of those instruments.

 

Fixed assets, net

 

Fixed assets, which consists primarily of leasehold improvements, furniture and fixtures, software, office equipment and certain clinical equipment, are carried at cost less accumulated depreciation. Depreciation is computed over the estimated useful lives of the respective assets, generally three to seven years, using the straight-line method. Amortization of leasehold improvements is recorded over the shorter of the lease term or estimated useful life of the related asset.

 

11

 

 

Leases

 

The Company determines if an arrangement is a lease at contract inception. A lease is a contract, or part of a contract, that conveys the right to control the use of explicitly or implicitly identified property, plant or equipment in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company classifies its leases as operating or financing by considering factors such as the length of the lease term, the present value of the lease payments, the specialized nature of the asset being leased and the potential for ownership of the asset to transfer during the lease term.

 

Leases with terms greater than one-year are recognized on the Company’s consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities and are measured at the present value of the fixed payments due over the lease term minus the present value of any incentives, rebates or abatements expected to be received from the lessor. Options to extend a lease are typically excluded from the expected lease term as the exercise of the option is typically not reasonably certain. Leases are measured at present value using the rate implicit in the lease or, if the implicit rate is not determinable, the lessee’s incremental borrowing rate. As the implicit rate is not typically readily determinable, the Company uses an incremental borrowing rate, which is established based upon the information available at the lease commencement date, to determine the present value of lease payments due under an arrangement. The incremental borrowing rate approximates the rate the Company would pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments.

 

ROU assets are amortized on a straight-line basis over the term of the lease. Lease liabilities accrete to yield and are reduced at the time when the lease payment is payable to the vendor. Costs determined to be variable and not based on an index or rate are not included in the measurement of the lease liability and are recognized in the consolidated statements of comprehensive loss in the same line item as expenses arising from fixed lease payments at the time when the event giving rise to the payment occurs.

 

Foreign currency translation

 

The Company considers the U.S. dollar to be its functional currency. Expenses denominated in foreign currencies are translated at the exchange rate on the date the expense is incurred. The effect of exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars is included in the consolidated statements of comprehensive loss. Foreign exchange transaction gains and losses are included in the results of operations and are not material in the Company’s consolidated financial statements.

 

Research and development expenses

 

Research and development expenses primarily consist of costs associated with the preclinical and clinical development of the Company’s product candidate portfolio, including the following:

 

  external research and development expenses incurred under arrangements with third parties, such as contract research organizations (“CROs”) and other vendors and contract manufacturing organizations (“CMOs”) for the production of drug substance and drug product; and
     
  employee-related expenses, including salaries, benefits and stock-based compensation expense.

 

Research and development expenses also include costs of acquired product licenses and related technology rights where there is no alternative future use, costs of prototypes used in research and development, consultant fees and amounts paid to certain of our collaborative partners.

 

All research and development expenses are charged to operations as incurred in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic (“ASC”) 730, Research and Development. The Company accounts for non-refundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received, rather than when the payment is made.

 

12

 

 

Accrued research and development expenses

 

As part of the process of preparing the consolidated financial statements, the Company is required to estimate its accrued expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost. The majority of the Company’s service providers invoice the Company monthly in arrears for services performed or when contractual milestones are met. The Company makes estimates of its accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to the Company at that time. The Company periodically confirms the accuracy of its estimates with the service providers and makes adjustments if necessary. The significant estimates in the Company’s accrued research and development expenses are related to expenses incurred with respect to CROs, CMOs and other vendors in connection with research and development and manufacturing activities.

 

The Company bases its expense related to CROs and CMOs on its estimates of the services received and efforts expended pursuant to quotations and contracts with such vendors that conduct research and development and manufacturing activities on the Company’s behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to the Company’s vendors will exceed the level of services provided and result in a prepayment of the applicable research and development or manufacturing expense. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from its estimate, the Company adjusts the accrual or prepaid expense accordingly. Although the Company does not expect its estimates to be materially different from amounts actually incurred, the Company’s understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. There have been no material changes in estimates for the periods presented.

 

Stock-based compensation expense

 

The Company follows the provisions of ASC 718, Compensation—Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and non-employees, including stock options. Stock-based compensation expense is based on the grant date fair value estimated in accordance with the provisions of ASC 718 and is generally recognized as an expense over the requisite service period. For grants containing performance-based vesting provisions, the grant-date fair value of the performance-based stock options is recognized as compensation expense once it is probable that the performance condition will be achieved. The Company accounts for actual forfeitures in the period the forfeiture occurs.

 

Stock Options

 

The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. Due to the lack of trading history, the Company’s computation of stock-price volatility is based on the volatility rates of comparable publicly held companies over a period equal to the expected term of the options granted by the Company. The Company also utilizes its limited available historical volatility, to a lesser weight, in its expected volatility calculation. The Company’s computation of expected term is determined using the “simplified” method, which is the midpoint between the vesting date and the end of the contractual term. The Company believes that it does not have sufficient reliable exercise data in order to justify the use of a method other than the “simplified” method of estimating the expected exercise term of employee stock option grants. For non-employee stock option grants, the Company has the option to utilize either the expected term or the contractual term, determined on an award-by-award basis. The Company utilizes a dividend yield of zero based on the fact that the Company has never paid cash dividends to stockholders and has no current intentions to pay cash dividends. The risk-free interest rate is based on the zero-coupon United States Treasury yield at the date of grant for a term equivalent to the expected term of the option.

 

Stock-based compensation expense is included in both research and development expenses and general and administrative expenses in the consolidated statements of comprehensive loss.

 

13

 

 

Collaboration revenue

 

At the inception of a collaboration agreement, the Company first assesses whether the contractual agreement is within the scope of ASC 808, Collaborative Arrangements by evaluating whether the agreement involves a joint operating activity and involves two (or more) parties that are both active participants in the activity and exposed to significant risks and rewards dependent on the commercial success of such activity. Then the Company determines whether the collaboration agreement in its entirety represents a contract with a customer as defined by ASC 606, Revenue from Contracts with Customers (“ASC 606”). If only a portion of the collaboration agreement is potentially with a customer, the Company applies the distinct good or service unit-of-account guidance in ASC 606 to determine whether there is a unit of account that should be accounted for under ASC 606.

 

In accordance with ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (1) identify the contracts with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.

 

From time to time, the Company enters into licensing agreements that are within the scope of ASC 606, under which it may license rights to research, develop and commercialize its product candidates to third parties. The terms of these collaborative research and development agreements typically include non-refundable, upfront license fees; reimbursement for research and development activities; development, regulatory and commercial milestone payments; and royalties on net sales of commercialized products. The Company may also enter into development and manufacturing service agreements with its collaborators. For each arrangement, at contract inception, the Company identifies all performance obligations, which may include a license to intellectual property and know-how, research and development activities, transition activities and/or manufacturing services and determines if each performance obligation is distinct. In order to determine the transaction price, in addition to any upfront payment, the Company estimates the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract. The Company constrains the estimates of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur. When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue. These estimates are re-assessed each reporting period as required.

 

Once the estimated transaction price is established, amounts are allocated to the performance obligations that have been identified. The transaction price is generally allocated to each separate performance obligation on a relative standalone selling price basis, which requires the use of assumptions and judgement. Standalone selling prices used to perform the initial allocation are not updated after contract inception. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied.

 

Amounts received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion. Refer to Note 6 – Commitments and Contingencies, for specific details regarding the Company’s collaboration agreements.

 

Income taxes

 

The Company utilizes the liability method of accounting for deferred income taxes, as set forth in ASC 740, Income Taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. A valuation allowance is established against deferred tax assets when, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense.

 

14

 

 

Recent accounting pronouncements

 

The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”). ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s consolidated financial statements.

 

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (ASU 2021-04). This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. Effective January 1, 2022, the Company adopted ASU 2021-04 on a prospective basis. The adoption had no impact on the Company’s consolidated financial statements and related disclosures.

 

4. CAPITALIZATION

 

As of March 31, 2022 and December 31, 2021, the Company had authorized 150,000,000 shares of common stock, $0.0001 par value per share, of which 63,763,647 and 63,374,738 shares, respectively, were issued and outstanding. In addition, as of March 31, 2022 and December 31, 2021, the Company had authorized 25,000,000 shares of preferred stock, $0.0001 par value per share, of which none were issued and outstanding.

 

5. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES

 

The Company considers all highly liquid investments purchased with original maturities of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents as of March 31, 2022 and December 31, 2021 were $74.9 million and $78.2 million, respectively, and included cash and investments in money market funds.

 

The Company considers securities with original maturities of greater than 90 days at the date of purchase to be available for sale securities. The Company held available for sale securities with a fair value totaling $38.4 million and $48.9 million at March 31, 2022 and December 31, 2021, respectively. These available for sale securities consisted solely of investment-grade corporate debt securities and have expected maturities ranging from less than 12 months to approximately 19 months. The Company may sell certain of its marketable securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation.

 

The Company evaluates securities with unrealized losses, if any, to determine whether the decline in fair value has resulted from credit loss or other factors. As of March 31, 2022, the Company has not recognized any impairment or credit losses on the Company’s available for sale securities. While the Company classifies these securities as available for sale, the Company does not intend to sell its investments and, based on its current plans, the Company currently believes it has the ability to hold these investments until maturity.

 

The following table summarizes the amortized cost, fair value, allowance for credit losses and effective maturities of the Company’s available for sale securities:

 

   March 31, 2022 
   Amortized Cost  

Gross

Unrealized

Gains

   Gross Unrealized Losses   Fair Value 
                 
Effective maturity less than 1 year:                    
Corporate debt securities  $10,233   $        $(101)  $10,132 
                     
Effective maturity between 1 and 2 years:                    
Corporate debt securities   28,929        (613)   28,316 
Total  $39,162   $   $(714)  $38,448 

 

15

 

 

   December 31, 2021 
   Amortized Cost   Gross Unrealized Gains   Gross Unrealized Losses   Fair Value 
                 
Effective maturity less than 1 year:                    
Corporate debt securities  $16,945   $      $(24)  $16,921 
                     
Effective maturity between 1 and 2 years:                    
Corporate debt securities   32,136        (115)   32,021 
Total  $49,081   $   $(139)  $48,942 

 

 

 

The Company’s available for sale securities are reported at fair value on the Company’s consolidated balance sheets. Unrealized losses are reported within accumulated other comprehensive loss in the consolidated statements of comprehensive loss. The cost of securities sold and any realized gains/losses from the sale of available for sale securities are based on the specific identification method. The changes in accumulated other comprehensive loss associated with the unrealized loss on available for sale securities during the three months ended March 31, 2022 and 2021, respectively, were as follows:

  

             
    Three Months Ended March 31,
    2022   2021
             
Beginning balance   $ (139)   $ (15)
Current period changes in fair value before reclassifications, net of tax     (575)     (1)
Amounts reclassified from accumulated other comprehensive loss, net of tax            
Other comprehensive loss     (575)     (1)
Ending balance   $ (714)   $ (16)

 

6. COMMITMENTS AND CONTINGENCIES

 

License and Other Agreements

 

In May 2018, the Company entered into an Asset Purchase Agreement (the “MacroGenics Asset Purchase Agreement”) with MacroGenics, Inc. (“MacroGenics”) pursuant to which the Company acquired MacroGenics’ interest in teplizumab (renamed PRV-031), a humanized mAb for the treatment of Type 1 Diabetes (“T1D”). As partial consideration for the MacroGenics Asset Purchase Agreement, the Company granted MacroGenics a warrant to purchase 2,162,389 shares of the Company’s common stock at an exercise price of $2.50 per share. The Company is obligated to pay MacroGenics contingent milestone payments totaling $170.0 million upon the achievement of certain regulatory approval milestones, including $60.0 million payable within 90 days of an approval of a BLA for a first indication in the United States. In addition, the Company is obligated to make contingent milestone payments to MacroGenics totaling $225.0 million upon the achievement of certain sales milestones. The Company has also agreed to pay MacroGenics a single-digit royalty on net sales of the product. The Company has also agreed to pay third-party obligations, including low single-digit royalties, a portion of which is creditable against royalties payable to MacroGenics, aggregate milestone payments of up to approximately $0.7 million and other consideration, for certain third-party intellectual property under agreements the Company assumed pursuant to the MacroGenics Asset Purchase Agreement. Further, the Company is required to pay MacroGenics a low double-digit percentage of certain consideration to the extent it is received in connection with a future grant of rights to teplizumab by the Company to a third party. The Company is obligated to use reasonable commercial efforts to develop and seek regulatory approval for teplizumab.

 

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In May 2018, the Company entered into a License Agreement with MacroGenics (the “MacroGenics License Agreement”), pursuant to which MacroGenics granted the Company exclusive global rights for the purpose of developing and commercializing MGD010 (renamed PRV-3279), a humanized protein and a potential treatment for systemic lupus erythematosus (“SLE”) and other similar diseases. As partial consideration for the MacroGenics License Agreement, the Company granted MacroGenics a warrant to purchase 270,299 shares of the Company’s common stock at an exercise price of $2.50 per share. The Company is obligated to make contingent milestone payments to MacroGenics totaling $42.5 million upon the achievement of certain developmental and approval milestones for the first indication, of which, $0.4 million became payable to MacroGenics in March 2022 upon the enrollment of the first patient in the Phase 2a PREVAIL-2 study, and an additional $22.5 million upon the achievement of certain regulatory approvals for a second indication. In addition, the Company is obligated to make contingent milestone payments to MacroGenics totaling $225.0 million upon the achievement of certain sales milestones. The Company has also agreed to pay MacroGenics a single-digit royalty on net sales of the product. Further, the Company is required to pay MacroGenics a low double-digit percentage of certain consideration to the extent received in connection with a future grant of rights to PRV-3279 by the Company to a third party. In connection with the Company’s grant of certain rights for PRV-3279 to Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. (“Huadong”) under the Huadong License Agreement (as defined below), in May 2021, the Company paid $1.1 million to MacroGenics related to “qualified” consideration, as defined in the MacroGenics License Agreement, that the Company received from Huadong. See below for further description of the Huadong License Agreement.

 

The Company is obligated to use commercially reasonable efforts to develop and seek regulatory approval for PRV-3279. The license agreement may be terminated by either party upon a material breach or bankruptcy of the other party, by the Company without cause upon prior notice to MacroGenics, and by MacroGenics in the event that the Company challenges the validity of any licensed patent under the agreement.

  

In February 2021, the Company entered into a License Agreement with Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd., a wholly-owned subsidiary of Huadong Medicine Co., Ltd. (the “Huadong License Agreement”), pursuant to which the Company granted Huadong exclusive rights for the purpose of developing and commercializing PRV-3279, a DART® (bispecific antibody-based molecule) targeting the B cell surface proteins CD32B and CD79B, in Greater China (mainland China, Hong Kong, Macau and Taiwan). Provention Bio will retain exclusive worldwide rights to develop PRV-3279 for combination uses to reduce the immunogenicity of biotherapeutics, but Huadong will have the exclusive right to distribute PRV-3279 in that field in Greater China. In consideration of the license and other rights granted as part of the Huadong License Agreement, the Company received an upfront payment of $6.0 million and has the ability to receive up to $11.5 million in research, development and manufacturing funding. As of March 31, 2022, the Company has received an aggregate of $4.0 million in research, development and manufacturing funding under the Huadong License Agreement, including $1.5 million received during the first quarter of 2022. If Huadong successfully develops, obtains regulatory approval for, and commercializes PRV-3279 in Greater China, the Company is eligible to receive up to $37.0 million in regulatory milestones and up to $135.0 million in commercial milestones based on aggregate net sales in a calendar year in Greater China. If commercialized, the Company would also be eligible to receive low double-digit royalties on net sales of PRV-3279 by Huadong in Greater China. The License Agreement may be terminated by either party upon a material breach or bankruptcy of the other party, by Huadong without cause upon at least 12 months prior notice to the Company, and by the Company in the event Huadong challenges a licensed patent or in the event that the Company’s upstream license terminates. The Company may also terminate the License Agreement if Huadong ceases commercialization of PRV-3279 for a consecutive period of six months after first commercial sale. The Company is generally responsible for the manufacturing of PRV-3279 through regulatory approval in Greater China and Huadong will exclusively purchase all clinical and commercial supply requirements of PRV-3279 from the Company until Huadong exercises its option to assume manufacturing responsibilities, which may be triggered after regulatory approval in China. The Company will retain all rights to PRV-3279 in the rest of the world. The Company initiated a Phase 2a trial of PRV-3279 in systemic lupus erythematosus in January 2022 and is conducting a portion of this trial in Hong Kong.

 

The Company evaluated the Huadong License Agreement under the provisions of ASC 606 and identified the following three material promises: (1) the license of rights to PRV-3279 in Greater China, (2) the performance of clinical research activities and (3) manufacturing process improvements. The Company concluded that the performance obligations were not distinct and consequently do not have value on a standalone basis. Accordingly, they were determined to represent one performance obligation. The Company determined that the transaction price of the Huadong License Agreement was $15.5 million, consisting of the $6.0 million up-front payment and $9.5 million of the research, development and manufacturing funding expected to be received, which would not result in a significant reversal of revenue in a future period. The total transaction price was allocated to the single identified performance obligation. The regulatory and sales event-based milestone payments represent variable consideration, and the Company used the most likely amount method to estimate this variable consideration because the potential milestone payment is a binary event, as the Company will either receive the milestone payment or it will not. Given the high degree of uncertainty around achievement of these milestones, the Company determined the milestone amounts to be fully constrained and will not recognize revenue until the uncertainty associated with these payments is resolved. Any consideration related to royalties will be recognized if and when the related sales occur. The Company re-assesses the transaction price in each reporting period and when events whose outcomes are resolved or other changes in circumstances occur.

 

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The Company recognizes collaboration revenue using a cost-based input method according to costs incurred to date compared to estimated total costs of the clinical research activities over the period which the activities are performed under the agreement, which is currently expected to occur through the first half of 2024. The Company recognized collaboration revenue of $0.6 million during the three months ending March 31, 2022, and total deferred revenue at March 31, 2022 was $8.0 million.

 

In November 2018, the Company entered into a License and Collaboration Agreement (the “Amgen Agreement”) with Amgen, Inc. (“Amgen”) for PRV-015 (ordesekimab, also known as AMG 714), a novel anti-IL-15 monoclonal antibody being developed for the treatment of gluten-free diet non-responsive celiac disease (“NRCD”). Under the terms of the agreement, the Company will conduct and fund a Phase 2b trial in NRCD and lead the development and regulatory activities for the program. Amgen agreed to make an equity investment of up to $20.0 million in the Company, subject to certain terms and conditions set forth in the agreement. Amgen is also responsible for the manufacturing of PRV-015. Upon completion of the Phase 2b trial, a $150.0 million milestone payment is due from Amgen to the Company, plus an additional regulatory milestone payment, and single digit royalties on future sales; provided, however, that Amgen has the right to elect not to pay the $150.0 million milestone, in which case the Company will have an option to negotiate for the transfer to the Company of rights to AMG 714 pursuant to a termination license agreement between Amgen and the Company. The material terms of the termination license agreement have been negotiated and agreed and form part of the Amgen Agreement. Under the terms of the termination license agreement, the Company would be obligated to make certain contingent milestone payments to Amgen and other third parties totaling up to $70.0 million upon the achievement of certain clinical and regulatory milestones and a low double-digit royalty on net sales of any approved product based on the IL-15 technology. The agreement may be terminated by either party upon a material breach or upon an insolvency event and by Amgen if the Company is not able to fund our clinical development obligations (among other termination triggers). The agreement expires upon the expiration of Amgen’s last obligation to make royalty payments to Provention. In September 2019, in a private placement completed concurrently with the Company’s underwritten public offering, Amgen purchased 2,500,000 shares of the Company’s common stock at the underwritten public offering price of $8.00 per share, for a total investment of $20.0 million.

 

In April 2017, the Company entered into a License Agreement with Vactech Ltd. (the “Vactech License Agreement”), pursuant to which Vactech Ltd. (“Vactech”) granted the Company exclusive global rights for the purpose of developing and commercializing the group B coxsackievirus vaccine (“CVB”) platform technology. In consideration of the licenses and other rights granted by Vactech, the Company issued two million shares of its common stock to Vactech. The Company recorded the issuance of the shares at their estimated fair value of approximately $1.70 per share, for a total of $3.4 million as a license fee expense included as part of research & development expense for the year ended December 31, 2017. Provention paid Vactech a total of approximately $0.5 million for transition and advisory services during the first 18 months of the term of the agreement. In addition, Provention may be obligated to make a series of contingent milestone payments to Vactech totaling up to an additional $24.5 million upon the achievement of certain clinical development and regulatory filing milestones, of which the Company paid $0.5 million to Vactech in April 2021. This payment was triggered upon the dosing of the first patient in the Phase 1 PROVENT study, which occurred in January 2021. In addition, the Company has agreed to pay Vactech tiered single-digit royalties on net sales of any approved product based on the CVB platform technology and three additional payments totaling $19.0 million upon the achievement of certain annual net sales levels. The Vactech License Agreement may be terminated by the Company on a country-by-country basis without cause (in which case the exclusive global rights to the technology will transfer back to Vactech) and by either party upon a material breach or insolvency of the other party. If the Company terminates the agreement with respect to two or more specified European countries, the agreement will be deemed terminated with respect to all of the European Union, and if the Company terminates the agreement with respect to the United States, the agreement will be deemed terminated with respect to all of North America. The agreement expires upon the expiration of the Company’s last obligation to make royalty payments to Vactech.

 

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Legal Proceedings

 

On May 21, 2021, a putative class action complaint was filed in the U.S. District Court for the District of New Jersey (the “Court”), naming the Company, Chief Executive Officer Ashleigh Palmer, and retired and former Chief Financial Officer Andrew Drechsler as defendants (the “Securities Action”). The complaint alleges violations of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 in connection with disclosures made regarding the teplizumab BLA and teplizumab’s commercialization timeline. The plaintiff seeks to represent a class of shareholders who purchased or otherwise acquired the Company’s securities between November 2, 2020 and April 8, 2021. The complaint seeks unspecified damages. Per the procedures set forth by federal securities laws, applications for appointment of lead plaintiff(s) and lead counsel were due to the Court on July 20, 2021. Two applications for lead plaintiff and lead counsel were submitted to the Court on that date; one of the two movants subsequently withdrew its application. On November 17, 2021, the Court appointed a Lead Plaintiff and Lead Counsel.

 

On December 23, 2021, the Lead Plaintiff and named plaintiff filed an amended complaint (the “Amended Complaint”). The Amended Complaint similarly alleges violations of the Exchange Act and Rule 10b-5 by the Company, Mr. Palmer, and Mr. Drechsler in connection with disclosures concerning the teplizumab BLA and its commercialization timeline, as well as disclosures concerning the TN-10 At-Risk Study. Lead Plaintiff now seeks to represent a class of shareholders who purchased or otherwise acquired the Company’s securities between November 2, 2020 and July 6, 2021. The Amended Complaint also seeks unspecified damages. The Company, Mr. Palmer, and Mr. Drechsler filed their response, a motion to dismiss, to the Amended Complaint on February 8, 2022. The Lead Plaintiff filed an opposition to that motion on March 25, 2022. The Company, Mr. Palmer, and Mr. Drechsler filed their reply on April 26, 2022. The motion to dismiss is currently pending.

 

On August 5, 2021 and October 7, 2021, two shareholder derivative lawsuits concerning substantially the same facts and disclosures underlying the Securities Action (the “Derivative Actions”) were filed in the same Court, naming Chief Executive Officer Ashleigh Palmer, retired and former Chief Financial Officer Andrew Drechsler, and Company directors Jeffrey Bluestone, Avery Catlin, Sean Doherty, John Jenkins, Wayne Pisano, and Nancy Wysenski as defendants (the “Individual Defendants”). The Company is named in both Derivative Actions as a nominal defendant. The Derivative Actions allege: (1) violations of Section 14(a) of the Exchange Act against the Company directors (including Ashleigh Palmer) in connection with the Company’s March 29, 2021 proxy statement; (2) breaches of fiduciary duty against all Individual Defendants in connection with disclosures made regarding the teplizumab BLA and teplizumab’s commercialization timeline, among other common law causes of action; and (3) seek contribution under Sections 10(b) and 21D of the Exchange Act against Ashleigh Palmer and Andrew Drechsler in connection with the Securities Action. The Derivative Actions seek unspecified damages, including legal fees associated with the Securities Action and compensation paid to the Individual Defendants. The Derivative Actions also seek an order directing the Company and Individual Defendants to take all necessary actions to reform and improve the Company’s corporate governance and internal procedures.

 

Proceedings in the first Derivative Action, filed August 5, 2021, were originally stayed until November 15, 2021. On October 28, 2021, both plaintiffs and all defendants in the Derivative Actions filed a joint stipulation and proposed order to consolidate the Derivative Actions and appoint co-lead counsel, which the Court granted on November 1, 2021. The consolidation order extended the stay of proceedings to both Derivative Actions. In response to the parties’ joint stipulation to continue the temporary stay of the proceedings, filed on November 15, 2021, the Court granted a further temporary stay of the Derivative Actions until December 30, 2021. On December 10, 2021, the Company and the Individual Defendants moved to extend the temporary stay of proceedings in the Derivative Actions pending the resolution of a motion to dismiss in the Securities Action. Plaintiffs do not oppose the relief sought in motion to stay. On January 4, 2022, the Court stayed proceedings in the Derivative Actions until resolution of the motion to stay, which remains pending before the Court.

 

The Company is unable at this time to determine whether the outcomes of these litigations would have a material impact on its results of operations, financial condition or cash flows. The Company does not have contingency reserves established for any litigation liabilities.

 

7. NET LOSS PER SHARE OF COMMON STOCK

 

Basic and diluted net loss per common share is determined by dividing net loss by the weighted average common shares outstanding during the period. For the periods where there is a net loss, stock options and warrants have been excluded from the calculation of diluted net loss per common share because their effect would be anti-dilutive. Therefore, the weighted average common shares used to calculate both basic and diluted net loss per common share would be the same.

 

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The following table sets forth the computation of basic and diluted net loss per share of common stock for the periods indicated:

  

         
   Three Months Ended March 31, 
   2022   2021 
     
Net loss  $(21,968)  $(32,440)
           
Weighted average shares of common stock outstanding - basic and diluted   63,400    62,263 
Net loss per share of common stock, basic and diluted  $(0.35)  $(0.52)

 

The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding as they would be antidilutive:

 

   Three Months Ended March 31, 
   2022   2021 
         
Stock options   14,908    9,698 
Warrants   1,705    1,705 

 

8. ACCRUED EXPENSES

 

Accrued expenses consisted of the following:

 

   March 31, 2022   December 31, 2021 
     
Accrued research and development costs  $8,130   $7,156 
Accrued compensation   2,222    4,023 
Accrued professional fees   1,020    1,396 
Accrued pre-commercial costs   875    840 
Other accrued liabilities   187    231 
Total accrued expenses  $12,434   $13,646 

 

9. FAIR VALUE OF ASSETS AND LIABILITIES

 

The carrying amounts reported in the balance sheet for cash and cash equivalents, accounts payable and accrued expenses approximate fair value based on the short-term nature of these items.

 

In accordance with accounting principles generally accepted in the United States, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level hierarchy prioritizes the inputs used to measure fair value as follows:

 

Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

 

Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

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Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

 

The following is a summary of assets and their related classifications under the fair value hierarchy:

 

   March 31, 2022 
   Financial Instruments Carried at Fair Value 
  

Quoted

prices in
active markets for
identical items
(Level 1)

   Significant other
observable inputs
(Level 2)
   Significant unobservable inputs
(Level 3)
   Total 
Assets:                    
Cash and cash equivalents1  $74,910   $   $   $74,910 
Investments in Corporate debt securities2       38,448        38,448 

 

    December 31, 2021
    Financial Instruments Carried at Fair Value

 

 

 

 

 

Quoted

prices in

active markets for

identical items

(Level 1)

   

Significant other

observable inputs

(Level 2)

   

Significant

unobservable inputs

(Level 3)

    Total  
Assets:                              
Cash and cash equivalents 1   $ 78,190     $     $     $ 78,190  
Investments in Corporate debt securities2           48,942             48,942  

 

 

1 Cash and cash equivalents primarily include investments in money market funds
2 Investments in investment-grade corporate debt securities are classified as available for sale securities

 

10. STOCK OPTIONS

 

In 2017, the Company adopted the Provention Bio, Inc. 2017 Equity Incentive Plan (the “2017 Plan”). Pursuant to the 2017 Plan, the Company’s Board of Directors may grant incentive stock options, nonqualified stock options, and restricted stock to employees, officers, directors, consultants and advisors. As of March 31, 2022, there were options to purchase an aggregate of 13,266,924 shares of common stock outstanding under the 2017 Plan. Options issued under the 2017 Plan are exercisable for up to 10 years from the date of issuance.

 

In 2018, the Company amended and restated its 2017 Plan to, among other things, include an evergreen provision, which would automatically increase the number of shares available for issuance under the 2017 Plan in an amount equal to (1) the difference between (x) 18% of the total shares of the Company’s common stock outstanding, on a fully diluted basis, on December 31st of the preceding calendar year, and (y) the total number of shares of the Company’s common stock reserved under the 2017 Plan on December 31st of such preceding calendar year or (2) an amount less than this calculated increase as determined by the board of directors.

 

In connection with the evergreen provisions of the 2017 Plan, the number of shares available for issuance under the 2017 Plan was increased by 1,768,825 shares, as determined by the board of directors under the provisions described above, effective as of January 1, 2022. As of March 31, 2022, there were 356,634 shares available for future grants.

 

In October 2020, the Company adopted the Provention Bio, Inc. 2020 Inducement Plan (the “2020 Inducement Plan”). Pursuant to the terms of the 2020 Inducement Plan, the Company may grant non-statutory stock options, stock appreciation rights, restricted stock unit awards and restricted stock for up to a total of 2,000,000 shares of common stock to individuals that were not previously an employee or director of the Company or individuals returning to employment after a bona fide period of non-employment with the Company. As of March 31, 2022, there were options to purchase 1,640,800 shares of common stock outstanding under the 2020 Inducement Plan and 359,200 shares available for future grants. Options issued under the 2020 Inducement Plan are exercisable for up to 10 years from the date of issuance.

 

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Stock-based compensation

 

Total stock-based compensation expense recognized for both employees and non-employees was as follows:

  

   Three Months Ended March 31, 
   2022   2021 
     
General and administrative  $1,873   $1,806 
Research and development   1,442    1,051 
Total stock-based compensation expense  $3,315   $2,857 

 

Option activity

 

The Company grants options with service-based vesting requirements as well as options with performance-based vesting requirements. Generally, the service-based requirements vest over a four-year period in multiple tranches. Each tranche of the performance-based component vests upon the achievement of a specific milestone. These milestones are related to the Company’s clinical trials, manufacturing activities, regulatory activities, commercial activities and certain other performance metrics.

 

A summary of option activity for the three months ended March 31, 2022 are presented below:

 

           Weighted-     
       Weighted-   Average     
       Average   Remaining     
   Underlying   Exercise   Contractual   Intrinsic 
Stock Option Awards  Shares   Price   Term   Value 
                 
Outstanding at December 31, 2021   12,473   $8.48    8.0 years   $ 
Granted   2,487   $4.52           
Exercised   (9)  $1.97           
Forfeited or expired   (43)  $9.08           
Outstanding at March 31, 2022   14,908   $7.82    7.7 years   $23,526 
Exercisable at March 31, 2022   5,628   $7.27    6.0 years   $13,872 

 

The weighted average grant-date fair value of options granted during the three months ended March 31, 2022 was $3.14 per share. As of March 31, 2022, there were approximately 1,907,000 unvested options subject to performance-based vesting criteria with approximately $12.7 million of unrecognized compensation expense. This expense will be recognized when each milestone becomes probable of occurring. In addition, as of March 31, 2022, there were approximately 7,373,000 unvested options outstanding subject to time-based vesting with approximately $32.1 million of unrecognized compensation expense which will be recognized over a period of 2.9 years.

 

Cash proceeds from, and the aggregate intrinsic value of, stock options exercised during the periods presented below were as follows:

  

   2022   2021 
   Three Months Ended March 31, 
   2022   2021 
     
Cash proceeds from options exercised  $18   $48 
Aggregate intrinsic value of options exercised   54    239 

 

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The Company uses the Black-Scholes option-pricing model to estimate the fair value of option awards with the following weighted-average assumptions for the period indicated:

 

   Three Months Ended March 31, 
   2022   2021 
         
Exercise price  $4.52   $15.32 
Expected volatility   80%   80%
Expected dividends        
Expected term (in years)   6.1    6.1 
Risk-free interest rate   1.71%   0.62%

 

The weighted-average valuation assumptions were determined as follows:

 

  Risk-free interest rate: The Company bases the risk-free interest rate on the zero-coupon United States Treasury yield at the time of grant for a period that is commensurate with the assumed expected option term.
     
  Expected annual dividends: The estimate for annual dividends is 0%, because the Company has not historically paid, and does not expect for the foreseeable future to pay, a dividend.
     
  Expected stock price volatility: The expected volatility used is based on historical volatilities of similar entities within the Company’s industry which were commensurate with the Company’s expected term assumption. The Company also utilizes its limited available historical volatility, to a lesser weight, in its expected volatility calculation.
     
  Expected term of options: The expected term of options represents the period of time options are expected to be outstanding. The expected term of the options granted to employees is derived from the “simplified” method as described in Staff Accounting Bulletin 107 relating to stock-based compensation, whereby the expected term is an average between the vesting period and contractual period due to the limited operating history. For non-employee stock option grants, the Company has the option to utilize either the expected term or the contractual term, determined on an award-by-award basis.

 

11. WARRANTS

 

In connection with the April 2017 sale of Series A Convertible Redeemable Preferred Stock, the Company issued warrants to MDB Capital Group, LLC (“MDB”), the placement agent, and its designees to purchase 558,740 shares of Series A Convertible Redeemable Preferred Stock with an exercise price of $2.50 per share with a seven-year term. Upon completion of the IPO in July 2018, the warrants automatically became warrants for the purchase of 558,740 shares of the Company’s common stock. No warrants from the Series A Offering were exercised during the three months ending March 31, 2022 and 2021. As of March 31, 2022, a total of 316,754 warrants have been exercised on a cashless basis and there were 241,986 warrants outstanding related to the Series A Offering.

 

In connection with the Company’s completion of its IPO, in July 2018, the Company issued to MDB, the underwriter in the IPO, and its designees warrants to purchase 1,596,956 shares of the Company’s common stock at an exercise price of $5.00 per share. These warrants have a five-year term. No warrants from the IPO were exercised during the three months ending March 31, 2022 and 2021. As of March 31, 2022, a total of 134,114 warrants have been exercised on a cashless basis and there were 1,462,842 warrants outstanding related to the IPO.

 

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12. FIXED ASSETS

 

Fixed assets consisted of the following:

 

   March 31, 2022   December 31, 2021 
         
Software  $935   $916 
Leasehold improvements   838    838 
Furniture and fixtures   149    149 
Clinical equipment   76    76 
Office equipment   35    35 
Software in progress   398    417 
Fixed assets, gross   2,431    2,431 
Less accumulated depreciation   (557)   (420)
Fixed assets, net  $1,874   $2,011 

 

Depreciation expense was $0.1 million for each of the three months ended March 31, 2022 and 2021.

 

13. LEASES

 

The Company’s lease portfolio consists of one office lease located in Red Bank, NJ. This lease is classified as an operating lease and has an initial term of 64 months from the lease commencement date, which began in October 2020. The Company has the option to renew or terminate the current term of a lease agreement at the end of the lease term. In its initial assessment of the lease term of the Red Bank, NJ office lease, the Company concluded that it is not reasonably certain to exercise the option to renew or terminate and therefore, this option was not considered in its lease assessment. The Company does not separate lease and non-lease components for all classes of underlying assets. The Company does not have any leases that contain residual value guarantees and the Company does not sublease any of its leased assets. The Company does not record leases with an initial lease term of one-year or less on its balance sheet. As of March 31, 2022, the Company has not entered into any short-term leases.

 

The components of lease expense from continuing operations were as follows:

         
   Three Months Ended March 31, 
   2022   2021 
         
Operating lease expense  $37   $37 
Variable lease expense   9    5 
Total lease expense  $46   $42 

 

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Supplemental balance sheet information related to leases are as follows:

 

   Classification  As of March 31, 2022   As of December 31, 2021 
            
Operating leases             
Lease right-of-use assets             
Non-current  Operating lease right-of-use assets  $362   $373 
Lease liabilities             
Current  Accrued expenses  $131   $125 
Non-current  Operating lease liabilities, long-term  $555   $590 
              
Weighted average remaining lease term             
Operating leases      3.9 years    4.2 years 
              
Weighted average discount rate             
Operating leases      15.0%   15.0%

 

As of March 31, 2022, maturities of lease liabilities on an annual basis for the remaining years of the Company’s non-cancelable lease agreements were as follows:

 

   Operating Leases 
     
Year ending December 31,     
2022 (remaining)  $166 
2023   227 
2024   232 
2025   238 
2026        41 
Thereafter    
Total lease payments   904 
Less: present value discount   218 
Present value of lease liabilities  $686 

 

14. INCOME TAXES

 

The Company recorded a benefit from state income taxes of approximately $7.1 million for the three months ended March 31, 2022. The benefit from state income taxes solely reflects the reversal of valuation allowances previously recorded against the Company’s New Jersey State net operating losses (“NOLs”) that resulted from the Company’s sale of approximately $86.9 million of its New Jersey state NOLs under the State of New Jersey’s Technology Business Tax Certificate Transfer Program (the “Program”) for cash proceeds of $7.1 million. The Program allows qualified technology and biotechnology businesses in New Jersey to sell unused amounts of NOLs and defined research and development tax credits. The Company recorded no provision or benefit for state income taxes for the three months ended March 31, 2021.

 

15. SUBSEQUENT EVENTS

 

During the period from April 1, 2022 through May 2, 2022, the Company sold an aggregate of 276,569 shares of its common stock for aggregate net proceeds of approximately $1.5 million, net of $48 thousand in sales commissions, under the 2021 ATM Program. As of May 2, 2022, the Company has $145.5 million of available capacity under the 2021 ATM Program. 

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related notes and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2021 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 24, 2022. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties and should be read together with the “Risk Factors” section of this Quarterly Report on Form 10-Q for a discussion of important factors that could cause 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 clinical-stage biopharmaceutical company dedicated to intercepting and preventing immune-mediated diseases. Since our inception, we have devoted substantially all of our efforts to business planning, research and development, pre-commercial activities, recruiting management and technical staff, acquiring operating assets, partnering and raising capital. We have not yet commenced any commercial revenue-generating operations, do not have any positive cash flows from operations and we will need to raise additional capital to finance our operations.

 

We have not generated any revenue from commercial product sales to date and, through March 31, 2022, we had an accumulated deficit of $314.0 million. We have financed our operations primarily through equity offerings.

 

We expect that over the next several years we will continue to incur losses from operations as we increase our expenditures in research and development in connection with our regulatory submissions, clinical trials and other development activities, as well as costs to support our commercialization efforts to launch teplizumab, if we receive regulatory approval in the United States. If adequate funds are not available to us on a timely basis, or at all, we may be required to terminate or delay certain development and pre-commercial activities.

 

Our Focus and Pipeline

 

Our goal is to pioneer substantial improvements in standards of care for autoimmune disease. Autoimmune disorders are a leading cause of death and disability around the world. Over 23 million patients in the United States live with autoimmune disease, with prevalence increasing significantly. There are over 100 types of autoimmune disorders which reduce patient quality-of-life, can result in complications such as cardiovascular risk and organ failures, and increase the risk of overall mortality.

 

Our portfolio aims to address autoimmune disease through modulating key upstream and nodal mechanisms of immune dysregulation. Our lead asset is focused initially on patients at-risk for clinical T1D, for which we resubmitted a BLA to the FDA, have been assigned a user fee goal date of August 17, 2022 and continue to prepare for a potential approval and commercialization, and newly diagnosed patients, for which we have an ongoing Phase 3 clinical trial, the PROTECT study. Further, we intend to pursue the development of our other pipeline product candidates in systemic lupus erythematosus (“SLE”), celiac disease, and other debilitating and life-threatening autoimmune diseases.

 

While the etiology of autoimmune diseases is often complex, poorly characterized or unknown, infections are believed to play a key role in triggering disease. Inflammation is a natural consequence of most infections, as it is the immune system’s first response to invading pathogens in the event of injury or acute illness. Most of the time, this response is beneficial and well-controlled; helping to repair tissue damage and clear pathogens from the body. But when patients have the requisite genetic predisposition for autoimmunity, infections can also trigger chronic autoimmune responses that persist and progress long after the original insult has subsided. Our pipeline of investigational candidates under development target upstream autoimmune pathways and viral triggers with the goal of intercepting and preventing life-threatening and debilitating immune-mediated diseases.

 

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Pipeline Status

 

 

  PRV-031 (teplizumab): a humanized, anti-CD3 monoclonal antibody (“mAb”) for the delay of clinical T1D in at-risk individuals and for patients with newly-diagnosed T1D. Teplizumab has been designated by the FDA as an orphan drug for the treatment of newly-diagnosed T1D. Teplizumab was also granted breakthrough therapy designation from the FDA in August 2019, PRIME eligibility from the EMA in October 2019 and granted an Innovation Passport in the United Kingdom in July 2021 for the delay of clinical T1D in at-risk individuals;
     
  PRV-3279: a humanized bispecific scaffold molecule targeting the B-cell surface proteins, CD32B and CD79B, for the treatment of SLE and for the prevention of immunogenicity of biotherapeutics such as those used in gene therapy;
     
  PRV-015 (ordesekimab): a human anti-interleukin 15 (“IL-15”) mAb for the treatment of gluten-free diet non-responsive celiac disease (“NRCD”), intercepting the effects of contaminating gluten in the most common autoimmune disorder without any approved medication; and
     
  PRV-101: a coxsackievirus B (“CVB”) vaccine to prevent acute CVB infections and, in those patients at-risk, to prevent the CVB-triggered autoimmune damage to pancreatic beta cells that may progress to T1D and damage to intestinal cells that may lead to celiac disease.

 

Recent Company Developments

 

PRV-031 (teplizumab, anti-CD3 mAb)

 

Type-B Pre-BLA Resubmission Meeting

 

On January 27, 2022, we announced our intent to resubmit the teplizumab BLA for the delay of clinical T1D in at-risk individuals following a Type B pre-BLA resubmission meeting with the FDA. The purpose of the Type B pre-BLA resubmission meeting was to discuss the FDA’s feedback and obtain agreement on our proposed clinical pharmacology data package, including data and analysis from the pharmacokinetic/pharmacodynamic (“PK/PD”) substudy completed by us to address the FDA’s PK comparability considerations contained in the CRL issued in July 2021. In preliminary meeting comments, the FDA noted that the data package presented does not adequately support PK comparability because predicted primary PK parameters are indicative of a lower exposure. To address this concern, the FDA proposed, and we agreed, to use PK modeling to adjust the 14-day dosing regimen for the planned commercial product to match the exposure of clinical material used in prior clinical trials by ensuring that the 90% confidence intervals for relevant PK parameters fall within the target 80-125% range. On this basis, the FDA agreed that we could proceed to resubmit the BLA.

 

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Based on our and the FDA’s agreed upon PK modeling, and our experience with various doses and regimens tested in prior clinical trials, we announced that we planned to propose in the BLA resubmission a modified 14-day course of therapy to address the FDA’s comparability considerations and also include responses to address the CRL’s Chemical, Manufacturing, and Controls (“CMC”) and product quality considerations, as agreed with the FDA at a Type A meeting held in August of 2021.

 

Teplizumab BLA Resubmission

 

On February 22, 2022, we announced that we resubmitted the BLA for teplizumab for the delay of clinical T1D in at-risk individuals. The purpose of the resubmission is to address the FDA’s PK comparability considerations contained in the CRL issued in July 2021, as well as the CRL’s CMC and product quality considerations. The CRL did not cite any clinical deficiencies related to the efficacy and safety data packages submitted to the original BLA. The resubmission comes after the January 2022 Type B meeting during which the FDA proposed, and we agreed, to use PK modeling to adjust the 14-day dosing regimen for the planned commercial product to match the exposure of clinical material used in prior clinical trials by ensuring that the 90% confidence intervals for relevant PK parameters fall within the target 80-125% range.

 

Teplizumab BLA Resubmission Acceptance

 

On March 21, 2022, we announced that the resubmitted BLA for teplizumab for the delay of clinical T1D in at-risk individuals was considered a complete, class 2 response to the July 2021 CRL from the FDA. The FDA assigned a user fee goal date of August 17, 2022.

 

PRV-3279 (humanized anti-CD32B and CD79B bispecific)

 

PREVAIL-2 Phase 2a Study

 

On January 20, 2022, we announced the initiation of the Phase 2a PREVAIL-2 study (PRV-3279 EVAluation In Lupus - Phase 2). PRV-3279 is an investigational humanized bispecific DART molecule targeting the B-cell surface proteins CD32B and CD79B, which has the potential to intercept the pathophysiology of SLE and other B cell-mediated autoimmune diseases, as well as to prevent the immunogenicity of biotherapeutic products such as gene therapy.

 

The PREVAIL-2 study is a Phase 2a proof-of-concept (“POC”) study in moderate-to-severe SLE patients induced into response with a short course of corticosteroids, and then monitored for relapse, after randomization to either PRV-3279 or placebo treatment. This design enables the withdrawal of most concomitant medications and clear POC evaluation. The study will be conducted in the United States and Hong Kong. Screening has commenced in the United States with the goal of identifying and enrolling approximately 100 patients to 6 monthly infusions of PRV-3279 or placebo, with primary efficacy readout at 24 weeks. PRV-3279 was well-tolerated in a prior single ascending dose Phase 1 study and a multiple ascending dose Phase 1b study, PREVAIL-1, establishing proof of mechanism with long-lasting inhibition of B cell function as shown by reduction in Immunoglobulin M (“IgM”) production 8 weeks post last dose of PRV-3279. These results, together with observations that CD32B genetic variants are associated with SLE, and that PRV-3279 inhibits B cells isolated from SLE patients, support evaluation in SLE.

 

PRV-101 (CVB Vaccine)

 

Final Results from First-in-Human Phase 1 Clinical Study of PRV-101 (PROVENT Study)

 

On March 28, 2022, we announced results from the final analysis of the first-in-human PROVENT study of PRV-101, a polyvalent inactivated CVB vaccine candidate targeting all key CVB strains associated with T1D autoimmunity. We are developing PRV-101 for the prevention of CVB-triggered autoimmune damage to pancreatic beta cells that may progress to T1D and damage to intestinal cells that may lead to celiac disease.

 

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The study’s primary endpoint was the safety of two dose levels of PRV-101 in healthy adult volunteers provided three administrations with 4-week intervals. Tolerability and immunogenicity were also evaluated. In the final analysis, six-months following the last administered dose of the vaccine, PRV-101 met the primary endpoint confirming the tolerability observed in the previously reported interim analysis, with no treatment-emerging serious adverse events, adverse events of special interest, or adverse events leading to study drug discontinuation or study withdrawal. The results showed durability of viral neutralizing antibody (“VNT”) responses. Six-months following the final dosing, the percentage of subjects in the high-dose PRV-101 arm who maintained high titers of VNT were 100% for the majority of serotypes included in the vaccine and no less than 90% for all serotypes. We are currently exploring partnership opportunities to further the clinical development of PRV-101.

 

Impact of COVID-19 on our Business

 

We are closely monitoring continued developments related to the COVID-19 pandemic and are making every effort to ensure we remain focused on the health and well-being of our patients and our employees while maintaining business continuity. At this time, we are unable to predict what the long-term impact of the pandemic, and the associated economic downturn, will have on our business, including planned clinical trial readouts, regulatory interactions and submissions, manufacturing and supply chain, regulatory review and related timelines for our BLA resubmission, including any potential United States launch of teplizumab if approved by the FDA. We have experienced some level of disruption to three of our current or planned clinical trials. In March 2020, we announced a temporary pause in the randomization of patients with newly diagnosed T1D into our global Phase 3 PROTECT study of teplizumab. During the second quarter of 2020, we resumed enrolling patients in the PROTECT study on a country by country and site by site basis and by the end of the third quarter of 2020, all sites were activated, with a majority of the sites actively enrolling patients. We completed target enrollment in the PROTECT study in August 2021 and expect to report top-line results in the second half of 2023, subject to change for any potential interruptions related to COVID-19, regulatory decisions or issues or other interruptions. In addition, we, with our development partner Amgen, collectively decided that, to protect the integrity and quality of the PRV-015 Phase 2b trial in gluten free diet NRCD, we would stagger study startup throughout the third quarter of 2020 rather than initiating screening in the second quarter of 2020, as had originally been scheduled. We initiated the Phase 2b trial in August 2020 and the pandemic has caused difficulties and delays in recruitment. As a result of these delays, we now expect to report top-line results from the PROACTIVE study by the end of 2023. Additionally, our plans to initiate the Phase 2a portion of the PREVAIL-2 study in lupus patients by the first half of 2021 were delayed, predominantly due to COVID-19 related impacts, and we initiated the study in January 2022.

 

KEY COMPONENTS OF OUR RESULTS OF OPERATIONS

 

Collaboration Revenue

 

To date, we have not generated any revenue from commercial product sales. Our revenue currently consists only of collaboration revenue recognized under our License Agreement with Huadong, including certain amounts recognized in connection with the upfront license payment and research, development and manufacturing funding. We recognize revenue under the Huadong License Agreement using a cost-based input method according to costs incurred to date compared to estimated total costs of the clinical research activities over the period which the activities are performed under the agreement, which is currently expected to occur through the first half of 2024. We expect that revenue will fluctuate from period to period as a result of the timing of expenses incurred in conjunction with the related research and development activities.

 

Research and Development Expenses

 

Research and development expenses consist primarily of clinical studies, the cost of manufacturing our drug candidates for clinical study, regulatory costs, other internal operating expenses, and the cost of conducting preclinical activities. Expenses also include the cost of salaries, benefits and other related costs, including stock-based compensation, for personnel serving in our research and development functions. In addition, our research and development expenses include payments to third parties, as well as the fair value of equity issuances to third parties for the license rights to products in development (prior to marketing approval). Our expenses related to clinical trials are primarily related to activities at CROs and other consultants that design, obtain regulatory approval, and conduct clinical trials on our behalf. Our expenses related to the production of drug substance or drug product for our clinical trials and development programs are primarily related to activities performed by licensors, strategic partners or CMOs and other consultants on our behalf. Our development efforts from inception through March 31, 2022, have been principally related to the acquisition and development of our clinical programs, as well as the build out of our medical affairs infrastructure, medical education programs and grants to support the screening of potential T1D patients.

 

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All research and development expenses are charged to operations as incurred in accordance with ASC 730, Research and Development. We account for non-refundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received, rather than when the payment is made.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for our personnel serving in our executive, business development, pre-commercial, legal, finance and accounting and other administrative functions. General and administrative expenses also include professional fees for marketing and other pre-commercial activities, legal, including patent-related expenses, consulting, insurance, board of director fees, tax and accounting services. We expect that our general and administrative expenses will increase significantly as we continue to build out our commercial infrastructure, including our headcount, as we prepare for the potential commercial launch of teplizumab.

 

Interest Income, Net

 

Interest income, net, consists of interest income earned on our cash, cash equivalents and marketable securities offset by amortization of premiums and accretion of discounts to maturity on our marketable securities.

 

RESULTS OF OPERATIONS

 

Comparison of the three months ended March 31, 2022 and 2021

 

   Three Months Ended March 31,     
   2022   2021   Increase (Decrease) 
   (in thousands, except per share data)     
Statement of Comprehensive Loss Data:               
Collaboration revenue  $580   $   $580 
Operating expenses:               
Research and development   17,355    19,687    (2,332)
General and administrative   12,306    12,781    (475)
Total operating expenses   29,661    32,468    (2,807)
Loss from operations   (29,081)   (32,468)   (3,387)
Interest income, net   57    28    29 
Loss before income tax benefit   (29,024)   (32,440)   (3,416)
Income tax benefit   7,056        7,056 
Net loss  $(21,968)  $(32,440)  $(10,472)
                
Net loss per common share, basic and diluted  $(0.35)  $(0.52)     
Weighted average common shares outstanding, basic and diluted   63,400    62,263      

 

Collaboration Revenue

 

Collaboration revenue was $0.6 million for the three months ended March 31, 2022, recognized from the Huadong License Agreement. We did not recognize any collaboration revenue during the three months ended March 31, 2021.

 

Research and Development Expenses

 

Research and development expenses were $17.4 million for the three months ended March 31, 2022, a decrease of $2.3 million, compared to $19.7 million for the three months ended March 31, 2021. The decrease related primarily to lower costs for our teplizumab program, including the PROTECT study, as we completed target enrollment in August 2021, and lower costs for manufacturing and regulatory activities, compared to the prior year period, which included costs related to the initial teplizumab BLA submission. We also incurred $1.1 million in expenses related to the Company’s grant of certain rights of PRV-3279 to Huadong under the Huadong License Agreement, which was paid to MacroGenics in May 2021, and $0.5 million in expense related to a milestone payment to Vactech for the first subject dosed in the PROVENT study during the first quarter of 2021. This decrease in research and development expenses was offset by increased costs for the PROACTIVE Phase 2b study (PRV-015) and for the PREVAIL-2 Phase 2a study (PRV-3279) which was initiated in January 2022. Research and development expenses for the three months ended March 31, 2022 and 2021 also included personnel costs of $5.7 million and $3.7 million, respectively, including stock-based compensation of $1.4 million and $1.1 million in each respective year. The increase in personnel costs relates to an increase in headcount.

 

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General and Administrative Expenses

 

General and administrative expenses were $12.3 million for the three months ended March 31, 2022, a decrease of $0.5 million, compared to $12.8 million for the three months ended March 31, 2021. General and administrative expenses for the three months ended March 31, 2022 and 2021 were comprised of the following:

 

   Three Months Ended March 31,     
   2022   2021   Increase (Decrease) 
   (in thousands)     
Pre-commercial expenses  $5,360   $6,254   $(894)
Other general and administrative expenses   6,946    6,527    419 
Total general and administrative expenses  $12,306   $12,781   $(475)

 

Pre-commercial expenses were $5.4 million for the three months ended March 31, 2022 and primarily consisted of $2.2 million in external costs for our pre-commercial activities, such as marketing and market access costs, and $3.2 million in personnel costs, including stock-based compensation of $0.5 million. Pre-commercial expenses were $6.3 million for the three months ended March 31, 2021 and primarily consisted of $4.3 million in external costs for our pre-commercial activities, such as marketing and market access costs, and $2.0 million in personnel costs, including stock-based compensation of $0.4 million. The decrease in pre-commercial expenses related primarily to a reduction in our pre-commercial activities and associated costs following the CRL issued by the FDA for our BLA for teplizumab in July 2021. Following the FDA’s acceptance of our BLA resubmission in March 2022, we expect our pre-commercial activities to increase as we continue to build out our commercial infrastructure, including our headcount, as we prepare for the potential commercial launch of teplizumab.

 

Other general and administrative expenses were $6.9 million for the three months ended March 31, 2022 and primarily consisted of $3.2 million in personnel costs, including stock-based compensation of $1.4 million, $2.5 million in professional fees and legal expenses and approximately $0.7 million in insurance and other public company costs. Other general and administrative expenses were $6.5 million for the three months ended March 31, 2021 and primarily consisted of $2.9 million in personnel costs, including stock-based compensation of $1.4 million, $2.5 million in professional fees and legal expenses and approximately $0.7 million in insurance and other public company costs.

 

Interest Income, Net

 

Interest income, net, was $57 thousand during the three months ended March 31, 2022, compared to $28 thousand during the three months ended March 31, 2021. The increase in interest income, net, primarily related to increased interest income on our marketable securities due to higher yields from our corporate bond portfolio during the three months ended March 31, 2022.

 

Income Tax Benefit

 

We recorded an income tax benefit of $7.1 million during the three months ended March 31, 2022, which related to the proceeds from the sale of certain of our prior year New Jersey net operating losses. We did not record any income tax benefit or provision during the three months ended March 31, 2021.

  

LIQUIDITY AND CAPITAL RESOURCES

 

Sources and Uses of Cash

 

There is considerable time and cost associated with developing a potential drug or pharmaceutical product to the point of regulatory approval and commercialization. We expect to continue to incur losses, as we plan to continue to fund development activities and prepare for a potential commercial launch of teplizumab, if we receive regulatory approval in the United States.

 

As of March 31, 2022, we had cash, cash equivalents and marketable securities of $113.4 million. We currently have invested our cash, cash equivalents and marketable securities primarily in money market funds and corporate debt securities. Since our inception in October 2016, we have financed our operations primarily through equity offerings. Through these equity offerings, we have raised aggregate net proceeds of approximately $366.9 million to date, net of underwriting discounts, commissions and other offering expenses.

 

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In February 2021, we established a new at-the-market program (the “2021 ATM Program”) through which we may sell, from time to time at our sole discretion, up to $150.0 million of shares of our common stock. During the quarter ended March 31, 2022, we sold 379,909 shares of our common stock for aggregate net proceeds of approximately $2.7 million, net of $0.3 million in sales commissions and other offering expenses, under the 2021 ATM Program.

 

In January 2021, we completed an underwritten public offering in which we sold 6,250,000 shares of common stock at a public offering price of $16.00 per share. In February 2021, the underwriters partially exercised their option to purchase an additional 587,500 shares at a price of $16.00 per share. In the aggregate, total net proceeds from this underwritten public offering were $102.3 million, after deducting underwriting discounts and commissions of $6.6 million and other offering expenses of $0.5 million.

 

We have devoted substantially all of our financial resources and efforts to research and development and pre-commercial activities. Although we had cash, cash equivalents and marketable securities of approximately $113.4 million as of March 31, 2022, we expect to continue to incur significant expenses and increasing operating losses over the next several years due to, among other things, costs related to research funding, development of our product candidates, strategic alliances, the development of our administrative and commercial organization and pre-commercial activities for teplizumab. Our net losses may fluctuate significantly from quarter to quarter and year to year. These conditions raise substantial doubt about our ability to continue as a going concern within one year after the date these consolidated financial statements are issued.

 

Our cash requirements for the remainder of 2022 and into 2023 will be impacted by a number of factors, the most significant of which are expenses related to teplizumab, including costs, timing and outcome of our regulatory activities, costs to build out our commercial infrastructure and pre-commercial activities for teplizumab, and if approval is received from the FDA, commercial sales activities, the PROTECT clinical trial, manufacturing activities for teplizumab and any potential milestone payments that may become due upon a potential regulatory approval of teplizumab by the FDA. Following the acceptance of our resubmitted BLA for teplizumab by the FDA in March 2022, we plan to further increase our pre-commercial spend to prepare for the potential commercial launch of teplizumab in the second half of 2022. Other factors include costs related to our other ongoing clinical trials, such as the Phase 2b PROACTIVE clinical study of PRV-015 in celiac disease and the Phase 2a PREVAIL-2 clinical study of PRV-3279 in lupus, which was initiated in January 2022.

 

We believe, based on our current operating plans, which include our plans to prepare for a potential commercialization of teplizumab if approved by the FDA and other factors described above, that our cash, cash equivalents and marketable securities of $113.4 million as of March 31, 2022 will be sufficient to fund our operations into the first quarter of 2023. We have based these estimates on assumptions that may differ from actual results, and our available capital resources could be consumed faster than we currently expect.

 

We will need to raise additional capital to fund our operations, to develop and commercialize teplizumab, PRV-015, PRV-3279 and PRV-101 and to develop, acquire, or in-license other products. We currently plan to raise additional capital through equity offerings, debt, or potential out-licensing transactions. Such additional funding will be necessary to continue to develop our product candidates, to pursue the license or purchase of other technologies, to commercialize our product candidates or to purchase other products. We may seek to sell common or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding, or seek other debt financing. In addition, we may consider raising additional capital to fund operating activities, to expand our business, to pursue strategic investments, to take advantage of financing opportunities, or for other reasons. The sale of equity and convertible debt securities may result in dilution to our stockholders and those securities may have rights senior to those of our common stock. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could require us to relinquish valuable rights. We may require additional capital beyond our currently anticipated amounts. Additional capital may not be available on reasonable terms, or at all. If we are unable to obtain sufficient additional funds when required, we may be forced to delay, restrict or eliminate all or a portion of our development programs, dispose of assets or technology or cease operations.

 

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Depending on the timing and outcome of our regulatory activities and the status of our plans to prepare for a potential regulatory approval of teplizumab by the FDA, we may encounter near-term liquidity needs that could impact our cash runway. If our teplizumab BLA resubmission is approved by the FDA, factors that could impact our cash runway include, but are not limited to, changes to estimated costs of commercialization and potential milestone payments that may be triggered under our current agreements, including with MacroGenics.

 

Cash Flows

 

The following table shows a summary of our cash flows for the three months ended March 31, 2022 and 2021:

 

   Three Months Ended March 31, 
   2022   2021 
   (in thousands) 
Net cash (used in) provided by:          
Operating activities  $(15,030)  $(16,487)
Investing activities   9,600    (7,827)
Financing activities   2,150    102,377 
Net change in cash and cash equivalents  $(3,280)  $78,063 

 

Cash Flows from Operating Activities

 

Net cash used in operating activities was $15.0 million for the three months ended March 31, 2022, and primarily related to cash used to fund clinical development, manufacturing, regulatory activities and pre-commercial activities for teplizumab, clinical development activities for PRV-015 and PRV-3279, and increased personnel costs to support our clinical programs and the build out of our corporate and commercial infrastructure. Cash expenses were offset by $1.5 million received from Huadong in connection with the Huadong License Agreement during the three months ended March 31, 2022. Our working capital was $64.7 million as of March 31, 2022.

 

Net cash used in operating activities was $16.5 million for the three months ended March 31, 2021 and primarily related to cash used to fund clinical development, manufacturing, and pre-commercial activities for teplizumab, clinical development activities for PRV-015 and PRV-101, and increased personnel costs to support our clinical programs and the build out of our corporate and commercial infrastructure. Cash expenses were offset by $7.0 million received from Huadong in connection with the Huadong License Agreement, which was recorded as deferred revenue as of March 31, 2021.

 

Cash Flows from Investing Activities

 

Net cash provided by investing activities was $9.6 million for the three months ended March 31, 2022, and primarily related to proceeds received from the maturity of marketable securities totaling $9.6 million.

 

Net cash used in investing activities was $7.8 million for the three months ended March 31, 2021 and primarily related to the purchases of marketable securities totaling $12.4 million and capital expenditures associated with information systems of $0.2 million offset by proceeds received from the maturity of marketable securities totaling $4.8 million.

 

Cash Flows from Financing Activities

 

Net cash provided by financing activities was $2.2 million for the three months ended March 31, 2022, and primarily related to aggregate net proceeds received from the sale of our common stock under our 2021 ATM program of $2.1 million, as well as proceeds received from stock option exercises during the period.

 

Net cash provided by financing activities was $102.4 million for the three months ended March 31, 2021 and primarily related to aggregate net proceeds of $102.3 million received from our underwritten public offering which closed in January 2021, including the subsequent partial exercise of the underwriters’ option to purchase additional shares in February 2021, as well as approximately $0.1 million in proceeds from stock option exercises during the period.

 

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Commitments and Contractual Obligations

 

We have entered into a number of license, collaboration, acquisition and other agreements with third parties. For further details regarding our significant contracts, and the commitments and contractual obligations contained within each contract, please refer to Note 6 – Commitments and Contingencies, to our condensed consolidated financial statements included in this report, which is incorporated herein by reference.

 

In July 2020, we entered into an agreement to lease approximately 7,000 square feet of office space in Red Bank, NJ, for which the initial lease term expires approximately 64 months from the lease commencement date, which occurred in October 2020, with base annual lease payments of approximately $0.2 million.

 

In addition, in the course of normal business operations, we have agreements with contract service providers to assist in the performance of our research and development and manufacturing activities. Expenditures to CROs, CMOs and other clinical development related vendors represent significant costs in clinical development. Subject to required notice periods and our obligations under binding purchase orders, we can elect to discontinue the work under these agreements at any time. We could also enter into additional collaborative research, contract research, manufacturing, and supplier agreements in the future, which may require upfront payments and even long-term commitments of cash. As of March 31, 2022, we had $0.6 million of contracted purchase obligations which represents our commitments under binding forecasts, and purchase orders (inclusive of cancellation fees), including those provided under our agreement(s) with AGC Biologics and our other CMOs. The actual amounts incurred will be determined based on the amount of goods purchased and the pricing then in effect under the applicable arrangement. These committed purchase obligations are expected to be incurred within one year from the issuance of these financial statements.

 

We also have employment agreements with certain employees which require the funding of a specific level of payments, if certain events, such as a change in control or termination without cause, occur.

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We do not have any interest in special purpose entities, structured finance entities or other variable interest entities.

 

TRENDS AFFECTING OUR BUSINESS

 

We are a clinical development stage company and do not currently generate revenue from commercial product sales. As of the date of this Quarterly Report on Form 10-Q, we do not have any product candidates that have received regulatory approval from the FDA, or any other comparable foreign regulatory authority. Our revenue recognized from our collaborative agreements is dependent largely on internal efforts, which are mostly within our control. Other than as discussed below and elsewhere in this report, we are not aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition.

 

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COVID-19

 

The COVID-19 pandemic continues to adversely affect global economies, financial markets and the overall environment. We have experienced some level of disruption to three of our current clinical trials. In March 2020, we announced a temporary pause in the randomization of patients with newly diagnosed T1D into our global Phase 3 PROTECT study of teplizumab. During the second quarter of 2020, we resumed enrolling patients in the PROTECT study on a country by country and site by site basis and by the end of the third quarter of 2020, all sites were activated, with a majority of the sites actively enrolling patients. We completed target enrollment in the PROTECT study in August 2021 and expect to report top-line results in the second half of 2023, subject to change for any potential interruptions related to COVID-19, regulatory issues or other interruptions. In addition, we, with our development partner Amgen, collectively decided that, to protect the integrity and quality of the PRV-015 Phase 2b trial in gluten free diet NRCD, we would stagger study startup throughout the third quarter of 2020 rather than initiating screening in the second quarter of 2020, as had originally been scheduled. We initiated the Phase 2b trial in August 2020 and the pandemic has caused difficulties and delays in recruitment. As a result of these delays, we now expect to report top-line results from the PROACTIVE study by the end of 2023. Additionally, our plans to initiate the Phase 2a portion of the PREVAIL-2 study in lupus patients by the first half of 2021 were delayed predominantly due to COVID-19 related impacts, and we recently initiated the study in January 2022.

 

Inflation

 

Inflation has increased during the periods covered by this report and is expected to continue to increase for the near future. Factors that may be impacted by inflation include manufacturing, research and development, general and administrative, and personnel related expenses. We have not been affected materially by inflation during the periods covered by this report, however, inflationary increases in the future may adversely impact our business and corresponding financial position.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, which are detailed further within this Quarterly Report on Form 10-Q. See Note 3 – Significant Accounting Policies, to our condensed consolidated financial statements included in this report, which is incorporated herein by reference.

 

Recent Accounting Pronouncements

 

See Note 3 – Significant Accounting Policies, to our condensed consolidated financial statements included in this report, which is incorporated herein by reference.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are exposed to market risk related to changes in interest rates. We had cash, cash equivalents and marketable securities of $113.4 million as of March 31, 2022, consisting of cash and investments in money market funds and certain short and long-term investment-grade corporate debt securities. Our investments in money market funds and investment-grade corporate debt securities are not insured by the federal government. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of United States interest rates, particularly because a significant portion of our investments are in short-term securities. Due to the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our portfolio.

 

The majority of our business is conducted in U.S. dollars. However, we do contract with certain CROs to perform clinical trial activities abroad which are denominated in other currencies, including Euros. Historically, fluctuations in foreign currency exchange rates have not materially affected our results of operations. During the three months ended March 31, 2022 and 2021, our results of operations were not materially affected by fluctuations in foreign currency exchange rates. As of March 31, 2022, substantially all of our total liabilities were denominated in the U.S. dollar.

 

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ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

Based on the evaluation of our disclosure controls and procedures as of March 31, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

 

Changes in Internal Control over Financial Reporting

 

No changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. Other Information

 

ITEM 1. LEGAL PROCEEDINGS

 

On May 21, 2021, a putative class action complaint was filed in the U.S. District Court for the District of New Jersey (the “Court”), naming the Company, Chief Executive Officer Ashleigh Palmer, and retired and former Chief Financial Officer Andrew Drechsler as defendants (the “Securities Action”). The complaint alleges violations of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 in connection with disclosures made regarding the teplizumab BLA and teplizumab’s commercialization timeline. The plaintiff seeks to represent a class of shareholders who purchased or otherwise acquired the Company’s securities between November 2, 2020 and April 8, 2021. The complaint seeks unspecified damages. Per the procedures set forth by federal securities laws, applications for appointment of lead plaintiff(s) and lead counsel were due to the Court on July 20, 2021. Two applications for lead plaintiff and lead counsel were submitted to the Court on that date; one of the two movants subsequently withdrew its application. On November 17, 2021, the Court appointed a Lead Plaintiff and Lead Counsel.

 

On December 23, 2021, the Lead Plaintiff and named plaintiff filed an amended complaint (the “Amended Complaint”). The Amended Complaint similarly alleges violations of the Exchange Act and Rule 10b-5 by the Company, Mr. Palmer, and Mr. Drechsler in connection with disclosures concerning the teplizumab BLA and its commercialization timeline, as well as disclosures concerning the TN-10 At-Risk Study. Lead Plaintiff now seeks to represent a class of shareholders who purchased or otherwise acquired the Company’s securities between November 2, 2020 and July 6, 2021. The Amended Complaint also seeks unspecified damages. The Company, Mr. Palmer, and Mr. Drechsler filed their response, a motion to dismiss, to the Amended Complaint on February 8, 2022. The Lead Plaintiff filed an opposition to that motion on March 25, 2022. The Company, Mr. Palmer, and Mr. Drechsler filed their reply on April 26, 2022. The motion to dismiss is currently pending.

 

On August 5, 2021 and October 7, 2021, two shareholder derivative lawsuits concerning substantially the same facts and disclosures underlying the Securities Action (the “Derivative Actions”) were filed in the same Court, naming Chief Executive Officer Ashleigh Palmer, retired and former Chief Financial Officer Andrew Drechsler, and Company directors Jeffrey Bluestone, Avery Catlin, Sean Doherty, John Jenkins, Wayne Pisano, and Nancy Wysenski as defendants (the “Individual Defendants”). The Company is named in both Derivative Actions as a nominal defendant. The Derivative Actions allege: (1) violations of Section 14(a) of the Exchange Act against the Company directors (including Ashleigh Palmer) in connection with the Company’s March 29, 2021 proxy statement; (2) breaches of fiduciary duty against all Individual Defendants in connection with disclosures made regarding the teplizumab BLA and teplizumab’s commercialization timeline, among other common law causes of action; and (3) seek contribution under Sections 10(b) and 21D of the Exchange Act against Ashleigh Palmer and Andrew Drechsler in connection with the Securities Action. The Derivative Actions seek unspecified damages, including legal fees associated with the Securities Action and compensation paid to the Individual Defendants. The Derivative Actions also seek an order directing the Company and Individual Defendants to take all necessary actions to reform and improve the Company’s corporate governance and internal procedures.

 

Proceedings in the first Derivative Action, filed August 5, 2021, were originally stayed until November 15, 2021. On October 28, 2021, both plaintiffs and all defendants in the Derivative Actions filed a joint stipulation and proposed order to consolidate the Derivative Actions and appoint co-lead counsel, which the Court granted on November 1, 2021. The consolidation order extended the stay of proceedings to both Derivative Actions. In response to the parties’ joint stipulation to continue the temporary stay of the proceedings, filed on November 15, 2021, the Court granted a further temporary stay of the Derivative Actions until December 30, 2021. On December 10, 2021, the Company and the Individual Defendants moved to extend the temporary stay of proceedings in the Derivative Actions pending the resolution of a motion to dismiss in the Securities Action. Plaintiffs do not oppose the relief sought in motion to stay. On January 4, 2022, the Court stayed proceedings in the Derivative Actions until resolution of the motion to stay, which remains pending before the Court

 

The Company is unable at this time to determine whether the outcomes of these litigations would have a material impact on its results of operations, financial condition or cash flows. The Company does not have contingency reserves established for any litigation liabilities.

 

ITEM 1A. RISK FACTORS

 

Certain factors may have a material adverse effect on our business, financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the following discussion of risk factors in its entirety, in addition to other information contained in this Quarterly Report on Form 10-Q, as well as our other public filings with the SEC. The risks and uncertainties described below are those we currently believe to be material, but they are not the only ones we face. If any of the following risks, or any other risks and uncertainties that we have not yet identified or that we currently consider not to be material, actually occur or become material risks, our business and financial condition could be materially and adversely affected.

 

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Risks Related to Our Business

 

We are a clinical stage biopharmaceutical company with a limited operating history.

 

We are a clinical-stage biopharmaceutical company formed in October 2016 and have a limited operating history. We do not lease or own any laboratory space and we have historically had a remote work environment for our employees. We outsource most of our manufacturing and clinical trial operations as well as certain other functions.

 

We have acquired or in-licensed four clinical stage assets and a late stage preclinical enteroviral vaccine platform. Marketing approval of our product candidates will require extensive clinical testing data to support safety and efficacy requirements, as well as pharmaceutical development, manufacturing and preclinical data, all of which are needed for regulatory approval, and the requirements may be different in different jurisdictions in which we intend to launch our products. The likelihood of success of our business plan must be considered in light of the challenges, substantial expenses, difficulties, complications and delays frequently encountered in connection with developing and expanding early-stage businesses and the regulatory and competitive environment in which we operate. Biopharmaceutical product development is a highly speculative undertaking, involves a substantial degree of risk, and is a capital-intensive business.

 

Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development, especially clinical-stage biopharmaceutical companies such as ours. Potential investors should carefully consider the risks and uncertainties that a company with a limited operating history will face. In particular, we may not be able to:

 

  successfully implement or execute our current business plan;
  successfully start and complete clinical trials and obtain regulatory approval for the marketing of our product candidates;
  successfully contract for the manufacture of our clinical drug products and establish a commercial drug supply;
  secure market exclusivity and/or adequate intellectual property protection for our product candidates;
  attract and retain an experienced management and advisory team;
  raise sufficient funds in the capital markets to effectuate our business plan, including clinical development, regulatory approval and related milestones, and commercialization for our product candidates;
  successfully recruit and retain a fully functional launch ready commercial organization;
  successfully launch teplizumab in the United States;
  successfully execute our teplizumab launch plan for the At-Risk indication, including raising awareness and expanding screening to identify patients At-Risk of developing clinical T1D; and
  successfully establish strategic partnerships to launch teplizumab outside the United States

 

If we cannot successfully execute any one of the foregoing, our business may not succeed, and your investment will be adversely affected.

 

We expect to incur substantial expenses and may never become profitable or be able to sustain profitability.

 

We expect to incur substantial expenses without corresponding revenues unless and until we are able to obtain regulatory approval and successfully commercialize our product candidates. We expect to incur significant expense to complete our clinical programs for our product candidates in the United States and elsewhere. We may never be able to obtain regulatory approval for the marketing of our product candidates in any indication in the United States or internationally. Even if we are able to commercialize our product candidates, we may not be able to generate significant revenues or ever achieve profitability.

 

We expect to incur significant research and development expenses as we advance clinical trials for our product candidates as well as significant costs to build out our commercial infrastructure and conduct pre-commercial activities for teplizumab as we prepare for potential commercialization. As a result, we expect to incur substantial losses for the foreseeable future, and these losses will be increasing. We are uncertain when or if we will be able to achieve or sustain profitability. If we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Failure to become and remain profitable may impair our ability to sustain operations and adversely affect our business and our ability to raise capital.

 

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We need to raise additional funding. If we are unable to raise sufficient capital when needed, we could be forced to delay, reduce or eliminate certain, or all of our product development programs or commercialization efforts. Our net losses and significant cash used in operating activities have raised substantial doubt regarding our ability to continue as a going concern.

 

We expect our operating costs to be substantial as we incur costs to support our commercialization efforts for teplizumab, including costs related to the buildout of an internal commercial infrastructure, and our ongoing and planned clinical trials for teplizumab and our other product candidates. We will operate at a loss for the foreseeable future or until such time as we obtain regulatory approval for and execute a successful commercial launch of teplizumab, if ever. For the three months ended March 31, 2022 and 2021, we had a net loss of $22.0 million and $32.4 million, respectively, and as of March 31, 2022, we had an accumulated deficit of $314.0 million. Although we had cash, cash equivalents and marketable securities of approximately $113.4 million as of March 31, 2022, we expect to continue to incur significant expenses and increasing operating losses over the next several years and our net losses may fluctuate significantly from quarter to quarter and year to year. These conditions raise substantial doubt about our ability to continue as a going concern within one year after the date these consolidated financial statements are issued.

 

We believe, based on our current operating plans, which include our plans to prepare for a potential commercialization of teplizumab if approved by the FDA, and other factors described above, that our cash, cash equivalents and marketable securities will be sufficient to fund current operating requirements into the first quarter of 2023. If our teplizumab BLA resubmission is approved by the FDA, factors that could impact our cash runway include, but are not limited to, changes to estimated costs of commercialization and potential milestone payments that may be triggered under our current agreements, including with MacroGenics. We have based these estimates on assumptions that may prove to be wrong, and our available capital resources could be consumed faster than we currently expect.

 

We do not have any prospective credit facilities as a source of future funds apart from the available capacity under our 2021 ATM Program, and there can be no assurance that we will be able to raise sufficient additional capital on acceptable terms or at all. We may seek additional capital through a combination of private equity offerings, public equity offerings, debt financings and strategic collaborations. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, could increase our expenses and could require that our assets secure such debt. Moreover, any debt we incur must be repaid regardless of our operating results. If we choose to pursue additional indications and/or geographies for our product candidates, in-license or acquire additional development assets, or otherwise expand more rapidly than we presently anticipate, we may also need to raise additional capital sooner than expected.

 

If we are unable to raise additional capital when required or on acceptable terms, we may need to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates or cease operations altogether, or relinquish or license on unfavorable terms, our rights to technologies or any future product candidates that we otherwise would seek to develop or commercialize.

 

Our forecast of the period of time through which our financial resources will adequately support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this Risk Factors section. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

 

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We may not be able to correctly estimate or control our future operating expenses, which could lead to cash shortfalls.

 

Our operating expenses may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control. These factors include:

 

  the success of our development strategy;
  the time, resources, and expense required to develop and conduct clinical trials and seek regulatory approvals for our product candidates;
  the cost of preparing, filing, prosecuting, defending, and enforcing patent claims and other patent related costs, including litigation costs and the results of such litigation;
  the cost of manufacturing and maintaining sufficient inventories of our products to meet anticipated demand;
  any product liability or other lawsuits related to our product candidates and the costs associated with defending them or the results of such lawsuits;
  the cost of defending against securities litigation including stock-drop litigation and related derivative lawsuits;
  the cost of growing our ongoing development operations and establishing commercialization operations;
  the cost to attract and retain personnel with the skills required for effective operations;
  the costs associated with being a public company; and
  the costs associated with commercialization.

 

Any material increases in our operating expenses will have a material impact on our financial condition and business operations. In addition, if we are unable to correctly estimate or control our future operating expenses, we may need to raise additional capital, delay or cease development of one or more of our product candidates, which could have a material adverse effect on our business, operating results and prospects.

 

Risks Related to Product Development, Regulatory Approval, Manufacturing and Commercialization

 

Our BLA resubmission in February 2022 and our regulatory efforts may not successfully address to the FDA’s satisfaction, the deficiencies identified by the FDA in the July 2021 CRL, including deficiencies related to the demonstration of PK comparability of our planned commercial product and drug product used in historical clinical trials as well as other product quality requirements. If we are not able to satisfy the FDA’s requests and requirements, including, as requested by the FDA in our January 2022 Type B meeting, including in the BLA resubmission an adjusted dosing regimen for the planned commercial product to match the exposure of clinical material used in prior clinical trials with safety justifications to the FDA’s satisfaction, we may not be successful in obtaining approval of teplizumab for the at-risk patient indication in the near-term, or at all. Additionally, if we are not able to address the FDA’s PK comparability and other requirements and obtain approval for teplizumab for the delay of clinical T1D in at-risk individuals, we may be required to conduct additional research, analysis or clinical trials before we can submit a BLA for teplizumab in a newly diagnosed patient indication.

 

As required by the FDA, we provided in the initial BLA for the at-risk indication physiochemical and analytical data for teplizumab supporting the comparability between the study drug previously manufactured by MacroGenics and Eli Lilly and our to-be-commercialized drug product. In addition to conducting analytical tests to evaluate comparability we also conducted a double-blind, single low-dose, PK/PD bridging study in healthy subjects (“Bridging PK/PD Study”) to support the CMC comparability assessment between the teplizumab study drug derived from drug substance manufactured by Eli Lilly and the to-be-commercialized teplizumab drug product derived from the drug substance manufactured by our contract manufacturing partner, AGC Biologics in connection with the PROTECT Trial. This single low-dose Bridging PK/PD Study was the first time the teplizumab drug product derived from the drug substance manufactured by AGC Biologics was used in humans. We submitted to the FDA that we believe the results of the Bridging PK/PD Study suggests that the drug substances manufactured by AGC Biologics and Eli Lilly are comparable. Comparison of drug plasma concentration versus time after dosing in the Bridging PK/PD Study shows a lower AUC for the teplizumab drug product derived from the drug substance manufactured by AGC Biologics. Based on our PK/PD modeling, we submitted our supporting data and analysis to the FDA to support our belief that the lower AUC observed in the PK/PD Bridging Study is not significant enough to impact the efficacy or safety of the to-be-commercialized teplizumab drug product when used as proposed in our BLA filing. However, on July 2, 2021, the FDA issued a CRL for our BLA for teplizumab for the delay of clinical T1D in at-risk individuals. In the CRL, the FDA stated that the single, low-dose Bridging PK/PD Study we conducted had failed to show PK comparability between planned commercial product and historical clinical trial product and that we will need to establish PK comparability appropriately or provide other data that adequately justify why PK comparability is not necessary in order to obtain approval for the teplizumab BLA for an at-risk indication.

 

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In September 2021, we announced that we had completed data collection from the PROTECT PK/PD Substudy we conducted with the goal of addressing the FDA’s PK comparability considerations and in November 2021 we announced preliminary top-line data from this substudy. We participated in a Type A meeting with the FDA on November 18, 2021, to discuss data and analysis from the PROTECT PK/PD Substudy data and PD markers that we believe are supportive of comparability and subsequently also had a Type B meeting with the FDA on January 26, 2022. In preliminary comments provided in advance of the January 26th meeting, the FDA noted that our data package does not adequately support PK comparability by itself, because predicted primary PK parameters are indicative of a lower exposure from the AGC Biologics drug substance as compared to the Eli Lilly drug substance. To address this concern, the FDA proposed, and we agreed, to use PK modeling to adjust the 14-day dosing regimen for the planned commercial product to match the exposure of clinical material used in prior clinical trials by ensuring that the 90% confidence intervals for relevant PK parameters fall within the target 80-125% range. On this basis, the FDA agreed that we could proceed to resubmit the BLA.

 

Our teplizumab BLA resubmission in February 2022 for the At-Risk Indication, which the FDA deemed to be complete and accepted for review on March 17, 2022 and for which the FDA assigned a user fee goal date of August 17, 2022, may not be ultimately approved by the FDA. Our BLA resubmission and other regulatory efforts may not be successful in addressing, to the FDA’s satisfaction, the deficiencies identified in the FDA’s July 2021 CRL for our original teplizumab BLA for an At-Risk Indication, including product quality and PK comparability considerations. Additionally, our BLA resubmission and our regulatory efforts may not successfully address the FDA’s requests and requirements discussed at our January 2022 Type B meeting. For example, although we included in the BLA resubmission, as requested by the FDA, an adjusted dosing regimen based on PK modeling and clinical data for teplizumab to match exposure of our planned commercial product to drug product used in historical clinical trials, the FDA’s PK comparability concerns may not be addressed to their satisfaction which could result in another CRL for our BLA resubmission. Additionally, as a result of any final resolutions to address the FDA’s considerations related to PK comparability in connection with the teplizumab BLA resubmission for an At-Risk Indication, the FDA may require that we further characterize the teplizumab planned commercial product in the PROTECT Trial, including potentially requiring additional research, analysis, clinical data or clinical trials, to support a regulatory pathway for a newly diagnosed indication of teplizumab.

 

Ultimately, we may not be successful in our goal to continue to work with the FDA to successfully secure approval of the teplizumab BLA for at-risk patients. We may not be able to address to the FDA’s satisfaction the agency’s concerns relating to PK comparability and other requirements in the short-term or at all. If we fail to address the FDA’s concerns and requirements, our business and operations may be materially and adversely impacted.

 

We may not be successful in our efforts to develop and obtain regulatory approval for our product candidates. If we are unable to obtain approval for or generate revenues from our product candidates, our ability to create stockholder value will be limited.

 

Our product candidates are in various stages of clinical development. Our ability to generate product revenue, which we do not expect will occur for many years, if ever, apart from the potential commercial launch of teplizumab in the second half of 2022, will depend heavily on the successful development and eventual commercialization of our product candidates, which may never occur. For example, our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products impractical to manufacture, unmarketable, or unlikely to receive marketing approval. We currently generate no revenue from sales of any product, and we may never be able to develop or commercialize a marketable product.

 

We will be required to submit our clinical trial protocols and receive approvals from the regulatory authorities before we can commence additional studies with our product candidates. Nonclinical study results for our product candidates, including toxicology studies, may not support the filing of an IND or foreign equivalent for the product candidate.

 

Moreover, we may not be successful in obtaining acceptance from the regulatory authorities to start our clinical trials. Prior to commencing any clinical trials, we will also have to obtain approval from the Institutional Review Board (“IRB”), or Ethics Committee (“EC”) for each of the institutions at which we plan to conduct our clinical trials. If we do not obtain such acceptance, the time in which we expect to commence clinical programs for any product candidate will be extended and such extension will increase our expenses and increase our need for additional capital.

 

Further, there is no guarantee that our clinical trials will be successful or that we will continue clinical development in support of an approval from the regulatory authorities for any indication. Our clinical trial results may show our product candidates to be less effective than expected or have unacceptable side effects or toxicities. For example, our Phase 2a PRINCE trial did not achieve its primary endpoint of a change in Crohn’s Disease Activity Index Score at week 12 as compared to placebo. We note that most drug candidates never reach the clinical development stage and even those that do commence clinical development have only a small chance of successfully completing clinical development and gaining regulatory approval.

 

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Our business currently depends entirely on the successful development, regulatory approval and commercialization of our product candidates. Our product candidates will require additional preclinical and clinical development, regulatory and marketing approval in multiple jurisdictions, obtaining sufficient manufacturing capacity and expertise for both clinical development and commercial production and substantial investment and significant commercialization efforts before we generate any revenue from product sales.

 

The success of our current and future product candidates will depend on several factors, including the following:

 

  successful completion of preclinical and clinical studies with positive results;
  sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials;
  entry into collaborations to further the development of our product candidates;
  investigational new drug or clinical trial authorization applications, being cleared such that our product candidates can commence clinical trials;
  successful initiation of enrollment in and completion of clinical trials;
  successful data from our clinical programs that support a finding of safety and effectiveness and an acceptable risk-benefit profile of our product candidates in the intended populations;
  receipt of regulatory and marketing approvals from applicable regulatory authorities;
  establishment of arrangements with third-party manufacturers for clinical supply and commercial manufacturing and, where applicable, commercial manufacturing capabilities;
  successful development of our internal manufacturing processes and transfer, where applicable, from our reliance on CMOs, to our own manufacturing facility, or from our own manufacturing facility to CMOs or the facilities of collaboration partners;
  establishment and maintenance of patent and trade secret protection or regulatory exclusivity for our product candidates;
  commercial launch of our product candidates, if and when approved, whether alone or in collaboration with others, including our ability to recruit and retain commercial talent;
  acceptance of our product candidates and their therapeutic uses, if and when approved, by patients, the medical community and third-party payors;
  effective competition with other therapies and treatment options;
  establishment and maintenance of healthcare coverage and adequate reimbursement from third-party payors and national healthcare systems for any approved products;
  enforcement and defense of intellectual property rights and claims;
  maintenance of a continued acceptable safety profile of the product candidates following approval; and
  achieving desirable medicinal properties for the intended indications.

 

If we do not succeed in one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates. We cannot assure you that our product candidates will be successfully developed or commercialized. If we are unable to develop, or obtain regulatory approval for, or, if approved, to successfully commercialize our product candidates, it could have a material adverse effect on our business, operating results and prospects.

 

The outbreak of the novel coronavirus 2019 (COVID-19) has caused delays to our clinical trials. Moreover, the longer the pandemic persists, the more impact it will have on our clinical trial and other business plans and timelines. In addition, this pandemic has caused substantial disruption in the financial markets and may adversely impact economies worldwide, both of which could result in adverse effects on our business, operations and ability to raise capital.

 

The COVID-19 pandemic continues to drive global uncertainty and has caused, and may continue to cause, delays to the development of certain of our product candidates. Delays in completing our clinical trials are expected to increase our costs, slow our development and approval process and could negatively impact our ability to commence product sales and generate revenues. We have experienced some level of disruption to three of our current or planned clinical trials. For example, in March 2020, we announced a temporary pause in the randomization of patients with newly diagnosed T1D into our global Phase 3 PROTECT study of teplizumab. During the second quarter of 2020, we resumed enrolling patients in the PROTECT study on a country by country and site by site basis and by the end of the third quarter of 2020, all sites were activated, with a majority of the sites actively enrolling patients. We completed target enrollment in the PROTECT study in August 2021 and expect to report top-line results from the PROTECT study in the second half of 2023, subject to change for any potential interruptions related to COVID-19, regulatory decisions, issues or other interruptions. In addition, we, with our development partner Amgen, collectively decided that, to protect the integrity and quality of the PRV-015 Phase 2b trial in gluten free diet NRCD, we would stagger study startup throughout the third quarter of 2020 rather than initiating screening in the second quarter of 2020, as had originally been scheduled. We initiated the Phase 2b trial in August 2020 and the pandemic has caused difficulties and delays in recruitment. As a result of these delays, we now expect to report top-line results from the PROACTIVE study by the end of 2023. Additionally, our plans to initiate the Phase 2a portion of the PREVAIL-2 study in lupus patients were delayed, predominantly due to COVID-19 related impacts on our plans, and we recently initiated the study in January 2022.

 

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Timely enrollment in our clinical trials is dependent upon global clinical trial sites which may be adversely affected by global health matters, such as pandemics. We are currently conducting clinical trials for our product candidates in many countries, including the United States, European Union, the United Kingdom and Canada and may expand to other geographies. Many of these regions in which we operate are currently being or may in the future be affected by COVID-19. Some factors from the COVID-19 outbreak that may delay or otherwise adversely affect enrollment in the clinical trials of our product candidates, as well as adversely impact our business generally, include:

 

  delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff, and delays enrolling patients in our clinical trials or increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19, being forced to quarantine, or not accepting home health visits, particularly for older patients with a higher risk of contracting COVID-19;
  limitations on travel that could interrupt key trial activities, such as clinical trial site initiations and monitoring, domestic and international travel by employees, contractors or patients to clinical trial sites, including any government-imposed travel restrictions or quarantines that may impact the ability or willingness of patients, employees or contractors to travel to our clinical trial sites or secure visas or entry permissions, any of which could delay or adversely impact the conduct or progress of our clinical trials;
  interruption or delays in the operations of the United States Food and Drug Administration and foreign regulatory authorities, which may impact review and approval timelines;
  interruption of, or delays in receiving, supplies of raw materials for or our product candidates from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems; and
  business disruptions caused by potential workplace, laboratory and office closures and an increased reliance on employees working from home, disruptions to or delays in ongoing laboratory experiments and operations or travel, and staffing shortages.

 

Additionally, the COVID-19 pandemic has significantly impacted the FDA’s ability to conduct domestic and foreign inspections. On March 10, 2020, the FDA announced its intention to postpone most inspections of foreign manufacturing facilities and products; and, on March 18, 2020, the FDA temporarily postponed routine surveillance inspections of domestic manufacturing facilities. Subsequently, on July 10, 2020, the FDA announced its intention to resume certain on-site inspections of domestic manufacturing facilities subject to a risk-based prioritization system. The FDA intends to use this risk-based assessment system to identify the categories of regulatory activity that can occur within a given geographic area, ranging from mission critical inspections to resumption of all regulatory activities. In April 2021 the FDA issued guidance on conducting voluntary remote interactive evaluations of manufacturing and outsourcing facilities as well as facilities involved in non-clinical and clinical research. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

 

The pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could adversely impact our ability to raise additional funds through public offerings or private placements and may also impact the volatility of our stock price and trading in our stock. Moreover, it is possible the pandemic will continue to significantly impact economies worldwide, which could result in adverse effects on our business and operations. The rapid development and fluidity of the pandemic precludes any prediction as to the ultimate impact of COVID-19. Additionally, the pandemic could negatively impact our ability to execute a successful launch of teplizumab if we receive marketing approval, which could impact our revenue making potential and have other negative material adverse impacts on our business. The full extent of the impact and effects of COVID-19 on our business, operations, liquidity, financial condition and results of operations remain uncertain at this time.

 

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We are completely dependent on third parties to manufacture our product candidates, including teplizumab, with no, to limited redundancies in our supply chain and the commercialization of our product candidates could be halted, delayed or made less profitable if those third parties fail to obtain manufacturing approval from the FDA or comparable foreign regulatory authorities, fail to provide us with sufficient quantities of our product candidates or fail to do so at acceptable quality levels or prices.

 

We do not currently have, nor do we plan to acquire, the capability or infrastructure to manufacture drug substance, in our product candidates for use in our clinical trials or for commercial products, if any. As a result, we are obligated to rely on contract manufacturers for clinical supplies of our product candidates and will be obligated, if and when any of our product candidates are approved for commercialization, to rely on contract manufacturers for commercial supply. We may not be able to engage a contract manufacturer for commercial supply of any of our product candidates on acceptable terms to us, or at all.

 

The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA, the competent authorities of the European Union Member States, MHRA or other regulatory authorities pursuant to inspections that will be conducted after we submit an NDA or BLA to the FDA or equivalent applications to other relevant regulatory authorities. We will be completely dependent on our contract manufacturers for compliance with GMPs for manufacture of both active drug substances and finished drug products. These GMP regulations cover all aspects of the manufacturing, testing, quality control and record keeping relating to our product candidates. If our contract manufacturers do not successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA, the competent authorities of the European Union Member States, MHRA or other regulatory authorities, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. If the FDA, the competent authorities of the European Union Member States, MHRA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.

 

Our contract manufacturers are subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with GMPs and similar regulatory requirements. Although we are responsible for oversight of manufacturing of our product candidates, we do not have control over our contract manufacturers’ compliance with these regulations and standards. Failure by any of our contract manufacturers to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure to grant approval to market any of our product candidates, delays, suspensions or withdrawals of approvals, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business. In addition, although we have audit and certain other oversight rights under our contracts with our contract manufacturers, we do not have control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. Failure by our contract manufacturers to comply with or maintain any of these standards could adversely affect our ability to develop, obtain regulatory approval for or market any of our product candidates.

 

If, for any reason, these third parties are unable or unwilling to perform, we may not be able to terminate our agreements with them, to the extent applicable, and we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with them and we cannot be certain that any such third parties will have the manufacturing capacity to meet future requirements. If these manufacturers or any alternate manufacturer of finished drug product experiences any significant difficulties in its respective manufacturing processes for our drug substance or finished drug products or should cease doing business with us, we could experience significant interruptions in the supply of any of our product candidates or may not be able to create a supply of our product candidates at all. Were we to encounter manufacturing issues, our ability to produce a sufficient supply of any of our product candidates might be negatively affected. Our inability to coordinate the efforts of our third-party manufacturers, or the lack of capacity available at our third-party manufacturers, could impair our ability to supply any of our product candidates at required levels. Because of the significant regulatory requirements that we would need to satisfy in order to qualify a new active drug substances or finished drug products manufacturer, if we face these or other difficulties with our current manufacturers, we could experience significant interruptions in the supply of any of our product candidates if we decided to transfer the manufacture of any of our product candidates to one or more alternative manufacturers in an effort to deal with the manufacturing issues. Additionally, failing to obtain sufficient supply of any of our product candidates, due to manufacturing or other issues, may lead to regulatory delays and other issues which may negatively affect our business.

 

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Any manufacturing problem or the loss of a contract manufacturer could be disruptive to our operations and result in lost sales. Additionally, we rely on third parties to supply the raw materials needed to manufacture our potential products. Any reliance on suppliers may involve several risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules, reliability and quality. Any unanticipated disruption to a contract manufacturer caused by problems at suppliers could delay shipment of any of our product candidates, increase our cost of goods sold and result in lost sales.

 

We cannot guarantee that our future manufacturers and suppliers will be able to reduce the costs of commercial scale manufacturing of any of our product candidates over time. If the commercial-scale manufacturing costs of any of our product candidates are higher than expected, these costs may significantly impact our operating results. In order to reduce costs, we may need to develop and implement process improvements. However, in order to do so, we will need, from time to time, to notify or make submissions with regulatory authorities, and the improvements may be subject to approval by such regulatory authorities. We cannot be sure that we will receive these necessary approvals or that these approvals will be granted in a timely fashion. We also cannot guarantee that we will be able to enhance and optimize output in our commercial manufacturing process. If we cannot enhance and optimize output, we may not be able to reduce our costs over time.

 

If the contract manufacturers we use fail to comply with their teplizumab contractual obligations to us, or they fail to comply with applicable FDA regulations and requirements to support FDA review, requests and requirements in connection with our BLA resubmission, including any potential FDA decisions that result in limiting the use of our current planned commercial teplizumab supply such as assigning a shorter teplizumab shelf-life than we planned, we may be required to enter into new statements of work or other agreements with CMOs and incur additional costs to increase our planned commercial supply of teplizumab and if we are not able to do so successfully and in a timely manner our business may be negatively and materially impacted.

 

Each of our contract manufacturers for our product candidates is a single source supplier. If any of the contract manufacturers in the supply chain for one of our product candidates experiences a delay or is unable to deliver the products or components necessary to manufacture the subject product, our ability to produce the affected product would be materially impaired.

 

Although we believe we currently have adequate supply to support potential teplizumab clinical and commercial supply demands, and through existing contracts with our CMOs we have the ability to enter into new statements of work to increase our existing supply as needed, we do not have pre-set ongoing commitments from AGC Biologics for commercial supply of teplizumab or with any other contract manufacturers of our other product candidates. Our current agreement with AGC Biologics for the supply of teplizumab as well as agreements with other contract manufacturers of our other product candidates operate on a statement of work basis. If teplizumab is approved for commercial use but we are unable to reach agreement with AGC Biologics on the production of teplizumab for commercial use, or if we are unable to maintain commercial relationships with contract manufacturers of our other product candidates, we may not have sufficient supply of teplizumab to fulfill customer orders or sufficient supply for our other clinical trials. Identifying, qualifying and transferring manufacturing to secondary sources is a time-consuming process and there is no guaranty that we would be able to reach an agreement with a secondary source on acceptable terms, which could have a material adverse effect on our sales, results or operations and financial condition.

 

Our experience manufacturing teplizumab and our other product candidates is limited, and if the FDA requires any changes to our manufacturing process for our products, we are dependent on our CMOs and service providers to timely and compliantly deliver on their contractual obligations. If they fail to do so, this can materially and adversely impact our product development plans and timelines. Additionally, if we are not able to successfully partner with our CMOs and service providers in addressing the FDA’s product quality and other considerations as part of its review of our BLA resubmission, or if we encounter any other manufacturing issues, we may experience delays or disruptions to our efforts to bring teplizumab to market and/or to our other ongoing product development efforts, including our ongoing and planned clinical trials.

 

We have limited experience manufacturing teplizumab and we currently rely on single-source, third-party manufacturers to supply us with drug substance and drug product. We historically relied upon an existing supply of teplizumab drug substance produced by Eli Lilly to manufacture drug product at our third-party manufacturer for use in our clinical trials of teplizumab. We have entered into agreements with our third-party manufacturers to manufacture teplizumab for our anticipated clinical trial needs and plan to enter into additional statements or work and agreements to support teplizumab supply needs, including for a potential commercialization. We believe supplies of teplizumab sufficient to supply the PROTECT study and to fulfill our initial commercial launch needs in the United States, if approval is obtained, have already been manufactured by our third-party manufacturers and have the ability to enter into new statements of work with our manufacturers to increase our teplizumab supply.

 

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In order to obtain regulatory approval for teplizumab, third-party manufacturers have been required to consistently produce teplizumab in commercial quantities and of specified quality on a repeated basis and document their ability to do so. The required number of batches of teplizumab have been manufactured at our CMOs by the processes we intend to use for commercialization. The quality and consistency of these lots, along with their comparability to teplizumab manufactured previously for clinical studies, will need to be approved by the FDA. In the July 2, 2021 CRL received by the Company, the FDA stated that as PK remains the primary endpoint for demonstration of comparability between the two products, the Company will need to establish PK comparability appropriately between the intended commercial product and the clinical trial product or provide other data that adequately justify why PK comparability is not necessary. Additionally, the CRL raised product quality and other considerations that we believe we have addressed in our February 2022 BLA resubmission, however, the FDA will ultimately determine whether our efforts sufficiently address their considerations and support an approval. Addressing the FDA’s requests and requirements in the CRL and in subsequent Type A and Type B meetings, including our related efforts to otherwise complete work to support approval of teplizumab for the at-risk indication, as well as the development of our other product candidates will require additional time, resources and successful execution and support by our CMOs and service providers, on whom we are highly dependent to execute on our business plans in a compliant and timely manner. If they fail to do so, it could result in delays or failures of execution that could negatively impact the FDA’s review and decision on our BLA resubmission or any potential commercialization of teplizumab, or otherwise negatively impact our product development efforts including our ongoing clinical trials, such as the PROTECT Study, and planned clinical trials. The FDA may conduct additional site-inspections at any of our CMOs which, depending on timing and outcomes, could negatively impact timing of regulatory decisions relating to our BLA resubmission. Additionally, we have critical testing and stability work ongoing at one of our CMOs for teplizumab, that if not executed in a timely and compliant manner by our CMO, could negatively impact our BLA resubmission and product development efforts.

 

Changes in product candidate manufacturing or formulation may result in additional costs or delay.

 

As product candidates are developed through preclinical studies to late-stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered in an effort to optimize processes. During the course of a development program, sponsors may also change the contract manufacturers used to produce the product candidates. Also, if we, through third-parties, engage in the scale-up of manufacturing, we may encounter unexpected issues relating to the manufacturing process or the quality, purity and stability of the product, and we may be required to refine or alter our manufacturing processes to address these issues. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause our product candidates to perform differently and affect the results of clinical trials. Such changes may also require additional testing, notification or approval by the FDA, the competent authorities of the European Union Member States, MHRA or other regulatory authorities. This could delay completion of clinical trials; require the conduct of bridging clinical trials or studies, or the repetition of one or more clinical trials; increase clinical trial costs; delay approval of our product candidates and jeopardize our ability to commence product sales and generate revenue.

 

Clinical drug development involves a risky, lengthy and expensive process with an uncertain outcome. Although prior pre-clinical and clinical studies, data and analysis may support our belief in the potential of our pipeline of products, the results of our ongoing clinical trials for them may not be positive or supportive of our beliefs. We may encounter substantial delays in completing our ongoing clinical trials or starting any new clinical trials, which in turn may require additional costs, or we may fail to demonstrate adequate safety and efficacy to the satisfaction of applicable regulatory authorities for our product candidates, which could negatively and materially impact our business.

 

It is impossible to predict if or when any of our product candidates will prove safe or effective in humans or will receive regulatory approval, and the risk of failure through the development process is high. Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates in humans. Clinical testing is expensive, time-consuming and uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:

 

  delays in reaching, or failing to reach, a consensus with regulatory agencies on study design;
  delays in reaching, or failing to reach, agreement on acceptable terms with a sufficient number of prospective CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

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  delays in obtaining required IRB, or EC, approval at each clinical trial site;
  delays in recruiting a sufficient number of suitable patients to participate in our clinical trials;
  delays as a result of the impact of the COVID-19 pandemic on clinical trial recruitment or other clinical trial activities;
  imposition of a clinical hold by regulatory agencies, IRBs, or ECs;
  failure by our CROs, other third parties or us to adhere to contractual, clinical trial, regulatory or legal requirements;
  failure to perform in accordance with the FDA’s GCP or applicable regulatory guidelines in other countries;
  delays in the testing, validation, manufacturing and delivery of sufficient quantities of our product candidates to the clinical sites;
  delays in having patients’ complete participation in a study or return for post-treatment follow-up;
  subjects choosing an alternative treatment for the indications for which we are developing our product candidates, or participating in competing clinical trials;
  clinical study sites or patients dropping out of a study;
  delay or failure to address any patient safety concerns that arise during the course of a trial;
  unanticipated costs or increases in costs of clinical trials of our product candidates;
  occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits; or
  changes in regulatory requirements and guidance that require amending or submitting new clinical protocols.

 

We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs or ECs of the institutions in which such trials are being conducted, by an independent Safety Review Board for such trial or by the FDA, MHRA, the competent authorities of the European Union Member States, or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA, MHRA, the competent authorities of the European Union Member States, or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

 

Product development costs for any of our product candidates will increase if we have delays in testing or approval or if we need to perform more or larger clinical trials than planned. Additionally, changes in regulatory requirements and policies may occur and we may need to amend study protocols to reflect these changes. Amendments may require us to resubmit our study protocols to the FDA, comparable foreign regulatory authorities, and IRBs/ECs for reexamination, which may impact the costs, timing or successful completion of that study. If we experience delays in completion of, or if we, the FDA or other regulatory authorities, the IRB, the ECs or other reviewing entities, or any of our clinical trial sites suspend or terminate any of our clinical trials of any of our product candidates, its commercial prospects may be materially harmed and our ability to generate product revenues will be delayed. Any delays in completing our clinical trials will increase our costs, slow down our development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, termination or suspension of, or a delay in the commencement or completion of, clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. In addition, if one or more clinical trials are delayed, our competitors may be able to bring products to market before we do, and the commercial viability of any of our product candidates could be significantly reduced. Clinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

 

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The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Further, product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through pre-clinical studies and initial clinical trials. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies, and we cannot be certain that we will not face similar setbacks. Additionally, data submitted to regulators are subject to varying interpretations that could delay, limit or prevent agency approval. We cannot assure you that the FDA, EMA, MHRA or comparable foreign regulatory authorities will view the results as we do, that the views of different regulatory authorities on our study results and data will be consistent with each other or that any future trials of any of our product candidates will achieve positive results. For example, in the European Union, we have initiated the process of seeking scientific advice from the EMA’s Committee for Medicinal Products for Human Use (“CHMP”), with respect to the regulatory pathway for teplizumab. While the guidance provided in scientific advice procedures do not seek to pre-evaluate the results of studies, the initial scientific advice letter that we received from CHMP in December 2020 suggested that an additional confirmatory study would be necessary to support a marketing authorization application (“MAA”), for the use of PRV-031 in at-risk individuals. We plan to engage with CHMP to further elucidate the disease-modifying effect of PRV-031 supported by study data in the context of clinical management of T1D, specifically in at-risk individuals. If, however, the EMA determines that our current PRV-031 data package is insufficient to support an MAA for at-risk individuals and requires additional studies or data, such determination would delay or prevent approval of PRV-031 in the European Union and European Economic Area (“EEA”) for this indication. We have independently engaged with the MHRA to discuss a potential regulatory path for PRV-031 in the United Kingdom. We filed for and received in July 2021 an Innovation Passport for teplizumab in the UK. The Innovation Passport is the mandated entry point to the Innovative License and Access Pathway (“ILAP”) in the United Kingdom to facilitate approval of and market access to an innovative medicine. Additionally, we have engaged the MHRA in a scientific advice procedure to discuss, among other topics, ILAP. The discussions with and feedback from the MHRA in the United Kingdom, ILAP partner agencies such as the NICE and the Scottish Medicines Consortium will help us evaluate the possible regulatory and market access paths forward in the United Kingdom for teplizumab. On April 20, 2021 we received a scientific advice letter from the MHRA on matters relating to the therapeutic position, non-clinical and clinical characterization of PRV-031. We have started a preliminary discussion with MHRA and its ILAP partners in the development of a TDP and identification of the relevant toolkits to support approval of and market access to teplizumab in the United Kingdom. Further engagement with the MHRA and its ILAP partners is planned in 2022. There is no guarantee that a similar position would be taken by the EMA in the European Union. The advice given by the MHRA makes clear that it is not legally binding with regard to any future MAA for PRV-031, nor can it be taken as indicative of any future agreed position. The MHRA indicated in its letter that it is of the view that there is an unmet medical need for a treatment that delays or prevents progression to T1D in at-risk patients. The MHRA did not request another confirmatory study to be carried out, acknowledging that the indication being sought is rare and that we may have difficulties recruiting sufficient numbers of subjects for such a study. However, the MHRA has considered that an MAA may benefit from additional supplementary information on patient preference. Such additional information would seek to strengthen the argument that PRV-031 would benefit the at-risk patients according to the proposed label claim. The MHRA also considered that reliance on one pivotal study to obtain a marketing authorization ought to meet the criteria described in the EMA/CPMP guidance entitled “Points to consider on application with (i) meta-analyses and (ii) one pivotal study” (CPMP/EWP/2330/99), which for the time being, is still relevant to applications made in the United Kingdom. We also plan additional engagements with EMA and other European stakeholders, including the relevant European national regulatory authorities, in 2022; however, these stakeholders may not agree with our views on our teplizumab data package or our view of the relevant medical need in at-risk populations and our efforts may not lead to favorable positions or decisions relating to or an approval of teplizumab by the MHRA or a positive opinion by the EMA and a subsequent marketing authorization by the European Commission. Even if PRV-031 is approved in United Kingdom and/or in the European Union, the MHRA or EMA/European Commission, may limit the indication for which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming additional clinical trials or reporting as conditions of an approval, amongst other requirements which we may or may not be able to comply with. Even if teplizumab were to be granted a marketing authorization, we could not guarantee that the payers and health technology agencies in the United Kingdom and the Member States of the European Union would accept the therapeutic value and/or cost-effectiveness of teplizumab for it to be adopted for clinical use in the respective national health systems.

 

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We have conducted and are conducting clinical trials outside the United States and anticipate conducting additional clinical trials outside the United States, and the FDA may not accept data from such trials.

 

We are currently conducting clinical trials for our product candidates in countries outside of the United States and we anticipate that we will conduct additional clinical trials in countries outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of such study data by the FDA is subject to certain conditions. For example, the clinical trial must be conducted in accordance with GCP requirements and the FDA must be able to validate the data from the clinical trial through an onsite inspection if it deems such inspection necessary. Where data from foreign clinical trials are intended to serve as the sole basis for marketing approval in the United States, the FDA will not approve the application on the basis of foreign data alone unless those data are considered applicable to the United States patient population and United States medical practice, the clinical trials were performed by clinical investigators of recognized competence, and the data is considered valid without the need for an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. In addition, such clinical trials would be subject to the applicable local laws of the foreign jurisdictions where the clinical trials are conducted. A description of any studies related to overdosage is also required, including information on dialysis, antidotes, or other treatments, if known. There can be no assurance the FDA will accept data from clinical trials conducted outside of the United States. If the FDA does not accept any such data, it would likely result in the need for additional clinical trials, which would be costly and time-consuming and delay aspects of our development plan.

 

Risks inherent in conducting international clinical trials include, but are not limited to:

 

  foreign regulatory requirements that could burden or limit our ability to conduct our clinical trials;
  administrative burdens of conducting clinical trials under multiple foreign regulatory schema;
  foreign currency fluctuations which could negatively impact our financial condition since certain payments are paid in local currencies;
  manufacturing, customs, shipment and storage requirements;
  cultural differences in medical practice and clinical research; and
  diminished protection of intellectual property in some countries.

 

Biologics carry unique risks and uncertainties, which could have a negative impact on future results of operations.

 

The successful discovery, development, manufacturing and sale of biologics is a long, expensive and uncertain process. There are unique risks and uncertainties with biologics. For example, access to and supply of necessary biological materials, such as cell lines, may be limited and governmental regulations restrict access to and regulate the transport and use of such materials. In addition, the development, manufacturing and sale of biologics is subject to regulations that are often more complex and extensive than the regulations applicable to other pharmaceutical products. Manufacturing biologics, especially in large quantities, is often complex and may require the use of innovative technologies. Such manufacturing also requires facilities specifically designed and validated for this purpose and sophisticated quality assurance and quality control procedures. Biologics are also frequently costly to manufacture because production inputs are derived from living animal or plant material, and some biologics cannot be made synthetically by a chemical process. In addition, after receiving product approval, the FDA and other regulatory authorities may require us to submit samples of any lot of any approved product together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA and other regulatory authorities may require that we not distribute a lot until the agency authorizes its release. Failure to successfully discover, develop, manufacture and sell biologics could adversely impact our business and results of operations.

 

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If we are not able to obtain any required regulatory approvals for our product candidates, we will not be able to commercialize our product candidates and our ability to generate revenue will be limited.

 

The research, testing, manufacturing, labeling, packaging, storage, approval, sale, marketing, advertising and promotion, pricing, export, import and distribution of drug products are subject to extensive regulation by the FDA, EMA, MHRA and other regulatory authorities in the United States, European Union, United Kingdom and other countries, where regulations differ from country to country. We are not permitted to market our product candidates as prescription pharmaceutical products in the United States until we receive approval of a New Drug Application (“NDA”), or BLA from the FDA, or in any foreign countries until we receive the requisite approval from such countries. In the United States, the FDA generally requires the completion of clinical trials of each drug to establish its safety and efficacy and extensive pharmaceutical development to ensure its quality before an NDA or a BLA is approved. Regulatory authorities in other jurisdictions impose similar requirements. Of the large number of drugs in development, only a small percentage result in the submission of an NDA or a BLA to the FDA or other regulatory authorities and even fewer are eventually approved for commercialization. Changes in regulatory approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for a submitted product application may cause delays in the approval or rejection of an application. We have only limited experience in filing the applications necessary to gain regulatory approvals and expect to rely on consultants and third party CROs with expertise in this area to assist us in this process. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities and grant of manufacturing authorizations by the regulatory authorities. Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use. If our development efforts for our product candidates, including regulatory approval, are not successful for their planned indications, our business will be materially adversely affected. Our success depends on the receipt of regulatory approval and the issuance of such regulatory approvals is uncertain and subject to a number of risks, including the following:

 

  the results of our clinical trials may not be satisfactory or may not meet the level of statistical or clinical significance required by the FDA, EMA/European Commission, MHRA or other regulatory agencies for marketing approval;
  the dosing of our product candidates in a particular clinical trial may not be at an optimal level;
  we may be required to provide additional analysis or data for already completed clinical studies, or conduct additional studies;
  the FDA, EMA, MHRA or comparable foreign regulatory authorities may require us to obtain clearance, CE marking or approval of companion diagnostic tests;
  the FDA, EMA, MHRA or comparable foreign regulatory authorities may disagree on the design or implementation of our clinical trials, including the methodology used in our studies, our chosen endpoints, our statistical analysis, or our proposed product indication;
  our failure to demonstrate to the satisfaction of the FDA, EMA, MHRA or comparable regulatory authorities that a product candidate is safe and effective for its proposed indication;
  we may fail to demonstrate that a product candidate’s clinical benefits outweigh its safety risks;
  immunogenicity might affect a product candidate efficacy and/or safety;
  the FDA, MHRA, the competent authorities of the European Union Member States or comparable foreign regulatory authorities may disagree with our interpretation of data from nonclinical studies or clinical trials;
  the FDA, MHRA, the competent authorities of the European Union Member States or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with whom we contract for clinical and commercial supplies; or
  there may be changes in the approval policies or regulations that render our nonclinical and clinical data insufficient for approval.

 

Additionally, even if we obtain regulatory approval for one indication, there is no guarantee we will be able to gain regulatory approval for additional indications. For example, we intend to initially seek regulatory approval for our CVB vaccine product candidate for the prevention of acute CVB infection. The results of longitudinal studies demonstrating the connection between CVB and T1D or celiac disease will be necessary to expand the indicated use of this vaccine to T1D. These studies must be completed and submitted to the FDA, MHRA or EMA prior to receiving approval in the United States, United Kingdom or European Union to market the CVB vaccine for additional indications such as prevention of T1D. Such studies will be costly and time consuming and may not demonstrate to the FDA’s, MHRA’s or EMA’s satisfaction the connection between the CVB virus and the onset of T1D or celiac disease. Failure or delay in obtaining regulatory approval for our product candidates for the foregoing, or any other reasons, will prevent or delay us from commercializing our product candidates, and our ability to generate revenue will be materially impaired. We cannot guarantee that regulators will agree with our assessment of the results of the clinical trials we have conducted or intend to conduct in the future or that such future trials will be successful. The FDA, EMA, MHRA and other regulators have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional clinical trials, or pre-clinical or other studies. In addition, varying interpretations of the data obtained from pre-clinical and clinical testing could delay, limit or prevent regulatory approval of our product candidates.

 

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The FDA, EMA, MHRA or comparable foreign regulatory authorities could require the clearance, CE marking or approval of a companion diagnostic device for teplizumab as a post-marketing commitment or otherwise, which may require substantial financial resources and could delay or prevent regulatory approval of teplizumab.

 

The FDA has previously communicated that it (i) acknowledges that the diagnosis stage 2 T1D may be well understood to future prescribers of teplizumab, and therefore, specification of autoantibody testing in the labeling may not be required for the safe and effective use of teplizumab and (ii) is continuing to discuss internally the requirement for a companion diagnostic(s) for teplizumab, and given these uncertainties, we should consider seeking additional advice from the agency on the process of companion diagnostic development, as it remains possible it will be required as a post-marketing commitment. Our position is that a companion diagnostic should not be required for the use of teplizumab in at-risk individuals based upon, among other reasons, (i) relevant FDA precedent and guidance, (ii) the fact that the presence of autoantibodies is supportive, but not sufficient, for a diagnoses of stage 2 T1D and (iii) the commercial availability of FDA-cleared tests or Clinical Laboratory Improvement Amendments, licensed laboratory-developed tests to identify T1D, which the teplizumab final label can direct physicians to use.

 

Should the FDA, EMA, MHRA or comparable foreign regulatory authorities disagree with us and require the use of a companion diagnostic, we may face delays or obstacles in obtaining approval for teplizumab, as the FDA or other regulatory authorities may take the position that a companion diagnostic device is required prior to granting approval of teplizumab. In addition, if a companion diagnostic is required, we may be dependent on the cooperation and efforts of third-party collaborators to develop one or more companion diagnostics, which generally require FDA clearance or approval, or equivalent approval in other jurisdictions. We and our potential future collaborators may encounter difficulties in developing, validating or obtaining clearance/approval/CE marking for such companion diagnostics. Any delay or failure by us or our potential future collaborators to develop or obtain regulatory clearance, CE marking or approval of such companion diagnostics, if necessary, may delay or prevent approval of teplizumab, PRV-101 or our other product candidates.

 

Even if we obtain marketing approval for any of our product candidates, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates could be subject to labeling and other restrictions and withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our product candidates.

 

Even if we obtain regulatory approval for any of our product candidates for an indication, the FDA, EMA/European Commission, MHRA or foreign equivalent may still impose significant restrictions on their indicated uses or marketing or the conditions of approval or impose ongoing requirements for potentially costly and time-consuming patient registries or post-approval studies, including Phase 4 clinical trials, post-market surveillance to monitor safety and efficacy and a Risk Evaluation and Mitigation Strategy (“REMS”) in the United States or other comparable Risk Management Plan and risk minimization measures in the United Kingdom and the EU. If the FDA concludes a REMS is needed in the United States, the sponsor of the NDA or BLA must submit a proposed REMS; the FDA will not approve the NDA or BLA without an approved REMS, if required. A REMS could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA may also require a REMS for an approved product when new safety information emerges. Any such post-marketing requirements may negatively impact our commercialization plans or require us to raise additional capital to support the execution of such requirements. Additionally, if we face challenges or are unable to comply with post-marketing requirements, we may not be able to maintain marketing approval, or we may decide to abandon the program.

 

Our product candidates will also be subject to ongoing regulatory requirements governing the manufacturing, labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, recordkeeping and reporting of adverse events and other post-market information. These requirements include registration with the FDA, as well as continued compliance with current GCP regulations for any clinical trials that we conduct post-approval, and any additional requirements in other jurisdictions. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current GMP requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents.

 

With respect to sales and marketing activities by us or any future licensor, advertising and promotional materials must comply with FDA rules in addition to other applicable federal, state and local laws in the United States and similar legal requirements in other countries. We may also be subject, directly or indirectly through our customers and licensors, to various fraud and abuse laws, including, without limitation, the United States Anti-Kickback Statute, United States False Claims Act, and similar state laws, which impact, among other things, our proposed sales, marketing, and scientific/educational grant programs. If we participate in the United States Medicaid Drug Rebate Program, the Federal Supply Schedule of the United States Department of Veterans Affairs, or other government drug programs, we will be subject to complex laws and regulations regarding reporting and payment obligations. All of these activities are also potentially subject to United States federal and state consumer protection and unfair competition laws. Similar requirements exist in many of these areas in other countries.

 

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In addition, if any of our product candidates are approved for a particular indication, our product labeling, advertising and promotion would be subject to regulatory requirements and continuing regulatory review. The FDA, MHRA, and the competent authorities of the European Union Member States strictly regulate the promotional claims that may be made about prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA, MHRA, or the European Commission as reflected in, or in a manner that is otherwise inconsistent with, the product’s approved labeling. If we receive marketing approval for our product candidates, physicians may nevertheless legally prescribe our products to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, or otherwise inappropriately promoted our products, we may become subject to significant liability and government fines. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses and false or misleading claims, and a company that is found to have improperly promoted products, including off-label uses, may be subject to significant sanctions. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees of permanent injunctions under which specified promotional conduct is changed or curtailed.

 

If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, problems with the facility where the product is manufactured, or we or our manufacturers fail to comply with applicable regulatory requirements, we may be subject to the following administrative or judicial sanctions:

 

  restrictions on the marketing or manufacturing of the product;
  withdrawal of the product from the market;
  voluntary or mandatory product recalls;
  restrictions of the labeling of a product;
  restrictions on product distribution or use
  requirements to conduct post-marketing studies or clinical trials;
  issuance of warning letters or untitled letters;
  injunctions or the imposition of civil or criminal penalties or monetary fines, restitution, or disgorgement of profit or revenues;
  suspension, withdrawal, variation or revocation of regulatory approval;
  suspension or termination of any ongoing clinical trials;
  refusal to approve pending applications or supplements to approved applications filed by us;
  suspension or imposition of restrictions on operations, including costly new manufacturing requirements; or
  product seizure or detention or refusal to permit the import or export of product.

 

The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and generate revenue. Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Adverse regulatory action, whether pre- or post-approval, can also potentially lead to product liability claims and increase our product liability exposure.

 

Even though we may apply for orphan drug designation for a product candidate, we may not be able to obtain such designation or obtain orphan drug marketing exclusivity. Even if we obtain orphan drug marketing exclusivity, it may not effectively protect the product from competition.

 

Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States or for which there is no reasonable expectation that the cost of developing and making a drug available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan drug designation must be requested before submitting an NDA or a BLA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan product designation does not convey any advantage in or shorten the duration of regulatory review and approval process. In addition to the potential period of exclusivity, orphan designation makes a company eligible for grant funding to defray costs of clinical trial expenses, tax credits for clinical research expenses and potential exemption from the FDA application user fee. If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other applications to market the same drug for the same indication for seven years, except in limited circumstances, such as (i) the drug’s orphan designation is revoked; (ii) its marketing approval is withdrawn; (iii) the orphan exclusivity holder consents to the approval of another applicant’s product; (iv) the orphan exclusivity holder is unable to assure the availability of a sufficient quantity of drug; or (v) a showing of clinical superiority to the product with orphan exclusivity by a competitor product. If a drug designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan drug exclusivity. There can be no assurance that we will receive orphan drug designation for any of our product candidates in the indications for which we think they might qualify, if we elect to seek such applications.

 

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We have obtained orphan drug designation from the FDA for teplizumab for the treatment of newly diagnosed T1D, however, there is no guarantee that the FDA, the European Commission or comparable foreign regulatory authorities will grant any future application for orphan drug designation for any of our other product candidates, including teplizumab for the use in at-risk individuals, which would make us ineligible for the additional exclusivity and other benefits of orphan drug designation, and may also impact our ability to obtain benefits under other incentive programs, such as the rare pediatric disease priority review voucher program. For example, we applied for orphan drug designation of teplizumab for the use in at-risk individuals which was denied by the FDA’s OOPD in February 2021. We believe current data suggests that there may be an initial undiagnosed prevalence approaching 165,000-200,000 Stage 2 T1D subjects in all age groups, however, we believe the diagnosed prevalence for Stage 2 T1D subjects is less than 200,000, which, we believe could have met the FDA’s criteria for orphan drug designation. We currently do not have plans to take any additional steps to address OOPD’s positions.

 

Even if we obtain orphan drug exclusivity for teplizumab for the treatment of newly-diagnosed T1D in the United States, the FDA can still approve other drugs that have a different active ingredient for use in treating the same indication. Furthermore, the FDA can waive orphan drug exclusivity if we are unable to manufacture sufficient supply of teplizumab or if the FDA finds that a subsequent applicant for newly-diagnosed T1D demonstrates clinical superiority to teplizumab. Accordingly, orphan drug exclusivity for a product may not effectively protect the product from competition.

 

Although we may apply for rare pediatric disease designation for our product candidates, we may not be able to obtain such designation, and rare pediatric disease designation does not guarantee that the NDA or BLA for the product will qualify for a priority review voucher upon approval.

 

Under the Rare Pediatric Disease Priority Review Voucher program, upon the approval of a qualifying BLA or NDA for the treatment of a rare pediatric disease, the sponsor of such an application would be awarded a rare pediatric disease priority review voucher that can be used to obtain priority review for a subsequent BLA or NDA. On December 27, 2020, the Creating Hope Reauthorization Act extended the Rare Pediatric Disease Priority Review Voucher Program, and after September 30, 2024, the FDA may only award a voucher for an approved rare pediatric disease product application if the sponsor has rare pediatric disease designation for the drug, and that designation was granted by September 30, 2024. After September 30, 2026, the FDA may not award any rare pediatric disease priority review vouchers.

 

We submitted a request for Rare Pediatric Disease designation for teplizumab for the use in at-risk individuals, however, the FDA sent a second deficiency letter for our application in October 2021. In its letter, the FDA’s Office of OOPD, noted that they believe the At-Risk Stage 2 population is greater than 200,000 subjects in the United States and we have one year from the date of the deficiency letter (or any approved extension thereof) to provide arguments otherwise, or our request for Rare Pediatric Disease designation will be considered voluntarily withdrawn. We currently do not have plans to take any additional steps to address OOPD’s positions.

 

There is no guarantee that the FDA will grant any future requests for Rare Pediatric Disease designation for any of our product candidates, including teplizumab for the use in at-risk individuals. Moreover, even if we obtain rare pediatric disease designation, there is no guarantee that we will qualify for a rare pediatric disease priority review voucher upon FDA approval of the NDA or BLA for a rare pediatric disease. Rare pediatric disease designation does not lead to faster development or regulatory review of the product, or increase the likelihood that it will receive marketing approval.

 

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Although we may pursue expedited regulatory approval pathways for a product candidate, it may not qualify for expedited development or, if it does qualify for expedited development, it may not actually lead to a faster development or regulatory review or approval process.

 

Although we believe there may be an opportunity to accelerate the development of certain of our product candidates through one or more of the FDA’s or EMA’s expedited programs, such as fast track, breakthrough therapy, accelerated approval or priority review, we cannot be assured that any of our other product candidates will qualify for such programs.

 

For example, in the United States, a drug may be eligible for designation as a breakthrough therapy if the drug is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. Although breakthrough designation or access to any other expedited program may expedite the development or approval process, it does not change the standards for approval. If we apply for breakthrough therapy designation or any other expedited program for our product candidates, the FDA may determine that our proposed target indication or other aspects of our clinical development plans do not qualify for such expedited program. Even if we are successful in obtaining a breakthrough therapy designation or access to any other expedited program, we may not experience faster development timelines or achieve faster review or approval compared to conventional FDA procedures. For example, the time required to identify and resolve issues relating to chemistry, manufacturing and controls, the acquisition of a sufficient supply of our product for clinical trial purposes or the need to conduct additional preclinical or clinical studies may delay approval by the FDA, even if the product candidate qualifies for a breakthrough therapy designation or access to any other expedited program. Access to an expedited program may also be withdrawn by the FDA if it believes that the designation is no longer supported by data from our clinical development program. Additionally, qualification for any expedited review procedure does not ensure that we will ultimately obtain regulatory approval for such product candidate.

 

Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions.

 

Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, but a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the United States, including additional preclinical studies or clinical trials, as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.

 

Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/ or to receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.

 

Current and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates.

 

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval for our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell our product candidates.

 

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the United States Congress (“Congress”) of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.