EDGAR 10-K Filing

Company CIK: 1325879
Filing Year: 2022
Filename: 1325879_10-K_2022_0001628280-22-006093.json

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ITEM 1. BUSINESS
ITEM 1. Business
Overview
We are a commercial stage, oncology-focused biopharmaceutical company committed to delivering medicines that provide a better life for patients with cancer. We currently market FOTIVDA® (tivozanib) in the United States. FOTIVDA is our first commercial product and was approved by the U.S. Food and Drug Administration, or FDA, for marketing and sale in the United States on March 10, 2021 for the treatment of adult patients with relapsed or refractory advanced renal cell carcinoma, or RCC, following two or more prior systemic therapies. We continue to develop tivozanib in immuno-oncology combinations in RCC and other indications, and we have other investigational programs in clinical development.
FOTIVDA is an oral, next-generation vascular endothelial growth factor receptor, or VEGFR, tyrosine kinase inhibitor, or TKI. The FDA approval of FOTIVDA is based on our pivotal Phase 3 randomized, controlled, multi-center, open-label clinical trial comparing tivozanib to an approved therapy, Nexavar® (sorafenib), in RCC patients whose disease had relapsed or become refractory to two or three prior systemic therapies, which we refer to as the TIVO-3 trial. The approval is also supported by three additional trials in RCC and includes safety data from over 1,000 clinical trial subjects.
FOTIVDA became commercially available in the United States on March 22, 2021 and is available to patients through a network of specialty pharmacies and distributors. We commercialize FOTIVDA in the United States through the support of approximately 65 field-based employees, which includes approximately 50 oncology sales professionals. The field sales force is supported by the AVEO ACE Patient Support program, which is an extensive patient and healthcare provider support program designed to optimize patient access and help patients navigate their treatment journey. To date, we believe we have been very successful in securing payor coverage. Furthermore, the NCCN Clinical Practice Guidelines in Oncology, or the NCCN Guidelines®, recommend FOTIVDA as a subsequent therapy for patients with relapsed or refractory advanced RCC with clear cell histology who received two or more prior systemic therapies.
Restrictions related to the ongoing COVID-19 pandemic have posed challenges for gaining in-person access to customers, prescribers and other healthcare professionals and certain institutions remain closed to industry representatives. Notwithstanding these challenges, as of December 31, 2021, prescriptions for FOTIVDA and product revenues have increased quarter over quarter since the beginning of our commercial launch. We aim to continue to deliver quarter over quarter net revenue and underlying prescription demand growth as we continue to execute on our commercial strategy to support the adoption of FOTIVDA in appropriate patients.
We believe there is significant commercial opportunity for FOTIVDA in RCC in the United States. We estimate that the current U.S. market for relapsed or refractory advanced RCC therapy is more than $1.7 billion, including $1.3 billion in the second line and $480.0 million in the third and fourth lines. As the TIVO-3 trial is the first positive Phase 3 clinical trial in RCC patients whose disease had relapsed or become refractory to two or three prior systemic therapies as well as the first Phase 3 clinical trial in RCC to investigate a predefined subpopulation of patients who received prior immunotherapy, a predominant standard of care for earlier lines of therapy, we believe that FOTIVDA could become a standard of care in the United States in the third and fourth line relapsed or refractory advanced setting. Further, we intend to pursue opportunities in the second line relapsed or refractory advanced RCC setting. We and our collaboration partners are developing tivozanib with immune checkpoint inhibitors, or ICIs, and in combination with a hypoxia inducible factor 2α, or HIF2α, inhibitor to support tivozanib's potential utility in this earlier line of RCC therapy.
Based on FOTIVDA’s demonstrated anti-tumor activity, tolerability profile and reduction of regulatory T-cell production, we and our collaboration partners are developing tivozanib in additional cancer indications with significant unmet medical needs including, hepatocellular carcinoma, or HCC, and tumors that are resistant to immunotherapy, or immunologically cold tumors, in combination with ICIs. In addition, we are evaluating tivozanib as a monotherapy in ovarian cancer and cholangiocarcinoma, or CCA. We and our collaboration partners or independent investigators sponsor the development of tivozanib through preclinical studies and clinical trials conducted under collaboration agreements and investigator sponsored trial, or IST, agreements or our Cooperative Research and Development Agreement, or CRADA, with the National Cancer Institute’s Surgical Oncology Program, or NCI-SOP.
We are also seeking to advance our pipeline of four wholly owned immunoglobulin G1, or IgG1, monoclonal antibody product candidates, ficlatuzumab, AV-380, AV-203 and AV-353. We aim to leverage our existing collaborations and partnerships and enter into new strategic collaborations and partnerships to continue to advance each of our product candidates.
Business Update Regarding COVID-19
The pandemic caused by an outbreak of a new strain of coronavirus and its related variants, or the COVID-19 pandemic, that is affecting the U.S. and global economy and financial markets, is also impacting our employees, patients, communities and business operations to varying degrees. The extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted at this time, such as the duration, scope and severity of the pandemic, the duration and extent of travel restrictions and social distancing in the United States and other countries, business closures and business disruptions, its impact and the economic impact on local, regional, national and international markets, the effectiveness of actions taken in the United States and other countries to contain and treat the disease, periodic and seasonal spikes in infection rates, new strains of the virus that cause outbreaks of COVID-19 and the broad availability of effective vaccines and antiviral treatments. In March 2020, we transitioned essentially all of our business operations to be conducted remotely in response to COVID-19. Although senior management has returned to the office, as of February 2022, the majority of our workforce continues to work remotely. Management is actively monitoring this situation and the possible effects on our financial condition, liquidity, operations, commercialization, suppliers, manufacturers, industry and workforce.
Impact on Commercialization of FOTIVDA. COVID-19 related restrictions have posed challenges for gaining in-person access to customers, prescribers and other healthcare professionals and certain institutions remain closed to industry representatives. We believe these access challenges caused by the COVID-19 pandemic and the emergence of SARs-CoV-2 variants have potentially slowed the commercial launch trajectory of FOTIVDA delaying our ability to achieve our anticipated market penetration at this stage of our commercial launch. While we have designed our strategic commercial approach to be optimized for remote as well as in-person customer engagement capabilities and expanded our digital marketing strategies in light of the restrictions necessitated by the COVID-19 pandemic, changes to standard sales and marketing practices, including the shift from in-person to video and virtual interactions with healthcare professionals, have caused, and may continue to cause, challenges for the commercialization of FOTIVDA.
Impact on Trial Enrollment and Site Initiations. The COVID-19 pandemic has impacted the initiation, enrollment and completion of certain of our ongoing and planned clinical trials. For instance, the pandemic partially slowed the enrollment of our open-label, multi-center, randomized Phase 1b/2 clinical trial of tivozanib in combination with AstraZeneca PLC’s, or AstraZeneca, IMFINZI (durvalumab), which we refer to as the DEDUCTIVE trial, in that it hindered patients' ability to attend routine physical medical assessments with their clinicians resulting in delays in diagnosis and, at times, treatment of cancer in patients. This is a phenomenon supported by recent studies finding a decline in cancer screening during the pandemic. In addition, our contract research organization, or CRO, for our Phase 3 clinical trial designed to evaluate the safety and efficacy of tivozanib in combination with nivolumab in RCC patients who have progressed following one or two lines of prior immunotherapy, which we refer to as our TiNivo-2 trial, informed us that it has been impacted by cancer research staffing shortages related to COVID-19 infections and competition for staff, among other things, at clinical trial sites resulting in delays to trial site activation, contracting and enrollment. Currently, certain academic institutions have frozen enrollment on all trials or refused to take on additional clinical trials due to these staffing shortages and these staffing shortages have adversely impacted the DEDUCTIVE trial and the TiNivo-2 trial.
Impact on Manufacturing. The COVID-19 pandemic has, and may continue to, cause delays in the manufacturing of our product candidates ficlatuzumab and AV-380. In 2020, we contracted with a contract manufacturing organization, or CMO, to manufacture the clinical supply for our potential registrational clinical trial of ficlatuzumab in combination with cetuximab in patients with human papillomavirus, or HPV, negative recurrent or metastatic, or R/M, head and neck squamous cell carcinoma, or HNSCC, patients. However, in the middle of 2021, our CMO notified us of a shortage of required key raw materials and manufacturing supplies also used in the COVID-19 vaccine manufacturing process which would delay the delivery of the clinical supply of ficlatuzumab. We have since secured the required raw materials and manufacturing supplies needed and now plan to manufacture ficlatuzumab Phase 3 clinical supply in the second quarter of 2022.
More recently, another of our CMOs has experienced employee shortages, supply chain issues and other disruptions related to the COVID-19 pandemic which have delayed and may continue to delay that manufacture of AV-380 preclinical supply.
To date, the COVID-19 pandemic has not had a material impact on our commercial and clinical supply of FOTIVDA (tivozanib) or our clinical supply of AV-203. We currently have a sufficient commercial and clinical supply of FOTIVDA (tivozanib) and clinical supply of AV-203 that we believe will meet our ongoing needs for more than twelve months from the date of the filing of this Annual Report on Form 10-K. However, there can be no assurance that future developments do not impact the availability of our commercial and clinical supply of FOTIVDA (tivozanib) or our clinical supply of AV-203. For additional information on the risks posed by the COVID-19 Pandemic and our reliance on CMOs,
please see “Part II, Item 1A. Risk Factors - Risks Related to the COVID-19 Pandemic” and “Part II, Item 1A. Risk Factors Dependence on Third Parties” included elsewhere in this Annual Report on Form 10-K.
Our Corporate Strategy
Our strategy is to focus our resources toward the development and commercialization of our oncology portfolio in North America, while leveraging partnerships to support the development and commercialization of our product and product candidates in other geographies and indications outside of oncology. The key elements of this corporate strategy include:
◦successfully commercialize FOTIVDA in the United States for the treatment of adult patients with relapsed or refractory advanced RCC following two or more prior systemic therapies;
◦advance life-cycle development for tivozanib to support its potential utility in immuno-oncology and other novel targeted combinations in RCC and other potential indications;
◦advance the development of our pipeline of four IgG1 monoclonal antibody product candidates, ficlatuzumab, AV-380, AV-203 and AV-353; and
◦leverage existing collaborations and partnerships and enter into new strategic collaborations and partnerships that can contribute to our ability to efficiently develop our product candidates to provide a better life for patients with cancer.
Our Marketed Product
FOTIVDA
FOTIVDA is an oral, next-generation VEGFR TKI. FOTIVDA was approved by the FDA for marketing and sale in the United States in March 2021 and is sold for the treatment of adult patients with relapsed or refractory advanced RCC following two or more prior systemic therapies. FOTIVDA was approved in August 2017 by the European Commission, or EC, and other countries in the territory of our partner EUSA Pharma (UK) Limited, or EUSA, for the treatment of adult patients with advanced RCC.
FOTIVDA is a potent, selective inhibitor of VEGFRs 1, 2 and 3 with a long half-life. In addition to the inhibition of VEGFR, FOTIVDA has demonstrated the ability to down regulate regulatory T-cell production in preclinical models. This unique combination of properties is designed to improve efficacy and tolerability of FOTIVDA as a monotherapy or in combination with ICIs and other emerging cancer targets such as HIF2α relative to earlier generations of VEGFR TKIs.
U.S. Commercialization of FOTIVDA in Relapsed or Refractory Advanced RCC
FOTIVDA became commercially available in the United States on March 22, 2021 and is available to patients through a network of specialty pharmacies and distributors. We commercialize FOTIVDA in the United States through the support of approximately 65 field-based employees, which includes approximately 50 oncology sales professionals. The field sales force is supported by the AVEO ACE Patient Support program, which is an extensive patient and healthcare provider support program designed to optimize patient access and help patients navigate their treatment journey. To date, we believe we have been very successful in securing payor coverage. Furthermore, the NCCN Guidelines® recommend FOTIVDA as a subsequent therapy for patients with relapsed or refractory advanced RCC with clear cell histology who received two or more prior systemic therapies.
We believe there is significant commercial opportunity for FOTIVDA in RCC in the United States and that FOTIVDA could become a standard of care in the United States in the third and fourth line relapsed or refractory advanced setting.
Commercialization of FOTIVDA in RCC Outside the United States
FOTIVDA, through EUSA, is also approved for the treatment of adult patients with advanced RCC in the European Union, or the EU, New Zealand and South Africa and is reimbursed in the United Kingdom, Germany, Spain and certain other countries in EUSA’s territory. FOTIVDA is approved in the EU for the first-line treatment of adult patients with advanced RCC and for adult patients who are VEGFR and mTOR pathway inhibitor-naïve following disease progression after one prior treatment with cytokine therapy for advanced RCC. FOTIVDA has been commercially available in the EU since 2017. EUSA is working to secure reimbursement approval in and commercially launch FOTIVDA in additional countries in the EUSA territory. However, there is significant competition in the first-line RCC setting in the EU
due to the approval of several immunotherapy combinations which have become a standard of care and impacted the market opportunity for monotherapy treatments.
We are entitled to receive milestone payments upon reimbursement approval for RCC, if any, in each of France, Germany, Italy, Spain and the United Kingdom, or, collectively, the EU5. EUSA has received reimbursement approval for and commercially launched FOTIVDA in Germany, the United Kingdom and Spain and has also received reimbursement approval for and commercially launched FOTIVDA in additional non-EU5 countries. EUSA is working to secure reimbursement approval in and commercially launch FOTIVDA in additional countries in its licensed territories. We are eligible to receive milestone payments based upon EUSA obtaining marketing approval for up to three additional indications. We may also receive payments for sales milestones based on the aggregate global net sales reached in a particular calendar year.
EUSA has reported to us that, to date, it has not experienced any material decrease in sales trends or interruptions in supply or distribution of FOTIVDA during the COVID-19 pandemic; however, the future impact of the COVID-19 pandemic on FOTIVDA sales in the EUSA territory is difficult to predict. In December 2021, EUSA announced that it had signed an agreement with Recordati, S.p.A. to be acquired and has indicated that the acquisition is anticipated to close in the first half of 2022.
Our Product Candidates
Tivozanib
Our pipeline includes our lead product tivozanib. We are evaluating tivozanib, both as a monotherapy and in combination with ICIs and other emerging cancer targets such as HIF2α, for the treatment of RCC, HCC, immunologically cold tumors and CCA. We and our collaboration partners or independent investigators sponsor the development of tivozanib through preclinical studies and clinical trials conducted under collaboration agreements and IST agreements or our CRADA with NCI-SOP.
We have exclusive rights to develop and commercialize tivozanib in oncology indications in all countries outside of Asia and the Middle East under a license from Kyowa Kirin Co., Ltd. (formerly Kirin Brewery Co., Ltd.), or KKC. We have sublicensed to EUSA the right to develop and commercialize tivozanib in our licensed territories outside of North America, including Europe (excluding Russia, Ukraine and the Commonwealth of Independent States), Latin America (excluding Mexico), Africa and Australasia. The EUSA sublicense excludes non-oncologic diseases or conditions of the eye.
Clinical Development of Tivozanib in RCC
Third-Line and Fourth-Line Phase 3 Clinical Trial (TIVO-3): In May 2016, we initiated enrollment in the TIVO-3 trial. The TIVO-3 trial is the first positive Phase 3 clinical trial in the third- and fourth-line treatment of patients with relapsed or refractory advanced RCC as well as the first Phase 3 trial in RCC to investigate a predefined subpopulation of patients who received prior immunotherapy, a predominant standard of care for earlier lines of therapy. Patients were stratified by International Metastatic RCC Database Consortium risk category (favorable, intermediate or poor) and type of prior therapy (two prior VEGFR TKIs, VEGFR TKI plus checkpoint inhibitor or VEGFR TKI plus any other systemic agent) then randomized 1:1 to receive tivozanib or sorafenib.
In November 2018, we announced that the TIVO-3 trial met its primary endpoint of improving progression free survival, or PFS, with a median PFS in the tivozanib arm of 5.6 months compared with 3.9 months in the sorafenib arm. Tivozanib demonstrated a 44% improvement in median PFS and 27% reduction in risk of progression or death compared to sorafenib (HR=0.73, p=0.02). Approximately 26% of patients received checkpoint inhibitor therapy in earlier lines of treatment. Patients who received prior checkpoint inhibitor therapy had exhibited a 45% reduction in risk of progression or death. The secondary endpoint of objective response rate, or ORR, for patients receiving tivozanib was 18% compared to 8% for patients receiving sorafenib (p=0.02). Median duration of response in patients receiving tivozanib was not reached and in patients receiving sorafenib was 5.7 months. Tivozanib was generally better tolerated than sorafenib, as indicated by fewer dose reductions and interruptions. Grade 3 or higher adverse events were consistent with those observed in previous tivozanib trials. Infrequent but severe adverse events reported in greater number in the tivozanib arm were thrombotic events similar to those observed in previous tivozanib studies. The most common adverse events in patients receiving tivozanib was fatigue and asthenia, adverse events known to reflect effective VEGF pathway inhibition.
In June 2021, additional analyses and long-term follow up results from the TIVO-3 trial were presented at the 2021 American Society of Clinical Oncology, or ASCO, Annual Meeting. In February 2022, at the American Society of Clinical Oncology Genitourinary, or ASCO GU, Cancers Symposium, additional long term follow up was presented demonstrating long term PFS benefit and an improving trend in overall survival, or OS, from the TIVO-3 trial (HR 0.89).
These landmark long-term PFS rates up to 48-months were higher among patients treated with tivozanib as compared to patients treated with sorafenib (12% vs. 2% and 7.6% vs. 0% at three and four years, respectively).
RCC PD-1 Phase 3 Combination Clinical Trial with OPDIVO® (TiNivo-2): Based on data from our Phase 1b/2 clinical trial of tivozanib in combination with OPDIVO (nivolumab), or the TiNivo trial, including data showing few tivozanib dose reductions and additive or synergistic activity for ORR and PFS, we opened enrollment for a Phase 3 clinical trial, which we refer to as the TiNivo-2 trial, in the third quarter of 2021. We are the sponsor of the trial and Bristol-Myers Squibb Company, or BMS, is supplying OPDIVO (nivolumab), BMS’s antibody directed against programmed death-1, or PD-1, therapy for the trial. The TiNivo-2 trial is a randomized, open-label, controlled Phase 3 clinical trial designed to evaluate the safety and efficacy of tivozanib in combination with nivolumab as compared to tivozanib as a monotherapy, in RCC patients who have progressed following one or two lines of prior immunotherapy, one of which must include an ICI. The TiNivo-2 trial is expected to enroll approximately 326 patients from sites in the United States, Europe and Latin America. Patients will be randomized 1:1 to receive either tivozanib (0.89 mg/QD for 21 days followed by 7 days off treatment) in combination with nivolumab (480 mg every 4 weeks) or tivozanib as a monotherapy (1.34 mg/QD for 21 days followed by 7 days off treatment). In February 2022, we amended the protocol to reduce the combination dose of tivozanib to 0.89 mg. The protocol was amended based on (i) emerging evidence that the lower 0.89 mg dose was effective in combination with an ICI, (ii) that the lower dose may optimize the risk/benefit profile and result in better tolerability for the combination and (iii) the FDA’s recommendation to investigate an optimal dose of tivozanib in the combination setting under its Project Optimus initiative. We expect TiNivo-2 trial enrollment to be completed in the first half of 2023. The TiNivo-2 trial’s primary endpoint will assess PFS, with secondary endpoints to include OS, ORR, duration of response and safety. The TiNivo-2 trial will seek to further understand the activity and tolerability of this combination following prior immunotherapy.
RCC HIF2α Phase 2 Clinical Trial with NKT2152: In January 2022, we entered into a clinical trial collaboration and supply agreement with NiKang Therapeutics Inc., or NiKang, to evaluate tivozanib in combination with NKT2152, NiKang’s small molecule that inhibits HIF2α. The Phase 2 clinical trial is designed to evaluate the safety and efficacy of the combination of tivozanib and NKT2152 in clear cell RCC, or ccRCC, patients who have not responded to or relapsed from prior therapies. NiKang will sponsor the trial. We are supplying tivozanib at no cost and will co-fund the trial. We expect the Phase 2 clinical trial to commence in 2022.
Clinical Development of Tivozanib in HCC
HCC PD-L1 Combination Trial with IMFINZI® (DEDUCTIVE): We are conducting the DEDUCTIVE trial through a drug supply and cost sharing collaboration with AstraZeneca PLC. The DEDUCTIVE trial is an open-label, multi-center, randomized Phase 1b/2 clinical trial of tivozanib in combination with AstraZeneca's IMFINZI (durvalumab), a human monoclonal antibody directed against PD-L1. Enrollment for the first cohort of the trial, which includes patients with advanced, unresectable HCC who have not received prior systemic therapy for metastatic disease, or cohort A, of the DEDUCTIVE trial is complete and topline results were recently presented at the ASCO Gastrointestinal (GI) Cancers Symposium. Topline efficacy and safety data for cohort A demonstrated that the combination was well tolerated, with three patients showing Grade 3 treatment related adverse events, or TRAEs, and no Grade 4 TRAEs or treatment-related deaths. Further, the combination demonstrated a 27.8% partial response, or PR, rate and a disease control rate (PR plus stable disease) of 67.8%, with a median PFS of 7.3 months and a 1-year OS of 76%, which we believe positions the tivozanib/durvalumab combination well relative to other anti-VEGF ICI combinations in this indication.
The DEDUCTIVE trial was amended in the third quarter of 2021 to include second-line treatment of patients with advanced, unresectable HCC who have progressed after first-line bevacizumab and atezolizumab treatment, or cohort B. The cohort B Phase 2 portion of the trial is designed to enroll 20 patients and enrollment is now expected to be completed in the second half of 2022, a delay from our previous guidance of the first half of 2022. The DEDUCTIVE trial enrollment has been delayed due to several developments including: developments in the HCC standard of care that have led to longer treatment in first line therapies and reduced the presence of a sufficient patient pool suitable for the DEDUCTIVE trial; site staffing shortages related to the COVID-19 pandemic and other competitive factors that have led to enrollment delays at trial sites; and the COVID-19 pandemic hindering patients' ability to attend routine physical medical assessments with their clinicians that resulted in delays in diagnosis and, at times, treatment of cancer in patients.
Clinical Development of Tivozanib in Ovarian Cancer
In June 2019, Dr. Wendy Swetzig at Northwestern University Feinberg School of Medicine presented data at the 2019 ASCO Annual Meeting from an investigator-sponsored Phase 2 clinical trial of tivozanib in patients with recurrent, platinum-resistant ovarian cancer, including fallopian tube or primary peritoneal cancer. The trial was one of several studies funded by a grant we provided to the National Comprehensive Cancer Network. The trial was designed to measure the safety and activity of tivozanib in ovarian cancer and enrolled a total of 31 patients, 30 of which were treated with tivozanib. With four patients showing a partial response and twelve patients with stable disease, the clinical benefit rate
(partial response plus stable disease) was reported to be 53.3%. The trial data suggests that tivozanib is active in patients with recurrent ovarian cancer, without substantial toxicity.
Clinical Development of Tivozanib in Immunologically Cold Tumors
In September 2021, we entered into an IST Agreement with the University of Florida, or UF, to conduct a Phase 1b/2 clinical trial to evaluate the safety and efficacy of tivozanib in combination with atezolizumab in immunologically cold tumors. Immunologically cold tumors are solid tumors that lack or have few tumor-infiltrating lymphocytes and remain a clinical challenge.
Clinical Development of Tivozanib in Cholangiocarcinoma
In September 2021, we entered into a CRADA with NCI-SOP to conduct a Phase 1/2 clinical trial designed to evaluate the safety and efficacy of tivozanib in CCA. The Phase 1/2 clinical trial is an open-label, single-center, non-randomized study which enrolled its first patient in March 2022. CCA is an aggressive biliary tract malignancy that remains a clinical challenge with limited treatment options and poor survival rates.
Ficlatuzumab
Ficlatuzumab is a potent humanized IgG1 monoclonal antibody that targets hepatocyte growth factor, or HGF. The HGF/cMET pathway is implicated as an escape mechanism for epidermal growth factor receptor, or EGFR, blockade. Ficlatuzumab has demonstrated differentiated inhibition of HGF/cMET downstream signaling and demonstrated a strong additive anti-tumor effect in preclinical studies and early clinical trials.
We have previously reported Phase 1/2 clinical data on ficlatuzumab in HNSCC, pancreatic cancer and acute myeloid leukemia, or AML. We continue to evaluate opportunities for the further clinical development of ficlatuzumab in these and other cancers.
Clinical Development of Ficlatuzumab in HNSCC
We announced results from the randomized Phase 2 clinical trial of ficlatuzumab, or the Phase 2 HNSCC Trial, in combination with ERBITUX® (cetuximab), an EGFR, targeted antibody, in patients with recurrent or metastatic HNSCC who relapsed or were refractory to prior immunotherapy, chemotherapy and cetuximab (pan-refractory) at the 2021 ASCO Annual Meeting. Based on the Phase 1b and Phase 2 clinical trial results, ficlatuzumab was granted Fast Track designation by the FDA for the evaluation of ficlatuzumab in combination with cetuximab for the treatment of patients with relapsed or recurrent HNSCC in September 2021.
In support of the proposed Phase 3 clinical trial of ficlatuzumab and cetuximab in patients with HPV negative HNSCC, in January 2022, we entered into a clinical trial collaboration and supply agreement with Merck KGaA, Darmstadt, Germany, or Merck, to evaluate ficlatuzumab in combination with cetuximab in patients with HPV negative R/M HNSCC. Merck will provide cetuximab clinical drug supply in all countries outside of the U.S. and Canada for the registrational clinical trial. We expect to continue to discuss potential registrational clinical trial designs with the FDA and with potential partners. Assuming the timely manufacturing of ficlatuzumab, the availability of financial resources or a strategic partner with adequate funding and the ability to finalize the trial design with the FDA under the Fast Track designation, we expect to initiate a potential registrational clinical trial of ficlatuzumab in combination with cetuximab in patients with HPV negative HNSCC patients in the first half of 2023.
In 2020, we contracted with a CMO to manufacture the clinical supply for our potential Phase 3 clinical trial of ficlatuzumab in combination with cetuximab in patients with HPV negative R/M HNSCC patients. However, a shortage of required raw materials and manufacturing supplies also used in the COVID-19 vaccine manufacturing process delayed the delivery of the clinical supply of ficlatuzumab. We have secured the required raw materials and manufacturing supplies and now plan to manufacture clinical supply for our potential Phase 3 clinical trial of ficlatuzumab in the second quarter of 2022.
We continue to evaluate additional opportunities for the further clinical development of ficlatuzumab including in pancreatic cancer, AML and in tumors where EGFR inhibitors are used. The expansion of the ficlatuzumab clinical program, beyond what we are currently committed to, will require additional manufacturing efforts and costs.
Clinical Development of Ficlatuzumab in Pancreatic Cancer
Kimberly Perez, M.D. at the Dana-Farber Cancer Institute conducted an investigator-sponsored Phase 1b/2 clinical trial of ficlatuzumab in combination with nab-paclitaxel and gemcitabine in pancreatic cancer. The trial was initiated in December 2017 to test the safety and tolerability of ficlatuzumab in combination with nab-paclitaxel and gemcitabine in previously untreated metastatic pancreatic ductal cancer, or PDAC. In January 2020, results from the Phase
1b portion of the trial were presented at the 2020 ASCO GI Cancers Symposium. The trial, which was based on preclinical findings demonstrating a synergistic effect of the combination in a preclinical model of PDAC, was designed to determine maximum tolerated dose of ficlatuzumab when combined with gemcitabine and nab-paclitaxel. Secondary outcome measures included ORR and PFS. A total of 24 patients enrolled in the trial. The average number of 28-day treatment cycles received was 7.5 (range 1-15), with three patients remaining on active treatment at the end of the trial. The combination showed a 29% partial response rate and a 92% disease control rate (partial response plus stable disease), which was promising relative to data observed for gemcitabine and nab-paclitaxel alone. Treatment with this regimen was associated with significant hypoalbuminemia and edema, and therefore a follow-up safety study is under consideration to evaluate ficlatuzumab in combination with an alternate cytotoxic regimen.
Clinical Development of Ficlatuzumab in AML
We conducted an investigator-sponsored Phase 1b/2 clinical trial of ficlatuzumab in combination with cytarabine in patients with AML, which we refer to as the CyFi-1 trial, which showed a complete response rate of 50% in the 18 primary refractory AML patients enrolled in the trial and an acceptable tolerability profile. Based on the promising findings from the CyFi-1 trial, we designed a randomized Phase 2 clinical trial evaluating ficlatuzumab in combination with high-dose cytarabine versus high-dose cytarabine as a monotherapy in patients with AML, which we referred to as the CyFi-2 trial. However, in March 2020, we discontinued the CyFi-2 trial prior to the initiation of patient enrollment due to the urgent shift in priorities among clinical trial sites toward efforts to combat the COVID-19 pandemic, which had impacted the trial enrollment timeline and the feasibility of completing the clinical trial within the shelf-life of the ficlatuzumab clinical trial drug supply that was available. We are currently considering further clinical development of ficlatuzumab in AML, but have not made any final determinations at this time.
AV-380
AV-380 is a potent humanized IgG1 monoclonal antibody that targets growth differentiation factor 15, or GDF15, which is often associated with poor patient prognosis, the onset and worsening of cachexia and has been linked to immunosuppression in the tumor microenvironment. We are developing AV-380 for the potential treatment and/or prevention of cancer cachexia. Cachexia is defined as a multi-factorial syndrome of involuntary weight loss characterized by an ongoing loss of skeletal muscle mass (with or without loss of fat mass) that cannot be fully reversed by conventional nutritional support and leads to progressive functional impairment. It is estimated that cachexia affects approximately 9 million individuals in North America, Europe and Japan. Cachexia is associated with various cancers, and it is estimated that 50% to 80% of all cancer patients suffer from cachexia and up to 20% of all cancer patients die due to cachexia. We believe AV-380 has the potential to address a significant unmet medical need. Cachexia also affects patients with chronic kidney disease, congestive heart failure, chronic obstructive pulmonary disease, anorexia nervosa, AIDS and other diseases.
In December 2020, the FDA approved our investigational new drug, or IND, application for AV-380 for the potential treatment of cancer cachexia. In October 2021, we completed enrollment for a Phase 1 clinical trial in healthy subjects. Initial data observed a reduction of GDF15 in subjects and no drug related adverse events were identified. However, operational errors at the trial site have caused data integrity concerns and we have notified the FDA. We plan to discuss with the FDA the suitability of the data for regulatory purposes and our ability to publish the data from this trial. We do not expect the data quality issues in the Phase 1 clinical trial to impact our plans to initiate a Phase 1b clinical trial in cancer patients in the second half of 2022.
We believe that AV-380 represents a unique approach to treating cachexia because, in preclinical studies, it has demonstrated the ability to address key mechanisms underlying the syndrome. Our preclinical research suggests that greater than 70% of cancer patients have increased GDF15 expression, starting at the pre-cachectic stage. If GDF15 inhibitors, such as AV-380, can demonstrate a clinically meaningful impact on cachexia, we believe there is a significant market opportunity with potential application in multiple tumor types in combination with current standards of care for oncology. In addition to our patents and patent applications covering our proprietary AV-380 antibody program, we have in-licensed certain patents and patent applications from St. Vincent’s Hospital Sydney Limited in Sydney, Australia, which we refer to as St. Vincent’s. We have milestone and royalty payment obligations under our license agreement with St. Vincent’s.
AV-203
AV-203 is a potent humanized IgG1 monoclonal antibody that targets ErbB3 (also known as HER3). AV-203 inhibits ErbB3 inducing the internalization and degradation of the surface receptor and demonstrates a high degree of activity in NRG1+ tumors. AV-203 has also demonstrated a high degree of anti-tumor activity in preclinical models.
In March 2016, we entered into a collaboration and license agreement with CANbridge Life Sciences Ltd., or CANbridge, which we refer to as the CANbridge Agreement, under which we granted CANbridge the exclusive right to develop, manufacture and commercialize AV-203 in all countries outside of North America.
In September 2021, we regained worldwide rights to the AV-203 program following CANbridge's' termination of the CANbridge Agreement for convenience. As part of the termination for convenience, CANbridge transferred to us all of its know-how in the development of AV-203 as well as all manufacturing material. We are exploring AV-203 as a potential oncology treatment and we expect to reactivate the IND application in the second quarter of 2022.
ErbB3 Antibody Radio-Conjugate
In February 2022, we entered into a research collaboration agreement with Actinium Pharmaceuticals, Inc., or Actinium, to develop and study a first-in-class antibody radio-conjugate, or ARC, targeting ErbB3, also known as HER3. Actinium plans to utilize its Antibody Warhead Enabling, or AWE, technology platform to conjugate AVEO’s ErbB3 targeted antibody with the potent alpha-emitting radioisotope Actinium-225, or Ac-225, to form a novel Ac-225 ErbB3 targeted radiotherapy.
AV-353
AV-353 is a preclinical selective and potent IgG1 monoclonal antibody that targets the Notch 3 pathway. The Notch 3 pathway is important in cell-to-cell communication involving gene regulation mechanisms that control multiple cell differentiation processes during the entire life cycle. Scientific literature has implicated the Notch 3 receptor pathway in multiple diseases, including cancer, cardiovascular diseases, such as pulmonary arterial hypertension, and neurodegenerative conditions. We are exploring AV-353 as a potential oncology treatment. AV-353 is being studied by our collaborators at the Mayo Clinic in preclinical studies of triple negative breast cancer.
Competition
The biotechnology and pharmaceutical industries are highly competitive. Our future success depends on our ability to maintain a competitive advantage with respect to our product candidates.
Our core competitors include pharmaceutical and biotech organizations, as well as academic research institutions, clinical research laboratories and government agencies that are pursuing research activities in the same therapeutic areas as us. Many of our competitors have greater financial, technical and human resources than we do. Additionally, many competitors have greater experience in oncology commercialization, product discovery and development and obtaining FDA and other regulatory approvals, which may provide them with a competitive advantage.
We believe that our ability to compete will depend on our ability to execute on the following objectives:
•commercialize products that provide certain advantages over other products in the market in terms of, among other things, safety, efficacy and/or convenience;
•obtain favorable reimbursement, formulary and guideline status;
•design and develop products that are superior to other products in the market in terms of, among other things, safety, efficacy and/or convenience;
•obtain patent and/or other proprietary protection for our processes and product candidates;
•obtain required regulatory approvals; and
•collaborate with others in the design, development and commercialization of our products and product candidates.
Established competitors may invest heavily to discover and develop novel compounds that could make our product or our product candidates obsolete. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and/or safety in order to obtain approval, to overcome price competition and to be commercially successful. If we are not able to compete effectively, our business will not grow and our financial condition and operations will suffer.
Tivozanib
The competitive landscape and treatment regimens for RCC and HCC continue to rapidly evolve, particularly given the entrance of ICI combination therapies as well as other novel targets. The utilization of such regimens may affect sequencing of certain drugs and combinations across different lines of therapy. As such, it is difficult to predict how these developments will impact the tivozanib competitive landscape in RCC in the future.
To date, we believe the key competitors for FOTIVDA in relapsed or refractory advanced RCC include the following FDA-approved treatments: Cabometyx (cabozantinib), marketed by Exelixis, Inc.; Afinitor (everolimus), marketed by Novartis International Pharmaceutical, Ltd., or Novartis; Inlyta (axitinib), marketed by Pfizer Inc.; Opdivo (nivolumab), marketed by BMS, all as single-agent therapies; along with the combination of Lenvima (lenvatinib), marketed by Eisai Co., Ltd. and Novartis’ Afinitor (everolimus).
The kidney cancer market is very competitive with multiple mechanisms and combinations evolving at a rapid rate. However, we believe we are differentiated among competitors based on FOTIVDA's product properties and our clinical data set which positions us well in the relapsed or refractory advanced RCC market and supports our belief that FOTIVDA could become a standard of care in the United States in the third and fourth line relapsed or refractory advanced RCC setting. We are seeking to leverage tivozanib's differentiated product profile in combination with immunotherapy ICIs and other emerging targets, such as HIF2α, to further our market opportunities in RCC and other indications.
Ficlatuzumab
We believe the products that currently compete with ficlatuzumab are primarily those that are approved and in development that target the HGF/cMET pathway. In particular, we are focused on targeting the HGF/CMET pathway in the HNSCC setting. To our knowledge, we are the only HNSCC therapy that targets the HGF/CMET pathway focused exclusively on the HPV negative HNSCC population.
AV-380
We believe the products that currently compete with our AV-380 program are primarily those that target the GDF15/GDNF Family Receptor Alpha Like, or GFRAL, pathway. A number of agents with unique mechanisms of action are in various stages of clinical development in cancer cachexia or wasting syndrome. We believe the key competitors for our AV-380 program are other companies pursuing the GDF15/GFRAL pathway for cancer cachexia and/or as an anti-cancer therapeutic, including NGM Biopharmaceuticals Inc., Pfizer and CatalYm GmbH’s clinical GDF15 program.
AV-203
We believe the products that currently compete with our AV-203 program are monoclonal antibodies that specifically target the ErbB3 receptor. The clinical stage agents that are known to target ErbB3 receptors include Daiichi Sankyo, Inc.’s and Amgen Inc.’s patritumab (AMG-888), Elevation Oncology’s seribantumab, Merus N.V.’s MCLA-128, AstraZeneca’s sapitinib, Celldex Therapeutics Inc.’s CDX-3379, Sihuan Pharmaceutical Holdings Group Ltd.’s pirotinib and Roche’s duligotuzumab.
AV-353
Currently, we are not aware of any ongoing clinical trials of Notch 3-specific inhibitors, nor any approved Notch 3-specific inhibitors in oncology; however, a number of agents for applications in oncology are being explored that target the Notch 3 receptor and may inhibit other Notch receptors.
Collaboration Agreements
We have established collaborations with leading pharmaceutical companies for the further development of tivozanib and ficlatuzumab. As part of our corporate strategy, our collaborations advance life-cycle development for FOTIVDA (tivozanib) to support its potential utility in immuno-oncology and other combinations in RCC and other indications. We expect to continue to leverage our existing and enter into new strategic collaborations and partnerships that can contribute to our ability to efficiently develop our product candidates to provide a better life for patients with cancer.
Tivozanib
BMS
In January 2021, we entered into a clinical trial collaboration and supply agreement, or the BMS Agreement, with BMS. Under the terms of the BMS Agreement, BMS is supplying OPDIVO® (nivolumab), its anti-PD-1 therapy, for the TiNivo-2 trial with FOTIVDA® (tivozanib) in RCC patients who have progressed following one or two lines of prior immunotherapy, one of which must include an ICI. Pursuant to the terms of the BMS Agreement, BMS granted us a non-exclusive, worldwide (other than within certain territories specified therein), non-transferable, royalty-free license under certain BMS patent rights, technology and regulatory documentation to use nivolumab in research and development, solely to the extent necessary to conduct the TiNivo-2 trial. Additionally, BMS granted us a non-exclusive, worldwide (other than
within certain territories specified therein), non-transferable, irrevocable, royalty-free license under certain patent rights, technology and regulatory documentation, to seek regulatory approval of tivozanib for use in a combined therapy in the field, and, upon any such regulatory approval, to market and promote tivozanib solely for use in a combined therapy in the field in any manner that is consistent with the regulatory approval for tivozanib. Finally, BMS granted us a non-exclusive, worldwide (other than within certain territories specified therein), non-transferable, irrevocable, royalty-free license in the field under certain inventions and patent rights relating to nivolumab for all purposes in the field except to research, develop, make, have made, use, sell offer for sale, export or import nivolumab or any biosimilar version. We and BMS shall jointly own all inventions, or the Combined Therapy Inventions, and patent rights, or the Combined Therapy Patent Rights, relating to the combined therapy used in the TiNivo-2 trial. We and BMS each may freely exploit the Combined Therapy Inventions and Combined Therapy Patent Rights, and the parties will share equally in costs relating to maintaining and prosecuting the Combined Therapy Patent Rights.
Pursuant to the terms of the BMS Agreement, each party is responsible for expenses relating to the manufacturing and supply of its respective products. For expenses related to conduct of the TiNivo-2 trial: (i) we will be responsible for all out-of-pocket costs associated with the performance of the TiNivo-2 trial, and (ii) each party will be responsible for its own internal costs associated with the TiNivo-2 trial. If the conduct of the TiNivo-2 trial requires a third-party license payment, then the party required to make such payment shall be determined in accordance with the prior sentence.
The term of the BMS Agreement will continue, unless earlier terminated in accordance with the BMS Agreement, until completion of the TiNivo-2 trial by all centers participating in the TiNivo-2 trial, delivery of all study data, including all completed case report forms, all final analyses and all final clinical study reports contemplated by the TiNivo-2 trial to both parties, and the completion of any statistical analyses and bioanalyses contemplated by the protocol or otherwise agreed to by the Parties to be conducted under the BMS Agreement.
AstraZeneca
In December 2018, we entered into a clinical supply agreement, the AstraZeneca Agreement, with a wholly owned subsidiary of AstraZeneca to evaluate the safety and efficacy of AstraZeneca’s IMFINZI (durvalumab), a human monoclonal antibody directed against PD-L1, in combination with tivozanib, in the DEDUCTIVE trial to treat HCC. Under the terms of the clinical supply agreement, we are the study sponsor and each party contributes the clinical supply of its study drug. Key decisions are made by both parties by consensus and external study costs are otherwise shared equally.
Ficlatuzumab
Biodesix
In April 2014, we entered into a worldwide co-development and collaboration agreement, or the Biodesix Agreement, with Biodesix to develop and commercialize ficlatuzumab. Under the terms of the Biodesix Agreement, each party contributed 50% of all clinical, regulatory, manufacturing and other costs to develop ficlatuzumab and to share equally in any future revenue and development or commercialization. Under the Biodesix Agreement, prior to the first commercial sale of ficlatuzumab, each party had the right to elect to discontinue its funding obligation for further development or commercialization efforts with respect to ficlatuzumab in exchange for reduced economics in the program, which is referred to as an “Opt-Out.” In September 2020, Biodesix exercised its "Opt-Out" rights under the Biodesix Agreement and, in December 2020, we regained full global rights to ficlatuzumab.
Pursuant to the terms of the Biodesix Agreement, as a result of Biodesix’s election to Opt-Out, Biodesix will (i) continue to be responsible for reimbursement of development costs with respect to the ongoing phase 2 investigator-sponsored clinical trial of ficlatuzumab in combination with ERBITUX® (cetuximab) in HNSCC, or the Phase 2 HNSCC Trial, (ii) cease to be entitled to 50% sharing of profits resulting from commercialization of ficlatuzumab, (iii) be entitled to a low double digit royalty on future product sales and 25% of future licensing revenue (excluding contributions to research and development expenses), less approximately $2.5 million that Biodesix would be required to pay to us pursuant to the October 2016 amendment to the Biodesix Agreement and (iv) remain responsible for development obligations under the Biodesix Agreement with respect to VeriStrat®.
We and Biodesix also remain obligated to negotiate a commercialization agreement to delineate our respective rights and obligations in the event of any commercialization of VeriStrat® with ficlatuzumab. As a result of Biodesix’s decision to Opt-Out, we now have worldwide licensing rights and sole decision-making authority with respect to further development and commercialization of ficlatuzumab. The payment obligations between the parties under the Biodesix Agreement are in effect until completion of the Phase 2 HNSCC Trial.
License Agreements
As part of our corporate strategy, we have entered into license agreements to develop the programs in our portfolio and commercialize FOTIVDA in the EUSA territory. Under each of our license agreements, we are entitled to receive or required to pay upfront, milestone payments and/or royalties.
Tivozanib
Kyowa Kirin Co.
In December 2006, we entered into a license agreement with KKC, or the KKC Agreement, under which we obtained an exclusive, sublicensable license to develop, manufacture and commercialize tivozanib in all territories in the world except for Asia and the Middle East, where KKC retained the rights to tivozanib. Under the KKC Agreement, we obtained exclusive rights to tivozanib in our territory under certain KKC patents, patent applications and know-how for the diagnosis, prevention and treatment of all human diseases and conditions. In August 2019, we entered into an amendment to the KKC Agreement pursuant to which KKC repurchased the non-oncology rights to tivozanib in our territory, excluding the rights we have sublicensed to EUSA under the EUSA Agreement. We have upfront, milestone and royalty payment obligations to KKC under the KKC Agreement, and following the amendment, KKC also has upfront, milestone and royalty payment obligations to us related to non-oncology development by KKC in our territory. Pursuant to the amendment to the KKC Agreement, KKC was required to make a non-refundable upfront payment to us in the amount of $25.0 million that we received in September 2019 and KKC waived a one-time milestone payment of $18.0 million otherwise payable by us in March 2021 upon our obtaining marketing approval for tivozanib in the United States.
If we sublicense any of our rights to tivozanib to a third-party, as we have done with EUSA pursuant to the EUSA Agreement, we are required to pay KKC a fixed 30% of the amounts we receive from our sublicensees, including upfront license fees, milestone payments and royalties, but excluding amounts we receive in respect of research and development reimbursement payments or equity investments, subject to certain limitations.
Certain research and development reimbursement payments by EUSA are not subject to sublicense revenue payments to KKC. For example, if EUSA elects to opt-in to the TIVO-3 trial, the additional research and development reimbursement payment from EUSA of 50% of the total trial costs, up to $20.0 million, would also not be subject to a sublicense revenue payment to KKC, subject to certain limitations. We would, however, owe KKC 30% of other, non-research and development payments we may receive from EUSA pursuant to the EUSA Agreement, including reimbursement approvals for RCC in up to five specified EU countries, marketing approvals for RCC in three specified non-EU licensed territories, EU marketing approval filings and corresponding marketing approvals by the EMA for up to three additional indications beyond RCC, and sales-based milestones and royalties. The $2.0 million milestone payments we earned in each of February 2018, November 2018 and February 2019 upon EUSA’s reimbursement approval for FOTIVDA as a first-line treatment for RCC in the United Kingdom, Germany and Spain, respectively, were subject to the 30% KKC sublicense fee, or $0.6 million each.
We are also required to pay tiered royalty payments on net sales we make of FOTIVDA in our North American territory, which range from the low to mid-teens as a percentage of net sales. The royalty rate escalates within this range based on increasing FOTIVDA sales. Our royalty payment obligations in a particular country in our territory begin on the date of the first commercial sale of FOTIVDA in that country, and end on the later of 12 years after the date of the first commercial sale of FOTIVDA in that country or the date of the last to expire of the patents covering tivozanib that have been issued in that country.
Pursuant to the amendment to the KKC Agreement, KKC is also required to make milestone payments to us of up to an aggregate of $390.7 million upon the successful achievement of certain development and sales milestones of tivozanib in non-oncology indications. In August 2020, KKC paid us a $2.8 million development milestone upon acceptance by the Pharmaceuticals and Medical Devices Agency of Japan of KKC’s IND for a non-oncology formulation of tivozanib. In September 2020, KKC initiated clinical development of KHK4951, the reformulated tivozanib, in healthy volunteers and patients with Wet AMD.
In addition, KKC is required to make tiered royalty payments to us on net sales of tivozanib in non-oncology indications in our territory, which range from high single digit to low double digits as a percentage of net sales. The royalty rate escalates within this range based on increasing tivozanib sales, subject to certain adjustments. KKC’s royalty payment obligations in a particular country in our territory begin on the date of the first commercial sale of tivozanib in that country, and end on the later of the expiration date of the last valid claim of a patent application or patent owned by KKC covering tivozanib or 10 years after the date of the first commercial sale of tivozanib in non-oncology indications in that country.
If KKC sublicenses any of its non-oncology rights to tivozanib to a third-party, KKC is required to pay us a percentage of amounts received from the respective sublicensees related to our territory, including upfront license fees, milestone payments and royalties, but excluding amounts received in respect of research and development reimbursement payments or equity investments, subject to certain limitations.
We and KKC each have access to and can benefit from the other party’s clinical data and regulatory filings with respect to tivozanib and biomarkers identified in the conduct of activities under the KKC Agreement, as related to oncology development. Under the KKC Agreement, we are obligated to use commercially reasonable efforts to develop and commercialize tivozanib in our territory.
The KKC Agreement will remain in effect until the expiration of all of our royalty and sublicense revenue obligations, determined on a product-by-product and country-by-country basis, unless terminated earlier. If we fail to meet our obligations under the KKC Agreement and are unable to cure such failure within specified time periods, KKC can terminate the KKC Agreement, resulting in a loss of our rights to tivozanib and an obligation to assign or license to KKC any intellectual property or other rights we may have in tivozanib, including our regulatory filings, regulatory approvals, patents and trademarks for tivozanib.
EUSA
In December 2015, we entered into the EUSA Agreement under which we granted to EUSA the exclusive, sublicensable right to develop, manufacture and commercialize tivozanib in the territories of Europe (excluding Russia, Ukraine and the Commonwealth of Independent States), Latin America (excluding Mexico), Africa and Australasia for all diseases and conditions in humans, excluding non-oncologic diseases or conditions of the eye. EUSA is obligated to use commercially reasonable efforts to seek regulatory approval for and commercialize tivozanib throughout its licensed territories for RCC. EUSA has responsibility for all activities and costs associated with the further development, manufacture, regulatory filings and commercialization of tivozanib in its licensed territories. In December 2021, EUSA announced that it had signed an agreement with Recordati, S.p.A. to be acquired and has indicated that the acquisition is anticipated to close in the first half of 2022.
We are also eligible to receive a research and development reimbursement payment from EUSA of $20 million of our total TIVO-3 trial costs if EUSA chooses to opt-in to use the TIVO-3 dataset to seek an expanded RCC indication in the EU, or for other regulatory or commercialization purposes. The leadership of EUSA has informed us that it is interested in exercising its opt-in right with respect to our TIVO-3 data and seeking an expanded label under the EUSA Agreement, but has requested we delay the negotiations regarding the structuring of this payment stream until the acquisition by Recordati, S.p.A. closes. We cannot be certain that we will arrive at mutually acceptable terms, or that EUSA will ultimately exercise the opt-in.
We are entitled to receive milestone payments of $2.0 million per country upon reimbursement approval, if any, for RCC in each of countries in the EU5 and, to date, we have received payments upon reimbursement approval for RCC in the UK (February 2018), Germany (November 2018) and Spain (February 2019). We are also entitled to receive $2.0 million for the grant of marketing approval for RCC, if any, in three of the licensed countries outside of the EU, as mutually agreed by the parties, the first two of which were obtained in New Zealand in July 2019 and in South Africa in September 2020.
We are also eligible to receive a payment of $2.0 million per indication in connection with a filing by EUSA with the EMA for marketing approval, if any, for tivozanib for the treatment of each of up to three additional indications and $5.0 million per indication in connection with the EMA’s grant of marketing approval for each of up to three additional indications, as well as up to $335.0 million upon EUSA’s achievement of certain sales thresholds. Upon commercialization, we are eligible to receive tiered double digit royalties on net sales, if any, of licensed products in its licensed territories ranging from a low double digit up to mid-twenty percent depending on the level of annual net sales. In November 2017, we began earning sales royalties upon EUSA’s commencement of the first commercial launch of FOTIVDA (tivozanib) with the initiation of product sales in Germany. EUSA has received reimbursement approval for and commercially launched FOTIVDA in Germany, the United Kingdom, and Spain as well as in additional non-EU5 countries.
The research and development reimbursement payments under the EUSA Agreement are not subject to the 30% sublicensing payment payable to KKC, subject to certain limitations. We would, however, owe KKC 30% of other, non-research and development payments we may receive from EUSA pursuant to the EUSA Agreement, including any reimbursement approvals for RCC in the EU5, marketing approvals for RCC in three specified non-EU licensed territories, EU marketing approval filings and corresponding marketing approvals by the EMA for up to three additional indications beyond RCC, and sales-based milestones and royalties, as set forth above. The $2.0 million milestone payments we earned in each of February 2018, November 2018 and February 2019 upon EUSA’s reimbursement approval for FOTIVDA in the United Kingdom, Germany and Spain, respectively, were subject to the 30% KKC sublicense fee, or $0.6 million, each.
The term of the EUSA Agreement continues on a product-by-product and country-by-country basis until the last to occur of (a) the expiration of the last valid patent claim for such product in such country, (b) the expiration of market or regulatory data exclusivity for such product in such country or (c) the tenth anniversary of the effective date. Either party may terminate the EUSA Agreement in the event of the bankruptcy of the other party or a material breach by the other party that remains uncured, following receipt of written notice of such breach, for a period of (a) thirty (30) days in the case of breach for nonpayment of any amount due under the EUSA Agreement, and (b) ninety (90) days in the case of any other material breach. EUSA may terminate the EUSA Agreement at any time upon one hundred eighty (180) days’ prior written notice. In addition, we may terminate the EUSA Agreement upon thirty (30) days’ prior written notice if EUSA challenges any of the patent rights licensed under the EUSA Agreement. EUSA has reported to us that, to date, it has not experienced any material decrease in sales trends or interruptions in supply or distribution of FOTIVDA during the COVID-19 pandemic; however, the future impact of the COVID-19 pandemic on FOTIVDA sales is difficult to predict.
AV-380
St. Vincent’s Hospital
In July 2012, we entered into a license agreement with St. Vincent’s, or the St. Vincent’s Agreement, under which we obtained an exclusive, worldwide sublicensable right to develop, manufacture and commercialize products for therapeutic applications that benefit from inhibition or decreased expression or activity of MIC-1, which is also known as GDF15. Under the St. Vincent’s Agreement, we have non-exclusive rights to certain related diagnostic products and research tools and also have a right of first negotiation to obtain an exclusive license to certain improvements that St. Vincent’s or third parties may make to licensed therapeutic products. We are obligated to use diligent efforts to conduct research and clinical development and commercially launch at least one licensed therapeutic product.
As of December 31, 2021, we are required to make future milestone payments, up to an aggregate total of $14.4 million, upon the earlier of the achievement of specified development and regulatory milestones or a specified date for the first indication, and upon the achievement of specified development and regulatory milestones for the second and third indications, for licensed therapeutic products, some of which payments may be increased by a mid to high double digit percentage rate for milestone payments made after we grant any sublicense, depending on the sublicensed territory. In February 2022, the Company paid a $2.3 million time-based milestone obligation that became due to St. Vincent’s in January 2022.
The St. Vincent’s Agreement remains in effect until the later of 10 years after the date of first commercial sale of licensed therapeutic products in the last country in which a commercial sale is made, or expiration of the last-to-expire valid claim of the licensed patents, unless we elect, or St. Vincent’s elects, to terminate the St. Vincent’s Agreement earlier. We have the right to terminate the St. Vincent’s Agreement on six months’ notice if we terminate our GDF15 research and development programs as a result of the failure of a licensed therapeutic product in preclinical or clinical development, or if we form the reasonable view that further GDF15 research and development is not commercially viable, and we are not then in breach of any of our obligations under the St. Vincent’s Agreement.
AV-203
CANbridge
In March 2016, we entered into the CANbridge Agreement under which we granted CANbridge the exclusive right to develop, manufacture and commercialize AV-203, a potent humanized IgG1 monoclonal antibody that targets ErbB3 (also known as HER3), for the diagnosis, treatment and prevention of disease in all countries outside of North America. In December 2017, CANbridge filed an IND application with the National Medical Products Administration (formerly, the China Food and Drug Administration), or NMPA, for a clinical study of AV-203 in esophageal squamous cell carcinoma, or ESCC. In August 2018, CANbridge obtained regulatory approval of its IND application from the NMPA for a clinical study of AV-203 in ESCC. In March 2021, CANbridge exercised its right to terminate the CANbridge Agreement for convenience. Under the terms of the CANbridge Agreement, the transfer of the AV-203 program was completed in September 2021 and we regained worldwide rights to the AV-203 program. As part of the transfer, CANbridge transferred to us all of its know-how in the development of AV-203 as well as any remaining manufacturing material. We expect to reactivate the IND in the second quarter of 2022.
A percentage of any milestone and royalty payments received by us under future partnership agreements related to the AV-203 program, excluding upfront and reimbursement payments, are due to Biogen Idec International GmbH, or Biogen, as a sublicensing fee under our option and license agreement with Biogen dated March 18, 2009, as amended.
Biogen Idec International GmbH
In March 2009, we entered into an exclusive option and license agreement with Biogen regarding the development and commercialization of our discovery-stage ErbB3-targeted antibodies, including AV-203, for the potential treatment and diagnosis of cancer and other diseases outside of North America, or the Biogen Agreement. Under the Biogen Agreement, we are responsible for developing ErbB3 antibodies through completion of the first Phase 2 clinical trial designed in a manner that, if successful, would generate data sufficient to support advancement to a Phase 3 clinical trial.
In March 2014, we and Biogen amended the Biogen Agreement, or the Biogen Amendment. Pursuant to the Biogen Amendment, Biogen agreed to the termination of its rights and obligations under the Biogen Agreement, including Biogen’s option to (i) obtain a co-exclusive (with us) worldwide license to develop and manufacture ErbB3 targeted antibodies and (ii) obtain exclusive commercialization rights to ErbB3 products in countries in the world other than North America. As a result, we have worldwide rights to AV-203. Pursuant to the Biogen Amendment, we are obligated to use reasonable efforts to seek a collaboration partner for the purpose of funding further development and commercialization of ErbB3 targeted antibodies. We are also obligated to pay Biogen a percentage of milestone payments received by us from future partnerships after March 28, 2016 and single digit royalty payments on net sales related to the sale of ErbB3 products, if any, up to a cumulative maximum amount of $50.0 million.
Intellectual Property Rights
Patent Rights
We continue to build a strong intellectual property portfolio, and, whenever possible, we seek to have multiple tiers of patent protection for our product candidates.
The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in granting a patent. A U.S. patent term may be shortened, if a patent is terminally disclaimed by its owner, over another patent.
The patent term of a patent that covers an FDA-approved drug may also be eligible for a patent term extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patent term extensions cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug. We have applied for patent term extensions on patents covering tivozanib and expect to apply for patent term extension on patents covering any of our product candidates that may obtain FDA approval in the future.
We rely on, and in the future expect to rely on, a combination of both patent protection and regulatory exclusivities to protect our approved products from generic or biosimilar competition. With the exception of pediatric exclusivities (a regulatory exclusivity), patent and regulatory exclusivities typically run concurrently with one another. Patents covering our approved products and product candidates are discussed below. Regulatory exclusivities relating to our approved products are discussed in the following section entitled “Government Regulation and Product Approval - Generic Drugs.”
Tivozanib
With respect to tivozanib, we have exclusively licensed from KKC its patents that cover the molecule and its therapeutic use for the diagnosis, prevention and treatment of any and all oncologic diseases and conditions in humans and a crystal form of the molecule. As discussed in “-Strategic Partnerships-Tivozanib-Kyowa Kirin Co. (KKC)” above, pursuant to the amendment to the KKC Agreement in August 2019, KKC repurchased the non-oncology rights of tivozanib in our licensed territories, excluding the rights which are currently sublicensed to EUSA.
With respect to tivozanib, we have the following in-licensed patents:
•U.S.: 2 granted patents expiring in 2023
•Europe: 2 granted patents with expirations ranging from 2022 to 2023
•Canada: 1 granted patent expiring in 2022
•Australia: 1 granted patent expiring in 2022
With respect to the U.S. patents, the first patent covers the tivozanib molecule and its therapeutic use and was originally scheduled to expire in April 2022. On January 22, 2022, the United States Patent and Trademark Office granted a one-year interim patent term extension of this patent until April 2023. If our application for patent term extension is granted, this one year interim extension will be included in the maximum patent term extension granted for this patent. The second patent covers a crystalline form of tivozanib that is the active pharmaceutical ingredient in our tivozanib product
candidate and is expected to expire in November 2023. In view of the length of time that tivozanib has been under regulatory review at the FDA, a patent term extension of up to five years may be available under the Hatch-Waxman Act. Although we have applied for patent term extensions on each patent, only one patent may be extended, and, when appropriate, we will have to elect which patent is to be extended. If a five year term extension were to be granted, if applied to the first patent, the term could be extended to April 2027, and if applied to the second patent, the term could be extended to November 2028.
With respect to the European patents, Supplementary Protection Certificates, or SPCs, have been granted for the European patent covering the tivozanib molecule in Belgium, Finland, France, Germany, Italy, the Netherlands, Norway, Poland, Portugal, Spain, Sweden, and the United Kingdom extending the term of the patents in each of these countries up to April 2027. An SPC application is pending in Denmark for the corresponding Danish patent that covers the tivozanib molecule, which, if granted, could extend the term of the patent up to 2027. An SPC has been granted for the patent covering the crystalline form of tivozanib in Ireland extending the term of that patent to October 2028.
Additionally, we have filed patent applications in the United States and other jurisdictions including Australia, Canada and Europe directed to our clinical protocol for using tivozanib to treat refractory cancers, including, following therapy with checkpoint inhibitors, which, if granted, would each expire in 2039.
Ficlatuzumab
With respect to our anti-HGF platform, including ficlatuzumab, we have six U.S. patents covering our anti-HGF antibodies, nucleic acids and expression vectors encoding the antibodies, host cells, methods of making the antibodies, and methods of treatment using the antibodies. In addition, we have filed an international (PCT) application directed to treating head and neck squamous cell carcinoma (HNSCC) with ficlatuzumab. If nationalized, we expect that a patent granted on a patent application in this family would expire in 2041. With respect to our anti-HGF platform we have:
•U.S.: 6 granted patents with expirations ranging from 2027 to 2028
•Europe: 1 granted patent expiring in 2027
•Japan: 2 granted patents expiring in 2027
•Canada: 1 granted patent expiring in 2027
•Australia: 1 granted patent expiring in 2027
•PCT: 1 pending PCT application, which if nationalized and granted would expire in 2041
AV-380 Platform
With respect to our anti-GDF15 platform, including AV-380, we have exclusively licensed certain patent rights from St. Vincent’s, which include a granted U.S. patent directed to a method of increasing appetite and/or body weight upon administering an effective amount of an anti-GDF15 antibody, which is expected to expire in 2029.
With respect to the licensed patent rights, we have:
•U.S.: 1 granted patent, and 1 pending patent application, if granted, with expirations ranging from 2025 to 2029
•Europe: 2 granted patents expiring in 2025
•Japan: 2 granted patents expiring in 2025
•Canada: 1 granted patent expiring in 2025
•Australia: 1 granted patent expiring in 2025
Additionally, we own three issued U.S. patents and a pending U.S. patent application covering our anti-GDF15 antibodies and methods of treating cachexia and inhibiting loss of muscle mass associated with cachexia using our anti-GDF15 antibodies. These patents and patent application, if granted, would be expected to expire in 2033.
We also have three pending U.S. patent applications directed to methods of treating or preventing congestive heart failure or chronic kidney disease using an anti-GDF15 antibody, and methods of treating a subject with cancer anorexia-cachexia syndrome with an anti-cancer agent and an anti-GDF15 antibody. These patent applications, if granted, would be expected to expire in 2035.
With respect to our anti-GDF15 platform, we have:
•U.S.: 3 granted patents, and 4 pending patent applications, if granted, with expirations ranging from 2033 to 2035
•Europe: 4 granted patents, and 4 pending patent applications, if granted, with expirations ranging from 2033 to 2035; one of the granted patents has been opposed in the European Patent Office
•Japan: 3 granted patents, and 2 pending patent applications, if granted, with expirations ranging from 2033 to 2035
•Canada: 2 pending patent applications, if granted, with expirations ranging from 2033 to 2035
•Australia: 2 granted patents, and 1 pending patent application, if granted, with expirations ranging from 2033 to 2035
AV-203 Platform
With respect to our anti-ErbB3 platform, including AV-203, we have five issued U.S. patents and one pending U.S. patent application covering our anti-ErbB3 antibodies, nucleic acids and expression vectors encoding the antibodies, host cells, methods of making the antibodies and methods of treatment using our anti-ErbB3 antibodies, which are expected to expire from 2031 to 2032. With respect to our anti-ErbB3 platform we have:
•U.S.: 5 granted patents, and 1 pending patent application, if granted, with expirations ranging from 2031 to 2032
•Europe: 2 granted patents, and 1 pending patent application, if granted, with expirations ranging from 2031 to 2032
•Japan: 3 granted patents with expirations ranging from 2031 to 2032
•Canada: 1 granted patent expiring in 2031
•Australia: 3 granted patents with expirations ranging from 2031 to 2032
AV-353 Platform
With respect to our AV-353 platform, we own three issued U.S. patents and two pending U.S. patent applications covering our anti-Notch3 antibodies, nucleic acids and expression vectors encoding the antibodies, host cells, methods of making the antibodies and methods of treatment using the antibodies. The three issued U.S. patents and the two non-provisional U.S. patent applications, if granted, would be expected to have expirations ranging from 2033 to 2037.
With respect to our AV-353 platform, we have:
•U.S.: 3 granted patents with expirations ranging from 2033 to 2037, and 2 pending patent applications, if granted, with expirations ranging from 2033 to 2037
•Europe: 1 granted patent expiring in 2033, and 1 pending patent application, if granted, expiring in 2037
Many pharmaceutical companies, biotechnology companies and academic institutions are competing with us in the field of oncology and filing patent applications potentially relevant to our business. With regard to ficlatuzumab, we are aware of one United States patent and its foreign counterparts that contain broad claims related to anti-HGF antibodies having certain binding properties and their use. In the event that the owner of these patents were to bring an infringement action against us, we may have to argue that our product, its manufacture or use does not infringe a valid claim of the patent in question. Furthermore, if we were to challenge the validity of any issued United States patent in court, we would need to overcome a statutory presumption of validity that attaches to every United States patent. This means that in, order to prevail, we would have to present clear and convincing evidence as to the invalidity of the patent’s claims. There is no assurance that a court would find in our favor on questions of infringement or validity.
Over the years, we have found it necessary or prudent to obtain licenses from third-party intellectual property holders. Where licenses are readily available at reasonable cost, such licenses are considered a normal cost of doing business. In other instances, however, we may have used the results of freedom-to-operate studies to guide our research away from areas where we believed we were likely to encounter obstacles in the form of third-party intellectual property. For example, where a third-party holds relevant intellectual property and is a direct competitor, a license might not be available on commercially reasonable terms or available at all.
In spite of our efforts to avoid obstacles and disruptions arising from third-party intellectual property, it is impossible to establish with certainty that our technology platform or our product programs will be free of claims by third-party intellectual property holders. Even with modern databases and on-line search engines, literature searches are imperfect and may fail to identify relevant patents and published applications. Even when a third-party patent is identified, we may conclude upon a thorough analysis, that we do not infringe the patent or that the patent is invalid. If the third-party patent owner disagrees with our conclusion and we continue with the business activity in question, patent litigation may be initiated against us. Alternatively, we might decide to initiate litigation in an attempt to have a court declare the third-party patent invalid or non-infringed by our activity. In either scenario, patent litigation typically is costly and time-consuming, and the outcome is uncertain. The outcome of patent litigation is subject to uncertainties that cannot be quantified in advance, for example, the credibility of expert witnesses who may disagree on technical interpretation of scientific data. Ultimately, in the case of an adverse outcome in litigation, we could be prevented from commercializing a product or using certain aspects of our technology platform as a result of patent infringement claims asserted against us. This could have a material adverse effect on our business.
To protect our competitive position, it may be necessary to enforce our patent rights through litigation against infringing third parties. Litigation to enforce our own patent rights is subject to the same uncertainties discussed above. In addition, however, litigation involving our patents carries the risk that one or more of our patents will be held invalid (in whole or in part, on a claim-by-claim basis) or held unenforceable. Such an adverse court ruling could allow third parties to commercialize our products or our platform technology, and then compete directly with us, without making any payments to us.
Trademarks
We seek trademark protection in the United States and other jurisdictions where available and when appropriate. We have filed applications and obtained registrations for several trademarks intended for use in the marketing of tivozanib, including the trademark FOTIVDA, which we have registered in the United States and over 35 other jurisdictions, and for which we have filed applications in additional countries. We own U.S. and EU registrations for a logo containing FOTIVDA in combination with a flame design. We own U.S. registrations for AVEO and AVEO (in stylized letters) trademarks that we use in connection with our business in general. We have also registered AVEO as a trademark in over 20 other jurisdictions.
Manufacturing
We or our partners currently contract with and rely on third parties for the manufacture of our commercial product and product candidates and intend to do so in the future for both commercial and clinical needs. We do not own or operate manufacturing facilities for the production of commercial or clinical quantities of our commercial product or product candidates. We currently have no plans to build our own commercial scale or clinical manufacturing capabilities. Although we rely on third-party contract manufacturers, we have personnel with extensive manufacturing experience to oversee the relationships with our contract manufacturers. All manufacturing occurs at facilities that are required to comply with FDA requirements and the requirements of regulatory agencies from the other jurisdictions where we have obtained approval.
FOTIVDA (tivozanib). One of our contract manufacturers has manufactured what we believe to be sufficient quantities of tivozanib drug product (capsules) to support our ongoing and planned commercialization and clinical trials. A separate contract manufacturer, using our proprietary manufacturing process, has manufactured what we believe to be sufficient lots of drug substance. This drug substance may be used to manufacture tivozanib drug product (capsules) for any future commercial and clinical needs.
We engage a separate contract manufacturer to bottle, package, label and serialize commercial supply of FOTIVDA on an as-needed basis and we rely on a separate third-party to distribute commercial supply of FOTIVDA in the United States.
Ficlatuzumab. Through a separate third-party contract manufacturer, we have initiated the clinical manufacture of ficlatuzumab to supply a potential registrational clinical trial in HNSCC and to enable additional potential development in pancreatic cancer and AML. However, a shortage of required key raw materials and manufacturing supplies also used in COVID-19 vaccine manufacturing process has delayed the delivery of the clinical supply of ficlatuzumab. We have secured the key required raw materials and manufacturing supplies and now plan to manufacture ficlatuzumab Phase 3 clinical supply in the second quarter of 2022.
AV-380. We currently have sufficient clinical trial drug supply for AV-380 to support our planned clinical trials. The same contract manufacturer we engaged to initiate clinical manufacturing of ficlatuzumab will be manufacturing any future clinical supply needs for AV-380. Our CMO for AV-380 has experienced employee shortages, supply chain issues and disruptions related to the COVID-19 pandemic which has delayed and may continue to delay manufacturing of AV-380.
Despite the delays to ficlatuzumab and AV-380 manufacturing based on COVID-19 related issues, the COVID-19 pandemic has not had a material impact on our commercial and clinical supply of FOTIVDA (tivozanib) or our clinical supply of AV-203 to date. We currently have a sufficient supply of FOTIVDA (tivozanib) and AV-203 that we believe will meet our ongoing commercial and clinical needs for more than twelve months from the date of filing this Annual Report on Form 10-K. While we believe there are alternate manufacturers with the capability to supply for current clinical or potential future commercial needs, contracting with additional contract manufacturers would require significant lead-times and result in additional costs and is not the solution we expect to follow.
Government Regulation and Product Approval
Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the EU, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, sales, pricing, reimbursement, post-approval monitoring and reporting, and import and export of pharmaceutical products.
The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.
Review and Approval of Drugs and Biologics in the United States
In the United States, the FDA approves and regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and related regulations. Biological products are licensed for marketing under the Public Health Service Act, or PHSA, and subject to regulation under the FDCA and related regulations.
A company, institution, or organization which takes responsibility for the initiation and management of a clinical development program for such products, and their regulatory approval, is typically referred to as a sponsor. A sponsor seeking approval to market and distribute a new drug or biological product in the United States must typically complete each of the following steps:
•completion of preclinical laboratory tests in compliance with the FDA’s good laboratory practice, or GLP, regulations and standards;
•design of a clinical protocol and submission to the FDA of an IND, which must take effect before human clinical trials may begin;
•approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated;
•performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCPs, to establish the safety and efficacy of the proposed drug product for each proposed indication;
•submission to the FDA of an NDA for a drug candidate product and a biological licensing application, or BLA, for a biological product requesting marketing for one or more proposed indications;
•review of the request for approval by an FDA advisory committee, where appropriate or if applicable;
•completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or components thereof, are produced to assess compliance with current Good Manufacturing Practices, or similar foreign standards, which we refer to as cGMPs,to assure the product’s identity, strength, quality and purity;
•completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of the clinical data;
•payment of user fees and securing FDA approval of the NDA or BLA; and
•compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy, or REMS, and the potential requirement to conduct post-approval studies.
Preclinical Studies
Before a sponsor begins testing a compound with potential therapeutic value in humans, the product candidate enters the preclinical testing stage. Preclinical studies include laboratory evaluation of the purity and stability of the manufactured substance or active pharmaceutical ingredient and the formulated product, as well as in vitro and animal studies to assess the safety and activity of the product candidate for initial testing in humans and to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations and the U.S. Department of Agriculture’s Animal Welfare Act, if applicable. Some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, and long-term toxicity studies, may continue after the IND is submitted.
The IND and IRB Processes
An IND is a request for FDA authorization to administer an investigational product candidate to humans. Such authorization must be secured prior to interstate shipment and administration of any new drug or biologic that is not the subject of an approved NDA or BLA. In support of a request for an IND, a sponsor must submit a protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, are submitted to the FDA as part of an IND. The FDA requires a 30-day
waiting period after the filing of each IND before clinical trials may begin. This waiting period is designed to allow the FDA to review the IND to determine whether human research subjects will be exposed to unreasonable health risks. At any time during this 30-day period, or thereafter, the FDA may raise concerns or questions about the conduct of the trials as outlined in the IND and impose a clinical hold or partial clinical hold. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin.
Following commencement of a clinical trial under an IND, the FDA may also place a clinical hold or partial clinical hold on that trial. Clinical holds are imposed by the FDA whenever there is concern for patient safety and may be a result of new data, findings, or developments in clinical, nonclinical, and/or chemistry, manufacturing, and controls, or CMC. A clinical hold is an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial clinical hold is a delay or suspension of only part of the clinical work requested under the IND. For example, a specific protocol or part of a protocol is not allowed to proceed, while other protocols may do so. No more than 30 days after imposition of a clinical hold or partial clinical hold, the FDA will provide the sponsor a written explanation of the basis for the hold. Following issuance of a clinical hold or partial clinical hold, an investigation may only resume after the FDA has notified the sponsor that the investigation may proceed. The FDA will base that determination on information provided by the sponsor correcting the deficiencies previously cited or otherwise satisfying the FDA that the investigation can proceed.
A sponsor may choose, but is not required, to conduct a foreign clinical study under an IND. When a foreign clinical study is conducted under an IND, all FDA IND requirements must be met unless waived. When a foreign clinical study is not conducted under an IND, the sponsor must ensure that the study complies with certain regulatory requirements of the FDA in order to use the study as support for an IND or application for marketing approval. The FDA’s regulations are intended to help ensure the protection of human subjects enrolled in non-IND foreign clinical studies, as well as the quality and integrity of the resulting data. They further help ensure that non-IND foreign studies are conducted in a manner comparable to that required for IND studies.
In addition to the foregoing IND requirements, an IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the trial at least annually. The IRB must review and approve, among other things, the trial protocol and informed consent information to be provided to trial subjects. An IRB must operate in compliance with FDA regulations. An IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected serious harm to patients.
Additionally, some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data safety monitoring board, or DSMB, or committee. This group provides authorization for whether or not a trial may move forward at designated check points based on access that only the group maintains to available data from the trial. Suspension or termination of development during any phase of clinical trials can occur if it is determined that the participants or patients are being exposed to an unacceptable health risk. Other reasons for suspension or termination may be made by us based on evolving business objectives and/or competitive climate.
Expanded Access to an Investigational Drug for Treatment Use
Expanded access, sometimes called “compassionate use,” is the use of investigational new drug products outside of clinical trials to treat patients with serious or immediately life-threatening diseases or conditions when there are no comparable or satisfactory alternative treatment options. FDA regulations allow access to investigational drugs under an IND by the company or the treating physician for treatment purposes on a case-by-case basis for: individual patients (single-patient IND applications for treatment in emergency settings and non-emergency settings); intermediate-size patient populations; and larger populations for use of the drug under a treatment protocol or Treatment IND Application.
When considering an IND application for expanded access to an investigational product with the purpose of treating a patient or a group of patients, the sponsor and treating physicians or investigators will determine suitability when all of the following criteria apply: patient(s) have a serious or immediately life-threatening disease or condition, and there is no comparable or satisfactory alternative therapy to diagnose, monitor, or treat the disease or condition; the potential patient benefit justifies the potential risks of the treatment and the potential risks are not unreasonable in the context or condition to be treated; and the expanded use of the investigational drug for the requested treatment will not interfere initiation, conduct, or completion of clinical investigations that could support marketing approval of the product or otherwise compromise the potential development of the product.
There is no obligation for a sponsor to make its investigational products available for expanded access. However, if a sponsor has a policy regarding how it responds to expanded access requests with respect to product candidates in development to treat serious diseases or conditions, it must make that policy publicly available. Sponsors are required to
make such policies publicly available upon the earlier of initiation of a Phase 2 or Phase 3 study for a covered investigational product; or 15 days after the investigational product receives designation from the FDA as a breakthrough therapy, fast track product, or regenerative medicine advanced therapy.
In addition, on May 30, 2018, the Right to Try Act was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a drug manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act, but the manufacturer must develop an internal policy and respond to patient requests according to that policy.
Human Clinical Studies in Support of an NDA or BLA
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written trial protocols detailing, among other things, the inclusion and exclusion criteria, the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. The FDA has issued regulations authorizing a sponsor to transfer certain responsibilities for the conduct of a clinical study to a CRO.
The clinical investigation of an investigational drug or biological product is generally divided into four phases. Although the phases are usually conducted sequentially, they may overlap or be combined. The four phases of an investigation are as follows:
•Phase 1. Phase 1 studies include the initial introduction of an investigational new drug or biological product into humans. These studies are designed to evaluate the safety, dosage tolerance, metabolism and pharmacologic actions of the investigational drug or biological product in humans, the side effects associated with increasing doses, and if possible, to gain early evidence on effectiveness.
•Phase 2. Phase 2 includes the controlled clinical trials conducted to preliminarily or further evaluate the effectiveness of the investigational drug or biological product for a particular indication(s) in patients with the disease or condition under trial, to determine dosage tolerance and optimal dosage, and to identify possible adverse side effects and safety risks associated with the drug or biological product. Phase 2 clinical trials are typically well-controlled, closely monitored and conducted in a limited patient population.
•Phase 3. Phase 3 clinical trials are generally controlled clinical trials conducted in an expanded patient population generally at geographically dispersed clinical trial sites. They are performed after preliminary evidence suggesting effectiveness of the drug or biological product has been obtained, and are intended to further evaluate dosage, clinical effectiveness and safety, to establish the overall benefit-risk relationship of the investigational drug or biological product, and to provide an adequate basis for product approval.
•Phase 4. Post-approval studies may be conducted after initial marketing approval. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication.
A clinical trial may combine the elements of more than one phase and the FDA often requires more than one Phase 3 trial to support marketing approval of a product candidate. A company’s designation of a clinical trial as being of a particular phase is not necessarily indicative that the study will be sufficient to satisfy the FDA requirements of that phase because this determination cannot be made until the protocol and data have been submitted to and reviewed by the FDA. Moreover, as noted above, a pivotal trial is a clinical trial that is believed to satisfy FDA requirements for the evaluation of a product candidate’s safety and efficacy such that it can be used, alone or with other pivotal or non-pivotal trials, to support regulatory approval. Generally, pivotal trials are Phase 3 trials, but they may be Phase 2 trials if the design provides a well-controlled and reliable assessment of clinical benefit, particularly in an area of unmet medical need.
Further, in August 2018, the FDA released a draft guidance entitled “Expansion Cohorts: Use in First-In-Human Clinical Trials to Expedite Development of Oncology Drugs and Biologics,” which outlines how developers can utilize an adaptive trial design commonly referred to as a seamless trial design in early stages of oncology biological product development (i.e., the first-in-human clinical trial) to compress the traditional three phases of trials into one continuous trial called an expansion cohort trial. Information to support the design of individual expansion cohorts are included in IND applications and assessed by FDA. Expansion cohort trials can potentially bring efficiency to product development and reduce developmental costs and time.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. In addition, IND safety reports must be submitted to the FDA for any of the
following: serious and unexpected suspected adverse reactions; findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the drug; and any clinically important increase in the case of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. The FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical data submitted.
Finally, sponsors of clinical trials are required to register and disclose certain clinical trial information on a public registry (clinicaltrials.gov) maintained by the U.S. National Institutes of Health, or NIH. In particular, information related to the product, patient population, phase of investigation, study sites and investigators and other aspects of the clinical trial is made public as part of the registration of the clinical trial. The NIH’s Final Rule on registration and reporting requirements for clinical trials became effective in 2017, and both NIH and the FDA have recently signaled the government’s willingness to begin enforcing those requirements against non-compliant clinical trial sponsors. The failure to submit clinical trial information to clinicaltrials.gov, as required, is a prohibited act under the FDCA with violations subject to potential civil monetary penalties of up to $10,000 for each day the violation continues.
Manufacturing and Other Regulatory Requirements
Concurrent with clinical trials, sponsors usually complete additional animal safety studies, develop additional information about the chemistry and physical characteristics of the product candidate and finalize a process for manufacturing commercial quantities of the product candidate in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other criteria, the sponsor must develop methods for testing the identity, strength, quality, and purity of the finished product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
In addition, the FDA’s regulations require that pharmaceutical products be manufactured in specific approved facilities and in accordance with cGMPs. The cGMP regulations include requirements relating to organization of personnel, buildings and facilities, equipment, control of components and product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, laboratory controls, records and reports and returned or salvaged products. Manufacturers and other entities involved in the manufacture and distribution of approved pharmaceuticals are required to register their establishments with the FDA and some state agencies, and they are subject to periodic unannounced inspections by the FDA for compliance with cGMPs and other requirements. Inspections must follow a “risk-based schedule” that may result in certain establishments being inspected more frequently. Manufacturers may also have to provide, on request, electronic or physical records regarding their establishments. Delaying, denying, limiting, or refusing inspection by the FDA may lead to a product being deemed to be adulterated. Changes to the manufacturing process, specifications or container closure system for an approved product are strictly regulated and often require prior FDA approval before being implemented. The FDA’s regulations also require, among other things, the investigation and correction of any deviations from cGMP and the imposition of reporting and documentation requirements upon the sponsor and any third-party manufacturers involved in producing the approved product.
Pediatric Studies
Under the Pediatric Research Equity Act, or PREA, applications and certain types of supplements to applications must contain data that are adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The sponsor must submit an initial Pediatric Study Plan, or PSP, within 60 days of an end-of-Phase 2 meeting or as may be agreed between the sponsor and the FDA. Those plans must contain an outline of the proposed pediatric study or studies the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information. The sponsor and the FDA must reach agreement on a final plan. A sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from nonclinical studies, early phase clinical trials, and/or other clinical development programs.
For investigational products intended to treat a serious or life-threatening disease or condition, the FDA must, upon the request of a sponsor, meet to discuss preparation of the initial pediatric study plan or to discuss deferral or waiver of pediatric assessments. In addition, the FDA will meet early in the development process to discuss pediatric study plans with sponsors, and the FDA must meet with sponsors by no later than the end-of-Phase 1 meeting for serious or life-threatening diseases and by no later than ninety days after the FDA’s receipt of the study plan.
The FDA may, on its own initiative or at the request of the sponsor, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. A deferral may be granted for several reasons, including a finding that the product or therapeutic candidate is ready for approval for use in adults before pediatric trials are complete or that additional safety or effectiveness data needs
to be collected before the pediatric trials begin. The law now requires the FDA to send a PREA Non-Compliance letter to sponsors who have failed to submit their pediatric assessments required under PREA, have failed to seek or obtain a deferral or deferral extension or have failed to request approval for a required pediatric formulation. It further requires the FDA to publicly post the PREA Non-Compliance letter and sponsor’s response. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation, although FDA has recently taken steps to limit what it considers abuse of this statutory exemption in PREA by announcing that it does not intend to grant any additional orphan drug designations for rare pediatric subpopulations of what is otherwise a common disease. The FDA also maintains a list of diseases that are exempt from PREA requirements due to low prevalence of disease in the pediatric population.
Submission and Filing of an NDA or BLA with the FDA
In order to obtain approval to market a drug or biological product in the United States, a marketing application must be submitted to the FDA that provides data establishing the safety and effectiveness of the proposed drug product for the proposed indication, and the safety, purity and potency of the biological product for its intended indication. The application includes all relevant data available from pertinent preclinical and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a product, or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and effectiveness of the investigational drug product and the safety, purity and potency of the biological product to the satisfaction of the FDA.
The application is the vehicle through which sponsors formally propose that the FDA approve a new product for marketing and sale in the United States for one or more indications. Every new product candidate must be the subject of an approved NDA or BLA before it may be commercialized in the United States. Under federal law, the submission of most applications is subject to an application user fee, which for federal fiscal year 2022 is $3,117,218 for an application requiring clinical data. The sponsor of an approved application is also subject to an annual program fee, which for federal fiscal year 2022 is $369,413. Certain exceptions and waivers are available for some of these fees, such as an exception from the application fee for products with orphan designation and a waiver for certain small businesses. If an application is withdrawn prior to the FDA acceptance for filing, 75% of these fees may be refunded to the sponsor. If an application is withdrawn after filing, a lower portion of these fees may be refunded in certain circumstances.
Following submission of an NDA or BLA, the FDA conducts a preliminary review of the application within 60 days of receipt and must inform the sponsor at that time or before whether an application is sufficiently complete to permit substantive review. In the event that FDA determines that an application does not satisfy this standard, it will issue a Refuse to File, or RTF, determination to the sponsor. The FDA may request additional information rather than accept the application for filing and the application must be resubmitted with the additional information.
Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed to specified performance goals in the review process of NDAs and BLAs. Under that agreement, 90% of applications seeking approval of New Molecular Entities, or NMEs, are meant to be reviewed within ten months from the date on which FDA accepts the NDA for filing, and 90% of applications for NMEs that have been designated for “priority review” are meant to be reviewed within six months of the filing date. The review process and the Prescription Drug User Fee Act goal date may be extended by the FDA for three additional months to consider new information or clarification provided by the sponsor to address an outstanding deficiency identified by the FDA following the original submission.
In connection with its review of an application, the FDA typically will inspect the facility or facilities where the product is or will be manufactured. These pre-approval inspections may cover all facilities associated with an NDA or BLA submission, including drug component manufacturing (e.g., active pharmaceutical ingredients), finished drug product manufacturing and control testing laboratories. The scheduling and execution of such pre-approval inspections may be impacted or delayed due to the COVID-19 pandemic. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA or BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical data submitted to the FDA.
In addition, as a condition of approval, the FDA may require a sponsor to develop a REMS. REMS use risk minimization strategies beyond the professional labeling to ensure that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will consider the size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected duration of treatment, seriousness of known or potential adverse events, and whether the product is a new molecular entity. Under the FDA Reauthorization Act of 2017, the FDA must implement a protocol to expedite review of responses to inspection reports pertaining to certain applications, including applications for products in shortage or those for which approval is dependent on remediation of conditions identified in the inspection report.
The FDA may refer an application for a novel product to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
The FDA’s Decision on an NDA or BLA
The FDA reviews an application to determine, among other things, whether the product is safe and whether it is effective for its intended use(s), with the latter determination being made on the basis of substantial evidence. The FDA has interpreted this evidentiary standard to require at least two adequate and well-controlled clinical investigations to establish effectiveness of a new product. Under certain circumstances, however, FDA has indicated that a single trial with certain characteristics and additional confirmatory information may satisfy this standard. The FDA will ultimately seek to determine whether the expected benefits of the product outweigh its potential risks to patients. This “benefit-risk” assessment is informed by the extensive body of evidence about the product’s safety and efficacy in the NDA or BLA.
After evaluating the application and all related information, including the advisory committee recommendations, if any, and inspection reports of manufacturing facilities and clinical trial sites, the FDA will issue either a Complete Response Letter, or CRL, or an approval letter. A CRL indicates that the review cycle of the application is complete, and the application will not be approved in its present form. A CRL generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. The CRL may require additional clinical or other data, additional pivotal Phase 3 clinical trial(s) and/or other significant and time-consuming requirements related to clinical trials, preclinical studies or manufacturing. If a CRL is issued, the sponsor will have one year to respond to the deficiencies identified by the FDA, at which time the FDA can deem the application withdrawn or, in its discretion, grant the sponsor an additional six month extension to respond.
An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications.
If the FDA approves a product, it may limit the approved indications for use for the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess the drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.
Fast Track, Breakthrough Therapy, Priority Review and Regenerative Advanced Therapy Designations
The FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. These programs are referred to as Fast Track designation, breakthrough therapy designation, priority review designation and regenerative advanced therapy designation. None of these programs changes the standards for approval but each may help expedite the development or approval process governing product candidates.
Specifically, the FDA may designate a product for Fast Track review if it is intended, whether alone or in combination with one or more other products, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For Fast Track products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a Fast Track product’s application before the application is complete. This rolling review may be available if the FDA determines, after
preliminary evaluation of clinical data submitted by the sponsor, that a Fast Track product may be effective. The sponsor must also provide, and the FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees. However, the FDA’s time period goal for reviewing a Fast Track application does not begin until the last section of the application is submitted. In addition, the Fast Track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
Second, a product may be designated as a Breakthrough Therapy if it is intended, either alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA may take certain actions with respect to Breakthrough Therapies, including holding meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design the clinical trials in an efficient manner.
Third, the FDA may designate a product for priority review if it is a product that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. The FDA determines, on a case-by-case basis, whether the proposed product represents a significant improvement when compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting product reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a new subpopulation. A priority designation is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing application from ten months to six months.
Finally, with passage of the Cures Act in December 2016, Congress authorized the FDA to accelerate review and approval of products designated as regenerative advanced therapies. A product is eligible for this designation if it is a regenerative medicine therapy that is intended to treat, modify, reverse or cure a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such disease or condition. The benefits of a regenerative advanced therapy designation include early interactions with FDA to expedite development and review, benefits available to breakthrough therapies, potential eligibility for priority review and accelerated approval based on surrogate or intermediate endpoints.
Accelerated Approval Pathway
The FDA may grant accelerated approval to a product for a serious or life-threatening condition that provides meaningful therapeutic advantage to patients over existing treatments based upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, or IMM, and that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. Products granted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.
For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a drug, such as an effect on IMM. The FDA has limited experience with accelerated approvals based on intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval where the therapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect is reasonably likely to predict the ultimate clinical benefit of a product.
The accelerated approval pathway is most often used in settings in which the course of a disease is long and an extended period of time is required to measure the intended clinical benefit of a product, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. Thus, accelerated approval has been used extensively in the development and approval of products for treatment of a variety of cancers in which the goal of therapy is generally to improve survival or decrease morbidity and the duration of the typical disease course requires lengthy and sometimes large trials to demonstrate a clinical or survival benefit. Thus, the benefit of accelerated approval derives from the potential to receive approval based on surrogate endpoints sooner than possible for trials with clinical or survival endpoints, rather than deriving from any explicit shortening of the FDA approval timeline, as is the case with priority review.
The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the product’s clinical benefit. As a result, a product candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, would allow the FDA to initiate expedited proceedings to withdraw approval of the product. All promotional materials for product candidates approved under accelerated regulations are subject to prior review by the FDA.
Post-Approval Regulation
Drugs and biologics manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.
In addition, manufacturers and other entities involved in the manufacture and distribution of approved products are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. The FDA's regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:
•restrictions on the marketing or manufacturing of the product, suspension of the approval, or complete withdrawal of the product from the market or product recalls;
•fines, warning letters or holds on post-approval clinical trials;
•refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals;
•product seizure or detention, or refusal to permit the import or export of products; or
•injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Products may be promoted only for the approved indications and in accordance with the provisions of the approved label. In September 2021, the FDA published final regulations which describe the types of evidence that the agency will consider in determining the intended use of a drug or biologic. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. If a company is found to have promoted off-label uses, it may become subject to adverse public relations and administrative and judicial enforcement by the FDA, the Department of Justice, or the Office of the Inspector General of the Department of Health and Human Services, as well as state authorities. This could subject a company to a range of penalties that could have a significant commercial impact, including civil and criminal fines and agreements that materially restrict the manner in which a company promotes or distributes drug products.
Section 505(b)(2) NDAs
NDAs for most new drug products are based on two full clinical studies which must contain substantial evidence of the safety and efficacy of the proposed new product for the proposed use. These applications are submitted under Section 505(b)(1) of the FDCA. The FDA is, however, authorized to approve an alternative type of NDA under Section 505(b)(2) of the FDCA. This type of application allows the sponsor to rely, in part, on the FDA’s previous findings of safety and efficacy for a similar product, or published literature. Specifically, Section 505(b)(2) applies to NDAs for a drug for which the investigations made to show whether or not the drug is safe for use and effective in use and relied upon by the sponsor for approval of the application “were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted.”
Section 505(b)(2) thus authorizes the FDA to approve an NDA based on safety and effectiveness data that were not developed by the applicant. NDAs filed under Section 505(b)(2) may provide an alternate and potentially more expeditious pathway to FDA approval for new or improved formulations or new uses of previously approved products. If the 505(b)(2) applicant can establish that reliance on the FDA’s previous approval is scientifically appropriate, the applicant may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new drug candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.
Generic Drugs
In 1984, with the passage of the Hatch-Waxman Amendments to the FDCA, Congress established an abbreviated regulatory scheme authorizing the FDA to approve generic drugs that are shown to contain the same active ingredients as, and to be bioequivalent to, drugs previously approved by the FDA pursuant to NDAs. To obtain approval of a generic drug, a sponsor must submit an abbreviated new drug application, or ANDA, to the agency. An ANDA is a comprehensive submission that contains, among other things, data and information pertaining to the active pharmaceutical ingredient, bioequivalence, drug product formulation, specifications and stability of the generic drug, as well as analytical methods, manufacturing process validation data and quality control procedures. ANDAs are “abbreviated” because they generally do not include preclinical and clinical data to demonstrate safety and effectiveness. Instead, in support of such applications, a generic manufacturer may rely on the preclinical and clinical testing previously conducted for a drug product previously approved under an NDA, known as the reference-listed drug, or RLD.
Under the Hatch-Waxman Act, the FDA may not approve an ANDA until any applicable period of non-patent exclusivity for the RLD has expired. The FDCA provides a period of five years of non-patent data exclusivity for a new drug containing a new chemical entity. For the purposes of this provision, a new chemical entity, or NCE, is a drug that contains no active moiety that has previously been approved by the FDA in any other NDA. This interpretation of the FDCA by the FDA was confirmed with enactment of the Ensuring Innovation Act in April 2021. An active moiety is the molecule or ion responsible for the physiological or pharmacological action of the drug substance. In cases where such NCE exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the sponsor may submit its application four years following the original product approval. The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the sponsor and are essential to the approval of the application.
As part of the submission of an NDA or certain supplemental applications, NDA sponsors are required to list with the FDA each patent with claims that cover the sponsor’s product or an approved method of using the product. Upon approval of a new drug, each of the patents listed in the application for the drug is then published in the Orange Book. The FDA’s regulations governing patent listings were largely codified into law with enactment of the Orange Book Modernization Act in January 2021. When an ANDA applicant files its application with the FDA, the applicant is required to make a certification to the FDA in connection with any patents listed for the reference product in the Orange Book. Specifically, the ANDA applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. Moreover, to the extent that a Section 505(b)(2) NDA applicant is relying on studies conducted for an already approved product, the applicant also is required to certify to the FDA concerning any patents listed for the NDA-approved product in the Orange Book to the same extent that an ANDA applicant would.
If the generic drug or follow-on drug applicant does not challenge the innovator’s listed patents, FDA will not approve the ANDA or 505(b)(2) application until all the listed patents claiming the referenced product have expired. A certification that the new generic product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA owner and patent holders once the ANDA has been accepted for filing by the FDA. The NDA owner and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA or 505(b)(2) NDA until the earliest of seven and a half years from the date of approval of the NDA, expiration of the patent and a decision in the infringement case that is favorable to the ANDA or 505(b)(2) NDA applicant.
Biosimilars
The 2010 Patient Protection and Affordable Care Act, or ACA, which was signed into law on March 23, 2010, included a subtitle called the Biologics Price Competition and Innovation Act of 2009 or BPCIA. The BPCIA established a regulatory scheme authorizing the FDA to approve biosimilars and interchangeable biosimilars. Since enactment of the BPCIA, the FDA has approved numerous biosimilar products for use in the United States. In addition, the FDA approved the first interchangeable biosimilar product on July 30, 2021 and a second product previously approved as a biosimilar was designated as interchangeable in October 2021. The FDA has also issued numerous guidance documents outlining an approach to review and approval of biosimilars and interchangeable biosimilar products.
Under the BPCIA, a manufacturer may submit an application for licensure of a biologic product that is “biosimilar to” or “interchangeable with” a previously approved biological product or “reference product.” In order for the FDA to approve a biosimilar product, it must find that there are no clinically meaningful differences between the reference product and proposed biosimilar product in terms of safety, purity and potency. For the FDA to approve a biosimilar product as interchangeable with a reference product, the agency must find that the biosimilar product can be expected to produce the same clinical results as the reference product, and (for products administered multiple times) that the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic.
An application for a biosimilar product may not be submitted to the FDA until four years following the date of approval of the reference product. The FDA may not approve a biosimilar product until 12 years from the date on which the reference product was approved. Even if a product is considered to be a reference product eligible for exclusivity, another company could market a competing version of that product if the FDA approves a full BLA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. There have been recent government proposals to reduce the 12-year reference product exclusivity period, but none has been enacted to date. At the same time, since passage of the BPCIA, many states have passed laws or amendments to laws, which address pharmacy practices involving biosimilar products.
Orphan Drug Designation and Exclusivity
Under the Orphan Drug Act, the FDA may designate a drug product as an “orphan drug” if it is intended to treat a rare disease or condition, generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost of developing and making a drug product available in the United States for treatment of the disease or condition will be recovered from sales of the product. A company must request orphan drug designation before submitting an NDA or BLA for the candidate product. If the request is granted, the FDA will disclose the identity of the therapeutic agent and its potential use. Orphan drug designation does not shorten the PDUFA goal dates for the regulatory review and approval process, although it does convey certain advantages such as tax benefits and exemption from the PDUFA application fee.
If a product with orphan designation receives the first FDA approval for the disease or condition for which it has such designation or for a select indication or use within the rare disease or condition for which it was designated, the product generally will receive orphan drug exclusivity. Orphan drug exclusivity means that the FDA may not approve another sponsor’s marketing application for the same drug for the same indication for seven years, except in certain limited circumstances. Orphan exclusivity does not block the approval of a different product for the same rare disease or condition, nor does it block the approval of the same product for different indications. If a drug or biologic designated as an orphan drug ultimately receives marketing approval for an indication broader than what was designated in its orphan drug application, it may not be entitled to exclusivity.
Orphan exclusivity will not bar approval of another product under certain circumstances, including if a subsequent product with the same drug or biologic for the same indication is shown to be clinically superior to the approved product on the basis of greater efficacy or safety, or providing a major contribution to patient care, or if the company with orphan drug exclusivity is not able to meet market demand. Under Omnibus legislation signed by President Trump on December 27, 2020, the requirement for a product to show clinical superiority applies to drug products that received orphan drug designation before enactment of amendments to the FDCA in 2017 but have not yet been approved by FDA.
Pediatric Exclusivity
Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of regulatory exclusivity. For drug products, the six month exclusivity period may be attached to the term of any existing patent term or regulatory exclusivity. For biologic products, the six month period may only be attached to any existing regulatory exclusivities but not to any patent terms. This six-month exclusivity may be granted if an NDA or BLA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied;
rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application.
Patent Term Restoration and Extension
A patent claiming a new product may be eligible for a limited patent term extension under the Hatch-Waxman Act, which permits a patent restoration of up to five years for patent term lost during product development and the FDA regulatory review. The restoration period granted on a patent covering a product is typically one-half the time between the effective date of the IND and the submission date of a NDA or BLA, plus the time between the submission date of the application and the ultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval date. Only one patent applicable to an approved product is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent in question. A patent that covers multiple products for which approval is sought can only be extended in connection with one of the approvals. The United States Patent and Trademark Office reviews and approves the application for any patent term extension or restoration in consultation with the FDA.
FDA Approval and Regulation of Companion Diagnostics
If safe and effective use of a therapeutic depends on an in vitro diagnostic, then the FDA generally will require approval or clearance of that diagnostic, known as a companion diagnostic, at the same time that the FDA approves the therapeutic product. In August 2014, the FDA issued final guidance clarifying the requirements that will apply to approval of therapeutic products and in vitro companion diagnostics. According to the guidance, if the FDA determines that a companion diagnostic device is essential to the safe and effective use of a novel therapeutic product or indication, the FDA generally will not approve the therapeutic product or new therapeutic product indication if the companion diagnostic device is not approved or cleared for that indication.
In April 2020, the FDA issued additional guidance which describes considerations for the development and labeling of companion diagnostic devices to support the indicated uses of multiple drug or biological oncology products, when appropriate. The 2020 guidance expands on the policy statement in the 2014 guidance by recommending that companion diagnostic developers consider a number of factors when determining whether their test could be developed, or the labeling for approved companion diagnostics could be revised through a supplement, to support a broader labeling claim such as use with a specific group of oncology therapeutic products (rather than listing an individual therapeutic product(s)).
Under the FDCA, in vitro diagnostics, including companion diagnostics, are regulated as medical devices. In the United States, the FDCA and its implementing regulations, and other federal and state statutes and regulations govern, among other things, medical device design and development, preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling, storage, advertising and promotion, sales and distribution, export and import, and post-market surveillance. Unless an exemption applies, diagnostic tests require marketing clearance or approval from the FDA prior to commercial distribution.
The FDA previously has required in vitro companion diagnostics intended to select the patients who will respond to the product candidate to obtain pre-market approval, or PMA, simultaneously with approval of the therapeutic product candidate. The PMA process, including the gathering of clinical and preclinical data and the submission to and review by the FDA, can take several years or longer. It involves a rigorous premarket review during which the sponsor must prepare and provide the FDA with reasonable assurance of the device’s safety and effectiveness and information about the device and its components regarding, among other things, device design, manufacturing and labeling. PMA applications are subject to an application fee. For federal fiscal year 2022, the standard fee is $374,858 and the small business fee is $93,714.
Review and Approval of Drug Products in the EU
In order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of drug products. Whether or not it obtains FDA approval for a product, the company would need to obtain the necessary approvals by the comparable foreign regulatory authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions. The approval process ultimately varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods.
Clinical Trial Approval in the EU
On January 31, 2022, the new Clinical Trials Regulation (EU) No 536/2014 became effective in the EU and replaced the prior Clinical Trials Directive 2001/20/EC. The new regulation aims at simplifying and streamlining the authorization, conduct and transparency of clinical trials in the EU. Under the new coordinated procedure for the approval of clinical trials, the sponsor of a clinical trial to be conducted in more than one Member State of the EU, or EU Member State, will only be required to submit a single application for approval. The submission will be made through the Clinical Trials Information System, a new clinical trials portal overseen by the EMA and available to clinical trial sponsors, competent authorities of the EU Member States and the public.
The new regulation did not change the preexisting requirement that a sponsor must obtain prior approval from the competent national authority of the EU Member State in which the clinical trial is to be conducted. If the clinical trial is conducted in different EU Member States, the competent authorities in each of these EU Member States must provide their approval for the conduct of the clinical trial. Furthermore, the sponsor may only start a clinical trial at a specific study site after the applicable ethics committee has issued a favorable opinion.
Parties conducting certain clinical trials must, as in the United States, post clinical trial information in the EU at the EudraCT website: https://eudract.ema.europa.eu.
PRIME Designation in the EU
In March 2016, the EMA launched an initiative to facilitate development of product candidates in indications, often rare, for which few or no therapies currently exist. The PRIority MEdicines, or PRIME, scheme is intended to encourage drug development in areas of unmet medical need and provides accelerated assessment of products representing substantial innovation reviewed under the centralized procedure. Products from small- and medium-sized enterprises, or SMEs, may qualify for earlier entry into the PRIME scheme than larger companies. Many benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements, and accelerated marketing authorization application assessment once a dossier has been submitted. Importantly, a dedicated Agency contact and rapporteur from the CHMP or Committee for Advanced Therapies, or CAT, are appointed early in PRIME scheme facilitating increased understanding of the product at EMA’s Committee level.
Marketing Authorization in the EU
In the EU, marketing authorizations for medicinal products may be obtained through several different procedures founded on the same basic regulatory process.
The centralized procedure provides for the grant of a single marketing authorization that is valid for all EU Member States. The centralized procedure is compulsory for medicinal products produced by certain biotechnological processes, products designated as orphan medicinal products, and products with a new active substance indicated for the treatment of certain diseases. It is optional for those products that are highly innovative or for which a centralized process is in the interest of patients. Under the centralized procedure in the EU, the maximum timeframe for the evaluation of a MAA is 210 days, excluding clock stops, when additional written or oral information is to be provided by the sponsor in response to questions asked by the CHMP. Accelerated evaluation may be granted by the CHMP in exceptional cases. These are defined as circumstances in which a medicinal product is expected to be of a “major public health interest.” Three cumulative criteria must be fulfilled in such circumstances: the seriousness of the disease, such as severely disabling or life-threatening diseases, to be treated; the absence or insufficiency of an appropriate alternative therapeutic approach; and anticipation of high therapeutic benefit. In these circumstances, the EMA ensures that the opinion of the CHMP is given within 150 days.
The decentralized procedure provides for approval by one or more other concerned EU Member States of an assessment of an application for marketing authorization conducted by one EU Member State, known as the reference EU Member State. In accordance with this procedure, a sponsor submits an application for marketing authorization to the reference EU Member State and the concerned EU Member States. This application is identical to the application that would be submitted to the EMA for authorization through the centralized procedure. The reference EU Member State prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. The resulting assessment report is submitted to the concerned EU Member States which, within 90 days of receipt, must decide whether to approve the assessment report and related materials. If a concerned EU Member State cannot approve the assessment report and related materials due to concerns relating to a potential serious risk to public health, disputed elements may be referred to the European Commission, whose decision is binding on all EU Member States.
A marketing authorization may be granted only to a sponsor established in the EU. Regulation No. 1901/2006 provides that, prior to obtaining a marketing authorization in the EU, a sponsor must demonstrate compliance with all
measures included in a Pediatric Investigation Plan, or PIP, approved by the Pediatric Committee of the EMA, covering all subsets of the pediatric population, unless the EMA has granted a product-specific waiver, class waiver, or a deferral for one or more of the measures included in the PIP.
Regulatory Data Protection in the EU
In the EU, new chemical entities approved on the basis of a complete independent data package qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity pursuant to Regulation (EC) No 726/2004, as amended, and Directive 2001/83/EC, as amended. Data exclusivity prevents regulatory authorities in the EU from referencing the innovator’s data to assess a generic (abbreviated) application for a period of eight years. During the additional two-year period of market exclusivity, a generic marketing authorization application can be submitted, and the innovator’s data may be referenced, but no generic medicinal product can be marketed until the expiration of the market exclusivity. The overall ten-year period will be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to authorization, is held to bring a significant clinical benefit in comparison with existing therapies.
Orphan Drug Designation and Exclusivity in the EU
Regulation (EC) No 141/2000 and Regulation (EC) No. 847/2000 provide that a product can be designated as an orphan medicinal product by the European Commission if its sponsor can establish that the product is intended for the diagnosis, prevention or treatment of: (1) a life-threatening or chronically debilitating condition affecting not more than five in ten thousand persons in the EU when the application is made, or (2) a life-threatening, seriously debilitating or serious and chronic condition in the EU and that without incentives the medicinal product is unlikely to be developed. For either of these conditions, the sponsor must demonstrate that there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the EU or, if such method exists, the medicinal product will be of significant benefit to those affected by that condition.
Once authorized, orphan medicinal products are entitled to ten years of market exclusivity in all EU Member States and, in addition, a range of other benefits during the development and regulatory review process, including scientific assistance for trial protocols, authorization through the centralized marketing authorization procedure covering all member countries and a reduction or elimination of registration and marketing authorization fees. However, marketing authorization may be granted to a similar medicinal product with the same orphan indication during the ten-year period with the consent of the marketing authorization holder for the original orphan medicinal product or if the manufacturer of the original orphan medicinal product is unable to supply sufficient quantities. Marketing authorization may also be granted to a similar medicinal product with the same orphan indication if the product is safer, more effective or otherwise clinically superior to the original orphan medicinal product. The period of market exclusivity may, in addition, be reduced to six years if it can be demonstrated on the basis of available evidence that the original orphan medicinal product is sufficiently profitable not to justify maintenance of market exclusivity.
Orphan drug exclusivity will not bar approval of another product under certain circumstances, including if a subsequent product with the same drug or biologic for the same indication is shown to be clinically superior to the approved product on the basis of greater efficacy or safety, or providing a major contribution to patient care, or if the company with orphan drug exclusivity is not able to meet market demand. This is the case despite an earlier court opinion holding that the Orphan Drug Act unambiguously required the FDA to recognize orphan exclusivity regardless of a showing of clinical superiority.
Regulatory Requirements After Marketing Authorization in the EU
Following marketing authorization of a medicinal product in the EU, the holder of the authorization is required to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of medicinal products. These include compliance with the EU’s stringent pharmacovigilance or safety reporting, as well as rules potentially requiring post-authorization studies and additional monitoring obligations. In addition, the manufacturing of authorized medicinal products, for which a separate manufacturer’s license is mandatory, must also be conducted in strict compliance with the applicable EU laws, regulations and guidance, including Directive 2001/83/EC, Directive 2003/94/EC, Regulation (EC) No 726/2004 and the European Commission Guidelines for Good Manufacturing Practice. These requirements include compliance with EU cGMP standards when manufacturing medicinal products and active pharmaceutical ingredients, including the manufacture of active pharmaceutical ingredients outside of the EU with the intention to import the active pharmaceutical ingredients into the EU. Finally, the marketing and promotion of authorized drugs, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs and/or the general public, are strictly regulated in the EU notably under Directive 2001/83EC, as amended, and EU Member State laws. Direct-to-consumer advertising of prescription medicines is prohibited across the EU.
Brexit and the Regulatory Framework in the United Kingdom
The United Kingdom’s withdrawal from the EU took place on January 31, 2020. The EU and the U.K. reached an agreement on their new partnership in the Trade and Cooperation Agreement, or the Agreement, which was applied provisionally beginning on January 1, 2021 and which entered into force on May 1, 2021. The Agreement focuses primarily on free trade by ensuring no tariffs or quotas on trade in goods, including healthcare products such as medicinal products. Thereafter, the EU and the U.K. will form two separate markets governed by two distinct regulatory and legal regimes. As such, the Agreement seeks to minimize barriers to trade in goods while accepting that border checks will become inevitable as a consequence that the U.K. is no longer part of the single market. As of January 1, 2021, the Medicines and Healthcare products Regulatory Agency, or the MHRA, became responsible for supervising medicines and medical devices in Great Britain, comprising England, Scotland and Wales under domestic law whereas Northern Ireland continues to be subject to EU rules under the Northern Ireland Protocol. The MHRA will rely on the Human Medicines Regulations 2012 (SI 2012/1916) (as amended), or the HMR, as the basis for regulating medicines. The HMR has incorporated into the domestic law the body of EU law instruments governing medicinal products that pre-existed prior to the U.K.’s withdrawal from the EU.
Furthermore, while the Data Protection Act of 2018 in the United Kingdom that “implements” and complements the EU’s General Data Protection Regulation, or GDPR, has achieved Royal Assent on May 23, 2018 and is now effective in the United Kingdom, it is still unclear whether transfer of data from the European Economic Area, or EEA, to the United Kingdom will remain lawful under GDPR. The Trade and Cooperation Agreement provides for a transitional period during which the United Kingdom will be treated like an EU member state in relation to processing and transfers of personal data for four months from January 1, 2021. This may be extended by two further months. After such period, the United Kingdom will be a “third country” under the GDPR unless the European Commission adopts an adequacy decision in respect of transfers of personal data to the United Kingdom. The United Kingdom has already determined that it considers all of the EU 27 and EEA member states to be adequate for the purposes of data protection, ensuring that data flows from the United Kingdom to the EU/EEA remain unaffected.
General Data Protection Regulation
The collection, use, disclosure, transfer, or other processing of personal data, including personal health data, regarding individuals who are located in the European Economic Area (EEA), and the processing of personal data that takes place in the EEA, is subject to the EU General Data Protection Regulation, or GDPR, which became effective on May 25, 2018. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors. The GDPR imposes strict rules on the transfer of personal data to countries outside the EU, including the United States, and permits data protection authorities to impose large penalties for violations of the GDPR, including potential fines of up to €20 million or 4% of annual global revenues, whichever is greater. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. Compliance with the GDPR will be a rigorous and time-intensive process that may increase the cost of doing business or require companies to change their business practices to ensure full compliance.
Pharmaceutical Coverage, Pricing and Reimbursement
In the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities. Thus, even if a product candidate is approved, sales of the product will depend, in part, on the extent to which third-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations, provide coverage, and establish adequate reimbursement levels for, the product. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors are increasingly challenging the prices charged, examining the medical necessity, and reviewing the cost-effectiveness of medical products and services and imposing controls to manage costs. Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the approved products for a particular indication.
In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable marketing approvals. Nonetheless, product candidates may not be considered medically necessary or cost effective. A decision by a third-party payor not to cover a product candidate could reduce physician utilization once the product is approved and have a material adverse effect on sales, results of operations and financial condition. Additionally, a payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a drug product does not assure that other payors will also provide coverage and reimbursement for the product, and the level of coverage and reimbursement can differ significantly from payor to payor.
In the EU, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular drug candidate to currently available therapies or so-called health technology assessments, in order to obtain reimbursement or pricing approval. For example, the EU provides options for its member states to restrict the range of products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. EU member states may approve a specific price for a product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the product on the market. Other member states allow companies to fix their own prices for products, but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions. Recently, many countries in the EU have increased the amount of discounts required on pharmaceuticals and these efforts could continue as countries attempt to manage healthcare expenditures, especially in light of the severe fiscal and debt crises experienced by many countries in the EU. The downward pressure on health care costs in general, particularly prescription drugs, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various EU member states, and parallel trade, i.e., arbitrage between low-priced and high-priced member states, can further reduce prices. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any products, if approved in those countries.
Healthcare Law and Regulation
Healthcare providers and third-party payors play a primary role in the recommendation and prescription of drug products that are granted marketing approval. Arrangements with providers, consultants, third-party payors and customers are subject to broadly applicable fraud and abuse, anti-kickback, false claims laws, reporting of payments to physicians and teaching physicians and patient privacy laws and regulations and other healthcare laws and regulations that may constrain business and/or financial arrangements. Restrictions under applicable federal and state healthcare laws and regulations, include:
•the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, paying, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid;
•the federal civil and criminal false claims laws, including the civil False Claims Act, or the FCA, and civil monetary penalties laws, which prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false, fictitious or fraudulent or knowingly making, using or causing to be made or used a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government;
•Foreign Corrupt Practices Act, or FCPA, which prohibits companies and their intermediaries from making, or offering or promising to make improper payments to non-U.S. officials for the purpose of obtaining or retaining business or otherwise seeking favorable treatment;
•the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal laws that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
•HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their respective implementing regulations, including the Final Omnibus Rule published in January 2013, which impose obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
•the federal false statements statute, which prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;
•the federal transparency requirements known as the federal Physician Payments Sunshine Act, under the ACA, as amended by the Health Care Education Reconciliation Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services, or CMS, within the United States Department of Health and Human Services, information related to payments and other transfers of value made by that entity to physicians, other healthcare providers and teaching hospitals, as well as ownership and investment interests held by physicians, other healthcare providers and their immediate family members; and
•analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to healthcare items or services that are reimbursed by third-party payors, including private insurers.
Further, some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments and transfers of value to other health care providers and health care entities, or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Healthcare Reform
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. There have been a number of federal and state proposals during the last few years regarding the pricing of pharmaceutical and biopharmaceutical products, limiting coverage and reimbursement for drugs and other medical products, government control and other changes to the healthcare system in the United States. By way of example, the United States and state governments continue to propose and pass legislation designed to reduce the cost of healthcare. In March 2010, the United States Congress enacted the ACA, which, among other things, includes changes to the coverage and payment for products under government health care programs.
Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. These new laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used. Further, there have been several recent U.S. congressional inquiries and proposed state and federal legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products.
Since enactment of the ACA, there have been, and continue to be, numerous legal challenges and Congressional actions to repeal and replace provisions of the law. For example, with enactment of the Tax Cuts and Jobs Act of 2017, or the Tax Act, which was signed by President Trump on December 22, 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, became effective in 2019. On December 14, 2018, a U.S. District Court judge in the Northern District of Texas ruled that the individual mandate portion of the ACA is an essential and inseverable feature of the ACA, and therefore because the mandate was repealed as part of the Tax Act, the remaining provisions of the ACA are invalid as well. The U.S. Supreme Court heard this case on November 10, 2020 and, on June 17, 2021, dismissed this action after finding that the plaintiffs do not have
standing to challenge the constitutionality of the ACA. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results.
The Trump Administration also took executive actions to undermine or delay implementation of the PPACA, including directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. On January 28, 2021, however, President Biden rescinded those orders and issued a new executive order that directs federal agencies to reconsider rules and other policies that limit access to healthcare, and consider actions that will protect and strengthen that access. Under this order, federal agencies are directed to re-examine: policies that undermine protections for people with pre-existing conditions, including complications related to COVID-19; demonstrations and waivers under Medicaid and the ACA that may reduce coverage or undermine the programs, including work requirements; policies that undermine the Health Insurance Marketplace or other markets for health insurance; policies that make it more difficult to enroll in Medicaid and under the ACA; and policies that reduce affordability of coverage or financial assistance, including for dependents.
The prices of prescription pharmaceuticals have also been the subject of considerable discussion in the United States. There have been several recent U.S. congressional inquiries, as well as proposed and enacted state and federal legislation designed to, among other things, bring more transparency to pharmaceutical pricing, review the relationship between pricing and manufacturer patient programs, and reduce the costs of pharmaceuticals under Medicare and Medicaid. In 2020, President Trump issued several executive orders intended to lower the costs of prescription products and certain provisions in these orders have been incorporated into regulations. These regulations include an interim final rule implementing a most favored nation model for prices that would tie Medicare Part B payments for certain physician-administered pharmaceuticals to the lowest price paid in other economically advanced countries, effective January 1, 2021. That rule, however, has been subject to a nationwide preliminary injunction and, on December 29, 2021, CMS issued a final rule to rescind it. With issuance of this rule, CMS stated that it will explore all options to incorporate value into payments for Medicare Part B pharmaceuticals and improve beneficiaries' access to evidence-based care.
In addition, in October 2020, HHS and the FDA published a final rule allowing states and other entities to develop a Section 804 Importation Program, or SIP, to import certain prescription drugs from Canada into the United States. The final rule is currently the subject of ongoing litigation, but at least six states (Vermont, Colorado, Florida, Maine, New Mexico, and New Hampshire) have passed laws allowing for the importation of drugs from Canada with the intent of developing SIPs for review and approval by the FDA. Further, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The implementation of the rule has been delayed by the Biden administration from January 1, 2022 to January 1, 2023 in response to ongoing litigation. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the implementation of which have also been delayed by the Biden administration until January 1, 2023.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. A number of states, for example, require drug manufacturers and other entities in the drug supply chain, including health carriers, pharmacy benefit managers, wholesale distributors, to disclose information about pricing of pharmaceuticals. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.
There have been, and likely will continue to be, additional legislative and regulatory proposals at the foreign, federal, and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. Such reforms could have an adverse effect on anticipated revenues from product candidates that we may successfully develop and for which we may obtain marketing approval and may affect our overall financial condition and ability to develop product candidates.
Employees and Human Capital Resources
As of December 31, 2021, we had 114 full-time employees, which increased to 115 full-time employees as of the date of the filing of this Annual Report on Form 10-K. Of these employees, approximately half are members of our sales team. Our next largest functions after sales are our technical operations, medical affairs and commercial operations
functions. None of our employees are represented by a labor union or are covered by a collective bargaining agreement, and we consider our relationship with our employees to be good.
Our human capital is essential to fulfilling our commitment to deliver medicines that provide a better life for cancer patients. We are committed to creating a culture where our employees are valued. Our core corporate work values, which are integral to our culture and our recruitment and retention initiatives, include:
•Respect: Trusting, Honest Communication, Collaborative, Considerate, Humility
•Sense of Thoughtful Urgency: Realistic, Disciplined, Quality Driven, Diligent, Dynamic
•Integrity: Ethical, Objective, Data Driven, Patient Focused
•Goal Oriented: Strong Work Ethic, Individual Accountability, Courageous, Perseverance
•Engaging Working Environment: Fun, Diverse, Sense of Community, Flexibility, Developmental
Our board of directors approves corporate goals on an annual basis, which aids in the development of annual individual employee goals. We have a compensation philosophy of benchmarking compensation at the 50th percentile for all of our employees, which is based on a survey provided to us by our independent compensation consultant along with input from our executive leadership team, the compensation committee of the board of directors and our board of directors in an effort to ensure that employee compensation is competitive compared to similar biotechnology and biopharmaceutical companies with which we compete for talent. For certain of our employees, we recently replaced our Key Employee Change in Control Benefits Plan and other employment agreements with certain of our employees to our new Executive Severance and Change in Control Benefits Plan, or the Plan. The Plan was updated to meet current market and industry standards for those employees subject to the Plan including, providing payments to an employee's beneficiary or legal representative in the event of such employee's death or permanent disability and enhancing severance benefits in a change of control scenario.
Beyond competitive compensation and benefits packages, we provide career development opportunities and encourage ongoing conversations between employees and managers to discuss individual career development plans. We offer reimbursement for professional memberships as well as professional development courses ranging from technical training, competency-based workshops and leadership development programs facilitated by external partners who are experts in their respective fields.
We are committed to creating an environment of diversity and inclusion. We believe that diverse backgrounds and perspectives provide us with better ideas and collaboration across our organization. It is our policy to maintain a work environment free from discrimination based on race, color, religion, national origin, gender, gender identity, transgender status, sexual orientation, age, physical or mental disability, genetic information, veteran status or marital status.
Corporate Information
We were incorporated under the laws of the State of Delaware on October 19, 2001 as GenPath Pharmaceuticals, Inc. and changed our name to AVEO Pharmaceuticals, Inc. on March 1, 2005.
Available Information
Our Internet website is located at www.aveooncology.com, and our investor relations website is located at https://investor.aveooncology.com. We will make available on our website, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission, or SEC, as required by the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. You can review our electronically filed reports and other information that we file with the SEC on the SEC’s web site at www.sec.gov.
Investors and others should note that we announce material information to our investors using one or more of the following: SEC filings, press releases and our corporate website, including without limitation the “Investors” section of our website. We use these channels, as well as social media channels such as Twitter and LinkedIn, in order to achieve broad, non-exclusionary distribution of information to the public and for complying with our disclosure obligations under Regulation FD. It is possible that the information we post on our corporate website or other social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the “Investor” section of our corporate website and on our social media channels.
We have posted copies of our Code of Business Conduct and Ethics and Corporate Governance Guidelines, as well as each of our committee charters, on the “Corporate Governance” sub-section of the “Investors” section of our website, which you can access free of charge. In addition, we regularly use our website to post information regarding our business, product development programs and governance, and we encourage investors to use our website, particularly the information in each of the sections entitled “Investors” and “Media,” as a source of information about us.
References to our website and information found on our website should not be deemed incorporated by reference into this Annual Report on Form 10-K.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
You should carefully consider the risks described below in addition to the other information set forth in this Annual Report on Form 10-K, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations section and the consolidated financial statements and related notes. These risks, some of which have occurred and any of which may occur in the future, can have a material adverse effect on our business, financial condition, results of operations or the price of our publicly traded securities. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may occur or become material in the future and adversely affect our business, reputation, financial condition, results of operations or the price of our publicly traded securities. Therefore, historical operating results, financial and business performance, events and trends are often not a reliable indicator of future operating results, financial and business performance, events or trends. If any of the following risks occurs, our business, financial condition, and results of operations and future growth prospects could be materially and adversely affected.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant operating losses since inception and anticipate that we will continue to incur significant operating expenses for the foreseeable future. It is uncertain if we will ever achieve or sustain profitability.
We have a history of incurring operating losses and as of December 31, 2021, we had an accumulated deficit of $674.5 million. To date, we have not generated significant revenues from the sale of products. Our operating losses have resulted principally from costs incurred in our discovery and development activities. On March 10, 2021, the FDA approved FOTIVDA in the United States for the treatment of adult patients with relapsed or refractory advanced RCC following two or more prior systemic therapies. We anticipate that we will continue to incur significant operating expenses for the foreseeable future as we commercialize FOTIVDA in the United States and continue our planned development activities for our clinical stage assets. Our future product revenues will depend upon the size of markets in which FOTIVDA, and any future products, have received approval, and our ability to achieve sufficient market acceptance, reimbursement from third-party payers and adequate market share for FOTIVDA and any future products in those markets. The likelihood of our long-term success must be considered in light of the expenses, difficulties and potential delays to be encountered in the development and commercialization of new pharmaceutical products, competitive factors in the marketplace and the complex regulatory environment in which we operate.
If we do not effectively manufacture, market and sell FOTIVDA in the United States and if we do not successfully develop, obtain and maintain regulatory approval for our existing and future pipeline of product candidates we may never generate sufficient revenues from product sales to support our cost structure in order to attain or sustain profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations.
We may require substantial additional funding to advance our pipeline of clinical stage assets, and a failure to obtain this necessary capital when needed would force us to delay, limit, reduce or terminate our research, product development or commercialization efforts.
We believe that our $87.3 million in cash, cash equivalents and marketable securities as of December 31, 2021, along with net product revenues from product sales of FOTIVDA in the United States, would enable us to maintain our current operations for more than 12 months following the filing of this Annual Report on Form 10-K.
However, there are numerous risks and uncertainties associated with the research, development and commercialization of pharmaceutical products including, without limitation, risks related to our ability to generate product revenue from sales of FOTIVDA in the United States, which became commercially available in the United States in March 2021. Accordingly, our future capital requirements may vary from our current expectations and depend on many factors, including but not limited to:
•the cost of commercialization activities of FOTIVDA in the United States and any of our product candidates that may be approved for sale, including marketing, sales and distribution costs;
•the cost of manufacturing FOTIVDA in the United States, our product candidates and any additional products we may successfully commercialize;
•the impact of COVID-19 on our operations, business and prospects;
•our ability to establish and maintain strategic partnerships, licensing, collaboration or other arrangements and the financial terms of such agreements;
•the number of product candidates we pursue as well as the development needs and opportunities for each product candidate;
•the scope, progress, results and costs of researching and developing our product candidates and of conducting preclinical and clinical trials;
•the timing of, and the costs involved in, completing our clinical trials and obtaining regulatory approvals for our product candidates;
•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
•the absence of any breach, acceleration event or event of default under our 2020 Loan Facility (as defined below), or under any other agreements with third parties;
•the cost and outcome of any legal actions against us;
•the timing, receipt and amount of sales of, or royalties on, FOTIVDA and our future products, if any;
•and general economic, industry and market conditions, including, without limitation, the current adverse impact of the COVID-19 pandemic and political and economic instability caused by the current armed conflict between Russia and Ukraine and economic sanctions adopted in response to the conflict.
We may require substantial additional funding to advance our pipeline of clinical stage assets. We may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity or convertible debt securities may result in additional dilution to our stockholders. If we raise additional funds through the issuance of debt securities or preferred stock or through additional credit facilities, these securities and/or the loans under credit facilities could provide for rights senior to those of our common stock and could contain covenants that would restrict our operations. Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. For example, we may never achieve the milestone specified in the 2020 Loan Facility that would allow us to access the remaining $5.0 million in available credit. We also expect to seek additional funds through arrangements with partners, licensees, collaborators or other third parties. These arrangements would generally require us to relinquish or encumber rights to some of our technologies or product candidates, and we may not be able to enter into such arrangements on acceptable terms, if at all.
If we are unable to raise substantial additional funding to advance our pipeline of clinical stage assets, whether on terms that are acceptable to us, or at all, or if we were to default under the 2020 Loan Facility and Hercules accelerates the then remaining principal payments and fees due under the 2020 Loan Facility, then we may be required to:
•delay, limit, reduce or terminate our clinical trials or other development activities for one or more of our product candidates; and/or
•delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates, if approved.
Failure to comply with the covenants or payment obligations under the 2020 Loan Facility could result in an event of default, which could materially and adversely affect our business and our financial condition.
The 2020 Loan Facility includes certain financial and operational covenants and provides for certain occurrences that constitute events of default. Certain of those covenants may be out of our control, such as failure to achieve net product revenue at a certain percentage of projected net product revenue. Potential events of default also include circumstances occurring that would have a material adverse effect on our business, our insolvency or bankruptcy or default on our other obligations or agreements. If we fail to make payments when due, breach any operational covenant or have any event of default, Hercules could require us to immediately repay all outstanding principal and accrued interest on the loan, plus a prepayment charge, which could have a material adverse effect on our business and financial condition.
We have only recently transitioned from a development stage biopharmaceutical company to a commercial stage biopharmaceutical company, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
Other than the marketing approvals for FOTIVDA received by our partner EUSA and the FDA marketing approval for FOTIVDA received in the United States in March 2021, all of our product candidates are in the development stage. We have only recently demonstrated our ability, or our ability to arrange for a third party, to manufacture a commercial scale medicine and conduct the sales and marketing activities necessary to commercialize a product. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had more experience commercializing FOTIVDA. In addition, as a relatively new commercial stage business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. To be profitable, we will need to continue to successfully transition from a company with a research and development focus to a company capable of supporting commercial activities. Ultimately, we may not be successful in such a transition.
Risks Related to Development and Commercialization of Our Product Candidates
In the near term, we are substantially dependent on the success of FOTIVDA (tivozanib). If we are unable to successfully commercialize FOTIVDA or maintain marketing approval for FOTIVDA in its approved indication, or if we are unable to complete planned or ongoing clinical development of tivozanib to obtain marketing approval for tivozanib in other indications, either alone or with our collaborators, or if we experience significant delays in doing so, our business could be substantially harmed.
Our prospects are substantially dependent on our ability to successfully commercialize FOTIVDA in the United States and maintain marketing approval for FOTIVDA in the United States, or through EUSA, in those countries outside the United States where FOTIVDA is currently approved. While we recorded a growing number of commercial prescriptions, factors beyond our control may result in decreases in commercial prescriptions each month or each quarter. If commercial prescription demand becomes stagnant or decreases it would substantially impact our revenues from product sales, adversely affect our profitability on a quarterly or annual basis and depress the market price of our common stock.
We are also dependent on the success of tivozanib in clinical development and our ability to obtain additional marketing approvals for tivozanib in one or more other indications.
The success of FOTIVDA will depend on a number of factors, including the following:
•our ability to successfully commercialize FOTIVDA in the United States;
•our ability to enhance commercial awareness of FOTIVDA;
•commercial acceptance by physicians, patients, third-party payors and others in the medical community;
•our ability to gain access to customers during the COVID-19 pandemic;
•our ability to successfully enroll and complete clinical trials of tivozanib, including the DEDUCTIVE trial and the TiNivo-2 Trial;
•a continued acceptable safety, tolerability and efficacy profile that is satisfactory to applicable regulatory authorities following any marketing approval;
•timely receipt of marketing approvals from applicable regulatory authorities such as the FDA;
•the performance of the contract research organizations, or CROs, we have hired to manage our clinical trials, as well as that of our collaborators, investigator sponsors and other third-party contractors;
•the extent of any future post-marketing approval commitments to applicable regulatory authorities;
•maintenance of existing or establishment of new supply arrangements with third-party raw materials suppliers and manufacturers including with respect to the supply of active pharmaceutical ingredient for tivozanib and finished drug product that is appropriately packaged for sale;
•adequate ongoing availability of raw materials and drug product for clinical development and any commercial sales;
•obtaining and maintaining patent, trade secret protection and regulatory exclusivity, both in the United States and internationally, including our ability to maintain our license agreement with KKC;
•protection of our rights in our intellectual property portfolio, including our ability to maintain our license agreement with KKC; and
•our ability to compete with other therapies.
Many of these factors are beyond our control. If we are unable to continue to successfully commercialize FOTIVDA in the United States or to develop or receive marketing approval for tivozanib in other indications, on our own or with our collaborators, or experience delays as a result of any of these factors or otherwise, our business could be substantially harmed.
FOTIVDA, or any one of our product candidates that may receive marketing approval in the future, may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success and the market opportunity for FOTIVDA or any one of our product candidates may be smaller than our estimates.
FOTIVDA, or any one of our product candidates that may be approved in the future by the appropriate regulatory authorities for marketing and sale, may fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. Physicians are often reluctant to switch their patients from existing therapies even when new and potentially more effective or convenient treatments enter the market. There are already a number of therapies on the market competitive to FOTIVDA, as well as our other product candidates, in indications we intend to target.
Efforts to educate the medical community and third-party payors on the benefits of our product candidates have required significant resources and may not ultimately be successful. Restrictions related to the ongoing COVID-19 pandemic have impeded our ability to gain in-person access to customers, prescribers, other healthcare professionals and to certain institutions that remain closed to industry representatives. We believe these access challenges caused by the COVID-19 pandemic and the emergence of SARs-CoV-2 variants have potentially slowed the commercial launch trajectory of FOTIVDA which we believe is causing a protracted launch curve as compared to the pre-COVID open access environment. While we have designed our strategic commercial approach to be optimized for remote as well as in-person customer engagement capabilities and expanded our digital marketing strategies in light of the restrictions necessitated by the COVID-19 pandemic, changes to standard sales and marketing practices, including the shift from in-person to video and virtual interactions with healthcare professionals, have caused, and may continue to cause, challenges for the successful commercialization of FOTIVDA.
If FOTIVDA, or any of our product candidates that may be approved for marketing and sale in the future, does not achieve an adequate level of market acceptance, we may not generate significant revenues and we may not become profitable. The degree of market acceptance of FOTIVDA, or any of our product candidates that may be approved for marketing and sale in the future, will depend on a number of factors, including:
•the advantages of the product compared to competitive therapies;
•the number of competitors approved for similar uses;
•our ability to gain access to customers during the COVID-19 pandemic;
•the relative promotional effort and marketing success of us as compared with our competitors;
•how the product is positioned in physician treatment guidelines and pathways;
•the prevalence and severity of any side effects;
•the efficacy and safety of the product;
•our ability to offer the product for sale at competitive prices;
•the product’s tolerability, convenience and ease of administration compared to alternative treatments;
•the willingness of the target patient population to try, and of physicians to prescribe, the product;
•limitations or warnings, including use restrictions, contained in the product’s approved labeling;
•the strength of sales, marketing and distribution support;
•the timing of market introduction of our approved products as well as competitive products;
•adverse publicity about the product or favorable publicity about competitive products;
•potential product liability claims;
•changes in the standard of care for the targeted indications of the product; and
•availability and amount of coverage and reimbursement from government payors, managed care plans and other third-party payors.
In addition, the potential market opportunities for FOTIVDA and our product candidates are difficult to estimate precisely. Our estimates of the potential market opportunities are predicated on many assumptions, including industry knowledge and publications, third-party research reports and other surveys. While we believe that our internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our management, are inherently uncertain and the reasonableness of these assumptions has not been assessed by an independent source. If any of the assumptions prove to be inaccurate, the actual markets for our product candidate could be smaller than our estimates of the potential market opportunities.
If the FDA, EMA or other comparable foreign regulatory authorities approve generic versions of FOTIVDA®, the sales of FOTIVDA® could be adversely affected.
Once an NDA is approved, the product covered thereby becomes a “reference listed drug” in the FDA’s publication, “Approved Drug Products with Therapeutic Equivalence Evaluations,” commonly known as the Orange Book. Manufacturers may seek approval of generic versions of reference listed drugs through submission of abbreviated new drug applications, or ANDAs, in the United States. In support of an ANDA, a generic manufacturer need not conduct clinical trials to assess safety and efficacy. Rather, the applicant generally must show that its product has the same active ingredient(s), dosage form, strength, route of administration and conditions of use or labelling as the reference listed drug and that the generic version is bioequivalent to the reference listed drug, meaning it is absorbed in the body at the same rate and to the same extent. Generic products may be significantly less costly to bring to market than the reference listed drug and companies that produce generic products are generally able to offer them at lower prices. Thus, following the introduction of a generic drug, a significant percentage of the sales of any branded product or reference listed drug is typically lost to the generic product.
The FDA may not approve an ANDA for a generic product until any applicable period of non-patent exclusivity for the reference listed drug has expired. The FDA provides a period of five years of non-patent exclusivity for a new drug containing a new chemical entity. Specifically, in cases where such exclusivity has been granted, as is the case with FOTIVDA®, an ANDA may not be submitted to the FDA until the expiration of five years, e.g., March 10, 2026, for FOTIVDA®, unless the submission is accompanied by a Paragraph IV certification that a patent covering the reference listed drug is either invalid or will not be infringed by the generic product, in which case the applicant may submit its application four years following approval of the reference listed drug, e.g., March 10, 2025, for FOTIVDA®.
Generic drug manufacturers may seek to launch generic products following the expiration of the applicable exclusivity period for FOTIVDA®, even if we still have patent protection for such products. Competition that FOTIVDA® could face from generic versions could materially and adversely affect our future revenue, profitability, and cash flows and substantially limit our ability to obtain a return on the investments we have made in developing FOTIVDA®.
In addition to our dependence on the success of FOTIVDA, we depend on the success of our clinical stage assets, including tivozanib (in other indications), ficlatuzumab, AV-380 and AV-203. Preclinical studies and clinical trials of our product candidates may not be successful. If we are unable to complete the clinical development of, obtain marketing approval for or successfully commercialize our product candidates, either alone or with a collaborator, or if we experience significant delays in doing so, our business will be materially harmed.
We and any collaborators, including our partners and sublicensees, are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining marketing approval from the FDA. Foreign regulatory authorities, such as the European Medicines Agency, or the EMA, impose similar requirements. We and our collaborators must complete extensive preclinical development and clinical trials that demonstrate the safety and efficacy of our product candidates in humans before we can obtain these approvals. Despite our efforts to design satisfactory clinical trial protocols, we cannot guarantee that the clinical trial protocols of any of our ongoing clinical trials will satisfy the rigorous standards of the FDA and/or the EMA to support a marketing approval. If we seek to amend the clinical trial protocols for any of our clinical trials this may delay site enrollment and completion, as in the case of the TiNivo-2 Trial where we made a clinical trial protocol amendment. The TiNivo-2 trial protocol was amended based on (i) emerging evidence that the lower 0.89 mg dose was effective in combination with an ICI, (ii) that the lower dose may optimize the risk/benefit profile and result in better tolerability for the combination and (iii) the FDA’s recommendation to investigate an optimal dose of tivozanib in the combination setting under its Project Optimus initiative. We cannot be certain that this
amendment to the TiNivo-2 protocol will satisfy the FDA's Project Optimus initiative to investigate the optimal dose of tivozanib in the combination setting and, if it does not, we may be required to conduct additional clinical trials which would delay and adversely impact the timing of marketing approval of tivozanib in combination with nivolumab or other therapies.
We depend heavily on the success of our clinical stage assets and our clinical trials may not be successful. If delays in manufacturing, trial site initiation or patient enrollment occur, whether due to the impacts of the ongoing COVID-19 pandemic or otherwise, our clinical stage assets will develop at a slower pace than we had planned. For example, the delivery of the clinical supply of ficlatuzumab for a potential registrational clinical trial of ficlatuzumab in R/M HNSCC was significantly delayed due to the shortage of key raw materials and manufacturing supplies also used in COVID-19 vaccine manufacturing which required us to delay the start date of this potential registrational clinical trial until 2023.
Preclinical and clinical testing is expensive, is difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all, particularly given that many of our clinical trial sites are research hospitals that have imposed restrictions on entry and other activity as a result of the COVID-19 pandemic. The preclinical and clinical development of our product candidates is susceptible to the risk of failure inherent at any stage of product development. For example, in December 2020, the FDA approved our investigational new drug, or IND, application for AV-380 for the potential treatment of cancer cachexia. In October 2021, we completed enrollment for a Phase 1 clinical trial in healthy subjects. Initial data observed satisfactory a reduction of GDF15 in subjects and no drug related adverse events were identified. However, operational errors at the trial site have caused data integrity concerns and we have notified the FDA. We plan to discuss with the FDA the suitability of the data for regulatory purposes and our ability to publish the data from this trial. We do not expect the data quality issues in the Phase 1 clinical trial to impact our plans to initiate a Phase 1b clinical trial in cancer patients in the second half of 2022. We cannot be certain that the data integrity concerns related to the Phase 1 clinical trial will not ultimately delay the development of our AV-380 program.
Moreover, we, or any collaborators, may experience any of a number of possible unforeseen adverse events in connection with clinical trials, many of which are beyond our control, including:
•we, or our collaborators, may fail to demonstrate efficacy in a clinical trial or across a broad population of patients;
•the supply or quality of raw materials, manufactured product candidates or other materials necessary to conduct clinical trials of our product candidates may be significantly delayed, insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply, due to challenges related to the COVID-19 pandemic or otherwise;
•it is possible that even if one or more of our product candidates has a beneficial effect, that effect (a) will not be detected during preclinical or clinical evaluation or (b) may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of our clinical trials;
•we may fail to detect toxicity or intolerability of our product candidates, or mistakenly believe that our product candidates are toxic or not well tolerated when that is not in fact the case;
•adverse events or undesirable side effects caused by, or other unexpected properties of, any product candidates that we may develop could cause us, any collaborators, an institutional review board or regulatory authorities to interrupt, delay or halt clinical trials of one or more of our product candidates and could result in a more restrictive label or the delay or denial of marketing approval by the FDA or comparable foreign regulatory authorities;
•if any of our product candidates is associated with adverse events or undesirable side effects or has properties that are unexpected, we, or any collaborators, may need to abandon development or limit development of that product candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective;
•regulators or institutional review boards may not authorize us, any collaborators or our or their investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
•we, or any collaborators, may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
•clinical trials of our product candidates may produce unfavorable or inconclusive results, including with respect to the safety, tolerability, efficacy or pharmacodynamic and pharmacokinetic profile of the product candidate;
•we, or any collaborators, may decide, or regulators may require us or them, to conduct additional clinical trials or abandon product development programs;
•the number of patients required for clinical trials of our product candidates may be larger than we, or any collaborators, anticipate, patient enrollment in these clinical trials may be slower than we, or any collaborators, anticipate or participants may drop out of these clinical trials at a higher rate than we, or any collaborators, anticipate;
•our estimates of the patient populations available for study may be higher than actual patient numbers and result in our inability to sufficiently enroll our trials;
•the cost of planned clinical trials of our product candidates may be greater than we anticipate;
•our third-party contractors or those of any collaborators, including those manufacturing our product candidates or components or ingredients thereof or conducting clinical trials on our behalf or on behalf of any collaborators, may fail to comply with regulatory requirements, including GMPs, GCPs or GLPs, or meet their contractual obligations to us or any collaborators in a timely manner or at all;
•patients that enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical trial protocol, resulting in the need to increase the needed enrollment size for the clinical trial, extend the clinical trial’s duration, or drop the patients from the final efficacy analysis for the clinical trial, which can negatively affect the statistical power of the results;
•our decision, or a decision by regulators or institutional review boards, that may require us to suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or their standards of conduct, a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate or findings of undesirable effects caused by a chemically or mechanistically similar product or product candidate;
•the FDA or comparable foreign regulatory authorities may disagree with our, or any collaborators’, clinical trial designs or our or their interpretation of data from preclinical studies and clinical trials;
•the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or facilities of third-party manufacturers with which we, or any collaborators, enter into agreements for clinical and commercial supplies;
•the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient to obtain marketing approval; and
•constraints on our, or any collaborators’, ability to conduct or complete clinical trials for our product candidates due to the COVID-19 pandemic, including slowdowns in patient enrollment, or necessary supplies, restrictions on patient monitoring at hospital clinical trial sites, closures of third-party facilities, and other disruptions to clinical trial activities.
Product development costs for us and our collaborators will increase if we experience delays in testing or pursuing marketing approvals, and we may be required to obtain additional funds to complete clinical trials and prepare for possible commercialization. We do not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations. In addition, many of the factors that lead to clinical trial delays may ultimately lead to the denial of marketing approval of any of our product candidates.
If the commercial launch of FOTIVDA for which we recruited a sales force and established marketing, market access and medical affairs teams and distribution capabilities is not successful for any reason, we could incur substantial costs
and our investment would be lost if we cannot retain or reassign our sales, marketing, market access and medical affairs personnel.
To achieve commercial success for FOTIVDA, we have expended and anticipate that we will continue to expend significant resources to support our sales force, marketing, market access and medical affairs teams and distribution capabilities. There are risks involved with establishing our own sales, marketing, distribution, training and support capabilities. For example, recruiting and training sales and marketing personnel is expensive and time consuming and could delay our ability to focus on other priorities. If the commercial launch of FOTIVDA is not successful for any reason, this would be costly, and our investment would be lost if we cannot retain or reassign our sales, marketing, market access and medical affairs personnel or terminate on favorable terms any agreements entered into with third parties to support our commercialization efforts.
Factors that may inhibit or limit our efforts to commercialize FOTIVDA on our own include:
•our inability to train and retain adequate numbers of effective sales, marketing, training and support personnel;
•the inability of sales personnel to obtain access to physicians, including key opinion leaders, or to educate an adequate number of physicians of the benefits of FOTIVDA over alternative treatment options;
•limited access to our customers due to the COVID-19 pandemic; and
•unforeseen costs and expenses associated with establishing and maintaining an independent sales, marketing, training and support organization.
If our salesforce, marketing, market access and medical affairs teams and distribution capabilities fail, or are otherwise unsuccessful, it would materially adversely impact the commercialization of FOTIVDA, impact our ability to generate revenue and harm our business.
If we fail to develop and commercialize other product candidates, we may be unable to grow our business.
Although the commercialization of FOTIVDA and the continued development of tivozanib is our primary focus, as part of our growth strategy, we are developing a pipeline of product candidates. These other product candidates will require additional, time-consuming and costly development efforts, by us or by our collaborators, prior to commercial sale, including preclinical studies, clinical trials and approval by the FDA and/or applicable foreign regulatory authorities. All product candidates are prone to the risks of failure that are inherent in pharmaceutical product development, including the possibility that the product candidate will not be shown to be sufficiently safe and/or effective for approval by regulatory authorities. In addition, we cannot assure you that any such products that are approved will be manufactured or produced economically, successfully commercialized or widely accepted in the marketplace, or will be more effective than other commercially available alternatives.
We may not obtain additional marketing approvals for tivozanib in other indications or initial approval for our other product candidates.
We may not obtain additional marketing approvals for our product candidates. It is possible that the FDA or comparable foreign regulatory agencies may refuse to accept for substantive review any future application that we or a collaborator may submit to market and sell our product candidates, or that any such agency may conclude after review of our or our collaborator’s data that such application is insufficient to obtain marketing approval of our product candidate.
If the FDA or other comparable foreign regulatory agency does not accept or approve any future application to market and sell any of our product candidates, such regulators may require that we conduct additional clinical trials, preclinical studies or manufacturing validation studies and submit that data before they will reconsider our application. Depending on the extent of these or any other required trials or studies, approval of any application that we submit may be delayed by several years, or may require us or our collaborator to expend more resources than we or they have available. It is also possible that additional trials or studies, if performed and completed, may not be considered sufficient by the FDA or other foreign regulatory agency to approve our applications for marketing and commercialization.
Any delay in obtaining, or an inability to obtain, marketing approvals would prevent us or our collaborators from commercializing tivozanib in other indications or our product candidates and generating revenues. If any of these outcomes occur, we would not be eligible for certain milestone and royalty revenue under our partnership agreements, our
collaborators could terminate our partnership agreements and we may be forced to abandon our development efforts for our product candidates, any of which could significantly harm our business.
Results of early clinical trials may not be predictive of results of later clinical trials, and interim results of clinical trials may not be predictive of the final results or the success of clinical trials.
The outcome of early clinical trials, such as our DEDUCTIVE trial and our ficlatuzumab trials in HNSCC, pancreatic cancer and AML, may not be predictive of the success of later clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and we have, and could in the future, face similar setbacks. In addition, interim results and analyses of clinical trials do not necessarily predict the final results or the success of a trial once it is complete.
While the design of a clinical trial may help to establish whether its results will support approval of a product, flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing approval. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if we, or any collaborators, believe that the results of clinical trials for our product candidates warrant marketing approval, the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of our product candidates. For example, in June 2013, we suffered such a setback when the FDA issued a complete response letter, or the 2013 CRL, informing us that it would not approve tivozanib for the first-line treatment of RCC based solely on the data from the TIVO-1 trial, and recommended that we perform an additional clinical trial adequately sized to assure the FDA that tivozanib did not adversely affect overall survival, or OS. We then designed and initiated our TIVO-3 trial to address the FDA’s concerns about the negative OS trend expressed in the 2013 CRL, which took time and resources and delayed our efforts to obtain marketing approval for tivozanib in the United States.
If we fail to receive positive results in clinical trials of our product candidates, the development timeline and regulatory approval and commercialization prospects for our most advanced product candidates, and, correspondingly, our business and financial prospects would be negatively impacted.
If we or our collaborators experience delays or difficulties in the enrollment of patients in clinical trials, receipt of necessary regulatory approvals could be delayed or prevented.
We or our collaborators may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in clinical trials. Patient enrollment is a significant factor in the timing of clinical trials, and is affected by many factors, including:
•the impact of the COVID-19 pandemic;
•the size and nature of the patient population;
•the severity of the disease under investigation;
•the availability of approved therapeutics for the relevant disease;
•the evolving standard of care landscape;
•the proximity of patients to clinical sites;
•the design of and eligibility criteria for the trial;
•efforts to facilitate timely enrollment; and
•competing clinical trials.
In addition, participation in our clinical trials will be affected by clinicians’ and patients’ perceptions as to the potential advantages and risks of the drug being studied and the drug being provided as a control in relation to other available therapies, including any new drugs that may be approved or any changes to the standard of care for the indications we are investigating. For example, changes in the standard of care in HCC have extended treatment time with first line therapies and reduced the presence of a sufficient patient pool suitable for the DEDUCTIVE trial, which has delayed patient enrollment for the trial.
If approved, our product candidates, such as ficlatuzumab, AV-380, or AV-203, that are licensed and regulated as biologics may face competition from biosimilars approved through an abbreviated regulatory pathway.
The Biologics Price Competition and Innovation Act of 2009, or BPCIA, was enacted as part of the Patient Protection and Affordable Care Act, or the ACA, to establish an abbreviated pathway for the approval of biosimilar and interchangeable biological products. The regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an approved biologic. Under the BPCIA, our antibody product candidates, for example, ficlatuzumab, AV-380 or AV-203, if approved by the FDA, would benefit from 12 years of data exclusivity from the time of first licensure. While the FDA could not accept an application for a biosimilar or interchangeable product based on our biologic product candidates, such as ficlatuzumab, AV-380 or AV-203, as the reference biological product until four years after the date of first licensure of our product candidate, during this 12-year period of exclusivity, another party may still independently develop and receive approval of a competing biologic, so long as its BLA does not rely on our product candidate’s data or submit the application as a biosimilar application. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty, and any new policies or processes adopted by the FDA could have a material adverse effect on the future commercial prospects for our biological products.
We believe that any of the biological product candidates we develop under a BLA, such as ficlatuzumab, AV-380 or AV-203, should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider the subject product candidates to be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of the reference products in a way that is similar to traditional generic substitution for non-biological products will depend on a number of marketplace and regulatory factors that are still developing. Nonetheless, the approval of a biosimilar to our biologic product candidates, such as ficlatuzumab, AV-380 or AV-203, would have a material adverse impact on our business due to increased competition and pricing pressure.
Even if a product candidate receives marketing approval, we or others may later discover that the product is less effective than previously believed or causes undesirable side effects that were not previously identified, which could compromise our ability or that of any collaborators to market the product, and could cause regulatory authorities to take certain regulatory actions.
It is possible that our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects. For example, despite the recent FDA marketing approval of FOTIVDA in the United States, we, or others, may discover that FOTIVDA is less effective or tolerable than previously believed. If, we, or others, discover that a product is less effective than previously believed or causes undesirable side effects that were not previously identified, any of the following adverse events could occur:
•regulatory authorities may withdraw their approval of the product or seize the product;
•we, or any of our collaborators, may be required to recall the product, change the way the product is administered or conduct additional clinical trials;
•additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular product;
•we, or any of our collaborators, may be subject to fines, injunctions or the imposition of civil or criminal penalties;
•regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;
•we, or any of our collaborators, may be required to create a Medication Guide outlining the risks of the previously unidentified side effects for distribution to patients;
•we could be sued and held liable for harm caused to patients;
•physicians and patients may stop using our product; and
•our reputation may suffer.
Any of these events could harm our business and operations and could negatively impact our stock price.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we intend to focus on developing product candidates for specific indications that we identify as most likely to succeed, in terms of their potential for marketing approval and commercialization, as well as those that are most aligned with our strategic goals. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that may prove to have greater commercial potential.
Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable product candidates. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to the product candidate.
We face substantial competition from existing approved products. Our competitors may also discover, develop or commercialize new competing products before, or more successfully, than we do.
The biotechnology and pharmaceutical industries are highly competitive, and our future success depends on our ability to demonstrate and maintain a competitive advantage with respect to the design, development and commercialization of product candidates. Our core competitors include pharmaceutical and biotech organizations, as well as academic research institutions, clinical research laboratories and government agencies that are focusing on the research and development of small molecules and antibodies for cancer treatment. Many of our competitors have greater financial, technical and human resources than we do. Established competitors may invest heavily to discover and develop novel compounds that could make our product candidates obsolete.
For instance, there are several therapies in clinical development for RCC, HCC and HNSCC that may alter the competitive landscape for the treatment of these cancers. As such, it is difficult to predict how these changes will inform our perspective on the key competitors for our products in RCC, HCC and HNSCC in the future. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to obtain approval, to overcome price competition and to be commercially successful.
Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in favor of our competitors. Additionally, many competitors have greater experience in product discovery and development, obtaining FDA and other regulatory approvals and commercialization capabilities, which may provide them with a competitive advantage. If we are not able to compete effectively, our business will not grow and our financial condition and operations will suffer.
We believe that our ability to compete will depend on our ability to execute on the following objectives:
•design studies, execute on development plans and commercialize products that are competitive to other products in the market in terms of, among other things, safety, efficacy, convenience or price;
•obtain and maintain patent and/or other proprietary protection for our processes and product candidates;
•obtain required regulatory approvals;
•obtain favorable reimbursement, formulary and guideline status;
•collaborate with others in the design, development and commercialization of our products; and
•evaluate and pursue strategic business development and partnership opportunities for our programs.
FOTIVDA, or any other product candidate that we or our collaborators are able to commercialize, may become subject to unfavorable pricing regulations, third-party payor reimbursement practices or healthcare reform initiatives, any of which could harm our business.
The commercial success of our product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be paid by third-party payors, including government health care programs and private health insurers. For example, our European licensee for FOTIVDA, EUSA, is working to secure reimbursement approval for and commercially launch FOTIVDA in many of the countries in which FOTIVDA has been approved. However, there is significant competition in the first-line RCC setting in the EU due to the approval of several immunotherapy combinations which have become a standard of care and impacted the market opportunity for monotherapy treatments. If EUSA is unable to secure reimbursement approval, or reimbursement is limited, and if EUSA is unable to commercially launch FOTIVDA in additional countries and does not seek to expand the label for FOTIVDA to the relapsed or refractory RCC setting, it may materially impact our ability to generate revenue from sales of FOTIVDA outside of the United States. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us or our collaborators to establish or maintain pricing sufficient to realize a sufficient return on our investments. In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors, and coverage and reimbursement levels for products can differ significantly from payor to payor. As a result, the coverage determination process is often time consuming and costly and may require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained or applied consistently.
There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved drugs. Marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we or our collaborators might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay commercial launch of the product, possibly for lengthy time periods, which may negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our or their investment in one or more product candidates, even if our product candidates obtain marketing approval.
Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Therefore, our ability, and the ability of any collaborators, to successfully commercialize any of our product candidates will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from third-party payors. Third-party payors decide which medications they will cover and establish reimbursement levels. The healthcare industry is acutely focused on cost containment, both in the United States and elsewhere. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications, which could affect our ability to sell our product candidates profitably. These payors may not view our products, even if approved, as cost-effective, and coverage and reimbursement may not be available to our customers or may not be sufficient to allow our products to be marketed on a competitive basis. Cost-control initiatives could cause us or our collaborators to decrease the price we might establish for products, which could result in lower than anticipated product revenues. If the prices for our products, if any, decrease or if governmental and other third-party payors do not provide coverage or adequate reimbursement, our prospects for revenue and profitability will suffer.
There may also be delays in obtaining coverage and reimbursement for newly approved drugs, such as FOTIVDA, and coverage may be more limited for FOTIVDA than the indication for which the drug is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Reimbursement rates may vary, for example, according to the use of the product and the clinical setting in which it is used. Reimbursement rates may also be based on reimbursement levels already set for lower cost drugs or may be incorporated into existing payments for other services.
In addition, increasingly, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and are challenging the prices charged. We cannot be sure that coverage will be available for any product candidate that we, or third-parties, commercialize and, if available, that the reimbursement rates will be adequate. Further, the net reimbursement for drug products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United
States. An inability to promptly obtain coverage and adequate payment rates from both government-funded and private payors for any of our product candidates for which we obtain regulatory approval could significantly harm our operating results and our overall financial condition.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
We face a risk of product liability as a result of the commercialization of FOTIVDA and the clinical testing of our product candidates. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit the development or commercialization of our product candidates. Even a successful defense could require significant financial and management resources. Regardless of the merits or eventual outcome, product liability claims may result in:
•decreased commercial demand for FOTIVDA, resulting in loss of revenue;
•delay or termination of our clinical trials, or the withdrawal of clinical trial participants;
•significant costs to defend the related litigation;
•substantial monetary awards to trial participants or patients;
•product recalls, withdrawals or labeling, marketing or promotional restrictions;
•the inability to develop or commercialize our product candidates;
•injury to our reputation and negative media attention; and
•a decline in our stock price.
Although we maintain general liability insurance and clinical trial liability insurance, this insurance may not fully cover potential liabilities that we may incur. The cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial. Insurance coverage is becoming increasingly expensive. We increased our insurance coverage for the commercialization of FOTIVDA and we will need to increase our insurance coverage further if we commercialize any of our other products that receive marketing approval. If we are unable to maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could prevent or inhibit the development, commercial production and sale of our product candidates, which could harm our business, financial condition, results of operations and prospects.
Our internal computer systems or other company technology to collect and store information, or those of any third parties with which we contract, may fail or suffer security breaches, which could result in a material disruption of our product development programs.
Despite the implementation of security measures, our internal computer systems and those of third parties with which we contract are vulnerable to damage or interruption from computer viruses, worms and other destructive or disruptive software, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Such systems are also vulnerable to service interruptions or to security breaches from inadvertent or intentional actions by our employees, third-party vendors and/or business partners, or from cyber incidents by malicious third parties. Our sensitive commercial and personal information also may be subject to security breaches in other contexts, related to personal devices or other technology or systems where this information can be collected, stored and used. Cyber incidents are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. Cyber incidents could include the deployment of harmful malware, ransomware, denial-of-service attacks, unauthorized access to or deletion of files, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information. Cyber incidents also could include phishing attempts or e-mail fraud to cause payments or information to be transmitted to an unintended recipient. We could be subject to risks caused by cyber incidents, misappropriation, misuse, leakage, falsification or intentional or accidental release or loss of information maintained in the information systems and networks of our company, including commercial information and personal information of our employees, patients, clinical trial participants and third-party vendors.
System failures, accidents, cyber incidents or security breaches could cause interruptions in our operations, and could result in a material disruption of our commercialization and clinical activities and business operations, whether due to a loss of our trade secrets or other proprietary information or other similar disruptions, in addition to possibly requiring substantial expenditures of resources to remedy. For example, the loss of clinical trial data from completed or future trials
could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our competitive position could be harmed and our product research, development and commercialization efforts could be delayed. We may in certain instances be required to provide notification to individuals or others in connection with the loss of their personal or commercial information. In addition, we may not have adequate insurance coverage to provide compensation for any losses associated with such events.
If a material breach of our security or that of our vendors occurs, the market perception of the effectiveness of our security measures could be harmed, we could lose business and our reputation and credibility could be damaged. We could be required to expend significant amounts of money and other resources to repair or replace information systems or networks. Although we develop and maintain systems and controls designed to prevent these events from occurring, and we have a process to identify and mitigate threats, the development and maintenance of these systems, controls and processes is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Moreover, despite our efforts, the possibility of these events occurring cannot be eliminated entirely.
Risks Related to the COVID-19 Pandemic
The COVID-19 pandemic has adversely disrupted, and is expected to continue to adversely disrupt our operations, including our ability to commercialize FOTIVDA by restricting in-person access to treating oncologists and restricting in-person access to certain institutions, our ability to initiate new trials or complete ongoing clinical trials and our ability to manufacture clinical product and may have other adverse effects on our business, operations and ability to raise capital.
The COVID-19 pandemic, which began in December 2019 and has spread worldwide, has caused many governments to implement measures to slow the spread of the outbreak through quarantines, strict travel restrictions, heightened border scrutiny and other measures. The outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred, supply chains have been disrupted, facilities and production have been suspended, and demand for certain goods and services, such as manufacturing materials, medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. The future progression of the pandemic and its effects on our business and operations are uncertain.
Restrictions related to the ongoing COVID-19 pandemic have impeded our ability to gain in-person access to customers, prescribers, and other healthcare professionals and certain institutions remain closed to industry representatives. We believe these access challenges caused by the COVID-19 pandemic and the emergence of SARs-CoV-2 variants have potentially slowed the commercial launch trajectory of FOTIVDA which we believe is causing a protracted launch curve as compared to the pre-COVID open access environment. While we have designed our strategic commercial approach to be optimized for remote as well as in-person customer engagement capabilities and expanded our digital marketing strategies in light of the restrictions necessitated by the COVID-19 pandemic, changes to standard sales and marketing practices, including the shift from in-person to video and virtual interactions with healthcare professionals, have caused, and may continue to cause, challenges for the successful commercialization of FOTIVDA.
The COVID-19 pandemic has also impacted the initiation, enrollment and completion of certain of our ongoing and planned clinical trials both in the United States and in the EU. For example, the pandemic partially slowed enrollment of the DEDUCTIVE trial in that it hindered patients' ability to attend routine physical medical assessments with their clinicians resulting in delays in diagnosis and, at times, treatment of cancer in patients. In addition, in-person monitoring visits are currently on hold at certain of the active clinical trial sites for our DEDUCTIVE trial and to the extent possible, due to the COVID-19 pandemic, monitoring is being conducted remotely. We do not yet know whether remote management of this function will prove to be sufficient.
Similarly, the CRO for our TiNivo-2 trial has been impacted by cancer research staffing shortages related to, among other things, COVID-19 infections and competition for staff at clinical trial sites resulting in delays to site initiation, contracting and enrollment. Currently, certain academic institutions have frozen enrollment on all trials or refused to take on additional clinical trials due to these staffing shortages and these staffing shortages have adversely impacted trial site initiation and enrollment of the TiNivo-2 trial.
The COVID-19 pandemic has delayed and may continue to delay or otherwise adversely affect these clinical development activities, including our ability to recruit and retain patients in our ongoing clinical trials, as a result of many factors, including:
•diversion of healthcare resources away from the conduct of our clinical trials in order to focus on pandemic concerns, including the availability of necessary materials, including manufacturing supplies, the attention of physicians serving as our clinical trial investigators, access to hospitals serving as our clinical trial sites, availability of hospital staff supporting the conduct of our clinical trials and the reluctance of patients enrolled in our clinical trials to visit clinical trial sites;
•potential interruptions in global shipping affecting the transport of clinical trial materials, such as investigational drug product, patient samples and other supplies used in our clinical trials;
•the impact of further limitations on travel that could interrupt key clinical trial activities, such as clinical trial site initiations and monitoring activities, travel by our employees, contractors or patients to clinical trial sites or the ability of employees at any of our CMO or CROs to report to work, any of which could delay or adversely impact the conduct or progress of our clinical trials, and limit the amount of clinical data we will be able to report;
•any future interruption of, or delays in receiving, supplies of clinical trial material from our contract manufacturing organizations or, in the case of combination trials, our study collaborators, due to staffing shortages, production slowdowns or stoppages or disruptions in delivery systems; and
•availability of future capacity at CMOs to produce sufficient drug substance and drug product to meet forecasted clinical trial demand if any of these manufacturers elect or are required to divert attention or resources to the manufacture of other pharmaceutical products.
The extent of any adverse impact on our clinical trials will depend on numerous evolving factors that cannot be predicted with any level of certainty.
Any negative impact that the COVID-19 pandemic has on the ability of our suppliers to provide materials for our product candidates could cause additional delays with respect to product development activities, which could materially and adversely affect our ability to initiate or complete clinical trials, obtain regulatory approval for and to commercialize our product candidates, increase our operating expenses, affect our ability to raise additional capital and have a material adverse effect on our financial results. For example, the COVID-19 pandemic has, and may continue to, cause delays in the manufacturing of our product candidates ficlatuzumab and AV-380. A shortage of required key raw materials and manufacturing supplies also used in COVID-19 vaccine manufacturing process delayed the delivery of the clinical supply of ficlatuzumab originally expected in the first half of 2022 and will require the Company to delay the start date of this potential registrational clinical trial until the first half of 2023, which, if approved, may impact timing of potential commercialization and associated revenue generation. Similarly, a separate CMO has experienced employee shortages, supply chain issues and disruptions related to the COVID-19 pandemic which has delayed and may continue to delay manufacturing of AV-380. While we believe there are alternate manufacturers with capability to supply clinical or, if approved, commercial supply of AV-380 necessary to meet our needs, contracting with additional CMOs would require significant lead-times and result in additional costs and currently is not the solution we expect to follow.
The COVID-19 pandemic continues to evolve and its ultimate scope, duration and effects are unknown. The extent of the impact of the disruptions to our business, the supply chain, preclinical studies, clinical trials and commercialization efforts as a result of the outbreak will depend on future developments, which are highly uncertain and cannot be predicted with confidence. The macroeconomic impacts arising from the duration of the COVID-19 pandemic, including supply chain disruptions, may have prolonged and unforeseen adverse impacts to our industry, business and operations. In addition, this pandemic has adversely impacted economies worldwide and may cause additional disruption in the financial markets, both of which could result in adverse effects on our business, operations and ability to raise capital.
Risks Related to Our Dependence on Third Parties
We rely on third parties, such as CROs, to conduct clinical trials for our product candidates, and if they do not properly and successfully perform their obligations to us, we may not be able to obtain regulatory approvals for our product candidates.
We, in consultation with our collaborators, where applicable, design the clinical trials for our product candidates, but we rely on CROs and other third parties to perform many of the functions in managing, monitoring and otherwise carrying out many of these trials. We compete with larger companies for the resources of these third parties. In addition, these third parties may be adversely affected by the COVID-19 pandemic.
Although we plan to continue to rely on these third parties to conduct our ongoing and any future clinical trials, we are responsible for ensuring that each of our clinical trials is conducted in accordance with its general investigational plan and protocol. Moreover, the FDA and foreign regulatory agencies require us to comply with regulations and standards, including GCPs and GLPs for designing, conducting, monitoring, recording, analyzing and reporting the results of clinical trials to assure that the data and results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. If these third parties do not successfully carry out their duties under their agreements with us, if the quality or accuracy of the data they obtain, process and analyze is compromised for any reason or if they otherwise fail to comply with clinical trial protocols or meet expected deadlines, our clinical trials may experience delays or may fail to meet regulatory requirements. For example, the third-party CRO that conducted our AV-380 Phase 1 clinical trial evaluating the safety of AV-380 in healthy subjects failed to comply with regulatory requirements applicable to the clinical trial, including GCPs and GLPs, which resulted in data integrity concerns. We have notified the FDA and plan to discuss the errors that occurred at the trial site with the FDA to confirm whether we will be able to publish the data from this trial and the suitability of the data for regulatory purposes. If the FDA determines that the data from the clinical trial is not suitable for use, our development of AV-380 may be delayed.
The third parties on whom we rely generally may terminate their engagements with us at any time. If we are required to enter into alternative arrangements because of any such termination, the introduction of our product candidates to market could be delayed. If our clinical trials do not meet regulatory requirements or if these third parties need to be replaced, our preclinical development activities or clinical trials may be extended, delayed, suspended or terminated. If any of these events occur, we may not be able to obtain regulatory approval of our product candidates and our reputation could be harmed.
We rely on third-party manufacturers and third-party suppliers to produce, supply, store and transport our preclinical and clinical product candidate supplies, and we rely on third-parties to produce, store and distribute commercial supplies of FOTIVDA. Any failure by a third-party manufacturer or a third-party supplier to timely produce or provide required manufacturing supplies for us or to safely store product candidate supplies and commercial supplies of FOTIVDA may delay or impair our ability to manufacture product, initiate or complete our clinical trials or commercialize our product candidates.
We have relied upon third-party manufacturers for the manufacture of our product candidates for preclinical and clinical testing purposes and intend to continue to do so in the future. If we are unable to arrange for third-party manufacturing sources, or to do so on commercially reasonable terms, we may not be able to complete development of such product candidates or to market them.
Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured product candidates ourselves, including reliance on the third-party for regulatory compliance, quality assurance and safe-keeping of our product candidate supplies, the possibility of breach of the manufacturing agreement by the third-party because of factors beyond our control, failure of the third-party to accept orders for supply of drug substance or drug product and the possibility of termination or nonrenewal of the agreement by the third-party, based on its own business priorities, at a time that is costly or damaging to us. In addition, the FDA and other regulatory authorities require that our product candidates be manufactured according to current good manufacturing practices, or cGMPs. Any failure by our third-party manufacturers to comply with cGMPs or failure to scale-up manufacturing processes as needed, including any failure to safely transport and deliver sufficient quantities of product candidates in a timely manner, could lead to a delay in, or failure to obtain, regulatory approval of any of our product candidates. In addition, such failure could be the basis for action by the FDA to withdraw approvals for product candidates previously granted to us and for other regulatory action, including recall or seizure, fines, imposition of operating restrictions, total or partial suspension of production or injunctions.
We rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates for our clinical studies and commercial manufacturing. There are a small number of suppliers of raw and starting materials that we use to manufacture our product candidates, many of whom have experienced delays and challenges related to the COVID-19 pandemic. Such suppliers may not be able to provide these materials to our manufacturers at the times we need them or on commercially reasonable terms. For example, the delivery of the clinical supply of ficlatuzumab for a potential registrational clinical trial of ficlatuzumab in R/M HNSCC was significantly delayed due to the shortage of key raw materials and manufacturing supplies also used in COVID-19 vaccine manufacturing, which required us to delay the start date of this potential registrational clinical trial until 2023. We do not have any control over the process or timing of the acquisition of these materials by our manufacturers and delays related to the COVID-19 pandemic to provide raw and starting materials that we use to manufacture our product candidates could delay or disrupt our ability to initiate or continue clinical trials on our scheduled timelines or at all, which may impact timing of potential commercialization and associated revenue generation.
More recently, one of our CMOs has experienced employee shortages, supply chain issues and disruptions related to the COVID-19 pandemic which have delayed and may continue to delay manufacturing of AV-380 preclinical supply. Any significant delay in the supply of a product candidate or the raw material components thereof for a scheduled or ongoing clinical trial due to the COVID-19 pandemic, the need to replace a third-party supplier or other factors could considerably delay completion of our clinical studies, product testing and potential regulatory approval of our product candidates.
Because of the complex nature of many of our early stage compounds and product candidates, our manufacturers may not be able to manufacture such compounds and product candidates at a cost or quantity or in the timeframe necessary to develop and commercialize the related products. As our product development pipeline matures, we will have a greater need for commercial manufacturing capacity and we may be required to establish or access large-scale commercial manufacturing capabilities. In addition, we do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates and we currently have no plans to build our own clinical or commercial scale manufacturing capabilities. To meet our projected needs for commercial manufacturing, third parties with whom we currently work may need to increase their scale of production or we may need to secure alternate suppliers.
We rely on third parties to securely store product candidate supplies and commercial supplies of FOTIVDA. While we have sought to protect our product candidate supplies and commercial supplies of FOTIVDA through diversification of storage locations, there are times when such supplies may be placed in jeopardy due to unforeseen circumstances such as the disruption to the supply chain caused by the COVID-19 pandemic. If our product candidate supplies or commercial supplies of FOTIVDA were lost, destroyed, significantly delayed or otherwise compromised, it would delay or impair our ability to complete clinical trials and commercialize FOTIVDA.
We rely on our licensee EUSA, over whom we have little control, for the sales, marketing and distribution efforts associated with the commercialization of FOTIVDA in certain countries in the EUSA territory and any failure by EUSA to devote the necessary resources and attention to market and sell FOTIVDA effectively and successfully may materially impact our ability to generate revenue from the EUSA licensed territory.
In December 2015, we entered into the EUSA Agreement, under which we granted to EUSA the exclusive, sublicensable right to develop, manufacture and commercialize FOTIVDA in the territories of Europe (excluding Russia, Ukraine and the Commonwealth of Independent States), Latin America (excluding Mexico), Africa and Australasia for all diseases and conditions in humans, excluding non-oncologic diseases or conditions of the eye. We have limited contractual rights to force EUSA to invest significantly in the commercialization of FOTIVDA in jurisdictions covered by the EUSA Agreement. For instance, under the EUSA Agreement, EUSA is not required to opt into the data from the TIVO-3 trial to seek to expand the label for FOTIVDA to the relapsed or refractory RCC setting and, to date, has not chosen to do so. Further, in December 2021, EUSA announced that it had signed an agreement with Recordati, S.p.A. to be acquired and has indicated that the acquisition is anticipated to close in the first half of 2022. In the event that EUSA, or Recordati, fails to adequately commercialize FOTIVDA because it lacks adequate financial or other resources, decides to focus on other initiatives or otherwise, our ability to successfully commercialize FOTIVDA in the applicable jurisdictions would be limited, which may adversely affect our business, financial condition, results of operations and prospects.
In addition, the EUSA Agreement may be terminated by either party upon prior written notice. If EUSA, or Recordati upon the closing of its acquisition of EUSA, terminated the EUSA Agreement, we may not be able to secure an alternative distributor in the applicable territories on a timely basis or at all, in which case our ability to generate revenue from sales of FOTIVDA outside the United States would be materially harmed.
Further, while EUSA is working to secure reimbursement approval in and commercially launch FOTIVDA in additional countries in the EUSA territory, there is significant competition in the first-line RCC setting in the EU due to the approval of several immunotherapy combinations which have become a standard of care and impacted the market opportunity for monotherapy treatments. If EUSA, or Recordati upon the closing of its acquisition of EUSA, is unable to secure reimbursement approval in and commercially launch FOTIVDA in additional countries in the EUSA territory and does not seek to expand the label for FOTIVDA to the relapsed or refractory RCC setting, it may materially impact our ability to generate revenue from sales of FOTIVDA outside the United States.
We may not be successful in establishing or maintaining strategic partnerships to further the development of our therapeutic programs. Additionally, if any of our current or future strategic partners fails to perform its obligations or terminates the partnership, the development and commercialization of the product candidates under such agreement could be delayed or terminated. Such failures could have a material adverse effect on our operations and business.
Our success will depend in significant part on our ability to attract and maintain strategic partners and strategic relationships with other biotechnology or pharmaceutical companies to support the development and commercialization of our product candidates. In these partnerships, we would expect our strategic partner to provide capabilities in research, development, regulatory filings, marketing and sales, in addition to funding.
We face significant competition in seeking appropriate strategic partners, and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for any product candidates and programs because our product candidates may be deemed to be at too early of a stage of development for collaborative effort or third parties may not view our product candidates as having the requisite potential.
If we are not able to establish and maintain strategic partnerships:
•the development of certain of our product candidates may be delayed or terminated;
•the internal cash expenditures needed to develop such product candidates would increase significantly, and we may not have the cash resources to develop such product candidates on our own; and
•we may have fewer resources with which to continue to operate our business.
Even if we are successful in our efforts to establish new strategic partnerships, the terms that we agree upon may not be favorable to us. If any strategic partner were to breach or terminate its arrangements with us, the development and commercialization of the affected product candidate could be delayed, curtailed or terminated because we may not have sufficient financial resources or capabilities to continue development and commercialization of the product candidate on our own. If any current or future strategic partners do not devote sufficient time and resources to their arrangements with us, we may not realize the potential commercial benefits of the arrangement, and our results of operations may be adversely affected. For example, in March 2020, CANbridge advised us that it was evaluating alternative development plans for AV-203, which would delay the initiation of clinical trials of AV-203. Then, in March 2021, CANbridge exercised its right to terminate the CANbridge Agreement for convenience. The transfer of the AV-203 program occurred in September 2021, which has delayed the initiation of clinical trials of AV-203 even further.
Our current partners and licensees can terminate their agreements with us under various conditions, including without cause, at which point they would no longer continue to develop our products. For example, in September 2020 Biodesix exercised its Opt-Out right under the Biodesix Agreement. As a result, Biodesix is not required to contribute to the future development costs of ficlatuzumab in exchange for a reduced economic interest in any future ficlatuzumab revenues.
Much of the potential revenue from any of our strategic partnerships will likely consist of contingent payments, such as development milestones and royalties payable on sales of any successfully developed drugs. Any such contingent revenue will depend upon our, and our strategic partners’, ability to successfully develop, introduce, market and sell new drugs. In some cases, we are not involved in these processes, and we depend entirely on our strategic partners. Any of our strategic partners may fail to develop or effectively commercialize these drugs because it:
•decides not to devote the necessary resources due to internal constraints, such as limited personnel with the requisite scientific expertise, limited cash resources or specialized equipment
limitations, or the belief that other product candidates may have a higher likelihood of obtaining regulatory approval or may potentially generate a greater return on investment;
•does not have sufficient resources necessary to carry the product candidate through clinical development, regulatory approval and commercialization; or
•cannot obtain the necessary regulatory approvals.
If one or more of our strategic partners fails to develop or effectively commercialize product candidates for any reason, we may not be able to replace the strategic partner with another partner to develop and commercialize a product candidate under the terms of the strategic partnership. We may also be unable to obtain, on terms acceptable to us, a license from such strategic partner to any of its intellectual property that may be necessary or useful for us to continue to develop and commercialize a product candidate. Any of these events could have a material adverse effect on our business, results of operations and our ability to achieve future profitability and could cause our stock price to decline.
Our operations or those of the third parties upon whom we depend might be affected by the occurrence of a natural disaster, pandemic, war or other catastrophic event.
We depend on our employees, consultants, CMOs, CROs, as well as regulatory agencies and other parties, for the continued operation of our business. While we maintain disaster recovery plans, they might not adequately protect us. Despite any precautions we take for natural disasters or other catastrophic events, these events, including terrorist attacks, pandemics, hurricanes, fires, floods and ice and snowstorms, could result in significant disruptions to our research and development, preclinical studies, clinical trials, and, ultimately, commercialization of our products. Long-term disruptions in the infrastructure caused by events, such as natural disasters, the outbreak of war (including expansion of the current armed conflict between Russia and Ukraine), the escalation of hostilities and acts of terrorism or other “acts of God,” particularly involving cities in which we have offices, manufacturing or clinical trial sites, could adversely affect our businesses. Although we carry business interruption insurance policies and typically have provisions in our contracts that protect us in certain events, our coverage might not include or be adequate to compensate us for all losses that may occur. Any natural disaster or catastrophic event affecting us, our CMOs, our CROs, regulatory agencies or other parties with which we are engaged could have a material adverse effect on our operations and financial performance.
Risks Related to Our Intellectual Property Rights
We could be unsuccessful in obtaining or maintaining adequate patent protection for one or more of our product candidates, or the scope of our patent protection could be insufficiently broad, which could result in competition and a decrease in the potential market share for our product candidates.
We cannot be certain that patents will be issued or granted with respect to applications that are currently pending, or that issued or granted patents will not later be found to be invalid and/or unenforceable. The patent position of biotechnology and pharmaceutical companies is generally uncertain because it involves complex legal and factual considerations. The standards applied by the United States Patent and Trademark Office, or USPTO, and foreign patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable in biotechnology and pharmaceutical patents. Consequently, patents may not issue from our pending patent applications. As such, we do not know the degree of future protection that we will have on our proprietary products and technology. For example, we have filed a patent application directed to our clinical protocol for using tivozanib to treat refractory cancers, including, following therapy with checkpoint inhibitors. It is possible that we may not successfully obtain a granted patent based upon this patent application. The scope of patent protection that the USPTO will grant with respect to the antibodies in our antibody product pipeline is also uncertain. It is possible that the USPTO will not allow broad antibody claims that cover closely related antibodies as well as the specific antibody. Upon receipt of FDA approval, competitors would be free to market antibodies almost identical to ours, including biosimilar antibodies, thereby decreasing our market share.
If we do not obtain patent term extensions under the Hatch-Waxman Act and similar non-U.S. legislation to extend the term of patents covering each of our product candidates, our business may be materially harmed.
Patents have a limited duration. The term of a U.S. patent, if granted from an application filed on or after June 8, 1995, is generally 20 years from its earliest U.S. non-provisional filing date. Even if patents covering our product candidates are obtained, once the patents expire, we may be open to competition from competitive medications. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned or in-
licensed patent rights may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
Depending upon the circumstances, the term of our owned and in-licensed patent rights that cover our product candidates may be extended in the United States under the Hatch-Waxman Act, by Supplementary Protection Certificates, or SPCs, in certain countries, and by similar legislation in other countries, for delays incurred when seeking marketing approval for a drug candidate. For example, the Hatch-Waxman Act permits a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. However, we may not receive an extension if we fail to apply within the applicable deadline, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. If we are unable to obtain a patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for that product will be shortened and our competitors may obtain approval to market competing products sooner. As a result, our revenue from applicable products could be materially reduced. For example, we have exclusive license rights to a first U.S. patent covering the tivozanib molecule and its therapeutic use, which, inclusive of a one year interim extension granted by the USPTO, is scheduled to expire in April 2023, and a second U.S. patent covering the crystalline form of tivozanib, which is scheduled to expire in November 2023. In view of the length of time tivozanib had been under regulatory review at the FDA, a patent term extension of up to five years may be available. Although we have applied for patent term extensions on each U.S. patent, only one patent may be extended, and, when appropriate, we will have to elect which patent is to be extended. If a five-year extension were to be granted, if applied to the first patent, the term could be extended to April of 2027, and if applied to the second patent, the term could be extended to November of 2028. However, the length of the extension could be less than we request, or no extension may be granted at all.
In addition, SPCs have been granted for the patent covering the tivozanib molecule in Belgium, Finland, France, Germany, Italy, the Netherlands, Norway, Poland, Portugal, Spain, Sweden and the United Kingdom, extending the term of the patents in each of these countries up to April 2027. An SPC has been granted for the patent covering the crystalline form of tivozanib in Ireland extending the term of that patent to October 2028. The remaining pending application for an SPC on the patent covering the tivozanib molecule in Denmark may not be similarly granted, or may be granted for a shorter period than requested. If we are unable to obtain a patent term extension or the term of any such extension is less than we request, the period of time during which the patent rights covering tivozanib or its use can be enforced will be shortened, and our competitors may obtain approval to market a competing product sooner. As a result, our potential revenue from tivozanib could be materially reduced, causing material harm to our business.
Issued patents covering one or more of our products could be found invalid or unenforceable if challenged in patent office proceedings, or in court.
If we or one of our strategic partners were to initiate legal proceedings against a third-party to enforce a patent covering one of our products, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. In addition, with respect to FOTIVDA, generic manufacturers could challenge the patents covering FOTIVDA as part of the process of obtaining regulatory approval via an abbreviated new drug application, or ANDA. Grounds for a validity challenge could be an alleged failure to meet one or more statutory requirements for patentability, including, for example, lack of novelty, obviousness, lack of written description or non-enablement. In addition, patent validity challenges may, under certain circumstances, be based upon non-statutory obviousness-type double patenting, which, if successful, could result in a finding that the claims are invalid for obviousness-type double patenting or the loss of patent term, including a patent term adjustment granted by the USPTO, if a terminal disclaimer is filed to obviate a finding of obviousness-type double patenting. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Additionally, third parties are able to challenge the validity of issued patents through administrative proceedings in the patent offices of certain countries, including the USPTO and the European Patent Office. Although we have conducted due diligence on patents we have exclusively in-licensed, and we believe that we have conducted our patent prosecution in accordance with the duty of candor and in good faith, the outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on one of our products. Such a loss of patent protection could have a material adverse impact on our business. Further, an intellectual property litigation could lead to unfavorable publicity that could harm our reputation and cause the market price of our common stock to decline.
Claims that our platform technologies, our products or the sale or use of our products infringe the patent rights of third parties could result in costly litigation or could require substantial time and money to resolve, even if litigation is avoided.
We cannot guarantee that our platform technologies, our products or the use of our products, do not infringe third-party patents. Third parties might allege that we are infringing their patent rights or that we have misappropriated their trade secrets. Such third parties might resort to litigation against us. The basis of such litigation could be existing patents or patents that issue in the future.
It is also possible that we failed to identify relevant third-party patents or applications. For example, applications filed before November 29, 2000, and certain applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing, which is referred to as the priority date. Therefore, patent applications covering our products or platform technology could have been filed by others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our platform technologies, our products or the use of our products.
With regard to ficlatuzumab, we are aware of one United States patent and its foreign counterparts that contain broad claims related to anti-HGF antibodies having certain binding properties and their use. In the event that the owner of these patents were to bring an infringement action against us, we may have to argue that our product, its manufacture or use does not infringe a valid claim of the patent in question. Furthermore, if we were to challenge the validity of any issued United States patent in court, we would need to overcome a statutory presumption of validity that attaches to every United States patent. This means that, in order to prevail, we would have to present clear and convincing evidence as to the invalidity of the patent’s claims. There is no assurance that a court would find in our favor on questions of infringement or validity.
In order to avoid or settle potential claims with respect to any of the patent rights described above or any other patent rights of third parties, we may choose or be required to seek a license from a third-party and be required to pay license fees or royalties or both. These licenses may not be available on commercially acceptable terms, or at all. Even if we or our strategic partners were able to obtain a license, the rights may be non-exclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms. This could harm our business significantly.
Defending against claims of patent infringement or misappropriation of trade secrets could be costly and time-consuming, regardless of the outcome. Thus, even if we were to ultimately prevail, or to settle at an early stage, such litigation could burden us with substantial unanticipated costs. In addition, litigation or threatened litigation could result in significant demands on the time and attention of our management team, distracting them from the pursuit of other company business.
Unfavorable outcomes in an intellectual property litigation could limit our research and development activities and/or our ability to commercialize certain products.
If third parties successfully assert intellectual property rights against us, we might be barred from using aspects of our technology platform, or barred from developing and commercializing related products. Prohibitions against using specified technologies, or prohibitions against commercializing specified products, could be imposed by a court or by a settlement agreement between us and a plaintiff. In addition, if we are unsuccessful in defending against allegations of patent infringement or misappropriation of trade secrets, we may be forced to pay substantial damage awards to the plaintiff. There is inevitable uncertainty in any litigation, including intellectual property litigation. There can be no assurance that we would prevail in any intellectual property litigation, even if the case against us is weak or flawed. If litigation leads to an outcome unfavorable to us, we may be required to obtain a license from the patent owner in order to continue our research and development programs or our partnerships or to market our products. It is possible that the necessary license will not be available to us on commercially acceptable terms, or at all. This could limit our research and development activities, our ability to commercialize specified products, or both.
Most of our competitors are larger than we are and have substantially greater resources. They are, therefore, likely to be able to sustain the costs of complex patent litigation longer than we could. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, in-license needed technology or enter into strategic partnerships that would help us bring our product candidates to market.
In addition, any future patent litigation, interference or other administrative proceedings will result in additional expense and distraction of our personnel. An adverse outcome in such litigation or proceedings may expose us or our strategic partners to loss of our proprietary position, expose us to significant liabilities or require us to seek licenses that may not be available on commercially acceptable terms, if at all.
Tivozanib and certain of our product candidates are protected by patents exclusively licensed from other companies or institutions. If the licensors terminate the licenses or fail to maintain or enforce the underlying patents, our competitive position would be harmed and our partnerships could be terminated.
Certain of our product candidates and out-licensing arrangements depend on patents and/or patent applications owned by other companies or institutions with which we have entered into intellectual property licenses. In particular, we hold exclusive licenses from KKC for tivozanib and from St. Vincent’s for therapeutic applications that benefit from inhibition or decreased expression or activity of MIC-1, which we refer to as GDF15 and which we use in our AV-380 program. We may enter into additional license agreements as part of the development of our business in the future. Our licensors may not successfully prosecute certain patent applications which we have licensed and on which our business depends or may prosecute them in a manner not in the best interests of our business. Even if patents issue from these applications, our licensors may fail to maintain these patents, may decide not to pursue litigation against third-party infringers, may fail to prove infringement or may fail to defend against counterclaims of patent invalidity or unenforceability. In addition, in spite of our best efforts, a licensor could claim that we have materially breached a license agreement and terminate the license, thereby removing our or our licensees’ ability to obtain regulatory approval for and to market any product covered by such license. If these in-licenses are terminated, or if the underlying patents fail to provide the intended market exclusivity, competitors would have the freedom to seek regulatory approval of, and to market, identical products. In addition, the partners to which we have sublicensed certain rights under these licenses, such as EUSA, would likely have grounds for terminating our partnerships if these licenses are terminated or the underlying patents are not maintained or enforced. This could have a material adverse effect on our results of operations, our competitive business position and our business prospects.
Confidentiality agreements with employees, consultants and third parties may not prevent unauthorized disclosure of trade secrets and other proprietary information.
In addition to patents, we rely on trade secrets, technical know-how and proprietary information concerning our business strategy in order to protect our competitive position. In the course of our research, development and business activities, we often rely on confidentiality agreements to protect our proprietary information. Such confidentiality agreements are used, for example, when we talk to potential strategic partners. In addition, each of our employees and consultants are required to sign a confidentiality agreement upon joining our company. We take steps to protect our proprietary information, and we seek to carefully draft our confidentiality agreements to protect our proprietary interests. Nevertheless, there can be no guarantee that an employee, consultant or an outside party will not make an unauthorized disclosure of our proprietary confidential information. This might happen intentionally or inadvertently. It is possible that a competitor will make use of such information, and that our competitive position will be compromised, in spite of any legal action we might take against persons making such unauthorized disclosures.
Trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants or outside scientific collaborators might intentionally or inadvertently disclose our trade secret information to competitors. Enforcing a claim that a third-party illegally obtained and is using any of our trade secrets is expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the United States sometimes are less willing than U.S. courts to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
Our research and development strategic partners may have rights to publish data and other information to which we have rights. In addition, we sometimes engage individuals or entities to conduct research relevant to our business. The ability of these individuals or entities to publish or otherwise publicly disclose data and other information generated during the course of their research is subject to certain contractual limitations. These contractual provisions may be insufficient or inadequate to protect our confidential information. If we do not apply for patent protection prior to such publication, or if we cannot otherwise maintain the confidentiality of our proprietary technology and other confidential information, then our ability to obtain patent protection or to protect our trade secret information may be jeopardized.
We rely significantly upon information technology, and any failure, inadequacy, interruption or security lapse of that technology, including any cyber security incidents, could harm our ability to operate our business effectively and result in a material disruption of our product development programs.
We could be subject to risks caused by misappropriation, misuse, leakage, falsification or intentional or accidental release or loss of information maintained in the information systems and networks of our company. Outside parties may attempt to penetrate our systems or those of our partners or fraudulently induce our employees or employees of our partners to disclose sensitive information to gain access to our data. Like other companies, we may experience threats to our data and systems, including malicious codes and computer viruses, cyber-attacks or other system failures. Any system failure, accident or security breach that causes interruptions in our operations, for us or our partners, could result in a material disruption of our product development programs and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. For example, the loss of clinical trial data from completed clinical trials could result in delays in our regulatory approval efforts and we could incur significant increases in costs to recover or reproduce the data. The risk of cyber incidents could also be increased by cyberwarfare in connection with the ongoing conflict between Russia and Ukraine, including potential proliferation of malware from the conflict into systems unrelated to the conflict. To the extent that any disruption or security breach results in a loss of, or damage to, our data or applications, or inappropriate public disclosure of confidential or proprietary information, we may incur liabilities and the further development of our product candidates may be delayed.
The number and complexity of these security threats continue to increase over time. If a breach of our security systems or that of our partners occurs, the market perception of the effectiveness of our security measures could be harmed, we could lose business and our reputation and credibility could be damaged. We could be required to expend significant amounts of money and other resources to repair or replace information systems or networks. Although we develop and maintain systems and controls designed to prevent these events from occurring, and we have a process to identify and mitigate threats, the development and maintenance of these systems, controls and processes is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Moreover, despite our efforts, the possibility of these events occurring cannot be eliminated entirely.
Intellectual property rights may not address all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
•Others may be able to make compounds or antibodies that are similar to our product candidates but that are not covered by the claims of the patents that we own or have exclusively licensed.
•The term of patents that we own or have exclusively licensed may be insufficient to prevent competitors from introducing products that are competitive with our product candidates.
•If the licenses we have that relate to our product candidates are terminated by the licensors, we may be prevented from commercializing our product candidates.
•We or our licensors or strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed.
•We or our licensors or strategic partners might not have been the first to file patent applications covering certain of our inventions.
•Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights.
•Our pending patent applications might not lead to issued patents.
•Issued patents that we own or have exclusively licensed may not provide us with a competitive advantage; for example, our issued patents may not be broad enough to prevent the commercialization of products competitive with one or more of our product candidates, or may be held invalid or unenforceable, as a result of legal challenges by our competitors.
•Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop
competitive products for sale in our or our strategic partners’ existing or potential commercial markets.
•We may not develop additional proprietary technologies that are patentable.
•The patents of others may have an adverse effect on our business.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological complexity and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is costly, time-consuming and inherently uncertain. In addition, several events in the last decade have increased uncertainty with regard to our ability to obtain patents in the future and the value of patents once obtained. Among these, in September 2011, patent reform legislation passed by Congress was signed into law in the United States. The patent law introduced changes including a first-to-file system for determining which inventors may be entitled to receive patents, and post-grant challenges, such as inter-partes review and post-grant review proceedings that allow third parties to challenge newly issued patents. The burden of proof required for challenging a patent in these proceedings is lower than in district court litigation, and patents in the biopharmaceutical industry have been successfully challenged using these new post-grant challenges. In addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in specified circumstances or weakening the rights of patent owners in specified situations. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could further weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
Risks Related to Regulatory Approval and Marketing of Our Product Candidates and Other Legal Compliance Matters
The regulatory approval process is expensive, time-consuming and uncertain and may prevent us from obtaining marketing approvals for the commercialization of some or all of our product candidates. If we or our collaborators are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to market and commercialize our product candidates, and our ability to generate revenue will be materially impaired.
Our product candidates and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, export and import, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States, and by the EMA and comparable regulatory authorities in other countries. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. We have only limited experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on third-party CROs to assist us in this process.
The process of obtaining marketing approvals, both in the United States and abroad, is expensive and may take many years, especially if additional clinical trials are required. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. It also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. 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 delay or preclude our obtaining marketing approval or prevent or limit commercial use.
In addition, the FDA and comparable authorities in other countries 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 preclinical, clinical or other studies. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. In addition, a regulatory agency’s varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate. For example, in June 2013, the FDA issued the 2013 CRL informing us that it would not approve tivozanib for the first-line treatment of RCC based solely on the data from the TIVO-1 trial.
Failure to obtain marketing approval in foreign jurisdictions would prevent our product candidates from being marketed abroad and may limit our ability to generate revenue from product sales.
In order to market and sell our medicines in the EU and many other jurisdictions, we or our collaborators must obtain marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We or our collaborators may not obtain marketing approvals from regulatory authorities outside the United States on a timely basis, if at all, and we may not receive necessary approvals to commercialize our products in any particular market.
In many countries outside the United States, a product candidate must be approved for reimbursement before the product can be approved for sale in that country. In some cases, the price that we intend to charge for our products, if approved, is also subject to approval. Obtaining non-U.S. regulatory approvals and compliance with non-U.S. regulatory requirements could result in significant delays, difficulties and costs for us and any future collaborators and could delay or prevent the introduction of our product candidates in certain countries. In addition, if we or any future collaborators fail to obtain the non-U.S. approvals required to market our product candidates outside the United States or if we or any future collaborators fail to comply with applicable non-U.S. regulatory requirements, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed and our business, financial condition, results of operations and prospects may be adversely affected.
Additionally, we could face heightened risks with respect to seeking marketing approval in the United Kingdom as a result of the withdrawal of the United Kingdom from the EU, commonly referred to as Brexit. The United Kingdom is no longer part of the European Single Market and European Union Customs Union. As of January 1, 2021, the Medicines and Healthcare products Regulatory Agency, or the MHRA, became responsible for supervising medicines and medical devices in Great Britain, comprising England, Scotland and Wales under domestic law, whereas Northern Ireland will continue to be subject to European Union rules under the Northern Ireland Protocol. The MHRA will rely on the Human Medicines Regulations 2012 (SI 2012/1916) (as amended), or the HMR, as the basis for regulating medicines. The HMR has incorporated into the domestic law of the body of European Union law instruments governing medicinal products that pre-existed prior to the United Kingdom’s withdrawal from the EU. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, may force us to restrict or delay efforts to seek regulatory approval in the United Kingdom for our product candidates, which could significantly and materially harm our business.
We expect that we will be subject to additional risks in commercializing any of our product candidates that receive marketing approval outside the United States, including tariffs, trade barriers and regulatory requirements; economic weakness, including inflation, or political instability in particular foreign economies and markets; compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country; and workforce uncertainty in countries where labor unrest is more common than in the United States.
We are conducting, and intend in the future to conduct, clinical trials for certain of our product candidates at sites outside the United States. The FDA may not accept data from trials conducted in such locations and the conduct of trials outside the United States could subject us to additional delays and expense.
We are conducting, and intend in the future to conduct, one or more of our clinical trials with trial sites that are located outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of these data is subject to certain conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted and performed by qualified investigators in accordance with good clinical practice. The FDA must be able to validate the data from the trial through an onsite inspection if necessary. The trial population must also have a similar profile to the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful, except to the extent the disease being studied does not typically occur in the United States. In addition, while these clinical trials are subject to the applicable local laws, the FDA acceptance of the data will be dependent upon its determination that the trials also complied with all applicable U.S. laws and regulations. There can be no assurance that the FDA will accept data from clinical trials conducted outside of the United States. If the FDA does not accept the data from any trial that we conduct outside the United States, it would likely
result in the need for additional trials, which would be costly and time-consuming and delay or permanently halt our development of our product candidates.
In addition, the conduct of clinical trials outside the United States could have a significant adverse impact on us or the trial results. Risks inherent in conducting international clinical trials include:
•clinical practice patterns and standards of care that vary widely among countries;
•non-U.S. regulatory authority requirements that could restrict or limit our ability to conduct our clinical trials;
•administrative burdens of conducting clinical trials under multiple non-U.S. regulatory authority schema;
•foreign exchange rate fluctuations; and
•diminished protection of intellectual property in some countries.
We may seek certain designations for our product candidates, including Breakthrough Therapy, Fast Track and Priority Review designations in the US, and PRIME Designation in the EU, but we might not receive such designations, and even if we do, such designations may not lead to a faster development or regulatory review or approval process, and does not increase the likelihood that product candidate will receive marketing approval.
We may seek certain designations for one or more of our product candidates that could expedite review and approval by the FDA. A Breakthrough Therapy product is defined as a product that is intended, alone or in combination with one or more other products, to treat a serious condition, and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For products that have been designated as Breakthrough Therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens.
The FDA may also designate a product for Fast Track review if it is intended, whether alone or in combination with one or more other products, for the treatment of a serious or life threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For Fast Track products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a Fast Track product’s application before the application is complete. This rolling review may be available if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a Fast Track product may be effective.
For example, we have been granted Fast Track designation for the investigation of ficlatuzumab and cetuximab for the treatment of patients with relapsed or recurrent HNSCC. Marketing applications filed by sponsors of product candidates in Fast Track development may qualify for priority review under the policies and procedures offered by the FDA, but the Fast Track designation does not assure any such qualification or ultimate marketing approval by the FDA. Even though we have received Fast Track designation for ficlatuzumab and cetuximab, we may not experience a faster development process, review or approval compared to conventional FDA procedures, and receiving a Fast Track designation does not provide assurance of ultimate FDA approval. In addition, the FDA may withdraw Fast Track designation if it believes that the designation is no longer supported by data from our clinical development program. Further, the FDA may withdraw Fast Track designation at any time. As such, a Fast Track designation by the FDA, even though granted for ficlatuzumab may not lead to a faster development or regulatory review or approval process, and does not increase the likelihood that ficlatuzumab will receive marketing approval.
We may also seek a priority review designation for one or more of our product candidates. If the FDA determines that a product candidate offers major advances in treatment or provides a treatment where no adequate therapy exists, the FDA may designate the product candidate for priority review. A priority review designation means that the goal for the FDA to review an application is six months, rather than the standard review period of ten months.
These designations are within the discretion of the FDA. Accordingly, even if we believe that one of our product candidates meets the criteria for these designations, the FDA may disagree and instead determine not to make such designation. Further, even if we receive a designation, the receipt of such designation for a product candidate may not result in a faster development or regulatory review or approval process compared to products considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualifies for these designations, the FDA may later decide that the product candidates no longer meet the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.
In the EU, we may seek PRIME designation for our product candidates in the future. PRIME is a voluntary program aimed at enhancing the EMA’s role to reinforce scientific and regulatory support in order to optimize development and enable accelerated assessment of new medicines that are of major public health interest with the potential to address unmet medical needs. The program focuses on medicines that target conditions for which there exists no satisfactory method of treatment in the EU or even if such a method exists, it may offer a major therapeutic advantage over existing treatments. PRIME is limited to medicines under development and not authorized in the EU and the applicant intends to apply for an initial marketing authorization application through the centralized procedure. To be accepted for PRIME, a product candidate must meet the eligibility criteria in respect of its major public health interest and therapeutic innovation based on information that is capable of substantiating the claims.
The benefits of a PRIME designation include the appointment of a CHMP rapporteur to provide continued support and help to build knowledge ahead of a marketing authorization application, early dialogue and scientific advice at key development milestones, and the potential to qualify products for accelerated review, meaning reduction in the review time for an opinion on approvability to be issued earlier in the application process. PRIME enables an applicant to request parallel EMA scientific advice and health technology assessment advice to facilitate timely market access. Even if we receive PRIME designation for any of our product candidates, the designation may not result in a materially faster development process, review or approval compared to conventional EMA procedures. Further, obtaining PRIME designation does not assure or increase the likelihood of EMA’s grant of a marketing authorization.
We may not be able to obtain orphan drug designation or orphan drug exclusivity for our product candidates, and, even if we do, that exclusivity may not prevent the FDA or the EMA from approving other competing products.
Regulatory authorities in some jurisdictions, including in the United States and EU, may designate drugs and biologics for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States. Generally, a product with orphan drug designation only becomes entitled to orphan drug exclusivity if it receives the first marketing approval for the indication for which it has such designation, in which case the FDA or the EMA will be precluded from approving another marketing application for the same product for that indication for the applicable exclusivity period. The applicable exclusivity period is seven years in the United States and ten years in the EU. The European exclusivity period can be reduced to six years if a product no longer meets the criteria for orphan drug designation or if the product is sufficiently profitable so that market exclusivity is no longer justified.
We or our collaborators may seek orphan drug designations for our product candidates and may be unable to obtain such designations. Moreover, even if we do secure such designations and orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different products can be approved for the same condition. Further, even after an orphan drug is approved, the FDA can subsequently approve the same drug or biologic for the same condition if the FDA concludes that the later product is clinically superior in that it is shown to be safer, to be more effective or to make a major contribution to patient care. Finally, orphan drug exclusivity may be lost if the FDA or the EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.
The FDA may further reevaluate the Orphan Drug Act and its regulations and policies. This may be particularly true in light of a decision from the Court of Appeals for the 11th Circuit in September 2021 finding that, for the purpose of determining the scope of exclusivity, the term “same disease or condition” means the designated “rare disease or condition” and could not be interpreted by the Agency to mean the “indication or use.” We do not know if, when, or how the FDA may change the orphan drug regulations and policies in the future, and it is uncertain how any changes might affect our business. Depending on what changes the FDA may make to its orphan drug regulations and policies, our business could be adversely impacted.
Inadequate funding for the FDA, the SEC and other government agencies, including from government shut downs, or other disruptions to these agencies’ operations, could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and
statutory, regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. Disruptions at the FDA and other agencies may also slow the time necessary for new product candidates to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new product candidates to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
Separately, in response to the COVID-19 pandemic, a number of companies announced receipt of complete response letters due to the FDA’s inability to complete required inspections for their applications. As of May 26, 2021, the FDA noted it was continuing to ensure timely reviews of applications for medical products during the ongoing COVID-19 pandemic in line with its user fee performance goals and conducting mission critical domestic and foreign inspections to ensure compliance of manufacturing facilities with FDA quality standards. However, the FDA may not be able to continue its current pace and review timelines could be extended, including where a pre-approval inspection or an inspection of clinical sites is required and due to the ongoing COVID-19 pandemic and travel restrictions, the FDA is unable to complete such required inspections during the review period. Regulatory authorities outside the U.S. may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic and may experience delays in their regulatory activities. If a prolonged government shutdown or other disruption occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Future shutdowns or other disruptions could also affect other government agencies such as the SEC, which may also impact our business by delaying review of our public filings, to the extent such review is necessary, and our ability to access the public markets.
FOTIVDA and any product candidate for which we or our collaborators obtain marketing approval are subject to ongoing regulation and could be subject to restrictions or withdrawal from the market, and we may be subject to substantial penalties if we fail to comply with regulatory requirements.
FOTIVDA and any product candidate for which we or our collaborators obtain marketing approval in the future will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements relating to quality control and manufacturing, quality assurance and corresponding maintenance of records and documents, and requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the medicine, including the requirement to implement a risk evaluation and mitigation strategy. For example, FDA approval of FOTIVDA is subject to limitations on the indicated uses for which FOTIVDA may be marketed, specifically the treatment of adults with relapsed or refractory advanced RCC who have progressed following two or more systemic therapies. Accordingly, we expect to continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control. If we fail to comply with these requirements, we could have the marketing approval for FOTIVDA withdrawn by regulatory authorities and our ability to market any products could be limited, which could adversely affect our ability to achieve or sustain profitability.
We and our collaborators must also comply with requirements concerning advertising and promotion for FOTIVDA or any of our product candidates for which we may obtain regulatory approval. Promotional communications with respect to prescription products are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Thus, we are restricted from promoting any products we develop for indications or uses for which they are not approved. The FDA and other agencies, including the Department of Justice, or the DOJ, closely regulate and monitor the post-approval marketing and promotion of products to ensure that they are marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. Violations of the Federal Food, Drug, and Cosmetic Act and other statutes, including the False Claims Act, relating to the
promotion and advertising of prescription products may lead to investigations and enforcement actions alleging violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws.
Failure to comply with regulatory requirements, may yield various results, including:
•restrictions on such products, manufacturers or manufacturing processes;
•restrictions on the labeling or marketing of a product;
•restrictions on distribution or use of a product;
•requirements to conduct post-marketing studies or clinical trials;
•warning letters or untitled letters;
•withdrawal of the products from the market;
•refusal to approve pending applications or supplements to approved applications that we submit;
•recall of products;
•damage to relationships with collaborators;
•unfavorable press coverage and damage to our reputation;
•fines, restitution or disgorgement of profits or revenues;
•suspension or withdrawal of marketing approvals;
•refusal to permit the import or export of our products;
•product seizure;
•injunctions or the imposition of civil or criminal penalties; and
•litigation involving patients using our products.
Similar restrictions apply to the approval of our products in the EU. The holder of a marketing authorization is required to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of medicinal products. These include: compliance with the EU’s stringent pharmacovigilance or safety reporting rules, which can impose post-authorization studies and additional monitoring obligations; the manufacturing of authorized medicinal products, for which a separate manufacturer’s license is mandatory; and the marketing and promotion of authorized drugs, which are strictly regulated in the EU and are also subject to EU Member State laws. Non-compliance with EU requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result in significant financial penalties.
Our relationships with healthcare providers, physicians and third-party payors are subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which, in the event of a violation, could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of FOTIVDA and any product candidate for which we may obtain marketing approval in the future. Our arrangements with healthcare providers, physicians and third-party payors may expose us to broadly applicable fraud and abuse laws and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute FOTIVDA and any products for which we may obtain marketing approval in the future. Restrictions under applicable federal and state healthcare laws and regulations include the federal Anti-Kickback Statute, the False Claims Act, Health Insurance Portability and Accountability Act of 1996, or HIPAA, and the Physician Payments Sunshine Act. There are also analogous state and foreign laws and regulations that may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by third-party payors, including private insurers. Further, some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and may require manufacturers to report information related to payments and other transfers of value to other healthcare providers and healthcare entities, or marketing expenditures. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations involve substantial costs.
Efforts to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations involve substantial costs. It is possible that governmental authorities will conclude that our business practices
may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our business practices or operations are found to be in violation of any of the laws described above, other or future healthcare laws or case law or any governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, individual imprisonment, integrity obligations, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. Any such penalties could adversely affect our financial results.
We have implemented a corporate compliance program designed to ensure that we will market and sell FOTIVDA and any future products that we successfully develop from our product candidates in compliance with all applicable laws and regulations, but we cannot guarantee that this program will protect us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions. Further, if any of the physicians or other healthcare providers or entities with whom we do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusion from government funded healthcare programs, which could impact us.
Any relationships we may have with customers, healthcare providers and professionals and third-party payors, among others, will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to penalties, including criminal sanctions, civil penalties, contractual damages, reputational harm, fines, disgorgement, exclusion from participation in government healthcare programs, curtailment or restricting of our operations and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any products for which we are able to obtain marketing approval. Any arrangements we have with healthcare providers, third-party payors and customers will subject us to broadly applicable fraud and abuse and other healthcare laws and regulations. The laws and regulations may constrain the business or financial arrangements and relationships through which we conduct clinical research, market, sell and distribute any products for which we obtain marketing approval. These include the following:
Anti-Kickback Statute. The federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration (including any kickback, bribe or rebate), directly or indirectly, in cash or in kind, to induce or reward or in return for, either the referral of an individual for or the purchase, lease or order of a good, facility, item or service for which payment may be made under a federal healthcare program such as Medicare and Medicaid.
False Claims Laws. The federal false claims and civil monetary penalties laws, including the federal civil False Claims Act, impose criminal and civil penalties, including through civil whistleblower or qui tam actions against individuals or entities for, among other things, knowingly presenting or causing to be presented false or fraudulent claims for payment by a federal healthcare program or making a false statement or record material to payment of a false claim or avoiding, decreasing or concealing an obligation to pay money to the federal government, with potential liability including mandatory treble damages and significant per-claim penalties.
HIPAA. The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for, among other things, executing a scheme or making materially false statements in connection with the delivery of or payment for health care benefits, items or services. Additionally, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations on covered entities and their business associates that perform certain functions or activities that involve the use or disclosure of protected health information on their behalf, including mandatory contractual terms and technical safeguards, with respect to maintaining the privacy, security and transmission of individually identifiable health information.
Transparency Requirements. The federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to CMS information related to payments or transfers of value made to physicians, other healthcare providers and teaching hospitals, as well as information regarding ownership and investment interests held by physicians, other healthcare providers and their immediate family members.
Analogous State and Foreign Laws. Analogous state and foreign fraud and abuse laws and regulations, such as state anti-kickback and false claims laws, can apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors and are generally broad and are enforced by many different federal and state agencies as well as through private actions. Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus complicating compliance efforts.
Efforts to ensure that any business arrangements we have with third parties and our business generally, will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, individual imprisonment, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, exclusion of products from government funded healthcare programs, such as Medicare and Medicaid, disgorgement, contractual damages, reputational harm and the curtailment or restructuring of our operations. Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. Further, if any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is also prohibited in the EU. The provision of benefits or advantages to physicians is governed by the national anti-bribery laws of EU member states. In addition, payments made to physicians in certain EU member states must be publicly disclosed. Moreover, agreements with physicians often must be the subject of prior notification and approval by the physician’s employer, his or her competent professional organization and/or the regulatory authorities of the individual EU member states. These requirements are provided in the national laws, industry codes or professional codes of conduct, applicable in the EU member states. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.
Reporting and payment obligations under the Medicaid Drug Rebate Program and other governmental drug pricing programs are complex and may involve subjective decisions. Any failure to comply with those obligations could subject us to penalties and sanctions.
As a condition of reimbursement by various federal and state health insurance programs, biotechnology and pharmaceutical companies are required to calculate and report certain pricing information to federal and state agencies. The regulations governing the calculations, price reporting and payment obligations are complex and subject to interpretation by various government and regulatory agencies, as well as the courts. We have made reasonable assumptions where there is lack of regulations or clear guidance and such assumptions involve subjective decisions and estimates. We are required to report any revisions to our calculations, price reporting and payment obligations previously reported or paid. Such revisions could affect liability to federal and state payers and also adversely impact our reported financial results of operations in the period of such restatement.
Uncertainty exists as new laws, regulations, judicial decisions or new interpretations of existing laws, or regulations related to our calculations, price reporting or payments obligations increases the chances of a legal challenge, restatement or investigation. If we become subject to investigations, restatements or other inquiries concerning compliance with price reporting laws and regulations, we could be required to pay or be subject to additional reimbursements, penalties, sanctions or fines, which could have a material adverse effect on our business, financial condition and results of operations. In addition, it is possible that future healthcare reform measures could be adopted, which could result in increased pressure on pricing and reimbursement of products and thus have an adverse impact on our financial position or business operations.
Further, state Medicaid programs may be slow to invoice pharmaceutical companies for calculated rebates resulting in a lag between the time a sale is recorded and the time the rebate is paid. This results in a company having to carry a liability on its consolidated balance sheets for the estimate of rebate claims expected for Medicaid patients. If actual claims are higher than our current estimates, our financial position and results of operations could be adversely affected.
In addition to retroactive rebates and the potential for 340B Program refunds, if we are found to have knowingly submitted any false price information related to the Medicaid Drug Rebate Program to the Centers for Medicare & Medicaid Services, or CMS, we may be liable for civil monetary penalties. Such failure could also be grounds for CMS to terminate our Medicaid drug rebate agreement, pursuant to which we participate in the Medicaid program. In the event that CMS terminates our rebate agreements, federal payments may not be available under government programs, including Medicaid or Medicare Part B, for covered outpatient drugs.
Additionally, if we were found to have overcharged the government in connection with the FSS program or TriCare Retail Pharmacy Program, whether due to a misstated Federal Ceiling Price or otherwise, we would be required to refund the difference to the government. Failure to make necessary disclosures and/or to identify contract overcharges could result in allegations against us under the FCA and other laws and regulations. Unexpected refunds to the government, and responding to a government investigation or enforcement action, would be expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Our collaborators are also subject to similar requirements outside of the U.S. and thus the attendant risks and uncertainties. If our collaborators suffer material and adverse effects from such risks and uncertainties, our rights and benefits for our licensed products could be negatively impacted, which could have a material and adverse impact on our revenues.
Current and future legislation may increase the difficulty and cost for us and any collaborators to obtain marketing approval of and commercialize our product candidates and affect the prices we, or they, may obtain.
In the United States and foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell FOTIVDA or any product candidates for which we may obtain marketing approval. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we or any collaborators may receive for FOTIVDA or any product candidate for which we may obtain marketing approval in the future.
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the ACA. Since enactment of the ACA, there have been, and continue to be, numerous legal challenges and Congressional actions to repeal and replace provisions of the law. For example, with the enactment of the Tax Cuts and Jobs Act of 2017, or TCJA, which was signed by President Trump on December 22, 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, became effective in 2019. Further, on December 14, 2018, a U.S. District Court judge in the Northern District of Texas ruled that the individual mandate portion of the ACA is an essential and inseverable feature of the ACA, and therefore because the mandate was repealed as part of the TCJA, the remaining provisions of the ACA are invalid as well. The U.S. Supreme Court heard this case on November 10, 2020 and on June 17, 2021, dismissed this action after finding that the plaintiffs do not have standing to challenge the constitutionality of the ACA. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results.
The prices of prescription pharmaceuticals have also been the subject of considerable discussion in the United States. There have been several recent U.S. congressional inquiries, as well as proposed and enacted state and federal legislation designed to, among other things, bring more transparency to pharmaceutical pricing, review the relationship between pricing and manufacturer patient programs, and reduce the costs of pharmaceuticals under Medicare and Medicaid. In 2020, President Trump issued several executive orders intended to lower the costs of prescription products and certain provisions in these orders have been incorporated into regulations. These regulations include an interim final rule implementing a most favored nation model for prices that tie Medicare Part B payments for certain physician-administered pharmaceuticals to lower prices paid in other economically advanced countries, effective January 1, 2021. The rule, however, has been subject to a nationwide preliminary injunction and, on December 29, 2021, CMS issued a final
rule to rescind it. With issuance of this rule, CMS stated that it will explore all options to incorporate value into payments for Medicare Part B pharmaceuticals and improve beneficiaries' access to evidence-based care.
In addition, in October 2020, HHS and the FDA published a final rule allowing states and other entities to develop a Section 804 Importation Program, or SIP, to import certain prescription drugs from Canada into the United States. The final rule is currently the subject of ongoing litigation, but at least six states (Vermont, Colorado, Florida, Maine, New Mexico, and New Hampshire) have passed laws allowing for the importation of drugs from Canada with the intent of developing SIPs for review and approval by the FDA. Further, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The implementation of the rule has been delayed by the Biden administration from January 1, 2022 to January 1, 2023 in response to ongoing litigation. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the implementation of which have also been delayed by the Biden administration until January 1, 2023.
At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for FOTIVDA or our product candidates or additional pricing pressures.
Finally, outside the United States, in some nations, including those of the EU, the pricing of prescription pharmaceuticals is subject to governmental control and access. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we or our collaborators may be required to conduct a clinical trial that compares the cost-effectiveness of our product to other available therapies. If reimbursement of FOTIVDA is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be materially harmed.
Compliance with global privacy and data security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and process data globally, and the failure to comply with such requirements could subject us to significant fines and penalties, which may have a material adverse effect on our business, financial condition or results of operations.
The regulatory framework for the collection, use, safeguarding, sharing, transfer and other processing of information worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Virtually every jurisdiction in which we operate has established its own data security and privacy frameworks with which we must comply, with additional laws and amendments being passed on a regular basis. As one example, the collection, use, disclosure, transfer or other processing of personal data regarding individuals in the EU, including personal health data, is subject to the EU General Data Protection Regulation, or the GDPR, which applies to all member states of the European Economic Area, or EEA. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data. In addition, the GDPR also imposes strict rules on the transfer of personal data to countries outside the EU, including the United States and, as a result, increases the scrutiny that clinical trial sites located in the EEA should apply to transfers of personal data from such sites to countries that are considered to lack an adequate level of data protection, such as the United States. The GDPR also permits data protection authorities to require destruction of improperly gathered or used personal information and/or impose substantial fines for violations of the GDPR and it also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies and obtain compensation for damages resulting from violations of the GDPR. In addition, the GDPR provides that EU member states may make their own further laws and regulations limiting the processing of personal data, including genetic, biometric or health data. Compliance with the GDPR is a rigorous, expensive and time-consuming process that may increase our cost of doing business or require us to change our business practices, and despite those efforts, there is a risk that we may be subject to fines and penalties, litigation, and reputational harm in connection with any EU activities.
Given the breadth and depth of the GDPR and changes in data protection obligations, preparing for and complying with these requirements is rigorous, expensive and time-consuming and requires significant resources and a review of our technologies, systems and practices, as well as those of any third-party collaborators, service providers, contractors or consultants that process or transfer personal data collected in the EU and otherwise across the world. The GDPR and other changes in laws or regulations associated with the enhanced protection of certain types of sensitive data, such as healthcare data or other personal information from our clinical trials participants, could require us to change our business practices and put in place additional compliance mechanisms, may interrupt or delay our development, regulatory and commercialization activities and increase our cost of doing business, and could lead to government enforcement actions, private litigation and significant fines and penalties against us and could have a material adverse effect on our business, financial condition or results of operations.
Similar actions are either in place or under way in the United States. There are a broad variety of data protection laws that are applicable to our activities, and a wide range of enforcement agencies at both the state and federal levels that can review companies for privacy and data security concerns based on general consumer protection laws. The Federal Trade Commission and state attorneys general all are aggressive in reviewing privacy and data security protections for consumers. New laws also are being considered at both the state and federal levels. For example, the California Consumer Privacy Act-which went into effect on January 1, 2020-is creating similar risks and obligations as those created by GDPR, though the California Consumer Privacy Act does exempt certain information collected as part of a clinical trial subject to the Federal Policy for the Protection of Human Subjects (the Common Rule). Many other states are considering similar legislation. Accordingly, failure to comply with federal and state laws (both those currently in effect and future legislation) regarding privacy and security of personal information could expose us to fines and penalties under such laws. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our reputation and our business.
Laws and regulations governing any international operations we may have in the future may preclude us from developing, manufacturing and selling certain products outside of the United States and require us to develop and implement costly compliance programs.
If we expand our operations outside of the United States, we must dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we plan to operate. The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.
Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.
Various laws, regulations and Executive Orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If we expand our presence outside of the United States, it will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, marketing or selling certain products and product candidates outside of the United States, which could limit our growth potential and increase our development costs.
The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if we contract with third parties for the proper disposal of these materials and waste products, we cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting from the use or disposal of our hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.
We maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, but this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us and we could incur significant costs associated with environmental liability or toxic tort claims for failure to comply with such laws and regulations.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current or future environmental laws and regulations may impair our research, development or production efforts, which could adversely affect our business, financial condition, results of operations or prospects. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties or other sanctions.
Risks Related to Employee Matters and Managing Potential Growth
If we fail to attract and keep senior management, we may be unable to successfully develop our product candidates, conduct our clinical trials and commercialize our product candidates.
Our success depends in part on our continued ability to attract, retain and motivate highly qualified management personnel. We are highly dependent upon our senior management, as well as others on our management team. The loss of services of employees and, in particular, of a member of management could delay or prevent our ability to successfully commercialize FOTIVDA in the United States, our ability to successfully maintain or enter into new licensing arrangements or collaborations, the successful development of our product candidates, the completion of our planned clinical trials or the attainment of regulatory approvals and successful commercialization of our product candidates. We do not carry “key person” insurance covering any members of our senior management. Our employment arrangements with all of these individuals are “at will,” meaning they or we can terminate their service at any time.
We face intense competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities, governmental entities and other research institutions, many of which have substantially greater resources with which to reward qualified individuals than we do. We may face challenges in retaining our existing senior management and key employees and recruiting new employees to join our company as our business needs change. In addition, the COVID-19 pandemic may negatively impact our ability to recruit and build out our organization as planned. We may be unable to attract and retain suitably qualified individuals, and our failure to do so could have an adverse effect on our ability to implement our future business plans.
Our employees or consultants may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and/or insider trading.
We are exposed to the risk of employee or consultant fraud or other misconduct. Misconduct by employees or consultants could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state health-care fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, marketing, sales and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee or consultant misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation.
We have adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter employee or consultant misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
In addition, during the course of our operations, our directors, executives, employees and consultants may have access to material nonpublic information regarding our business, our results of operations or potential transactions we are considering. Despite the adoption of an Insider Trading Policy, we may not be able to prevent a director, executive, employee or consultant from trading in our common stock on the basis of, or while having access to, material nonpublic information. If a director, executive, employee or consultant was to be investigated, or an action was to be brought against a director, executive, employee or consultant for insider trading, it could have a negative impact on our reputation and our stock price. Such a claim, with or without merit, could also result in substantial expenditures of time and money and divert attention of our management team from other tasks important to the success of our business.
Risks Related to Ownership of Our Common Stock
The market price of our common stock has been, and is likely to be, highly volatile, and could fall below the price you paid. A significant decline in the value of our stock price could also result in securities class-action litigation against us.
The market price of our common stock has been, and is likely to continue to be, highly volatile and subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including:
•announcements relating to our product, FOTIVDA, including as it relates to commercial performance, sales and any future regulatory matters;
•new products, product candidates or new uses for existing products introduced or announced by our strategic partners, or our competitors, and the timing of these introductions or announcements;
•actual or anticipated results from and any delays in our manufacturing or clinical trials;
•sales of common stock by us or our stockholders in the future, as well as the overall trading volume of our common stock;
•the effect of the COVID-19 outbreak on the healthcare system and the economy generally and on our supply chain, manufacturing timelines, preclinical studies, clinical trials, commercial activities and other operations specifically;
•the results of regulatory reviews and other regulatory correspondence relating to our product, product candidates or our clinical trials;
•the results of our efforts to develop, acquire or in-license additional product candidates or products;
•disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;
•announcements by us of material developments in our business, financial condition, partnerships and/or operations;
•announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures and capital commitments;
•additions or departures of key scientific or management personnel;
•conditions or trends in the biotechnology and biopharmaceutical industries, including the recent sell off in the stock market for many companies in the biotechnology and biopharmaceutical industries;
•actual or anticipated changes in revenue, expense or earnings estimates, development timelines or recommendations by securities analysts; and
•general economic and market conditions on our industry and market conditions, and other factors that may be unrelated to our operating performance or the operating performance of our competitors, including changes in market valuations of similar companies.
In addition, the stock market in general and the market for biotechnology and biopharmaceutical companies in particular have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance.
Periods of volatility in the market for a company’s stock are often followed by litigation against the company. For example, following our failure to obtain FDA approval for tivozanib in 2013, we and certain of our former officers and directors were involved in several legal proceedings. Following our January 2019 announcement that the FDA did not recommend we file an NDA for tivozanib at that time, several lawsuits were filed against us, our directors, and certain of our current and former officers. While the 2019 Class Action was dismissed, any litigation instituted against us in the future could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business and financial condition.
We and our collaborators may not achieve development and commercialization goals in the estimated time frames that we publicly announce, which could have an adverse impact on our business and could cause our stock price to decline.
We set goals and make public statements regarding our expected timing for certain accomplishments, such as statements we have made about the initiation and completion of clinical trials, filing and approval of regulatory applications and other developments and milestones under our research and development programs and those of our partners and collaborators for tivozanib, ficlatuzumab, AV-380 and AV-203. The actual timing of these events can vary significantly due to a number of factors, including those discussed elsewhere in this section “Part II, Item 1A. Risk Factors.” As a result, there can be no assurance that our preclinical studies and clinical trials will advance or be completed in the time frames we expect or announce, that we will make regulatory submissions or receive regulatory approvals as planned, that we will be successful in our commercial launch or that we will be able to adhere to our currently anticipated schedule for the achievement of key milestones under any of our programs. If we fail to achieve one or more of the events described above as planned, our business could be materially adversely affected and the price of our common stock could decline.
Our management has broad discretion over our use of available cash and cash equivalents and might not spend our available cash and cash equivalents in ways that increase the value of your investment.
Our management has broad discretion on where and how to use our cash and cash equivalents and, as a stockholder, you rely on the judgment of our management regarding the application of our available cash and cash equivalents to fund our operations. Our management might not apply our cash and cash equivalents in ways that increase the value of your investment. We expect to use a substantial portion of our cash to fund existing and future research and development of our preclinical and clinical product candidates, with the balance, if any, to be used for working capital and other general corporate purposes, which may in the future include investments in, or acquisitions of, complementary businesses, joint ventures, partnerships, services or technologies. Our management might not be able to yield a significant return, if any, on any investment of this cash. You will not have the opportunity to influence our decisions on how to use our cash reserves.
If we fail to meet the requirements for continued listing on the Nasdaq Capital Market, our common stock could be delisted from trading, which would decrease the liquidity of our common stock and our ability to raise additional capital.
Our common stock is currently listed on the Nasdaq Capital Market, or Nasdaq. We are required to meet specified requirements to maintain our listing on Nasdaq, including a minimum market value of listed securities of $35.0 million, a minimum bid price of $1.00 per share for our common stock and other continued listing requirements.
In the past we have, from time to time, received deficiency letters from Nasdaq as a consequence of our failure to satisfy such requirements. Although we have been able to regain compliance with the listing requirements within the manner and time periods prescribed by Nasdaq in the past, there can be no assurance that we will be able to maintain compliance with the Nasdaq continued listing requirements in the future or regain compliance with respect to any future deficiencies. If we fail to satisfy Nasdaq’s continued listing requirements, we may transfer to the OTC Bulletin Board, which generally has lower financial requirements for initial listing, to avoid delisting. However, we may not be able to satisfy the initial listing requirements for the OTC Bulletin Board. Having our common stock trade on the OTC Bulletin Board could adversely affect the liquidity of our common stock. Any such event could make it more difficult to dispose of, or obtain accurate quotations for the price of, our common stock, and there also would likely be a reduction in our coverage by securities analysts and the news media, which could cause the price of our common stock to decline further. We may
also face other material adverse consequences in such event, such as negative publicity, a decreased ability to obtain additional financing, diminished investor and/or employee confidence and the loss of business development opportunities, some or all of which may contribute to a further decline in our stock price.
Fluctuations in our quarterly operating results could adversely affect the price of our common stock.
Our quarterly operating results may fluctuate significantly. Some of the factors that may cause our operating results to fluctuate on a period-to-period basis include:
•the level of net product revenues from the sales of FOTIVDA;
•the level of expenses incurred to commercialize FOTIVDA;
•the level of expenses incurred in connection with our clinical development programs, including development and manufacturing costs relating to our clinical development candidates;
•the implementation of restructuring and cost-savings strategies;
•the implementation or termination of collaboration, licensing, manufacturing or other material agreements with third parties, and non-recurring revenue or expenses under any such agreement;
•costs associated with litigation in which we may become involved;
•changes in our 2020 Loan Facility, including the existence of any event of default that may accelerate then remaining principal payments and fees due thereunder;
•non-cash changes in fair value related to re-valuations of our outstanding warrant liability as a result of fluctuations in our stock price; and
•compliance with regulatory requirements.
Period-to-period comparisons of our historical and future financial results may not be meaningful, and investors should not rely on them as an indication of future performance. Our fluctuating results may fail to meet the expectations of securities analysts or investors. Our failure to meet these expectations may cause the price of our common stock to decline.
Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.
Global credit and financial markets have experienced extreme volatility and disruptions since 2020 due to the COVID-19 pandemic and the government measures taken in response to the pandemic. We expect that rapid or extended periods of deterioration in credit and financial markets and confidence in economic conditions will continue. Our general business strategy may be adversely affected by external economic conditions and a volatile business environment or unpredictable and unstable market conditions. If the equity and credit markets are not favorable at any time we seek to raise capital, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers or other partners may not survive economically turbulent times, which could directly affect our ability to attain our operating goals on schedule and on budget.
As of December 31, 2021, we had approximately $87.3 million of cash, cash equivalents and marketable securities consisting of cash on deposit with banks and in a U.S. government money market fund, and high-grade debt securities, including commercial paper. As of the date of this report, we are not aware of any downgrades, material losses or other significant deterioration in the fair value of our cash equivalents or marketable securities. However, no assurance can be given that deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents and marketable securities or our ability to meet our financing objectives. Dislocations in the credit market may adversely impact the value and/or liquidity of cash equivalents and marketable securities owned by us.
Future sales of shares of our common stock, including shares issued upon the exercise of currently outstanding options, could negatively affect our stock price.
A substantial portion of our outstanding common stock can be traded without restriction at any time. Some of these shares are currently restricted as a result of securities laws, but will be able to be sold, subject to any applicable
volume limitations under federal securities laws with respect to affiliate sales, in the near future. As such, sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell such shares, could reduce the market price of our common stock. In addition, we have a significant number of shares that are subject to outstanding options. The exercise of these options and the subsequent sale of the underlying common stock could cause a further decline in our stock price. These sales also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.
The trading market for our common stock may depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. There can be no assurance that analysts will cover us, or provide favorable coverage. A lack of research coverage may negatively impact the market price of our common stock. To the extent we do have analyst coverage, if one or more analysts downgrade our stock or change their opinion of our stock, our share price would likely decline. In addition, if one or more analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
Provisions in our certificate of incorporation, our by-laws or Delaware law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the market price of our common stock.
Provisions of our certificate of incorporation, our by-laws or Delaware law may have the effect of deterring unsolicited takeovers or delaying or preventing a change in control of our company or changes in our management, including transactions in which our stockholders might otherwise receive a premium for their shares over then current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions that they may deem to be in their best interest. These provisions include:
•advance notice requirements for stockholder proposals and nominations;
•the inability of stockholders to act by written consent or to call special meetings;
•the ability of our board of directors to make, alter or repeal our by-laws; and
•the ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval, which could be used to institute a rights plan, or a poison pill, that would work to dilute the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our board of directors.
In addition, Section 203 of the Delaware General Corporation Law prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.
The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that a stockholder could receive a premium for shares of our common stock held by a stockholder in an acquisition.
Our business could be negatively affected as a result of the actions of activist stockholders.
Proxy contests have been waged against companies in the biopharmaceutical industry over the last few years. If faced with a proxy contest, we may not be able to successfully respond to the contest, which would be disruptive to our business. Even if we are successful, our business could be adversely affected by a proxy contest because:
•responding to proxy contests and other actions by activist stockholders may be costly and time-consuming, and may disrupt our operations and divert the attention of management and our employees;
•perceived uncertainties as to the potential outcome of any proxy contest may result in our inability to consummate potential acquisitions, collaborations or in-licensing opportunities and may make it more difficult to attract and retain qualified personnel and business partners; and
•if individuals that have a specific agenda different from that of our management or other members of our board of directors are elected to our board of directors as a result of any proxy contest, such an election may adversely affect our ability to effectively and timely implement our strategic plan and create additional value for our stockholders.
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our ability to produce accurate financial statements and on our stock price.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us, on an annual basis, to review and evaluate our internal controls. In addition, our independent registered public accounting firm has attested to the effectiveness of our internal controls. Despite our efforts, we can provide no assurance as to our, or our independent registered public accounting firm’s, conclusions with respect to the effectiveness of our internal control over financial reporting under Section 404. There is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
If we are unable to successfully remediate any material weaknesses in our internal control, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and our stock price may decline as a result. We also could become subject to investigations by Nasdaq, the SEC or other regulatory authorities.
We do not expect to pay any cash dividends for the foreseeable future.
Our stockholders should not rely on an investment in our common stock to provide dividend income. We do not anticipate that we will pay any cash dividends to holders of our common stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our existing operations. In addition, our ability to pay cash dividends is currently prohibited by the terms of our debt financing arrangements and any future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. In addition, the terms of the 2020 Loan Facility preclude, and any future debt agreements may preclude us from, paying dividends. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our common stock.
Changes in tax laws or in their implementation or interpretation may adversely affect our business and financial condition.
The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect us or holders of our common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the future. For example, the TCJA was enacted in 2017 and significantly reformed the Internal Revenue Code of 1986, as amended, or the Code. In addition, as part of Congress’ response to the COVID-19 pandemic, the Families First Coronavirus Response Act, or FFCR Act, was enacted on March 18, 2020, and the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was enacted on March 27, 2020. Both contain numerous tax provisions.
Regulatory guidance under the TCJA, the FFCR Act and the CARES Act is and continues to be forthcoming, and such guidance could ultimately increase or lessen impact of these laws on our business and financial condition. It is also possible that Congress will enact additional legislation in connection with the COVID-19 pandemic, some of which could have an impact on our company. In addition, it is uncertain if and to what extent various states will conform to the TCJA, the FFCR Act or the CARES Act. We urge investors to consult with their legal and tax advisers regarding the implications of the TCJA, the FFCR Act and the CARES Act and other changes in tax laws on an investment in our common stock. Recent changes in tax law may adversely affect our business or financial condition.
We might not be able to utilize a significant portion of our net operating loss carryforwards and research and development tax credit carryforwards.
As of December 31, 2021, we had federal net operating loss carryforwards of $613.1 million, of which $502.6 million will, if not used, expire at various dates through 2037, and federal research and development tax credit carryforwards of $12.6 million, which will, if not used, expire at various dates through 2041. To the extent that they expire unused, these net operating loss and tax credit carryforwards will not be available to offset our future income tax liabilities. Federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such carryforwards is limited to 80% of our taxable income in the year in which such carryforwards are used. As of December 31, 2021, we have recorded a full valuation allowance to offset these deferred tax assets because the future realizability of such assets is uncertain.
In addition, under Section 382 of the Code and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss and credit carryforwards to reduce its tax liability for post-change periods may be limited. We have not determined if we have experienced Section 382 ownership changes in the past and if a portion of our net operating loss and tax credit carryforwards is subject to an annual limitation under Section 382. We also may experience ownership changes in the future as a result of shifts in our stock ownership, some of which may be outside of our control. In addition, we have not conducted a detailed study to document whether our historical activities qualify to support the research and development credits currently claimed as a carryforward. A detailed study could result in adjustment to our research and development credit carryforwards. If we determine that an ownership change has occurred and our ability to use our historical net operating loss and tax credit carryforwards is materially limited, or if our research and development carryforwards are adjusted, our use of those attributes to offset future income tax liabilities would be limited.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
ITEM 2. Properties
We currently sublease our corporate headquarters, which consists of approximately 6,465 square feet of office space located at 30 Winter Street, Boston, Massachusetts. Our sublease agreement, which was amended on November 17, 2021, continues through November 29, 2022, or the amended Winter Street Sublease. The amended Winter Street Sublease (i) reduced the square feet of office space from 10,158 square feet to 6,465 square feet, (ii) provided that the security deposit of $0.3 million would be applied toward the remaining base rent payable to the landlord to satisfy in full the base rent obligations through the expiration date of November 29, 2022, and (iii) provided that the landlord would make renovations to improve the space. The term of the amended Winter Street Sublease remained the same and will continue through November 29, 2022. We believe that our existing facilities are sufficient for our current needs.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. Legal Proceedings
As of the date of filing this Annual Report on Form 10-K, we are not party to any material legal proceedings that could have a material adverse effect on our business, operating results or financial condition.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is traded on the Nasdaq Capital Market under the symbol “AVEO”.
Holders
As of March 9, 2022, there were approximately 34 holders of record of our common stock. We believe that the number of beneficial owners of our common stock at that date was substantially greater.
Dividends
We have never declared or paid any cash dividends on our common stock and our ability to pay cash dividends is currently prohibited by the terms of our debt financing arrangements. We currently intend to retain earnings, if any, for use in our business and do not anticipate paying cash dividends on our common stock in the foreseeable future. Payment of future dividends, if any, on our common stock will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, anticipated cash needs, and plans for expansion.
Purchase of Equity Securities
We did not purchase any of our equity securities during any month within the three months ended December 31, 2021.
Recent Sales of Unregistered Securities
None.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. RESERVED.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing elsewhere in this report. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section in Part 1, Item 1A of this report 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 commercial stage, oncology-focused biopharmaceutical company committed to delivering medicines that provide a better life for patients with cancer. We currently market FOTIVDA® (tivozanib) in the United States. FOTIVDA is our first commercial product and was approved by the FDA for marketing and sale in the United States on March 10, 2021 for the treatment of adult patients with RCC, following two or more prior systemic therapies. We continue to develop tivozanib in immuno-oncology combinations in RCC and other indications, and we have other investigational programs in clinical development.
FOTIVDA is an oral, next-generation VEGFR TKI. The FDA approval of FOTIVDA is based on our pivotal Phase 3 randomized, controlled, multi-center, open-label clinical trial comparing tivozanib to an approved therapy, Nexavar® (sorafenib), in RCC patients whose disease had relapsed or become refractory to two or three prior systemic therapies, which we refer to as the TIVO-3 trial. The approval is also supported by three additional trials in RCC and includes safety data from over 1,000 clinical trial subjects.
FOTIVDA became commercially available in the United States on March 22, 2021 and is available to patients through a network of specialty pharmacies and distributors. We commercialize FOTIVDA in the United States through the support of approximately 65 field-based employees, which includes approximately 50 oncology sales professionals. The field sales force is supported by the AVEO ACE Patient Support program, which is an extensive patient and healthcare provider support program designed to optimize patient access and help patients navigate their treatment journey. To date, we believe we have been very successful in securing payor coverage. Furthermore, the NCCN Guidelines® recommend FOTIVDA as a subsequent therapy for patients with relapsed or refractory advanced RCC with clear cell histology who received two or more prior systemic therapies.
Restrictions related to the ongoing COVID-19 pandemic have posed challenges for gaining in-person access to customers, prescribers and other healthcare professionals and certain institutions remain closed to industry representatives. Notwithstanding these challenges, as of December 31, 2021, prescriptions for FOTIVDA and product revenues have increased quarter over quarter since the beginning of our commercial launch. We aim to continue to deliver quarter over quarter net revenue and underlying prescription demand growth as we continue to execute on our commercial strategy to support the adoption of FOTIVDA in appropriate patients.
We believe there is significant commercial opportunity for FOTIVDA in RCC in the United States. We estimate that the current U.S. market for relapsed or refractory advanced RCC therapy is more than $1.7 billion, including $1.3 billion in the second line and $480.0 million in the third and fourth lines. As the TIVO-3 trial is the first positive Phase 3 clinical trial in RCC patients whose disease had relapsed or become refractory to two or three prior systemic therapies as well as the first Phase 3 clinical trial in RCC to investigate a predefined subpopulation of patients who received prior immunotherapy, a predominant standard of care for earlier lines of therapy, we believe that FOTIVDA could become a standard of care in the United States in the third and fourth line relapsed or refractory advanced setting. Further, we intend to pursue opportunities in the second line relapsed or refractory advanced RCC setting. We and our collaboration partners are developing tivozanib with ICIs and in combination with a HIF2α inhibitor to support tivozanib's potential utility in this earlier line of RCC therapy.
Based on FOTIVDA’s demonstrated anti-tumor activity, tolerability profile and reduction of regulatory T-cell production, we and our collaboration partners are developing tivozanib in additional cancer indications with significant unmet medical needs including, HCC, and tumors that are resistant to immunotherapy, or immunologically cold tumors, in combination with ICIs. In addition, we are evaluating tivozanib as a monotherapy in ovarian cancer and CCA. We and our collaboration partners or independent investigators sponsor the development of tivozanib through preclinical studies and clinical trials conducted under collaboration agreements and IST agreements or our CRADA with NCI-SOP.
We are also seeking to advance our pipeline of four wholly owned IgG1, monoclonal antibody product candidates, ficlatuzumab, AV-380, AV-203 and AV-353. We aim to leverage our existing collaborations and partnerships and enter into new strategic collaborations and partnerships to continue to advance each of our product candidates.
Recent Developments
On March 8, 2022, we entered into a Loan Amendment with Hercules, or the 2022 Loan Amendment. The 2022 Loan Amendment, among other things, makes the $5.0 million Tranche Four funding available upon achieving $30.0 million in trailing three-month net product revenues from sales of FOTIVDA by no later than December 15, 2022, instead of being available at the discretion of the Lenders by no later than June 30, 2022. Please see “Part II, Item 9b. Other Information - 2022 Amendment to 2020 Credit Facility” of this Annual Report for a further discussion of the 2022 Loan Amendment.
Financial Overview
We do not have a history of generating operating profits and, as of December 31, 2021, we had an accumulated deficit of $674.5 million. We anticipate that we will continue to incur significant operating expenses for the foreseeable future as we seek to successfully commercialize FOTIVDA in the United States and continue our planned development activities for our clinical and preclinical stage assets.
We may require substantial additional funding to continue to advance our pipeline of clinical and preclinical stage assets, and the timing and nature of these activities will be conducted subject to the availability of sufficient financial resources, principally product sales of FOTIVDA in the United States. Please see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources -Liquidity and Going Concern” of this Annual Report for a further discussion of our funding requirements.
Revenue
Prior to the commercial launch of FOTIVDA in March 2021, our revenues were historically generated primarily through collaborative research, development and commercialization agreements. Payments to us under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; milestone payments; and royalties on future product sales. In November 2017, we began earning sales royalties upon EUSA’s commencement of the first commercial launch of FOTIVDA.
On March 10, 2021, the FDA approved FOTIVDA in the United States for the treatment of adult patients with relapsed or refractory advanced RCC following two or more prior systemic therapies. We commenced commercial sales of our first product FOTIVDA in the United States on March 22, 2021. We expect that any revenue we generate will fluctuate from quarter to quarter and year to year as a result of the timing and amount of the payments that we receive upon the sales of FOTIVDA and any future products, to the extent any are successfully commercialized, and license fees, research and development reimbursements, milestones, royalties and other payments received under our strategic partnerships. If we or our collaboration partners fail to complete the development of our product candidates in a timely manner or to obtain or maintain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.
Research and Development Expenses
Research and development expenses have historically consisted of expenses incurred in connection with the discovery and development of our product candidates. We recognize research and development expenses as they are incurred. These expenses consist primarily of:
•employee-related expenses, including salaries, bonuses, benefits, stock-based compensation and research-related overhead;
•external development-related expenses, including clinical trials, preclinical studies, consultants and other outsourced services;
•costs of acquiring and manufacturing drug development related materials and related distribution;
•costs associated with our regulatory and quality assurance operations and medical affairs;
•upfront license payments, milestones, sublicense fees and royalties related to in-licensed products and technology; and
•allocated expenses for facilities and information technology.
Research and development expenses is net of amounts reimbursed under our agreement with AstraZeneca for their respective share of development costs incurred by us under our joint development plans.
We anticipate that research and development expenses will increase in 2022, principally related to the enrollment of the TiNivo-2 Trial for the treatment of RCC patients who have progressed following one or two lines of prior immunotherapy, one of which must include an ICI, the manufacturing of ficlatuzumab clinical drug supply for a potential registrational clinical trial in HPV negative R/M HNSCC patients that we plan to initiate in the first half of 2023, a Phase 1b clinical trial in AV-380 in cancer patients that we plan to initiate in the second half of 2022 and the related manufacturing of AV-380 clinical drug supply, and co-funding pursuant to the NiKang Agreement for a Phase 2 clinical trial to evaluate tivozanib in combination with NKT2152 in ccRCC patients who have not responded to or relapsed from prior therapies. These increases in 2022 will be partially offset by lower costs, principally related to the TIVO-3 Trial that closed in the second half of 2021 following the FDA’s approval of FOTIVDA on March 10, 2021. We anticipate that research and development expenses will be in the range of $60.0 million to $70.0 million in 2022 in support of our existing pipeline plans. The timing and nature of contemplated activities in 2022 will be conducted subject to the availability of sufficient financial resources.
Currently, we track direct external development expenses and direct salary on a program-by-program basis and allocate general-related expenses, such as indirect compensation, benefits and consulting fees, to each program based on the personnel resources allocated to such program. Facilities, IT costs and stock-based compensation are not allocated amongst programs and are considered overhead.
Uncertainties of Estimates Related to Research and Development Expenses
The process of conducting preclinical studies and clinical trials necessary to obtain FDA approval for each of our product candidates is costly and time-consuming. The probability of success for each product candidate and clinical trial may be affected by a variety of factors, including, among others, the risk benefit profile of the product candidates’ clinical activity, investment in the program, competition, manufacturing capabilities and commercial viability.
At this time, we cannot reasonably estimate or know the nature, specific timing and estimated costs of the efforts that will be necessary to complete the development of our product candidates, or the period, if any, in which material net cash inflows may commence from sales of any approved products. This uncertainty is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
•our ability to establish and maintain strategic partnerships, the terms of those strategic partnerships and the success of those strategic partnerships, if any, including the timing and amount of payments that we might receive from strategic partners;
•the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for any product candidate;
•the progress and results of our clinical trials;
•the costs, timing and outcome of regulatory review of our product candidates;
•the emergence of competing technologies and products and other adverse market developments;
•the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims; and
•additional manufacturing requirements.
As a result of the uncertainties associated with developing drugs, including those discussed above, we are unable to determine the exact duration and completion costs of current or future clinical stages of our product candidates, or when, or to what extent, we will generate revenues from the commercialization and sale of any of our product candidates for which we may obtain regulatory approval. Development timelines, probability of success and development costs vary widely. We anticipate that we will make determinations as to which additional programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success, if any, of each product
candidate, as well as ongoing assessment of each product candidate’s commercial potential. We will need to raise substantial additional capital in the future in order to fund the development of our preclinical and clinical product candidates.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist principally of compensation, benefits and travel for employees in executive, finance, legal, human resource and commercial functions. Other selling, general and administrative expenses include professional fees for audit, tax, general legal, patent legal, investor relations, commercial, consulting services and directors’ fees, as well as facility and information technology-related costs not otherwise included in research and development expenses.
We anticipate that selling, general and administrative expenses associated with the commercialization of FOTIVDA, principally related to our sales force, our marketing, market access and commercial capabilities, and general and administrative support will increase in 2022, principally reflective of a full year of commercialization following the launch of FOTIVDA on March 22, 2021. We anticipate that selling, general and administrative expenses will be approximately $70.0 million, including approximately $50.0 million in commercial expenses and approximately $20.0 million in general and administrative expenses.
Interest Expense, Net
Interest expense consists of interest, amortization of debt discount and amortization of deferred financing costs associated with our loans payable, and is shown net of interest income, which consists of interest earned on our cash, cash equivalents and marketable securities. The primary objective of our investment policy is capital preservation.
Income Taxes
We generated tax losses for the years ended December 31, 2021 and 2020, and since we maintain a full valuation allowance on all of our deferred tax assets, we have recorded no income tax provision or benefit during the years ended December 31, 2021 and 2020.
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect certain reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, the assessment of our ability to continue as a going concern, and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include revenue recognition, clinical trial costs and contract research accruals, measurement of trade receivables net, measurement of stock-based compensation and estimates of our capital requirements over the next twelve months from the date of issuance of the consolidated financial statements. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Material changes in these estimates could occur in the future. Changes in estimates are recorded or reflected in our disclosures in the period in which they become known. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate. Our significant accounting policies are described in the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Revenue Recognition
Prior to the commercial launch of FOTIVDA in March 2021, our revenues had historically been generated primarily through collaborative research, development and commercialization agreements. The terms of these agreements generally contain multiple promised goods and services, which may include (i) licenses, or options to obtain licenses, to our technology, (ii) research and development activities to be performed on behalf of the collaborative partner, and (iii) in certain cases, services in connection with the manufacturing of preclinical and clinical material. Payments to us under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; milestone payments; and royalties on future product sales.
Collaboration Arrangements Within the Scope of ASC 808, Collaborative Arrangements
We analyze our collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and are therefore within the scope of ASC Topic 808, Collaborative Arrangements, or ASC 808. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement.
For collaboration arrangements that are deemed to be within the scope of ASC 808, we first determine which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and therefore within the scope of ASC 606, Revenue from Contracts with Customers, or ASC 606. Our policy is generally to recognize amounts received from collaborators in connection with joint operating activities that are within the scope of ASC 808 as a reduction in research and development expense.
Arrangements Within the Scope of ASC 606, Revenue from Contracts with Customers
Under ASC 606, we recognize revenue when our customers obtain control of promised goods or services, in an amount that reflects the consideration which we determine we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) we satisfy our performance obligation(s). As part of the accounting for these arrangements, we must make significant judgments, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each performance obligation.
Once a contract is determined to be within the scope of ASC 606, we assess the goods or services promised within the contract and determine those that are performance obligations. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. We assess if these options provide a material right to the customer and if so, they are considered performance obligations. The exercise of a material right is accounted for as a contract modification for accounting purposes.
We assess whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (that is, the good or service is capable of being distinct) and (ii) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (that is, the promise to transfer the good or service is distinct within the context of the contract). In assessing whether a promised good or service is distinct, we consider factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. We also consider the intended benefit of the contract in assessing whether a promised good or service is separately identifiable from other promises in the contract. If a promised good or service is not distinct, an entity is required to combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct.
The transaction price is then determined and allocated to the identified performance obligations in proportion to their standalone selling prices, or SSP, on a relative SSP basis. SSP is determined at contract inception and is not updated to reflect changes between contract inception and when the performance obligations are satisfied. Determining the SSP for performance obligations requires significant judgment. In developing the SSP for a performance obligation, we consider applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. We validate the SSP for performance obligations by evaluating whether changes in the key assumptions used to determine the SSP will have a significant effect on the allocation of arrangement consideration between multiple performance obligations.
If the consideration promised in a contract includes a variable amount, we estimate the amount of consideration to which we will be entitled in exchange for transferring the promised goods or services to a customer. We determine the amount of variable consideration by using the expected value method or the most likely amount method. We include the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, we re-evaluate the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.
In determining the transaction price, we adjust consideration for the effects of the time value of money if the timing of payments provides us with a significant benefit of financing. We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less. We assess each of our revenue generating arrangements in order to determine whether a significant financing component exists and concluded that a significant financing component does not exist in any of our arrangements.
We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time based on the use of an output or input method.
Licenses of Intellectual Property: The terms of our license agreements include the license of functional intellectual property, given the functionality of the intellectual property is not expected to change substantially as a result of our ongoing activities. If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from the portion of the transaction price allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises (that is, for licenses that are not distinct from other promised goods and services in an arrangement), we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. We evaluate the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Research and Development Funding: Arrangements that include payment for research and development services are generally considered to have variable consideration. If and when we assess the payment for these services is no longer subject to the constraint on variable consideration, the related revenue is included in the transaction price.
Milestone Payments: At the inception of each arrangement that includes non-refundable payments for contingent milestones, including preclinical research and development, clinical development and regulatory, we evaluate whether the milestones are considered probable of being achieved and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of us or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each reporting period, we re-evaluate the probability of the achievement of contingent milestones and the likelihood of a significant reversal of such milestone revenue, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration and licensing revenue in the period of adjustment. This quarterly assessment may result in the recognition of revenue related to a contingent milestone payment before the milestone event has been achieved.
Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
The following table summarizes the total revenues earned in the years ended December 31, 2021, 2020, and 2019, respectively, by partner (in thousands). Refer to Note 4 “Collaborations and License Agreements” of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K regarding specific details of these collaboration and license arrangements.
Years Ended
December 31,
2021 2020 2019
FOTIVDA U.S. product revenue, net $ 38,874 $ - $ -
Partnership revenue - KKC - 2,800 25,000
Partnership revenue - EUSA 3,421 3,219 3,795
Total revenues $ 42,295 $ 6,019 $ 28,795
Accrued Expenses and Accrued Clinical Trial Costs and Contract Research Liabilities
As part of the process of preparing our financial statements, we are required to estimate accrued expenses. This process involves identifying services which have been performed on our behalf, and estimating the level of service
performed and the associated cost incurred for such service as of each balance sheet date in our financial statements. Given our current business, the primary area of uncertainty concerning accruals which could have a material effect on our operating results is with respect to service fees paid to CMOs in conjunction with the production of commercial and clinical drug supplies and to CROs in connection with our clinical trials. In connection with all of the foregoing service fees, our estimates are most affected by our understanding of the status and timing of services provided. The majority of our service providers, including CMOs and CROs, invoice us in arrears for services performed. In the event that we do not identify some costs which have begun to be incurred, or we under or overestimate the level of services performed or the costs of such services in a given period, our reported expenses for such period would be understated or overstated. We currently reflect the effects of any changes in estimates based on changes in facts and circumstances directly in our operations in the period such change becomes known.
Our arrangements with CROs in connection with clinical trials often provide for payment prior to commencing the project or based upon predetermined milestones throughout the period during which services are expected to be performed. We recognize expense relating to these arrangements based on the various services provided over the estimated time to completion. The date on which services commence, the level of services performed on or before a given date, and the cost of such services are often determined based on subjective judgments. We make these judgments based upon the facts and circumstances known to us based on the terms of the contract and our ongoing monitoring of service performance. During the years ended December 31, 2021, 2020, and 2019, we had arrangements with multiple CROs whereby these organizations commit to performing services for us over multiple reporting periods. We recognize the expenses associated with these arrangements based on our expectation of the timing of the performance of components under these arrangements by these organizations. Generally, these components consist of the costs of setting up the trial, monitoring the trial, closing the trial and preparing the resulting data. Costs related to patient enrollment in clinical trials are accrued as patients are enrolled in the trial.
With respect to financial reporting periods presented in this Annual Report on Form 10-K, the timing of our actual costs incurred have not differed materially from our estimated timing of such costs.
Results of Operations
Comparison of Years Ended December 31, 2021, 2020 and 2019
Revenues (in thousands)
Years Ended
December 31, 2021 / 2020 Comparison 2020 / 2019 Comparison
2021 2020 2019 $ % $ %
FOTIVDA U.S. product revenue, net $ 38,874 $ - $ - $ 38,874 100 % $ - 100 %
Partnership revenue - KKC - 2,800 25,000 (2,800) (100) % (22,200) (89) %
Partnership revenue - EUSA 3,421 3,219 3,795 202 6 % (576) (15) %
Total revenues $ 42,295 $ 6,019 $ 28,795 $ 36,276 603 % $ (22,776) (79) %
Our total revenues increased by $36.3 million, or 603%, to $42.3 million in the year ended December 31, 2021 from $6.0 million in the same period in 2020, principally due to the commencement of sales of our first commercial product FOTIVDA in the United States on March 22, 2021 for the treatment of adult patients with relapsed or refractory advanced RCC following two or more prior systemic therapies.
Our total revenues decreased by $22.8 million, or 79%, to $6.0 million in the year ended December 31, 2020 from $28.8 million in the same period in 2019, principally due to payments earned pursuant to the amendment to the KKC Agreement for KKC’s repurchase of the non-oncology rights to tivozanib in our territory, including the $25.0 million upfront payment earned in 2019 offset by a $2.8 million development milestone earned in 2020, as well as a $0.6 million decrease in revenues from EUSA.
Partnership revenues from KKC decreased by $2.8 million, or 100%, in the year ended December 31, 2021, compared to the same period in 2020 and decreased by $22.2 million, or 89%, in the year ended December 31, 2020, compared to the same period in 2019. On August 2, 2020, we earned a $2.8 million development milestone payment from KKC for the acceptance of KKC’s IND for a non-oncology formulation of tivozanib by the Pharmaceuticals and Medical Devices Agency of Japan. In the third quarter of 2020, we recognized this $2.8 million development milestone as revenue in accordance with ASC 606. No milestones were earned in the year ended December 31, 2021.
On August 1, 2019, we entered into an amendment to the KKC Agreement pursuant to which KKC repurchased the non-oncology rights to tivozanib in our territory, excluding the rights we have sublicensed to EUSA under the EUSA Agreement, and KKC made a $25.0 million non-refundable upfront payment to us that we received in September 2019. In the third quarter of 2019, we recognized this $25.0 million upfront payment as revenue in accordance with ASC 606.
Partnership revenues from EUSA increased by $0.2 million, or 6%, in the year ended December 31, 2021 as compared to the same period in 2020, and decreased by $0.6 million, or 15%, in the year ended December 31, 2020, from the same period in 2019.
FOTIVDA U. S. Product Revenue, Net (in thousands)
Years Ended
December 31, 2021 / 2020 Comparison 2020 / 2019 Comparison
2021 2020 2019 $ % $ %
Gross product revenue $ 45,668 $ - $ - $ 45,668 100 % $ - - %
Discounts and allowances (6,794) - - (6,794) 100 % - - %
Product revenue, net $ 38,874 $ - $ - $ 38,874 100 % $ - - %
We commenced sales of our first commercial product FOTIVDA in the United States on March 22, 2021 for the treatment of adult patients with relapsed or refractory advanced RCC following two or more prior systemic therapies.
We anticipate FOTIVDA net product revenues will be in the range of $100.0 million to $110.0 million in 2022.
Cost of Products Sold (in thousands)
Years Ended December 31, 2021 / 2020 Comparison 2020 / 2019 Comparison
2021 2020 2019 $ % $ %
Cost of products sold $ 4,737 $ - $ - $ 4,737 100 % $ - - %
Gross margin % 88 % - % - % 88 % 100 % - % - %
We commenced sales of our first commercial product FOTIVDA in the United States on March 22, 2021 for the treatment of adult patients with relapsed or refractory advanced RCC following two or more prior systemic therapies. Cost of products sold is related to our product revenues for FOTIVDA and consists primarily of tiered royalty payments we are required to pay to KKC on all net sales of tivozanib in our North American territory, which range from the low to mid-teens as a percentage of net sales. Cost of products sold also consists of shipping and other third-party logistics and distribution costs for FOTIVDA. We consider regulatory approval of our product candidates to be uncertain and product manufactured prior to regulatory approval may not be sold unless regulatory approval is obtained. As such, the manufacturing costs for FOTIVDA incurred prior to regulatory approval were not capitalized as inventory but were expensed as research and development costs, which favorably impacted our gross margin. We anticipate that gross margins will continue to be in the mid-to-high 80th percentile in 2022.
Research and Development Expenses (in thousands)
Years Ended
December 31, 2021 / 2020 Comparison 2020 / 2019 Comparison
2021 2020 2019 $ % $ %
Tivozanib $ 16,277 $ 17,435 $ 12,148 $ (1,158) (7) % $ 5,287 44 %
AV-380 Program in Cachexia 4,024 2,550 3,379 1,474 58 (829) (25)
Ficlatuzumab 3,663 1,187 1,143 2,476 209 44 4
Overhead 2,334 1,507 1,288 827 55 219 17
Total research and development expenses $ 26,298 $ 22,679 $ 17,958 $ 3,619 16 % $ 4,721 26 %
Our total research and development expenses increased by $3.6 million, or 16%, to $26.3 million in the year ended December 31, 2021 from $22.7 million in the same period in 2020.
Our total research and development expenses increased by $4.7 million, or 26%, to $22.7 million in the year ended December 31,2020 from $18.0 million in the same period in 2019.
Tivozanib expenses decreased by $1.2 million, or 7%, in the year ended December 31, 2021 as compared to the same period in 2020, principally related to $10.2 million in total decreases for costs incurred in the year ended December 31, 2020 that were not incurred in the same period in 2021, including (i) $2.3 million in connection with the completion and review support for the tivozanib NDA for relapsed or refractory advanced RCC following two or more prior systemic therapies, (ii) the corresponding $2.9 million application user fee pursuant to the Prescription Drug User Fee Act that was due upon the filing of the tivozanib NDA on March 31, 2020, (iii) $1.7 million in connection with drug substance manufacturing prior to marketing approval of tivozanib and (iv) $3.3 million in connection with lower expenses for the TIVO-3 trial that was closed in the second half of 2021 following FDA approval of FOTIVDA on March 10, 2021. These decreases were partially offset by $8.7 million in total increases for costs incurred in the year ended December 31, 2021 that were not incurred in the same period in 2020, including (i) $6.1 million in connection with start-up activities for the TiNivo-2 Trial that was initiated in the first quarter of 2021, (ii) $2.1 million in connection with the medical affairs function in support of the commercial launch of FOTIVDA and (iii) $0.5 million in consulting and other fees.
Tivozanib expenses increased by $5.3 million, or 44%, in the year ended December 31, 2020 as compared to 2019. The $5.3 million increase was principally due to increases totaling $7.4 million, including: (i) $3.4 million related to the tivozanib NDA for RCC, including $0.5 million related to the completion of the NDA submission and ongoing support of the FDA’s review of the NDA and the $2.9 million application user fee pursuant to the PDUFA that was due upon the filing of the tivozanib NDA on March 31, 2020, (ii) $0.6 million related to the DEDUCTIVE trial that was initiated in September 2019, net of cost sharing with AstraZeneca, and (iii) $3.4 million in commercial launch-readiness initiatives incurred in 2020 that were not incurred in 2019, including $1.7 million related to the conduct of certain post-commercial launch drug supply manufacturing, $1.3 million related to the buildout of our medical affairs function and $0.4 million related to other commercial-launch readiness initiatives.
These increases were partially offset by decreases totaling $2.3 million, principally including: (i) $1.8 million related to lower expenses in connection with the TIVO-3 and TiNivo trials that were nearing completion and (ii) $0.5 million related to fluctuations in the year-to-year sublicense fees due to KKC in connection with a milestone we earned under our EUSA Agreement in 2019 that was not earned in 2020.
AV-380 expenses increased by $1.5 million, or 58%, in the year ended December 31, 2021 as compared to the same period in 2020, principally due to the conduct of the Phase 1 clinical trial of AV-380 in healthy subjects that was initiated in the first quarter of 2021 and the commencement of related clinical drug supply manufacturing, partially offset by a decrease in preclinical development costs incurred in the year ended December 31, 2020 that were not incurred in the same period in 2021.
AV-380 expenses decreased by $0.8 million, or 16%, in the year ended December 31, 2020 as compared to the same period in 2019, principally due to the $2.3 million time-based milestone obligation due to St. Vincent’s under our license agreement with St. Vincent’s, in the first quarter of 2019 that was not incurred in 2020, partially offset by an increase of $1.5 million related to pre-clinical development costs incurred in 2020 that were not incurred in 2019.
Ficlatuzumab expenses increased by $2.5 million, or 209%, in the year ended December 31, 2021 as compared to the same period in 2020, principally related to the commencement of certain manufacturing activities in 2021 in support of planned clinical drug supply manufacturing in 2022 for a potential registrational clinical trial of ficlatuzumab in combination with cetuximab in patients with HPV negative R/M HNSCC patients in the first half of 2023, partially offset by costs incurred in the first quarter of 2020 that were not incurred in 2021 in connection with the discontinued CyFi-2 trial, net of cost sharing with Biodesix.
Ficlatuzumab expenses were flat in 2020 as compared to 2019. In March 2020, we decided to discontinue the CyFi-2 trial due to the urgent shift in priorities among clinical trial sites towards efforts to combat the COVID-19 pandemic, which had impacted the trial enrollment timeline and the feasibility of completing the study within the shelf-life of the then available ficlatuzumab clinical trial drug supply.
We anticipate that research and development expenses will increase in 2022, principally related to the enrollment of the TiNivo-2 Trial for the treatment of advanced refractory RCC, the manufacturing of ficlatuzumab clinical drug supply for a potential registrational clinical trial in HPV negative R/M HNSCC patients that we plan to initiate in the first half of 2023, a Phase 1b clinical trial in AV-380 in cancer patients that we plan to initiate in the second half of 2022 and the related manufacturing of AV-380 clinical drug supply, and co-funding pursuant to the NiKang Agreement for a Phase 2 clinical trial to evaluate tivozanib in combination with NKT2152 in ccRCC patients who have not responded to or relapsed from prior therapies. These increases in 2022 will be partially offset by lower costs, principally related to the TIVO-3 Trial that was closed in the second half of 2021 following the FDA’s approval of FOTIVDA on March 10, 2021. We anticipate that research and development expenses will be in the range of $60.0 million to $70.0 million in 2022 in support of our existing pipeline plans. The timing and nature of contemplated activities in 2022 will be conducted subject to the availability of sufficient financial resources.
Selling, General and Administrative Expenses (in thousands)
Years Ended December 31, 2021 / 2020 Comparison 2020 / 2019 Comparison
2021 2020 2019 $ % $ %
Selling, general and administrative expenses $ 60,814 $ 22,217 $ 11,211 $38,597
174 % $ 11,006 98%
Selling, general and administrative expenses increased by $38.6 million, or 174%, to $60.8 million in the year ended December 31, 2021 from $22.2 million in the same period in 2020. The $38.6 million increase principally included: (i) $30.4 million in commercial launch initiatives incurred in the year ended December 31, 2021 that were not incurred in the same period in 2020, including $18.0 million in connection with compensation and recruiting costs related to the growth in our commercial infrastructure, including the hiring of the sales force, and $12.4 million in connection with external commercial-launch activities in marketing, market access and commercial operations, (ii) $4.2 million in other professional fees and (iii) $4.0 million in other compensation-related costs.
Selling, general and administrative expenses increased by $11.0 million, or 98%, to $22.2 million in 2020 from $11.2 million in 2019. The $11.0 million increase was principally due to $11.2 million in total increases, including: (i) $8.5 million in commercial launch-readiness initiatives incurred in 2020 that were not incurred in 2019, including $3.1 million in compensation costs related to the growth in our commercial infrastructure and $5.4 million related to external commercial-launch readiness activities in marketing, market access and commercial operations, (ii) $2.3 million in other professional fees, and (iii) $0.4 million in other compensation-related costs. These increases were partially offset by $0.2 million in lower facility costs resulting from our corporate headquarters move in 2020 to 30 Winter Street in Boston, Massachusetts.
We anticipate that selling, general and administrative expenses associated with the commercialization of FOTIVDA, principally related to our sales force, our marketing, market access and commercial capabilities, and general and administrative support will increase in 2022, principally reflective of a full year of commercialization following the launch of FOTIVDA on March 22, 2021. We anticipate that selling, general and administrative expenses will be approximately $70.0 million, including approximately $50.0 million in commercial expenses and approximately $20.0 million in general and administrative expenses.
Change in Fair Value of Expired PIPE Warrant Liability (in thousands)
Years Ended December 31, 2021 / 2020 Comparison 2020 / 2019 Comparison
2021 2020 2019 $ % $ %
Change in fair value of expired PIPE Warrant liability $ 199 $ 4,898 11,577 $ (4,699) (96 %) $(6,679)
(58)%
In May 2016, we issued PIPE warrants, or the PIPE Warrants, in connection with a private placement financing and recorded the warrants as a liability. The PIPE Warrants were exercisable for a period of five years from the date of issuance until their scheduled expiration on May 16, 2021. The PIPE Warrants were subject to revaluation at each balance sheet date and any changes in fair value were recorded as a non-cash gain or (loss) in our Statement of Operations as a component of other income (expense).
In the year ended December 31, 2021, we recorded an approximate non-cash gain of $0.2 million in our Statement of Operations attributable to the decrease in the fair value of the PIPE Warrant liability that resulted from the expiration of the PIPE Warrants on May 16, 2021.
In the year ended December 31, 2020, we recorded an approximate non-cash gain of $4.9 million in our Statement of Operations attributable to the decrease in the fair value of the PIPE Warrant liability that resulted from a lower stock price of $5.77 on December 31, 2020 compared to the stock price of $6.20 on December 31, 2019, a decrease in our stock volatility rate and a shorter remaining term as the PIPE Warrants approach expiration in May 2021.
In the year ended December 31, 2019, we recorded an approximate non-cash gain of $11.6 million in our Statement of Operations attributable to the decrease in the fair value of the PIPE Warrant liability that principally resulted from a lower stock price of $6.20 on December 31, 2019 compared to the stock price of $16.00 on December 31, 2018.
Interest Expense, net (in thousands)
Years Ended December 31, 2021 / 2020 Comparison 2020 / 2019 Comparison
2021 2020 2019 $ % $ %
Interest expense, net $ (4,045) $ (1,605) $ (1,815) $ (2,440) 152 % $ 210 (12 %)
Interest expense, net increased by $2.4 million, or 152%, in the year ended December 31, 2021, as compared to the same period in 2020, principally due to higher loan balances under the 2020 Loan Amendment and 2021 Loan Amendment, as defined below, that were entered into with Hercules Capital Inc. and certain of its affiliates, or Hercules, on August 7, 2020 and February 1, 2021. respectively. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Hercules Loan Facility” below for a description of the 2020 Loan Amendment and 2021 Loan Amendment.
Interest expense, net decreased by $0.2 million, or 12%, in 2020 as compared to 2019. This decrease was principally due to the decrease in interest expense resulting from the paydown of principal under our 2017 Loan Agreement with Hercules and a lower interest rate that ranged from 9.45% to 9.65% in 2020 as compared to the interest rate that ranged from 9.70% to 10.2% in 2019. Principal payments to Hercules resumed during the period from August 1, 2019 through August 1, 2020.
We anticipate that interest expense, net will increase in 2022 due to the $40.0 million loan balance as of December 31, 2021 and the extended interest-only period through March 2023 pursuant to the 2020 Loan Amendment and 2021 Loan Amendment with Hercules.
Contractual Obligations and Commitments
Hercules Loan Facility
On August 7, 2020, we entered into the 2020 Loan Amendment with Hercules. The 2020 Loan Amendment provided us with the 2020 Loan Facility, an additional term loan of up to $35.0 million in four tranches to be used to refinance outstanding loans under the 2017 Loan Agreement and for general working capital purposes through the commercial launch of FOTIVDA, subject to certain terms and conditions. The 2020 Loan Facility includes (i) $15.0 million in initial funding upon execution of the 2020 Loan Amendment to retire the outstanding balance of approximately $9.7 million under the 2017 Loan Agreement and to provide approximately $5.3 million in new loan funding, and (ii) up to $20.0 million in additional loan funding following FDA approval of FOTIVDA and our net product revenues from sales of FOTIVDA, within certain time frames and subject to certain terms and conditions.
On February 1, 2021, we entered into the 2021 Loan Amendment with Hercules. The 2021 Loan Amendment increases the 2020 Loan Facility from up to $35.0 million to up to $45.0 million upon FDA approval of FOTIVDA. The 2021 Loan Amendment makes certain changes to the 2020 Loan Amendment, including, among other things, increasing the amount of Tranche Two funding for Performance Milestone I for FDA approval of FOTIVDA from $10.0 million to $20.0 million, thereby increasing the total amount of unfunded term loan commitments under the 2020 Loan Facility from $20.0 million to $30.0 million following FDA approval of FOTIVDA and our net product revenues from sales of FOTIVDA, within certain time frames and subject to certain terms and conditions. On March 8, 2022, we entered into a Loan Amendment with Hercules, or the 2022 Loan Amendment. The 2022 Loan Amendment makes the $5.0 million Tranche Four funding available upon achieving $30.0 million in trailing three-month net product revenues from sales of FOTIVDA by no later than December 15, 2022, instead of being available at the discretion of the Lenders by no later than June 30, 2022. For more information, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources -Hercules Loan Facility” below, as well as Note 6, “-Hercules Loan Facility” of the Notes to our consolidated financial statements, each included elsewhere in this Annual Report on Form 10-K.
Collaborations and License Agreements
Under our license agreement with KKC, we are required to pay tiered royalty payments on net sales we make of FOTIVDA in our North American territory, which range from the low to mid-teens as a percentage of net sales. We are also required to pay KKC 30% of certain amounts we receive from sublicensees, including upfront license fees, milestone payments and royalties, other than amounts we receive in respect of research and development funding or equity investments, subject to certain limitations. Also, under our license agreement with St. Vincent’s, we are required to make certain milestone payments upon the earlier of the achievement of specified development and regulatory milestones or a specified date for the first indication, and upon the achievement of specified development and regulatory milestones for the second and third indications. We are also obligated to pay Biogen a percentage of milestone payments received by us from future partnerships after March 28, 2016 and single digit royalty payments on net sales related to the sale of ErbB3 products, if any, up to a cumulative maximum amount of $50.0 million. In addition, we are obligated to pay Biodesix a low double digit royalty on future product sales and 25% of future licensing revenue (excluding contributions to research and development expenses), less approximately $2.5 million that Biodesix would be required to pay to us pursuant to the October 2016 amendment to the Biodesix Agreement. At this time, we cannot reasonably estimate when or if we may be required to make other additional payments to KKC, St. Vincent’s, Biogen or Biodesix. For example, we are required to make future milestone payments to St. Vincent’s, up to an aggregate total of $14.4 million, upon the earlier of the achievement of specified development and regulatory milestones or a specified date for the first indication and second indication, and upon the achievement of specified development and regulatory milestones for the third indication, for licensed therapeutic products, some of which payments may be increased by a mid to high double digit percentage rate for milestone payments made after we grant any sublicense under the license agreement, depending on the sublicensed territory. For more information, see Note 6, “-Collaborations and License Agreements” of the Notes to our consolidated financial statements, included elsewhere in this Annual Report on Form 10-K.
Winter Street Lease
On March 5, 2020, we entered into a sublease agreement for office space located at 30 Winter Street in Boston, Massachusetts, or the Winter Street Sublease. Under the terms of the Winter Street Sublease, we leased 10,158 square feet of office space for $47.00 per square foot, or approximately $0.5 million per year in base rent subject to certain operating expenses, taxes and annual base rent increases of approximately 3%. On November 17, 2021, we amended the Winter Street Sublease to reduce the square feet of office space from 10,158 square feet to 6,465 square feet. The amended Winter Street Sublease provided that (i) the security deposit of $0.3 million would be applied toward the remaining base rent payable to landlord to satisfy in full the base rent obligations through the expiration date of November 29, 2022 and (ii) the landlord would make renovations to improve the space. The term of the amended Winter Street Sublease remained the same and will continue through November 29, 2022.
Other Funding Commitments
We enter into contracts in the normal course of business with CROs for preclinical research studies and clinical trials. We have contracts with CROs for our DEDUCTIVE and TiNivo-2 trials, as well as our Phase 1b clinical trial of AV-380 in cancer patients. These contracts generally provide for termination on notice with no early termination fees. We also have a contract with a CMO for the manufacture tivozanib (FOTIVDA®) in the United States, which includes minimum annual purchase requirements in the range of $0.5 million to $1.4 million through 2028. In addition, we have a contract with a second CMO for the manufacture of clinical drug supply for ficlatuzumab and AV-380, for which we have manufacturing commitments in 2022 in the aggregate amount of approximately $9.0 million. Additionally, we have license fee obligations of up to $2.0 million due to a former CMO for ficlatuzumab drug manufacturing.
Liquidity and Capital Resources
We have financed our operations to date primarily through private placements and public offerings of our common stock, license fees, milestone, royalty payments and research and development funding from strategic partners, loan proceeds and sales revenues of our first commercial product FOTIVDA in the United States. As of December 31, 2021 we had cash, cash equivalents and marketable securities of approximately $87.3 million. See “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources -Liquidity and Going Concern” below and Note 1 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a further discussion of our liquidity. Currently, our funds are invested in a United States government money market fund.
The following table sets forth the primary sources and uses of cash for each of the periods set forth below (in thousands):
For the Years Ended December 31,
2021 2020 2019
Net cash used in operating activities $ (57,257) $ (37,983) $ (2,919)
Net cash (used in) provided by investing activities (16,866) 17,704 (17,917)
Net cash provided by financing activities 82,904 52,255 26,194
Net increase in cash and cash equivalents $ 8,781 $ 31,976 $ 5,358
Our operating activities used cash of $57.3 million, $38.0 million and $2.9 million in the years ended December 31, 2021, 2020 and 2019, respectively. Cash used in operations was principally due to our net loss adjusted for non-cash items and changes in working capital.
Our investing activities used cash of $16.9 million and $17.9 million in the years ended December 31, 2021 and 2019, respectively, and provided cash of $17.7 million in the year ended December 31, 2020, principally due to net changes in the purchases and maturities of marketable securities.
Our financing activities provided cash of $82.9 million, $52.3 million and $26.2 million in the years ended December 31, 2021, 2020 and 2019, respectively. In the year ended December 31, 2021, we raised approximately $83.1 million in funding, including approximately $51.7 million in net proceeds from the sale of approximately 6.9 million shares of our common stock in an underwritten public offering in March 2021, approximately $24.9 million in new loan funding pursuant to the 2020 Loan Amendment and 2021 Loan Amendment with Hercules, net of transaction costs, approximately $3.4 million in net proceeds from the sale of approximately 0.3 million shares of our common stock in March 2021 pursuant to our “at-the-market” sales agreement with SVB Leerink LLC, or SVB Leerink, which we refer to as the SVB Leerink Sales Agreement, and approximately $3.1 million in proceeds from the exercise of Offering Warrants. In July 2021, we paid approximately $0.8 million in an end-of-term loan payment pursuant to the December 2017 Loan Amendment with Hercules.
In the year ended December 31, 2020, we raised approximately $52.2 million, including approximately $47.7 million in net proceeds from the sale of approximately 9.7 million shares of our common stock in an underwritten public offering in June 2020 and approximately $5.1 million in new loan funding pursuant to the 2020 Loan Amendment with Hercules, net of transaction costs, and paid approximately $6.5 million in principal payments pursuant to our then December 2017 Loan Agreement with Hercules.
In 2019, we raised approximately $30.3 million in net proceeds from the issuance of our common stock, including $7.5 million in net proceeds from the sale of approximately 1.3 million shares of our common stock pursuant to the SVB Leerink Sales Agreement in February 2019 and approximately $22.8 million in net proceeds from the sale of approximately 2.2 million shares of our common stock and warrants to purchase an aggregate of 2.5 million shares of our common stock in an underwritten public offering in April 2019, offset in part by approximately $4.1 million in debt-related payments pursuant to our First Loan Agreement, including approximately $3.8 million in total principal payments during the period from August 2019 through December 2019 and a $0.3 million end-of-term fee in December 2019.
Hercules Loan Facility ($45 Million Loan Facility - $5 Million Committed Funding Remaining)
On May 28, 2010, the Company entered into a loan and security agreement, or the First Loan Agreement with Hercules. The First Loan Agreement was subsequently amended in March 2012, September 2014, May 2016 and amended and restated in December 2017, or the 2017 Loan Agreement.
On August 7, 2020, we entered into a first amendment to the 2017 Loan Agreement or the 2020 Loan Amendment, to provide us, subject to certain terms and conditions, with additional term loans in an aggregate principal amount of up to $35.0 million, or the 2020 Loan Facility, to be used to repay in full the 2017 Loan Agreement and for general working capital purposes. The 2020 Loan Facility is available to us in four tranches, the first of which, in the amount of $15.0 million, was made available to us immediately upon the closing of the 2020 Loan Amendment. We used the $15.0 million in proceeds of the first tranche as follows: approximately $9.7 million was used to repay the outstanding balance of the 2017 Loan Agreement in full, and approximately $5.3 million was used for general working capital purposes. In connection with the 2020 Loan Amendment, we incurred approximately $0.3 million in loan issuance costs paid directly to Hercules, which are accounted for as a loan discount. The 2020 Loan Amendment was accounted for as a loan modification in accordance with ASC 470-50.
The remaining $20.0 million of term loans is available to us under the 2020 Loan Facility subject to, among other terms and conditions, the achievement of the following milestones: (i) Tranche Two in the initial amount of $10.0 million was available through June 30, 2021 upon achieving Performance Milestone I for FDA approval of FOTIVDA, (ii) the third tranche, or Tranche Three, in the amount of $5.0 million, was initially available from July 1, 2021 through January 31, 2022 if we were to achieve $20.0 million in net product revenues from sales of FOTIVDA, following FDA approval, by no later than December 31, 2021, or Performance Milestone II, and (iii) the fourth tranche, or Tranche Four, in the amount of $5.0 million, was initially available through June 30, 2022 upon the achievement of both Performance Milestone I and Performance Milestone II, and upon Hercules consent to the advancement of Tranche Four.
The 2020 Loan Amendment also amended the 2017 Loan Agreement by: (i) extending maturity of the loans from July 1, 2021 until September 1, 2023, which is extendable to September 1, 2024 upon our option if the Tranche Three funding has occurred, (ii) providing for an interest-only period beginning on the closing date of 2020 Loan Amendment and ending December 31, 2021, which period may be extended through September 30, 2022 provided we achieved Performance Milestone I, and further extendable through March 31, 2023 if the Tranche Three funding has occurred, and (iii) revising the interest rate to the greater of 9.65% and an amount equal to 9.65% plus the prime rate minus 3.25% (subject to a 15% cap). Principal payments were initially scheduled to commence on October 1, 2021, at the earliest, as described above. The interest rate as of December 31, 2021 was 9.65%.
Pursuant to the terms of the 2020 Loan Facility, principal will be repaid in equal monthly installments following the conclusion of the interest-only period. We may prepay all of the outstanding principal and accrued interest under the 2020 Loan Facility, subject to a prepayment charge up to 3.0% in the first year following the closing of the 2020 Loan Amendment, decreasing to 2.0% in year two and 1.0% in year three. We are obligated to make an end-of-term payment of (i) 6.95% of the aggregate amount of loan funding received under the Loan Agreement on the earlier of the maturity of the loans or the date on which we prepay the outstanding loan balance in full, and (ii) an approximate $0.8 million payment due on the earlier of July 1, 2021 or the date on which we prepay the outstanding loan balance in full. This payment was made on July 1, 2021.
The 2020 Loan Facility includes (i) a financial covenant that we maintain minimum unrestricted cash positions of $10.0 million through the date the Second Tranche funding is received, $15.0 million through the date the Third Tranche funding is received and $10.0 million thereafter through the maturity of the Loan Agreement, and (ii) an operating covenant that we achieve greater than or equal to 75% of our forecasted net product revenues from our sales of tivozanib over a six-month trailing period, as defined and measured on a monthly basis, commencing upon the earlier to occur of (x) the Third Tranche funding and (y) the month of April 2022. The 2020 Loan Facility also includes various other affirmative and negative covenants, including covenants to deliver certain financial reports; to maintain insurance coverage; and to
refrain from transferring assets, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, and suffering a change in control, in each case subject to certain exceptions.
On February 1, 2021, we entered into the 2021 Loan Amendment. The 2021 Loan Amendment increased the aggregate principal amount of loans available under the 2020 Loan Facility from up to $35.0 million to up to $45.0 million following FDA approval of FOTIVDA. The 2021 Loan Amendment also (i) increased Tranche Two funding upon achieving Performance Milestone I from $10.0 million to $20.0 million, (ii) increased the amount of net product revenues from sales of FOTIVDA required for us to achieve Performance Milestone II from $20.0 million to $35.0 million, and changed the deadline for achieving Performance Milestone II from December 31, 2021 to April 1, 2022, and (iii) increased the amount of unrestricted cash required for us to satisfy the minimum financial covenant during the period between receiving Tranche Two funding and Tranche Three funding from $10.0 million to $15.0 million. In connection with the 2021 Loan Amendment, we incurred approximately $0.1 million in loan issuance costs paid directly to Hercules, which are accounted for as a loan discount.
On March 11, 2021, we completed the $20.0 million drawdown of Tranche Two funding under the 2021 Loan Amendment that was made available in connection with the achievement of Performance Milestone I upon FDA approval of FOTIVDA on March 10, 2021. The achievement of Performance Milestone I extended the interest-only period by twelve months from September 30, 2021 to September 30, 2022 and increased the amount of unrestricted cash required for us to satisfy the minimum financial covenant during the period between receiving Tranche Two funding and Tranche Three funding from $10.0 million to $15.0 million.
On December 22, 2021, we completed the $5.0 million drawdown of Tranche Three funding under the 2021 Loan Amendment that was made available in connection with the achievement of Performance Milestone II upon the achievement of $35.0 million in net product revenues from sales of FOTIVDA. The achievement of Performance Milestone II extended the interest-only period by six months from September 30, 2022 to March 31, 2023, extended the loan maturity by one year from September 1, 2023 to September 1, 2024 and decreased the amount of unrestricted cash required for us to satisfy the minimum financial covenant from $15.0 million to $10.0 million thereafter through the maturity of the Loan Agreement.
As of December 31, 2021, the total principal balance was $40.0 million, principal payments are scheduled to commence on April 1, 2023 and the corresponding end-of-term payments under the 2020 Loan Facility, in the aggregate amount of approximately $2.8 million, are due upon the current loan maturity date of September 1, 2024. As of December 31, 2021, $5.0 million remains available to us in committed funding under the 2020 Loan Facility for Tranche Four funding that was at our election and subject to the consent of Hercules. The unamortized discount to be recognized over the remainder of the loan period was approximately $2.0 million and $1.2 million as of December 31, 2021 and December 31, 2020, respectively. Per the 2017 Loan Agreement, the end-of-term payment of approximately $0.8 million was due and paid on July 1, 2021.
On March 8, 2022, we entered into the 2022 Loan Amendment. The 2022 Loan Amendment (i) changed the operating covenant to decrease the achievement of greater than or equal to 75% of our forecasted net product revenues from our sales of tivozanib over a six-month trailing period to 65%, as defined and measured on a monthly basis, and extended the month of commencement from April 2022 to June 2022, (ii) added a cash waiver, at our election, in the event our actual net product revenues from our sales of tivozanib over a six-month trailing period are below the monthly minimum operating covenant of 65%, such that our unrestricted cash position is equal to or greater than the then total outstanding principal under the Loan Agreement for each day of such month, (iii) changed Tranche Four funding, in the amount of $5.0 million, that was subject to the consent of Hercules to the achievement of $30.0 million in net product revenues from sales of FOTIVDA over a trailing three-month period, or Performance Milestone III, and extended the availability of Tranche Four funding from June 30, 2022 to December 15, 2022, and (iv) increased the amount of unrestricted cash required for us to satisfy the minimum financial covenant from $10.0 million to $15.0 million upon the earlier of receiving the Tranche Four funding or January 1, 2023, through the maturity of the Loan Agreement.
Obligations under the 2020 Loan Facility are secured by substantially all of our assets, excluding intellectual property. The 2020 Loan Facility provides that certain events shall constitute a default by us, including failure by us to pay amounts under the 2020 Loan Facility when due; breach or default in the performance of any covenant under the 2020 Loan Facility by us, subject to certain cure periods; our insolvency and certain other bankruptcy proceedings involving us; our default of obligations involving indebtedness in excess of $0.5 million; and the occurrence of an event or circumstance that would have a material adverse effect upon our business.
We have determined that the risk of subjective acceleration under the material adverse events clause included in the 2020 Loan Facility is remote and, therefore, have classified the outstanding principal amount in long-term liabilities based on the timing of scheduled principal payments. As of December 31, 2021, we are in compliance with all of the loan covenants and, through the date of this filing, the lenders have not asserted any events of default under the 2020 Loan Facility. We do not believe that there has been a material adverse change as defined in the 2020 Loan Facility.
Public Offering - March 2021
On March 26, 2021, we completed an underwritten public offering of 6,900,000 shares of our common stock, including the full exercise by the underwriters of their option to purchase an additional 900,000 shares, at the public offering price of $8.00 per share for gross proceeds of approximately $55.2 million. The net offering proceeds to us were approximately $51.7 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
Public Offering - June 2020
On June 19, 2020, we completed an underwritten public offering of 9,725,000 shares of our common stock, including the partial exercise by the underwriters of their option to purchase an additional 1,225,000 shares, at the public offering price of $5.25 per share for gross proceeds of approximately $51.1 million. Three stockholders each beneficially holding more than 5% of our voting securities, including an entity affiliated with New Enterprise Associates and two other stockholders purchased an aggregate of 4,503,571 shares in this offering at the same public offering price per share as the other investors. At such time, entities affiliated with New Enterprise Associates (collectively) beneficially held more than 5% of our voting securities. The net offering proceeds to us were approximately $47.7 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
Sales Agreement with SVB Leerink ($22 Million Availability Future Stock Sales)
In February 2018, we entered into the SVB Leerink Sales Agreement with SVB Leerink pursuant to which we may issue and sell shares of our common stock from time to time up to an aggregate amount of $50.0 million, at our option, through SVB Leerink as our sales agent, with any sales of common stock through SVB Leerink being made by any method that is deemed an “at-the-market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, or in other transactions. Any such shares of common stock will be sold pursuant to a prospectus supplement filed under the 2020 Shelf, as defined below. We agreed to pay SVB Leerink a commission of up to 3% of the gross proceeds of any sales of common stock pursuant to the SVB Leerink Sales Agreement. We sold 470,777 shares, 1,251,555 shares, 1,070,175 shares and 330,688 shares pursuant to the SVB Leerink Sales Agreement, resulting in approximate proceeds net of commissions of $10.3 million, $7.5 million, $5.9 million and $3.4 million in the fourth quarter of 2018, February 2019, November 2020 and March 2021, respectively. As of December 31, 2021, approximately $22.2 million was available for issuance in connection with future stock sales pursuant to the SVB Leerink Sales Agreement.
Universal Shelf Registration Statement
On November 9, 2020, we filed a shelf registration statement on Form S-3 with the SEC, which covers the offering, issuance and sale of up to $300.0 million of our common stock, preferred stock, debt securities, warrants and/or units, or the 2020 Shelf. The 2020 Shelf (File No. 333-249982) was declared effective by the SEC on November 18, 2020 and was filed to replace our then existing shelf registration statement, which was terminated. As of December 31, 2021, there was approximately $213.0 million available for future issuance of our common stock, preferred stock, debt securities, warrants and/or units.
Expired Offering Warrants from April 2019 Public Offering - Expiration Date of April 8, 2021
In April 2019, we completed an underwritten public offering of 2,173,913 shares of our common stock and warrants to purchase an aggregate of 2,500,000 shares of our common stock, which we refer to herein as the Offering Warrants, including warrants to purchase an aggregate of 326,086 shares of our common stock sold pursuant to the underwriter’s partial exercise of its overallotment option, at the public offering price of $11.40 per share and $0.10 per warrant for gross proceeds of approximately $25.0 million. The Offering Warrants were immediately exercisable upon issuance at an exercise price of $12.50 per share, subject to adjustment in certain circumstances, and expired two years from the date of issuance on April 8, 2021. Any Offering Warrants that had not been exercised for cash prior to their expiration were to be automatically exercised via cashless exercise on the expiration date. The shares and warrants were
issued separately and were separately transferable. An entity affiliated with New Enterprise Associates purchased 434,782 shares and warrants to purchase an aggregate of 434,782 shares in this offering at the same public offering price per share as the other investors. At such time, entities affiliated with New Enterprise Associates (collectively) beneficially held more than 5% of our voting securities. The net offering proceeds to us were approximately $22.8 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
In March 2021, the Offering Warrants exercisable for 247,391 shares of common stock had been exercised, for approximately $3.1 million in cash proceeds. On April 8, 2021, all of the remaining 2,252,609 Offering Warrants expired and no shares of our common stock were issued via automatic cashless exercises of unexercised Offering Warrants on the date of expiration as the $12.50 exercise price was greater than our closing stock price of $7.01 on April 8, 2021.
Expired Offering Warrants from May 2016 Private Placement - Expiration Date of May 16, 2021
In May 2016, we entered into a securities purchase agreement with a select group of qualified institutional buyers, institutional accredited investors and accredited investors pursuant to which we sold 1,764,242 units, at a price of $9.65 per unit, for gross proceeds of approximately $17.0 million. Each unit consisted of one share of our common stock and a PIPE Warrant to purchase one share of our common stock. The PIPE Warrants had an exercise price of $10.00 per share and expired five years from the date of issuance on May 16, 2021. Certain of our directors and executive officers purchased an aggregate of 54,402 units in this offering at the same price as the other investors. The net offering proceeds to us were approximately $15.4 million after deducting placement agent fees and other offering expenses payable by us. PIPE Warrants exercisable for 80,309 shares of common stock had been exercised for approximately $0.8 million in cash proceeds and all of the 1,683,933 PIPE Warrants that remained outstanding on May 16, 2021 expired.
Liquidity and Going Concern
We have devoted substantially all of our resources to our drug development efforts, comprised of research and development, manufacturing, conducting clinical trials for our product candidates, protecting our intellectual property and general and administrative functions relating to these operations. Our future success is dependent on our ability to commercialize FOTIVDA in the United States and develop our clinical stage assets and, ultimately, upon our ability to create shareholder value.
On March 10, 2021, the FDA approved FOTIVDA in the United States for the treatment of adult patients with relapsed or refractory advanced RCC following two or more prior systemic therapies. We anticipate that we will continue to incur significant operating expenses for the foreseeable future as we commercialize FOTIVDA in the United States and continue our planned development activities for our clinical and preclinical stage assets. Our future product revenues will depend upon the size of markets in which FOTIVDA, and any future products, have received approval, and our ability to achieve sufficient market acceptance, reimbursement from third-party payers and adequate market share for FOTIVDA and any future products in those markets. The likelihood of our long-term success must be considered in light of the expenses, difficulties and potential delays that may be encountered in the development and commercialization of new pharmaceutical products, competitive factors in the marketplace and the complex regulatory environment in which we operate. Absent the realization of sufficient revenues from product sales to support our cost structure, we may never attain or sustain profitability. We may require substantial additional funding to continue to advance our pipeline of clinical and preclinical stage assets, and the timing and nature of these activities will be conducted subject to the availability of sufficient financial resources, principally product sales of FOTIVDA in the United States.
During the year ended December 31, 2021, we received an aggregate of approximately $116.6 million in funding, including approximately $58.2 million in equity funding, approximately $24.9 million in net loan funding from Hercules, approximately $31.7 million in cash receipts from the product sales of FOTIVDA in the United States and approximately $1.8 million in partnership cost sharing payments.
The approximate $58.2 million in equity funding included the $51.7 million in net proceeds from the sale of approximately 6.9 million shares of our common stock in an underwritten public offering in March 2021, approximately $3.4 million in net proceeds from the sale of approximately 0.3 million shares of our common stock in March 2021 pursuant to our SVB Leerink Sales Agreement, and approximately $3.1 million in proceeds from the exercise of Offering Warrants.
The approximate $24.9 million in net loan funding from Hercules included $25.0 million in new loan funding pursuant to the 2020 Loan Amendment and 2021 Loan Amendment upon FDA approval of FOTIVDA and upon
achievement of $35.0 million in net product revenues from sales of FOTIVDA, net of payments of approximately $0.1 million in transaction costs related to the 2021 Loan Amendment.
We believe that our $87.3 million in cash, cash equivalents and marketable securities as of December 31, 2021, along with net product revenues from product sales of FOTIVDA in the United States, would enable us to maintain our current operations for more than 12 months following the filing of this Annual Report on Form 10-K.
In 2022, we anticipate FOTIVDA net product revenues will be in the range of $100.0 million to $110.0 million. In 2022, we anticipate that research and development expenses will be in the range of $60.0 million to $70.0 million and selling, general and administrative expenses will be approximately $70.0 million, including approximately $50.0 million in commercial expenses and approximately $20.0 million in general and administrative expenses. We anticipate that gross margins will continue to be in the mid-to-high 80th percentile in 2022.
However, there are numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, including, without limitation, risks related to our ability to generate product revenue from sales of FOTIVDA in the United States, which became commercially available in the United States on March 22, 2021. Accordingly, our future funding requirements may vary from our current expectations and will depend on many factors, including, but not limited to:
•the cost of commercialization activities of FOTIVDA in the United States and any of our product candidates that may be approved for sale, including marketing, sales and distribution costs;
•the cost of manufacturing FOTIVDA in the United States, our product candidates and any additional products we may successfully commercialize;
•the impact of COVID-19 on our operations, business and prospects;
•our ability to establish and maintain strategic partnerships, licensing or other arrangements and the financial terms of such agreements;
•the number and characteristics of the product candidates we pursue;
•the scope, progress, results and costs of researching and developing our product candidates, and of conducting preclinical and clinical trials;
•the timing of, and the costs involved in, completing our clinical trials and obtaining regulatory approvals for our product candidates;
•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
•the absence of any breach, acceleration event or event of default under our 2020 Loan Facility, or under any other agreements with third parties;
•the cost and outcome of any legal actions against us;
•the timing, receipt and amount of sales of, or royalties on, tivozanib and our future products, if any; and
•general economic, industry and market conditions.
We may require substantial additional funding to continue to advance our pipeline of clinical and preclinical stage assets. We may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity or convertible debt securities may result in additional dilution to our stockholders. If we raise additional funds through the issuance of debt securities or preferred stock or through additional credit facilities, these securities and/or the loans under credit facilities could provide for rights senior to those of our common stock and could contain covenants that would restrict our operations. Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. For example, we may never achieve the milestone specified in the 2020 Loan Facility that would allow us to access the remaining $5.0 million in available credit. We also expect to seek additional funds through arrangements with collaborators, licensees or other third parties. These arrangements would generally require us to relinquish or encumber rights to some of our technologies or product candidates, and we may not be able to enter into such arrangements on acceptable terms, if at all. If we are unable to raise substantial additional funding to advance our pipeline of clinical and preclinical stage assets, whether on terms that are acceptable to us, or at all or if we were to default under the 2020 Loan
Facility, and Hercules accelerated the then remaining principal payments and fees due under the loan, then we may be required to:
•delay, limit, reduce or terminate our clinical trials, preclinical studies or other development activities for one or more of our product candidates; and/or
•delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates, if approved.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required under this Item 7A.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. Financial Statements and Supplementary Data
AVEO PHARMACEUTICALS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2021, 2020 and 2019
Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019
Notes to Consolidated Financial Statements 111
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of AVEO Pharmaceuticals, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of AVEO Pharmaceuticals, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholder’s equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated” financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 14, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Product discounts and allowances
Description of the Matter
As discussed in Note 3 to the consolidated financial statements, the Company recognizes revenues at its net sales price, which includes estimates of variable consideration for which reserves are established primarily from discounts, chargebacks, rebates, co-pay assistance, returns and other allowances. The calculation of reserves for chargebacks and rebates involves subjective management assumptions. Reserves for product sales discounts and allowances, which include reserves for customer chargebacks and rebates, totaled $2.4 million and were recorded as reductions to trade receivables or accrued expenses as of December 31, 2021, depending on the nature of the contract and the related settlement.
Auditing the Company’s measurement of reserves for customer chargebacks and rebates was complex and judgmental because the estimates involve subjective management assumptions about product arrangements and the end users of the drug at the time of distribution. The reductions to gross product revenue are sensitive to changes in these assumptions. As FOTIVDA is the Company’s first commercial product, the Company does not have the historical experience to make those estimates and relies on industry data and any known trends in making this estimate.
How we addressed the
matter in our audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls that addressed the identified risks related to the Company’s process for recording the reserves for customer chargebacks and rebates. For example, we tested controls over management’s review of the various customer chargeback and rebate calculations, the significant assumptions about the percentage of discounts applied, and the completeness and accuracy of the data used in the calculation and estimates.
To test the Company's reserves for customer chargebacks and rebates, our audit procedures included, among others, assessing the methodologies used to determine the reserves and testing the significant assumptions discussed above, including the underlying data used in developing the significant assumptions. We evaluated management’s significant assumptions by (i) comparing the assumptions used to calculate the reserves to external data (ii) testing contracted rates and payment data, (iii) evaluating the sensitivity of the estimated discounts and allowances calculations based on changes in the significant assumptions, (iv) comparing the actual results to previous estimates, and (v) assessing information subsequent to the balance sheet date to determine whether there were any new information that would require adjustment.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2003.
Boston, Massachusetts
March 14, 2022
AVEO PHARMACEUTICALS, INC.
Consolidated Balance Sheets
(In thousands, except par value amounts)
December 31,
2021 December 31,
Assets
Current assets:
Cash and cash equivalents $ 70,542 $ 61,761
Marketable securities 16,784 -
Trade receivables, net 9,811 -
Partnership receivables 1,790 1,197
Inventory 1,656 -
Clinical trial retainers 1,181 355
Other prepaid expenses and other current assets 2,972 2,195
Total current assets 104,736 65,508
Property and equipment, net 276 343
Operating lease right-of-use asset 178 903
Other assets 151 158
Total assets $ 105,341 $ 66,912
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 2,712 $ 3,380
Accrued clinical trial costs and contract research 5,046 4,550
Accrued compensation and benefits 4,963 3,082
Other accrued liabilities 5,421 1,381
Operating lease liability 11 369
Loans payable, net of discount - 1,056
Deferred revenue 578 1,974
Deferred research and development reimbursements - 164
PIPE Warrant liability - 199
Other liabilities (Note 6) - 790
Total current liabilities 18,731 16,945
Loans payable, net of current portion and discount 37,960 12,716
Deferred revenue, non-current - 578
Operating lease liability, non-current - 336
Other liabilities, non-current (Note 6) 2,780 1,043
Total liabilities 59,471 31,618
Stockholders’ equity:
Preferred stock, $.001 par value: 5,000 shares authorized at December 31, 2021 and December 31, 2020; no shares issued and outstanding at each of December 31, 2021 and December 31, 2020
- -
Common stock, $.001 par value: 50,000 shares authorized at December 31, 2021 and December 31, 2020; 34,475 shares issued and outstanding at December 31, 2021 and 26,883 issued and outstanding at December 31, 2020
34 27
Additional paid-in capital 720,386 656,472
Accumulated other comprehensive loss (3) -
Accumulated deficit (674,547) (621,205)
Total stockholders’ equity 45,870 35,294
Total liabilities and stockholders’ equity $ 105,341 $ 66,912
See accompanying notes.
AVEO PHARMACEUTICALS, INC.
Consolidated Statements of Operations
(In thousands, except per share amounts)
Years Ended December 31,
2021 2020 2019
Revenues:
FOTIVDA U.S. product revenue, net $ 38,874 $ - $ -
Partnership licensing and royalty revenue 3,421 6,019 28,795
42,295 6,019 28,795
Operating expenses:
Cost of products sold 4,737 - -
Research and development 26,298 22,679 17,958
Selling, general and administrative 60,814 22,217 11,211
91,849 44,896 29,169
Loss from operations (49,554) (38,877) (374)
Other income (expense), net:
Interest expense, net (4,045) (1,605) (1,815)
Change in fair value of PIPE Warrant liability 199 4,898 11,577
Other income 58 - -
(3,788) 3,293 9,762
Net income (loss) $ (53,342) $ (35,584) $ 9,388
Basic net income (loss) per share
Net income (loss) per share $ (1.63) $ (1.66) $ 0.61
Weighted average number of common shares outstanding 32,661 21,402 15,331
Diluted net income (loss) per share
Net income (loss) per share $ (1.63) $ (1.66) $ 0.61
Weighted average number of diluted shares outstanding 32,661 21,402 15,376
See accompanying notes.
AVEO PHARMACEUTICALS, INC.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Years Ended December 31,
2021 2020 2019
Net income (loss) $ (53,342) $ (35,584) $ 9,388
Other comprehensive loss:
Unrealized loss on available-for-sale securities (3) - (1)
Comprehensive income (loss) $ (53,345) $ (35,584) $ 9,387
See accompanying notes.
AVEO PHARMACEUTICALS, INC.
Consolidated Statements of Stockholders’ Equity
(In thousands)
Common Shares Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
Stockholders'
Equity
Shares Par Value
Balance at December 31, 2018 12,648 $ 13 $ 567,768 $ 1 $ (595,009) $ (27,227)
Issuance of common stock and warrants in a public offering, excluding to related parties (net of issuance costs of $2.2 million)
1,739 2 17,765 - - 17,767
Issuance of common stock and warrants in a public offering, to related parties 435 - 5,000 - - 5,000
Issuance of common stock from the SVB Leerink sales agreement (net of issuance costs of $0.2 million)
1,251 1 7,511 - - 7,512
Stock-based compensation expense related to equity- classified awards - - 2,358 - - 2,358
Exercise of stock options 8 - 49 - - 49
Change in unrealized gain (loss) on investments - - - (1) - (1)
Net income - - - - 9,388 9,388
Balance at December 31, 2019 16,081 $ 16 $ 600,451 $ - $ (585,621) $ 14,846
Issuance of common stock in a public offering, excluding to related parties (net of issuance costs of $3.4 million)
5,221 5 24,074 - - 24,079
Issuance of common stock in a public offering, to related parties 4,504 5 23,639 - - 23,644
Issuance of common stock from the SVB Leerink sales agreement (net of issuance costs of $0.2 million)
1,070 1 5,916 - - 5,917
Stock-based compensation expense related to equity- classified awards - - 2,355 - - 2,355
Exercise of stock options 1 - 5 - - 5
Issuance of common stock under employee stock purchase plan 6 - 32 - - 32
Net loss - - - - (35,584) (35,584)
Balance at December 31, 2020 26,883 $ 27 $ 656,472 $ - $ (621,205) $ 35,294
Issuance of common stock in a public offering (net of issuance costs of $3.5 million)
6,900 7 51,711 - - 51,718
Issuance of common stock from the SVB Leerink sales agreement (net of issuance costs of $0.1 million)
331 - 3,377 - - 3,377
Issuance of common stock in connection with warrant exercises 247 - 3,092 - - 3,092
Issuance of common stock under employee stock purchase plan 112 - 577 - - 577
Exercise of stock options 2 15 15
Stock-based compensation expense related to equity-classified awards - - 5,142 - - 5,142
Unrealized gain or (loss) on available-for-sale investments - - - (3) - (3)
Net loss - - - - (53,342) (53,342)
Balance at December 31, 2021 34,475 $ 34 $ 720,386 $ (3) $ (674,547) $ 45,870
See accompanying notes.
AVEO PHARMACEUTICALS, INC.
Consolidated Statements of Cash Flows
(In thousands)
For the Years Ended December 31,
2021 2020 2019
Operating activities
Net income (loss) $ (53,342) $ (35,584) $ 9,388
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 67 21 -
Stock-based compensation 5,142 2,355 2,358
Non-cash interest expense 1,010 469 567
Non-cash change in fair value of PIPE Warrant liability (199) (4,898) (11,577)
Amortization of premium and discount on investments 78 (106) (44)
Changes in operating assets and liabilities:
Trade receivables, net (9,811) - -
Partnership receivables (593) 433 1,395
Inventory (1,656) - -
Prepaid expenses and other current assets (1,603) (1,326) (742)
Operating lease right-of-use asset 832 (1,060) -
Other non-current assets (100) - -
Accounts payable (667) 1,914 (2,033)
Accrued clinical trial costs and contract research 496 (1,130) (574)
Accrued compensation and benefits 1,881 1,798 238
Other accrued liabilities 4,040 329 (600)
Operating lease liability (358) 369 -
Deferred revenue (1,974) (1,974) (934)
Deferred research and development reimbursements (164) 71 (361)
Operating lease liability, non-current (336) 336 -
Net cash used in operating activities (57,257) (37,983) (2,919)
Investing activities
Purchases of marketable securities (28,166) (36,133) (17,917)
Proceeds from maturities and sales of marketable securities 11,300 54,200 -
Purchases of property and equipment - (363) -
Net cash (used in) provided by investing activities (16,866) 17,704 (17,917)
Financing activities
Proceeds from issuance of common stock, net of issuance costs 55,095 29,996 25,279
Proceeds from issuance of common stock and warrants to related parties - 23,644 5,000
Proceeds from warrant exercises 3,092 - -
Proceeds from issuance of stock for stock-based compensation arrangements 592 38 49
Proceeds from issuance of loan payable 25,000 5,329 -
Payment on principal of loan payable (Note 6) - (6,497) (3,834)
Payment of loan maturity fees (Note 6) (790) - (300)
Payment of debt issuance costs (85) (255) -
Net cash provided by financing activities 82,904 52,255 26,194
Net increase in cash and cash equivalents 8,781 31,976 5,358
Cash and cash equivalents at beginning of period 61,761 29,785 24,427
Cash and cash equivalents at end of period $ 70,542 $ 61,761 $ 29,785
Supplemental cash flow information
Cash paid for interest $ 2,888 $ 1,337 $ 1,971
Right-of-use asset obtained in exchange for operating lease liabilities $ - $ 1,225 $ -
See accompanying notes.
AVEO Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements
December 31, 2021
(1) Organization
AVEO Pharmaceuticals, Inc. (the “Company”) is a commercial stage, oncology-focused biopharmaceutical company committed to delivering medicines that provide a better life for patients with cancer. The Company currently markets FOTIVDA® (tivozanib) in the United States. FOTIVDA is the Company's first commercial product and was approved by the U.S. Food and Drug Administration ("FDA") for marketing and sale in the United States on March 10, 2021 for the treatment of adult patients with relapsed or refractory advanced renal cell carcinoma (“RCC”) following two or more prior systemic therapies. The Company continues to develop tivozanib in immuno-oncology combinations in RCC and other indications, and the Company has other investigational programs in clinical development.
FOTIVDA is an oral, next-generation vascular endothelial growth factor receptor (“VEGFR”) tyrosine kinase inhibitor (“TKI”). The FDA approval of FOTIVDA is based on the Company’s pivotal Phase 3 randomized, controlled, multi-center, open-label clinical trial comparing tivozanib to an approved therapy, Nexavar® (sorafenib), in RCC patients whose disease had relapsed or become refractory to two or three prior systemic therapies, which the Company refers to as the TIVO-3 trial. The approval is also supported by three additional trials in RCC and includes safety data from over 1,000 clinical trial subjects.
FOTIVDA became commercially available in the United States on March 22, 2021 and is available to patients through a network of specialty pharmacies and distributors. The Company commercializes FOTIVDA in the United States through the support of approximately 65 field-based employees, which includes approximately 50 oncology sales professionals. The field sales force is supported by the AVEO ACE Patient Support program, which is an extensive patient and healthcare provider support program designed to optimize patient access and help patients navigate their treatment journey. To date, the Company believes it has been very successful in securing payor coverage. Furthermore, the NCCN Clinical Practices Guidelines in Oncology ("NCCN Guidelines") recommended FOTIVDA as a subsequent therapy for patients with relapsed or refractory advanced RCC with clear cell histology who received two or more prior systemic therapies.
Based on FOTIVDA’s demonstrated anti-tumor activity, tolerability profile and reduction of regulatory T-cell production, the Company and its collaboration partners are is developing tivozanib in additional cancer indications with significant unmet medical needs including, hepatocellular carcinoma (“HCC”), and tumors that are resistant to immunotherapy, or immunologically cold tumors, in combination with immune checkpoint inhibitors ("ICIs"). In addition, the Company is evaluating tivozanib as a monotherapy in ovarian cancer and cholangiocarcinoma ("CCA"). The Company and the Company's collaboration partners or independent investigators sponsor the development of tivozanib through preclinical studies and clinical trials conducted under collaboration agreements and investigator sponsored trial ("IST") agreements or the Company's Cooperative Research and Development Agreement ("CRADA") with the National Cancer Institute’s Surgical Oncology Program ("NCI-SOP").
The Company is also seeking to advance its pipeline of four wholly owned immunoglobulin G1 (“IgG1”) monoclonal antibody product candidates, ficlatuzumab, AV-380, AV-203 and AV-353. The Company aims to leverage its existing collaborations and partnerships and enter into new strategic collaborations and partnerships to continue to advance each of its product candidates.
As used throughout these consolidated financial statements, the terms “AVEO,” and the “Company” refer to the business of AVEO Pharmaceuticals, Inc. and its three wholly owned subsidiaries, AVEO Pharma Limited, AVEO Pharma (Ireland) Limited and AVEO Securities Corporation.
Liquidity and Going Concern
In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. The Company’s financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities
in the ordinary course of business. Through December 31, 2021, the Company has financed its operations primarily through private placements and public offerings of its common stock, license fees, milestone payments and research and development funding from strategic partners, FOTIVDA commercial sales receipts and debt facilities. The Company has devoted substantially all of its resources to its drug development efforts, comprising research and development, manufacturing, conducting clinical trials for its product candidates, commercializing FOTIVDA, protecting its intellectual property and general and administrative functions relating to these operations.
The future success of the Company is dependent on its ability to commercialize FOTIVDA in the United States and to develop its portfolio assets and, ultimately, upon the Company’s ability to create shareholder value. On March 10, 2021, the FDA approved FOTIVDA in the United States for the treatment of adult patients with relapsed or refractory advanced RCC following two or more prior systemic therapies. The Company’s future product revenues will depend upon the size of markets in which FOTIVDA, and any future products, have received approval, and its ability to achieve sufficient market acceptance, reimbursement from third-party payors and adequate market share for FOTIVDA and any future products in those markets. The likelihood of the Company’s long-term success must be considered in light of the expenses, difficulties and potential delays that may be encountered in the development and commercialization of new pharmaceutical products, competitive factors in the marketplace and the complex regulatory environment in which the Company operates. Absent the realization of sufficient revenues from product sales to support the Company’s cost structure, the Company may never attain or sustain profitability.
The Company has incurred recurring losses and cash outflows from operations since its inception, including an accumulated deficit of $674.5 million as of December 31, 2021. The Company anticipates that it will continue to incur significant operating expenses for the foreseeable future as it commercializes FOTIVDA in the United States and continues its planned development activities for its clinical and preclinical stage assets. The Company may require substantial additional funding to continue to advance its pipeline of clinical and preclinical stage assets, and the timing and nature of these activities will be conducted subject to the availability of sufficient financial resources, principally product sales of FOTIVDA in the United States.
As of March 14, 2022, the date of issuance of these consolidated financial statements, the Company expects that its cash, cash equivalents and marketable securities of $87.3 million as of December 31, 2021, along with net product revenues from product sales of FOTIVDA in the United States, will be sufficient to fund its current operations for more than twelve months from the date of filing this Annual Report on Form 10-K.
Management’s expectations with respect to its ability to fund current planned operations is based on estimates that are subject to risks and uncertainties, including, without limitation, risks related to its ability to generate product revenue from sales of FOTIVDA in the United States, which became commercially available in the United States on March 22, 2021. If actual results are different from management’s estimates, the Company may need to seek additional strategic or financing opportunities sooner than would otherwise be expected. However, there is no guarantee that any of these strategic or financing opportunities would be executed or executed on favorable terms, and some could be dilutive to existing stockholders. If the Company is unable to obtain additional funding on a timely basis, it may be forced to significantly curtail, delay or discontinue one or more of its planned research or development programs or be unable to expand its operations or otherwise capitalize on its commercialization of its product and product candidates.
(2) Basis of Presentation
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, AVEO Pharma Limited, AVEO Pharma (Ireland) Limited and AVEO Securities Corporation. The Company has eliminated all significant intercompany accounts and transactions in consolidation.
(3) Significant Accounting Policies
Revenue Recognition
Under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, the Company recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration which the Company determines it 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: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the Company satisfies its performance obligation(s). As part of the
accounting for these arrangements, the Company must make significant judgments, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each performance obligation.
Net Product Revenue
On March 10, 2021, the FDA approved FOTIVDA in the United States for the treatment of adult patients with relapsed or refractory advanced RCC after two prior systemic therapies. FOTIVDA became commercially available on March 22, 2021. FOTIVDA is the Company’s first commercial product. The Company sells its products principally through a limited distribution network comprised of two specialty pharmacies, Biologics and Onco360, and the following specialty distributors: Amerisource Specialty Distribution, Oncology Supply, McKesson Plasma and Biologics, McKesson Specialty and Cardinal Specialty (collectively with the specialty pharmacies, the "Customers" and each a "Customer"). These Customers subsequently resell the Company’s products to health care providers and patients. In addition to distribution agreements with Customers, the Company enters into arrangements with health care providers and payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect to the purchase of the Company’s products. Revenues from product sales are recognized when the Customer obtains control of the Company’s product, which occurs at a point in time, typically upon delivery to the Customer.
Product Sales Discounts and Allowances
The Company records revenues from product sales at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established primarily from discounts, chargebacks, rebates, co-pay assistance, returns and other allowances that are offered within contracts between the Company and its Customers, health care providers, payors and other indirect customers relating to the sales of its products. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of trade receivables (if the amount is deductible by the Customer from payments to the Company) or a current liability (if the amount is payable by the Company to a third party or Customer). Where appropriate, these estimates take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, forecasted Customer buying and payment patterns, and the Company’s historical experience that will develop over time as FOTIVDA is the Company’s first commercial product. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of its contracts. The amount of variable consideration that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenues and earnings in the period such variances become known.
Chargebacks: Chargebacks are discounts that occur when contracted customers purchase directly from a specialty distributor. Contracted customers, which currently consist primarily of Public Health Service institutions, Federal government entities purchasing via the Federal Supply Schedule, Group Purchasing Organizations and health maintenance organizations, generally purchase the product at a discounted price. The specialty distributor, in turn, charges back to the Company the difference between the price initially paid by the specialty distributor and the discounted price paid to the specialty distributor by its contracted customer. The allowance for chargebacks is based on actual chargebacks received and an estimate of sales by the specialty distributor to its contracted customers.
Discounts for Prompt Payment: The Customers receive a discount of 2% for prompt payment. The Company expects its Customers will earn 100% of their prompt payment discounts and, therefore, the Company deducts the full amount of these discounts from total product sales when revenues are recognized.
Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program, Medicare Part D Coverage Gap Discounts Program, other government programs and commercial contracts. Rebate amounts owed after the final dispensing of the product to a benefit plan participant are based upon contractual agreements or legal requirements with public sector benefit providers, such as Medicaid. In addition, in the United States during 2020, the Medicare Part D prescription drug benefit mandated participating manufacturers to fund 70% of the Medicare Part D insurance coverage gap for prescription drugs sold to eligible patients. The allowance for rebates is based on statutory or contractual discount rates and expected utilization. The Company’s estimates for the expected utilization of rebates are based on Customer and payer data received from the specialty pharmacies and distributors and historical utilization rates that will develop over time as FOTIVDA is the Company’s first commercial product. Rebates are generally invoiced by the
payor and paid in arrears, such that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s shipments to the Customers, plus an accrual balance for known prior quarters’ unpaid rebates. If actual future rebates vary from estimates, the Company may need to adjust its accruals, which would affect net product revenues in the period of adjustment.
Co-payment Assistance: Patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance. The Company accrues a liability for co-payment assistance based on actual program participation and estimates of program redemption using Customer data provided by the third party that administers the copay program.
Other Customer Credits: The Company pays fees to its Customers for account management, data management and other administrative services. To the extent the services received are distinct from the sale of products to its Customers, the Company classifies these payments in selling, general and administrative expenses in its Consolidated Statements of Income.
The following table summarizes net product revenues for FOTIVDA in the United States earned in the years ended December 31, 2021, 2020 and 2019, respectively (in thousands):
Years Ended
December 31,
2021 2020 2019
Product revenues:
Gross product revenues $ 45,668 $ - $ -
Discounts and allowances (6,794) - -
Net product revenues $ 38,874 $ - $ -
The following table summarizes the percentage of total product revenues for FOTIVDA in the United States by any Customer who individually accounted for 10% or more of total product revenues earned in the years ended December 31, 2021, 2020 and 2019, respectively:
Years Ended
December 31,
2021 2020 2019
OncoMed Specialty, LLC (Onco360) 22 % - -
Affiliates of McKesson Corporation 42 % - -
Affiliates of AmerisourceBergen Corporation 27 % - -
Product Sales Discounts and Allowances
The activities and ending allowance balances for each significant category of discounts and allowances for FOTIVDA (which constitute variable consideration) for the year ended December 31, 2021 were as follows (in thousands):
Chargebacks, Discounts for
Prompt Pay and Other Allowances Rebates, Customer Fees / Credits
and Co-Pay Assistance Totals
Balance at December 31, 2020
$ - $ - $ -
Provision related to sales made in:
Current period 4,196 2,598 6,794
Prior periods - - -
Payments and customer credits issued (3,003) (1,428) (4,431)
Balance at December 31, 2021
$ 1,193 $ 1,170 $ 2,363
The allowances for chargebacks, discounts for prompt payment and other allowances are recorded as a reduction of trade receivables, net, and the remaining reserves are recorded as rebates and fees due to customers in other current accrued liabilities in the accompanying Consolidated Balance Sheets.
Collaboration Revenues
The Company’s historical revenues have been generated primarily through collaborative research, development and commercialization agreements. The terms of these agreements generally contain multiple promised goods and services, which may include (i) licenses, or options to obtain licenses, to the Company’s technology, (ii) research and development activities to be performed on behalf of the collaborative partner and (iii) in certain cases, services in connection with the manufacturing of preclinical and clinical material. Payments to the Company under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; milestone payments; and royalties on future product sales.
Collaboration Arrangements Within the Scope of ASC 808, Collaborative Arrangements
The Company analyzes its collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and are therefore within the scope of ASC Topic 808, Collaborative Arrangements (“ASC 808”). This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements that are deemed to be within the scope of ASC 808, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and therefore within the scope of ASC 606. The Company’s policy is generally to recognize amounts received from collaborators in connection with joint operating activities that are within the scope of ASC 808 as a reduction in research and development expense.
Arrangements Within the Scope of ASC 606, Revenue from Contracts with Customers
Once a contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within the contract and determines those that are performance obligations. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations. The exercise of a material right is accounted for as a contract modification for accounting purposes.
The Company assesses whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (that is, the good or service is capable of being distinct) and (ii) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (that is, the promise to transfer the good or service is distinct within the context of the contract). In assessing whether a promised good or service is distinct, the Company considers factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. The Company also considers the intended benefit of the contract in assessing whether a promised good or service is separately identifiable from other promises in the contract. If a promised good or service is not distinct, an entity is required to combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct.
The transaction price is then determined and allocated to the identified performance obligations in proportion to their standalone selling prices (“SSP”) on a relative SSP basis. SSP are determined at contract inception and are not updated to reflect changes between contract inception and when the performance obligations are satisfied. Determining SSP for performance obligations requires significant judgment. In developing SSP for a performance obligation, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. The Company validates SSP for performance obligations by evaluating whether changes in the key assumptions used to determine SSP will have a significant effect on the allocation of arrangement consideration between multiple performance obligations.
If the consideration promised in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the promised goods or services to a customer. The Company determines the amount of variable consideration by using the expected value method or the most likely amount method. The Company includes the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.
In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if the timing of payments provides the Company with a significant benefit of financing. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less. The Company assessed each of its revenue generating arrangements in order to determine whether a significant financing component exists and concluded that a significant financing component does not exist in any of its arrangements.
The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time based on the use of an output or input method.
Licenses of Intellectual Property: The terms of the Company’s license agreements include the license of functional intellectual property, given the functionality of the intellectual property is not expected to change substantially as a result of the Company’s ongoing activities. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from the portion of the transaction price allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises (that is, for licenses that are not distinct from other promised goods and services in an arrangement), the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Research and Development Funding: Arrangements that include payment for research and development services are generally considered to have variable consideration. If and when the Company assesses the payment for these services is no longer subject to the constraint on variable consideration, the related revenue is included in the transaction price.
Milestone payments: At the inception of each arrangement that includes non-refundable payments for contingent milestones, including preclinical research and development, clinical development and regulatory, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each reporting period, the Company re-evaluates the probability of the achievement of contingent milestones and the likelihood of a significant reversal of such milestone revenue, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration and licensing revenue in the period of adjustment. This quarterly assessment may result in the recognition of revenue related to a contingent milestone payment before the milestone event has been achieved.
Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
The following table summarizes the total collaboration revenues earned in the years ended December 31, 2021, 2020 and 2019, respectively, by partner (in thousands). Refer to Note 4, “Collaborations and License Agreements” regarding specific details.
Years Ended
December 31,
2021 2020 2019
EUSA $ 3,421 $ 3,219 $ 3,795
KKC - 2,800 25,000
Total $ 3,421 $ 6,019 $ 28,795
Trade Receivables
Trade receivables, net, includes amounts billed to Customers for product sales of FOTIVDA. The Company records trade receivables net of chargebacks, cash discounts for prompt payment and any allowances for credit losses. The Company considers its historical losses, if any, adjusted to account for current conditions, and reasonable and supportable forecasts of future economic conditions affecting its customers to estimate credit losses. The Customers are specialty pharmacies and specialty distributors, and accordingly, the Company considers the risk of potential credit losses to be low.
Cost of Products Sold
Cost of products sold is related to the Company's product revenues for FOTIVDA and consists primarily of tiered royalty payments the Company is required to pay to Kyowa Kirin Co. (“KKC”) on all net sales of tivozanib in the Company’s North American territory, which range from the low to mid-teens as a percentage of net sales. Refer to Note 4, “Collaborations and License Agreements” regarding specific details. Cost of products sold also consists of shipping and other third-party logistics and distribution costs for the Company’s products. The Company considered regulatory approval of its product candidate to be uncertain and product manufactured prior to regulatory approval could not have been sold unless regulatory approval was obtained. As such, the manufacturing costs for FOTIVDA incurred prior to regulatory approval were not capitalized as inventory, but were expensed as research and development costs. In 2021, the Company conducted resupply manufacturing of tivozanib in connection with upcoming drug expirations beginning in the fourth quarter of 2022. As of December 31, 2021, the Company capitalized approximately $1.7 million of manufacturing costs as Inventory on the Consolidated Balance Sheet, all of which was classified as work in process.
Research and Development Expenses
Research and development expenses are charged to expense as incurred. Research and development expenses consist of costs incurred in performing research and development activities, including (i) internal costs for salaries, bonuses, benefits, stock-based compensation, research-related overhead and allocated expenses for facilities and information technology, and (ii) external costs for clinical trials, drug manufacturing and distribution, preclinical studies, upfront license payments, milestones and sublicense fees related to in-licensed products and technology, consultants and other contracted services.
Expired Warrants Issued in Connection with Private Placement - Expiration Date of May 16, 2021
In May 2016, the Company issued warrants to purchase an aggregate of 1,764,242 shares of common stock in connection with a private placement financing and recorded the warrants as a liability (the “PIPE Warrants”). The remaining 1,683,933 PIPE Warrants expired on May 16, 2021, as scheduled five years from the date of issuance. The Company accounts for warrant instruments that either conditionally or unconditionally obligate the issuer to transfer assets as liabilities regardless of the timing of the redemption feature or price, even though the underlying shares may be classified as permanent or temporary equity. Refer to Note 7, “Common Stock-Private Placement - May 2016” for further discussion of the private placement financing.
The PIPE Warrants contained a provision giving the warrant holder the option to receive cash, equal to the fair value of the remaining unexercised portion of the warrant, as cash settlement in the event that there had been a fundamental transaction (contractually defined to include various merger, acquisition or stock transfer activities). Due to this provision, ASC 480, Distinguishing Liabilities from Equity required that these warrants be classified as a liability and not as equity. Accordingly, the Company recorded a warrant liability in the amount of approximately $9.3 million upon issuance of the
PIPE Warrants. The fair value of these warrants had been determined using the Black-Scholes pricing model. These warrants were subject to revaluation at each balance sheet date and any changes in fair value were recorded as a non-cash gain or (loss) in the Statement of Operations as a component of other income (expense), net until the expiration of the warrants.
The Company recorded a non-cash gain of approximately $0.2 million in the year ended December 31, 2021, in its Statement of Operations attributable to the decrease in fair value of the warrant liability that resulted from the expiration of the PIPE Warrants on May 16, 2021.
The Company recorded a non-cash gain of approximately $3.1 million in the year ended December 31, 2020, in its Statement of Operations attributable to the decreases in the fair value of the warrant liability that resulted from changes in the Company’s stock price as of December 31, 2020 relative to prior periods, decreases in the Company’s stock volatility rate and a shorter remaining term as the PIPE Warrants approached their expiration in May 2021. No PIPE Warrants were exercised during the years ended December 31, 2021 and 2020.
The following table rolls forward the fair value of the Company’s PIPE Warrant liability, the fair value of which is determined by using Level 3 inputs for the years ended December 31, 2021, 2020 and 2019 (in thousands):
Fair value at December 31, 2018 $ 16,674
Decrease in fair value (11,577)
Fair value at December 31, 2019 $ 5,097
Decrease in fair value (4,898)
Fair value at December 31, 2020 $ 199
Decrease in fair value (199)
Fair value at December 31, 2021 $ -
The key assumptions used to value the PIPE Warrants were as follows:
Issuance December 31,
2018 December 31,
2019 December 31,
Expected price volatility 76.25% 82.64 % 133.07 % 56.79 %
Expected term (in years) 5.00 2.5 1.5 0.50
Risk-free interest rates 1.22% 2.47 % 1.59 % 0.09 %
Stock price $ 8.90 $ 16.00 $ 6.20 $ 5.77
Dividend yield - - - -
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase and an investment in a United States government money market fund to be cash equivalents. Changes in the balance of cash and cash equivalents may be affected by changes in investment portfolio maturities, as well as actual cash disbursements to fund operations.
The Company’s cash is deposited in highly-rated financial institutions in the United States. The Company invests in United States government money market funds, high-grade, short-term commercial paper, corporate bonds and other United States government agency securities, which management believes are subject to minimal credit and market risk. The carrying values of the Company’s cash and cash equivalents approximate fair value due to their short-term maturities.
The Company did not have any restricted cash balances at December 31, 2021.
Marketable Securities
Marketable securities consist primarily of investments which have expected average maturity dates in excess of three months. The Company invests in high-grade corporate obligations, including commercial paper, and United States
government and government agency obligations that are classified as available-for-sale. Since these securities are available to fund current operations they are classified as current assets on the consolidated balance sheets.
Marketable securities are stated at fair value, including accrued interest, with their unrealized gains and losses included as a component of accumulated other comprehensive income or loss, which is a separate component of stockholders’ equity. The fair value of these securities is based on quoted prices and observable inputs on a recurring basis. The cost of marketable securities is adjusted for amortization of premiums and accretion of discounts, with such amortization and accretion recorded as a component of interest expense, net. Realized gains and losses are determined on the specific identification method. Unrealized gains and losses are included in other comprehensive loss until realized, at which point they would be recorded as a component of interest expense, net.
Below is a summary of cash, cash equivalents and marketable securities at December 31, 2021 and December 31, 2020 (in thousands):
Amortized
Cost
Unrealized
Gains Unrealized
Losses Fair
Value
December 31, 2021
Cash and cash equivalents:
Cash and money market funds $ 70,542 $ - $ - $ 70,542
Total cash and cash equivalents 70,542 - - 70,542
Marketable securities:
Corporate debt securities due within 1 year $ 16,787 $ - $ (3) $ 16,784
Total marketable securities 16,787 - (3) 16,784
Total cash, cash equivalents and marketable securities $ 87,329 $ - $ (3) $ 87,326
December 31, 2020
Cash and cash equivalents:
Cash and money market funds $ 61,761 $ - $ - $ 61,761
Total cash, cash equivalents and marketable securities $ 61,761 $ - $ - $ 61,761
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to credit risk primarily consist of cash and cash equivalents, marketable securities and accounts receivable. The Company maintains deposits in highly-rated, federally-insured financial institutions in excess of federally insured limits. The Company’s investment strategy is focused on capital preservation. The Company invests in instruments that meet the high credit quality standards outlined in the Company’s investment policy. This policy also limits the amount of credit exposure to any one issue or type of instrument.
The Company’s trade receivables, net, includes amounts billed to Customers for product sales of FOTIVDA. The Customers are a limited group of specialty pharmacies and specialty distributors, and accordingly, the Company considers the risk of potential credit losses to be low.
The Company’s partnership receivables include amounts due to the Company from licensees and collaborators. The Company has not experienced any material losses related to partnership receivables from individual licensees or collaborators.
Fair Value Measurements
The fair value of the Company’s financial assets and liabilities reflects the Company’s estimate of amounts that it would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from sources
independent from the Company) and to minimize the use of unobservable inputs (the Company’s assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1.Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2.Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3.Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability.
Financial assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company measures the fair value of its marketable securities by taking into consideration valuations obtained from third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker-dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities and other observable inputs.
As of December 31, 2021, the Company had financial assets valued based on Level 1 inputs consisting of cash and cash equivalents in a United States government money market fund and had financial assets based on Level 2 inputs consisting of high-grade debt securities, including commercial paper. During the year ended December 31, 2021, the Company did not have any transfers of financial assets between Levels 1 and 2.
As of December 31, 2021, the Company did not have any financial liabilities recorded at fair value.
The loan payable (discussed in Note 6), which is classified as a Level 3 liability, has a variable interest rate and the carrying value approximates its fair value. As of December 31, 2021, the carrying value was approximately $38.0 million.
The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis at December 31, 2021 and December 31, 2020 (in thousands):
Fair Value Measurements as of December 31, 2021
Level 1 Level 2 Level 3 Total
Financial assets carried at fair value:
Cash and money market funds $ 70,542 $ - $ - $ 70,542
Total cash and cash equivalents $ 70,542 $ - $ - $ 70,542
Marketable securities:
Corporate debt securities due within 1 year $ - $ 16,784 $ - $ 16,784
Total marketable securities $ - $ 16,784 $ - $ 16,784
Total cash, cash equivalents and marketable securities $ 70,542 $ 16,784 $ - $ 87,326
Fair Value Measurements as of December 31, 2020
Level 1 Level 2 Level 3 Total
Financial assets carried at fair value:
Cash and money market funds $ 61,761 $ - $ - $ 61,761
Total cash, cash equivalents and marketable securities $ 61,761 $ - $ - $ 61,761
Financial liabilities carried at fair value:
Total PIPE Warrant liability $ - $ - $ 199 $ 199
Basic and Diluted Net Loss per Common Share
Basic net income (loss) per share attributable to the Company’s common stockholders is based on the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share attributable to the Company’s common stockholders is based on the weighted-average number of common shares outstanding during the period plus additional weighted-average common equivalent shares outstanding during the period when the effect is dilutive.
For the years ended December 31, 2021 and 2020, diluted net loss per share is the same as basic net loss per share as the inclusion of weighted-average shares of common stock issuable upon the exercise of outstanding stock options and warrants until the expirations of the Offering Warrants on April 8, 2021 and the PIPE Warrants on May 16, 2021 would be anti-dilutive.
For the year ended December 31, 2019, diluted net income per share (i) includes common equivalent shares issuable upon the exercise of in-the-money stock options, as determined using the treasury stock method, as the average market prices of the Company’s common stock during the respective period exceeded the exercise prices of certain stock options, and (ii) excludes the incremental common shares issuable upon the exercise of the PIPE Warrants, Offering Warrants and out-of-the money stock options as their effect would be anti-dilutive. In the year ended December 31, 2019, the average market prices of the Company’s common stock were below the exercise prices of $10.00 and $12.50 per share for the PIPE Warrants and Offering Warrants, respectively.
The following table summarizes the computation of basic and diluted net loss per share for the years ended December 31, 2021, 2020 and 2019, respectively (in thousands except per share amounts):
Years Ended December 31,
2021 2020 2019
Basic and diluted net income (loss) attributable to common stockholders $ (53,342) $ (35,584) $ 9,388
Weighted-average shares of common stock outstanding 32,661 21,402 15,331
Dilutive securities:
Incremental common shares issuable upon the exercise of dilutive stock options
- - 45
Weighted-average number of common shares outstanding and dilutive share equivalents outstanding
32,661 21,402 15,376
Basic net income (loss) per share $ (1.63) $ (1.66) $ 0.61
Diluted net income (loss) per share $ (1.63) $ (1.66) $ 0.61
The following table summarizes outstanding securities not included in the computation of diluted net loss per common share as the effect would have been anti-dilutive for the years ended December 31, 2021, 2020 and 2019, respectively (in thousands):
Outstanding at
December 31,
2021 2020 2019
Stock options outstanding 3,156 1,797 1,168
Offering Warrants outstanding (warrants expired April 8, 2021)
- 2,500 2,500
PIPE Warrants outstanding (warrants expired May 16, 2021)
- 1,684 1,684
Total 3,156 5,981 5,352
Stock-Based Compensation
Under the Company’s stock-based compensation programs, the Company periodically grants stock options and restricted stock to employees, directors and nonemployee consultants. The Company also issues shares under an employee
stock purchase plan. The fair value of each award is recognized in the Company’s statements of operations over the requisite service period for such award.
Awards that vest as the recipient provides service are expensed on a straight-line basis over the requisite service period. The Company uses the Black-Scholes option pricing model to value stock option awards without market conditions, which requires the Company to make certain assumptions regarding the expected volatility of its common stock price, the expected term of the option grants, the risk-free interest rate and the dividend yield with respect to its common stock. The Company calculates volatility using its historical stock price data. Due to the lack of the Company’s own historical data, the Company elected to use the “simplified” method for “plain vanilla” options to estimate the expected term of the Company’s stock option grants. Under this approach, the weighted-average expected life is presumed to be the average of the vesting term and the contractual term of the option. The risk-free interest rate used for each grant is based on the United States Treasury yield curve in effect at the time of grant for instruments with a similar expected life. The Company utilizes a dividend yield of zero based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends.
The fair value of equity-classified awards to employees and directors is measured at fair value on the date the awards are granted. During the years ended December 31, 2021, 2020 and 2019, the Company recorded the following stock-based compensation expense (in thousands):
Years Ended
December 31,
2021 2020 2019
Research and development $ 1,218 $ 499 $ 662
Selling, general and administrative 3,924 1,856 1,696
Total $ 5,142 $ 2,355 $ 2,358
Income Taxes
The Company provides for income taxes using the asset-liability method. Under this method, deferred tax assets and liabilities are recognized based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company calculates its provision for income taxes on ordinary income based on its projected annual tax rate for the year. Uncertain tax positions are recognized if the position is more-likely-than-not to be sustained upon examination by a tax authority. Unrecognized tax benefits represent tax positions for which reserves have been established. The Company maintains a full valuation allowance on all deferred tax assets.
Segment and Geographic Information
Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment principally in the United States. As of December 31, 2021, 2020 and 2019, the Company has no net assets located outside of the United States.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, the assessment of the Company’s ability to continue as a going concern and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include revenue recognition, clinical trial costs and contract research accruals, measurement of trade receivables net, measurement of stock-based compensation and estimates of the Company’s capital requirements over the next twelve months from the date of issuance of the consolidated financial statements. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Material changes in these estimates could occur in the future. Changes in estimates are recorded or reflected in the
Company’s disclosures in the period in which they become known. Actual results could differ from those estimates if past experience or other assumptions do not turn out to be substantially accurate.
Accrued Clinical Trial Costs and Contract Research Liabilities
During each of the years ended December 31, 2021, 2020 and 2019, the Company had arrangements with multiple contract research organizations (“CROs”) whereby these organizations commit to performing services for the Company over multiple reporting periods. The Company recognizes the expenses associated with these arrangements based on its expectation of the timing of the performance of components under these arrangements by these organizations. Generally, these components consist of the costs of setting up the trial, monitoring the trial, closing the trial and preparing the resulting data. Costs related to patient enrollment in clinical trials are accrued as patients are enrolled in the trial.
In addition to fees earned by the CROs to manage the Company’s clinical trials, the CROs are also responsible for managing payments to the clinical trial sites on the Company’s behalf. There can be significant lag time in clinical trial sites invoicing the CROs. The date on which services are performed, the level of services performed and the cost of such services are often determined based on subjective judgments. The Company makes these judgments based upon the facts and circumstances known to it, such as the terms of the contract and its knowledge of activity that has been incurred, including the number of active clinical sites, the number of patients enrolled, the activities to be performed for each patient, including patient treatment and any imaging, if applicable, and the duration for which the patients will be enrolled in the trial. In the event that the Company does not identify some costs which have begun to be incurred, or the Company under or overestimates the level of services performed or the costs of such services in a given period, its reported expenses for such period would be understated or overstated. The Company currently reflects the effects of any changes in estimates based on changes in facts and circumstances directly in its operations in the period such change becomes known.
With respect to financial reporting periods presented in this Annual Report on Form 10-K, the timing of the Company’s actual costs incurred have not differed materially from its estimated timing of such costs.
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The Company adopted ASU 2019-02 effective January 1, 2021. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
(4) Collaborations and License Agreements
Collaboration Agreement
AstraZeneca
In December 2018, the Company entered into a clinical supply agreement (the “AstraZeneca Agreement”) with a wholly owned subsidiary of AstraZeneca to evaluate the safety and efficacy of AstraZeneca’s IMFINZI (durvalumab), a human monoclonal antibody directed against PD-L1, in combination with tivozanib as a first-line treatment or following bevacizumab and atezolizumab treatment for patients with advanced, unresectable HCC in an open-label, multi-center, randomized Phase 1b/2 clinical trial (the “DEDUCTIVE trial”). The Company serves as the study sponsor; each party contributes the clinical supply of its study drug; key decisions are made by both parties by consensus; and external study costs are otherwise shared equally.
The Company is accounting for the joint development activities under the AstraZeneca Agreement as a joint risk-sharing collaboration in accordance with ASC 808 because both the Company and AstraZeneca are active participants in the oversight of the DEDUCTIVE trial via their participation on a joint steering committee and are exposed to significant risk and rewards in connection with the activity based on their obligation to share in the costs. AstraZeneca does not meet the definition of a “Customer,” thus the joint development activities under the AstraZeneca Agreement are not accounted for under ASC 606.
Payments from AstraZeneca with respect to its share of the external costs for the DEDUCTIVE trial incurred by the Company pursuant to a joint development plan are recorded as a reduction in research and development expenses due to the joint risk-sharing nature of the activities that is not representative of a vendor-customer relationship.
The Company records reimbursements from AstraZeneca for external study costs as a reduction in research and development expense during the period that reimbursable expenses are incurred. As a result of the cost sharing provisions in the AstraZeneca Agreement, the Company’s research and development expenses were reduced by approximately $0.9 million, $1.1 million, and $0.5 million in the years ended December 31, 2021, 2020 and 2019, respectively. The amount due to the Company from AstraZeneca pursuant to the cost-sharing provision was approximately $0.8 million as of December 31, 2021.
Out-License Agreements
EUSA
In December 2015, the Company entered into a license agreement with EUSA (the “EUSA Agreement”), under which the Company granted to EUSA the exclusive, sublicensable right to develop, manufacture and commercialize tivozanib in the territories of Europe (excluding Russia, Ukraine and the Commonwealth of Independent States), Latin America (excluding Mexico), Africa and Australasia (collectively, the “EUSA Licensed Territories”) for all diseases and conditions in humans, excluding non-oncologic diseases or conditions of the eye.
EUSA made research and development reimbursement payments to the Company of $2.5 million upon the execution of the EUSA Agreement during the year ended December 31, 2015 and $4.0 million in September 2017 upon its receipt of marketing approval from the European Commission in August 2017 for FOTIVDA (tivozanib) for the treatment of RCC. In September 2017, EUSA elected to opt-in to co-develop the Phase 2 clinical trial of tivozanib in combination with nivolumab in the first-line and the second-line treatment of RCC (the “TiNivo trial”). As a result of exercising its opt-in right, EUSA made an additional research and development reimbursement payment to the Company of $2.0 million. This $2.0 million payment was received in October 2017, in advance of the completion of the TiNivo trial, and represented EUSA’s approximate 50% share of the total costs of the TiNivo trial. The Company is also eligible to receive an additional research and development reimbursement payment from EUSA, in the amount of $20.0 million, for the Company’s Phase 3 randomized, controlled, multi-center, open-label clinical trial comparing tivozanib to an approved therapy, sorafenib (Nexavar®), in RCC patients whose disease had relapsed or become refractory to two or three prior systemic therapies, including subjects with prior checkpoint inhibitor therapy (the “TIVO-3 trial”), if EUSA elects to opt-in to that study.
The Company is entitled to receive milestone payments of $2.0 million per country upon reimbursement approval for RCC, if any, in each of France, Germany, Italy, Spain and the United Kingdom (collectively, the “EU5”). The Company is also entitled to receive an additional $2.0 million for the grant of marketing approval for RCC, if any, in three of the licensed countries outside of the EU, as mutually agreed by the parties, of which approvals have been obtained in New Zealand in July 2019 and in South Africa in September 2020. In February 2018, November 2018 and February 2019, EUSA obtained reimbursement approval from the National Institute for Health and Care Excellence (“NICE”) in the United Kingdom, the German Federal Association of the Statutory Health Insurances (“GKV-SV”) in Germany and the Ministry of Health, Consumer Affairs and Social Welfare (“MSCBS”) in Spain, respectively, for the first-line treatment of RCC. Accordingly, the Company earned a $2.0 million milestone payment with respect to reimbursement approval in the United Kingdom that was received in March 2018, a $2.0 million milestone payment with respect to reimbursement approval in Germany that was received in December 2018 and a $2.0 million milestone payment with respect to reimbursement approval in Spain that was received in May 2019. The Company is also eligible to receive a payment of $2.0 million per indication in connection with a filing by EUSA with the European Medicines Agency (“EMA”) for marketing approval, if any, for tivozanib for the treatment of each of up to three additional indications and $5.0 million per indication in connection with the EMA’s grant of marketing approval for each of up to three additional indications, as well as potentially up to $335.0 million upon EUSA’s achievement of certain sales thresholds. The Company is also eligible to receive tiered double-digit royalties on net sales, if any, of licensed products in the EUSA Licensed Territories ranging from a low double digit up to mid-twenty percent depending on the level of annual net sales. No milestone payments nor any research and development reimbursement payments were earned in the years ended December 31, 2021 and 2020.
Pursuant to the KKC Agreement (as defined below), the Company is required to pay KKC a 30% sublicense fee related to earned milestone payments and royalties from EUSA. However, research and development reimbursement payments by EUSA are excluded from the 30% sublicense fee due to KKC, subject to certain limitations. If EUSA elects to opt-in to the TIVO-3 trial, only approximately $8.7 million of the final $20.0 million research and development payment by EUSA would be subject to the 30% sublicense fee due to KKC. The $2.0 million milestone payments the Company earned in each of February 2018, November 2018 and February 2019 upon EUSA’s reimbursement approval for FOTIVDA from the NICE in the United Kingdom, the GKV-SV in Germany and the MSCBS in Spain, respectively, for the first-line treatment of RCC were subject to the 30% KKC sublicense fee, or $0.6 million, each. The sublicense fees for
EUSA’s reimbursement approvals in the United Kingdom, Germany and Spain were paid in April 2018, January 2019 and June 2019, respectively.
EUSA is obligated to use commercially reasonable efforts to seek regulatory approval for and commercialize tivozanib throughout the EUSA Licensed Territories in RCC. EUSA has responsibility for all activities and costs associated with the further development, manufacture, regulatory filings and commercialization of tivozanib in the EUSA Licensed Territories.
Accounting Under ASC 606
Under ASC 606, the upfront consideration and regulatory milestones included in the transaction price are being recognized as collaboration and licensing revenue over the Company’s substantive performance period from contract execution in December 2015 through April 2022. Under ASC 606, upon the achievement of a regulatory milestone, the amount that represents the cumulative catch-up for the period from contract execution in December 2015 through the date of the milestone achievement is recognized as collaboration and licensing revenue, with the balance classified as deferred revenue and recognized as collaboration and licensing revenue over the remainder of the performance period, currently estimated through April 2022.
None of the remaining regulatory-related milestones are included in the transaction price as these milestone amounts were fully constrained. As part of its evaluation of the constraint, the Company considered multiple factors: (i) the remaining reimbursement and marketing approvals in RCC are outside of the control of EUSA and vary on a country-by-country basis; (ii) milestones related to the submission filings for EMA approval of tivozanib in up to three additional indications are contingent upon the success of future clinical trials in additional indications, if any, and are outside of the control of EUSA; (iii) milestones related to the marketing approval by the EMA for tivozanib in up to three additional indications are contingent upon the success of the corresponding future clinical trials, if any, and are outside of the control of EUSA; and (iv) efforts by EUSA.
Any consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as these amounts have been determined to relate predominantly to the license granted to EUSA and therefore are recognized at the later of when the performance obligation is satisfied (or partially satisfied) or the related sales occur. The Company will re-evaluate the transaction price, including its estimated variable consideration for milestones included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
In November 2017, the Company began earning sales royalties upon EUSA’s commencement of the first commercial launch of FOTIVDA with the initiation of product sales in Germany. EUSA has received reimbursement approval for and commercially launched FOTIVDA in Germany, the United Kingdom and Spain, as well as in some additional non-EU5 countries. EUSA is working to secure reimbursement approval in Italy and France and commercially launch FOTIVDA in additional EUSA licensed territories. The Company recognized royalty revenue of approximately $1.4 million, $1.2 million and $0.9 million in the years ended December 31, 2021, 2020 and 2019, respectively.
The Company recognized total revenues under the EUSA Agreement of approximately $3.4 million, $3.2 million and $3.8 million in the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, there was approximately $0.6 million in total deferred revenue that is expected to continue to be recognized as collaboration and licensing revenue over the duration of the Company’s performance period, currently estimated through April 2022.
The following table summarizes the revenues earned in connection with the EUSA Agreement under ASC 606 for the years ended December 31, 2021, 2020 and 2019 (in thousands):
Years Ended
December 31,
Revenue Type Date Achieved 2021 2020 2019
Collaboration and Licensing Revenue:
Amounts in contract liabilities at the beginning of the period:
Upfront payment December 2015 $ 395 $ 395 $ 395
R&D payment - EMA approval in RCC August 2017 631 631 631
Milestone - UK reimbursement approval February 2018 316 316 316
Milestone - German reimbursement approval November 2018 316 316 316
Milestone - Spanish reimbursement approval February 2019 316 316 1,276
$ 1,974 $ 1,974 $ 2,934
Partnership Royalties 1,447 1,245 861
Total $ 3,421 $ 3,219 $ 3,795
The following table summarizes changes in the Company’s accounts receivable and contract liabilities (deferred revenue) in connection with the EUSA Agreement for the year ended December 31, 2021 (in thousands):
Contract Assets Beginning
Balance
January 1,
Additions Deductions Ending
Balance
December 31, 2021
Partnership receivables $ 392 $ 1,447 $ (1,079) $ 760
Deferred Revenue
Contract Liabilities Transaction
Price
Date Achieved Date Paid Beginning
Balance
January 1,
Additions Deductions Ending
Balance
December 31, 2021
Amounts in contract liabilities at the beginning of the period:
Upfront payment $ 2,500 December 2015 December 2015 $ 512 $ - $ 395 $ 117
R&D payment - EMA approval in RCC 4,000 August 2017 September 2017 817 - 631 186
Milestone - UK reimbursement approval 2,000 February 2018 March 2018 408 - 316 92
Milestone - German reimbursement
approval
2,000 November 2018 December 2018 407 - 316 91
Milestone - Spanish reimbursement
approval
2,000 February 2019 May 2019 408 - 316 92
Total $ 12,500 $ 2,552 $ - $ 1,974 $ 578
Biodesix
In April 2014, the Company entered into a worldwide co-development and collaboration agreement (the “Biodesix Agreement”) with Biodesix, Inc. (“Biodesix”) to develop and commercialize ficlatuzumab, the Company’s potent humanized IgG1 monoclonal antibody that targets HGF. Under the Biodesix Agreement, prior to the first commercial sale of ficlatuzumab, each party had the right to elect to discontinue its funding obligation for further development or
commercialization efforts with respect to ficlatuzumab in exchange for reduced economics in the program, which is referred to as an “Opt-Out.” In September 2020, the Company regained full global rights to ficlatuzumab, effective December 2, 2020, when Biodesix exercised its “Opt-Out” rights under the Biodesix Agreement.
Pursuant to the terms of the Biodesix Agreement, as a result of Biodesix’s election to Opt-Out, Biodesix will (i) continue to be responsible for reimbursement of development costs with respect to the ongoing open label Phase 2 investigator-sponsored clinical trial of ficlatuzumab in combination with ERBITUX® (cetuximab) in HNSCC (the “Phase 2 HNSCC Trial”), (ii) cease to be entitled to 50% sharing of profits resulting from commercialization of ficlatuzumab, (iii) be entitled to a low double digit royalty on future product sales and 25% of future licensing revenue less approximately $2.5 million that Biodesix would be required to pay to the Company pursuant to the October 2016 amendment to the Biodesix Agreement and excluding contributions to research and development expenses and (iv) remain responsible for development obligations under the Biodesix Agreement with respect to VeriStrat. Biodesix and the Company also remain obligated to negotiate a commercialization agreement to delineate their rights and obligations in the event of any commercialization of VeriStrat with ficlatuzumab. As a result of Biodesix’s decision to Opt-Out, the Company now has worldwide licensing rights and sole decision-making authority with respect to further development and commercialization of ficlatuzumab. The payment obligations between the parties under the Biodesix Agreement are in effect until completion of the Phase 2 HNSCC Trial.
CANbridge
In March 2016, the Company entered into a collaboration and license agreement (the “CANbridge Agreement”) with CANbridge Life Sciences, Ltd. (“CANbridge”). Under the terms of the CANbridge Agreement, the Company granted CANbridge the exclusive right to develop, manufacture and commercialize AV-203, the Company’s potent humanized IgG1 monoclonal antibody that targets ErbB3 (also known as HER3), for the diagnosis, treatment and prevention of disease in all countries outside of North America.
In March 2021, CANbridge exercised its right to terminate for convenience the CANbridge Agreement. Under the terms of the CANbridge Agreement, the transfer of the AV-203 program was completed in September 2021 and the Company regained worldwide rights to the AV-203 program.
Biogen Idec International GmbH
In March 2009, the Company entered into an exclusive option and license agreement with Biogen regarding the development and commercialization of the Company’s discovery-stage ErbB3-targeted antibodies, including AV-203, for the potential treatment and diagnosis of cancer and other diseases outside of North America (the “Biogen Agreement”). Under the Biogen Agreement, the Company was responsible for developing ErbB3 antibodies through completion of the first Phase 2 clinical trial designed in a manner that, if successful, would generate data sufficient to support advancement to a Phase 3 clinical trial.
In March 2014, the Company and Biogen amended the Biogen Agreement (the “Biogen Amendment”). Pursuant to the Biogen Amendment, Biogen agreed to the termination of its rights and obligations under the Biogen Agreement, including Biogen’s option to (i) obtain a co-exclusive (with the Company) worldwide license to develop and manufacture ErbB3 targeted antibodies and (ii) obtain exclusive commercialization rights to ErbB3 products in countries in the world other than North America. As a result, the Company has worldwide rights to AV-203. Pursuant to the Biogen Amendment, the Company is obligated to use reasonable efforts to seek a collaboration partner for the purpose of funding further development and commercialization of ErbB3 targeted antibodies. The Company is also obligated to pay Biogen a percentage of milestone payments received by the Company from future partnerships after March 28, 2016 and single digit royalty payments on net sales related to the sale of ErbB3 products, if any, up to a cumulative maximum amount of $50.0 million.
In-License Agreements
St. Vincent’s
In July 2012, the Company entered into a license agreement with St. Vincent’s, under which the Company obtained an exclusive, worldwide sublicensable right to research, develop, manufacture and commercialize products for human therapeutic, preventative and palliative applications that benefit from inhibition or decreased expression or activity of GDF15, which is also referred to as MIC-1 (the “St. Vincent’s Agreement”). Under the St. Vincent’s Agreement, St. Vincent’s also granted the Company non-exclusive rights for certain related diagnostic products and research tools.
In order to sublicense certain necessary intellectual property rights to Novartis in August 2015, the Company amended and restated the St. Vincent’s Agreement and made an additional upfront payment to St. Vincent’s of $1.5 million. As of December 31, 2021, the Company is required to make future milestone payments, up to an aggregate total of $14.4 million, upon the earlier of the achievement of specified development and regulatory milestones or a specified date for the first indication, and upon the achievement of specified development and regulatory milestones for the second and third indications, for licensed therapeutic products, some of which payments may be increased by a mid to high double-digit percentage rate for milestone payments made after the Company grants any sublicense, depending on the sublicensed territory. In February 2022, the Company paid.a $2.3 million time-based milestone obligation that became due to St. Vincent’s in January 2022. The Company will also be required to pay St. Vincent’s tiered royalty payments equal to a low-single-digit percentage of any net sales it or its sublicensees make from licensed therapeutic products. The royalty rate escalates within the low-single-digit range during each calendar year based on increasing licensed therapeutic product sales during such calendar year.
The St. Vincent’s Agreement remains in effect until the later of 10 years after the date of first commercial sale of licensed therapeutic products in the last country in which a commercial sale is made, or expiration of the last-to-expire valid claim of the licensed patents, unless we elect, or St. Vincent’s elects, to terminate the St. Vincent’s Agreement earlier. We have the right to terminate the St. Vincent’s Agreement on six months’ notice if we terminate our GDF15 research and development programs as a result of the failure of a licensed therapeutic product in preclinical or clinical development, or if we form the reasonable view that further GDF15 research and development is not commercially viable, and we are not then in breach of any of our obligations under the St. Vincent’s Agreement.
Kyowa Kirin Co. (KKC)
In December 2006, the Company entered into an agreement with KKC (the “KKC Agreement”), under which it obtained an exclusive, sublicensable license to develop, manufacture and commercialize tivozanib in all territories in the world except for Asia and the Middle East, where KKC retained the rights to tivozanib. Under the KKC Agreement, the Company obtained exclusive rights to tivozanib in its territory under certain KKC patents, patent applications and know-how for the diagnosis, prevention and treatment of all human diseases and conditions (the “Field”). On August 1, 2019, the Company entered into an amendment to the KKC Agreement pursuant to which KKC repurchased the non-oncology rights to tivozanib in the Company’s territory, excluding the rights the Company has sublicensed to EUSA under the EUSA Agreement. The Company has upfront, milestone and royalty payment obligations to KKC under the KKC Agreement related to the amended Field for oncology development by the Company, and following the amendment, KKC also has upfront, milestone and royalty payment obligations to the Company related to non-oncology development by KKC in the Company’s territory. Pursuant to the amendment to the KKC Agreement, KKC made a non-refundable upfront payment to the Company in the amount of $25.0 million that was received in September 2019, and KKC waived the one-time milestone payment of $18.0 million which would have otherwise been payable by the Company upon obtaining marketing approval on March 10, 2021 for tivozanib in the United States. KKC is required to make milestone payments to the Company of up to an aggregate of $390.7 million upon the successful achievement of certain development and sales milestones of tivozanib in non-oncology indications.
KKC Agreement
Upon entering into the KKC Agreement, the Company made an upfront payment in the amount of $5.0 million. In March 2010, the Company made a milestone payment to KKC in the amount of $10.0 million in connection with the dosing of the first patient in the Company’s TIVO-1 trial. In December 2012, the Company made a $12.0 million milestone payment to KKC in connection with the acceptance by the FDA of the Company’s 2012 New Drug Application filing for tivozanib. Pursuant to the amendment to the KKC Agreement, KKC waived the one-time milestone payment of $18.0 million which would have otherwise been payable by the Company upon obtaining marketing approval on March 10, 2021 for tivozanib in the United States. Each milestone under the KKC Agreement was a one-time only payment obligation. The Company has no remaining development and commercialization milestone payments due to KKC under the KKC Agreement.
The Company is also required to pay tiered royalty payments on net sales it makes of tivozanib in its North American territory, which range from the low to mid-teens as a percentage of net sales. The royalty rate escalates within this range based on increasing tivozanib sales. The Company’s royalty payment obligations in a particular country in its territory begin on the date of the first commercial sale of tivozanib in that country, and end on the later of 12 years after the date of first commercial sale of tivozanib in that country or the date of the last to expire of the patents covering tivozanib that have been issued in that country. On March 10, 2021, the FDA approved FOTIVDA in the United States for the treatment of adult patients with relapsed or refractory advanced RCC following two or more prior systemic therapies. On
March 22, 2021, the Company commenced product sales of FOTIVDA in the United States. In the years ended December 31, 2021, the Company recognized approximately $4.7 million in royalties due to KKC on net product sales of FOTIVDA in the United States in its Statement of Operations as a component of cost of products sold.
If the Company sublicenses any of its rights to tivozanib to a third party, as it has done with EUSA, the sublicense defines the payment obligations of the sublicensee, which may vary from the milestone and royalty payment obligations under the KKC Agreement relating to rights the Company retains. The Company is required to pay KKC a fixed 30% of amounts the Company receives from its sublicensees, including upfront license fees, milestone payments and royalties, but excluding amounts the Company receives for research and development reimbursement payments or equity investments, subject to certain limitations.
In connection with the EUSA Agreement, the Company is required to pay KKC the 30% sublicense fee related to earned milestone payments and royalties from EUSA. However, research and development reimbursement payments by EUSA are excluded from the 30% sublicense fee, subject to certain limitations. If EUSA elects to opt-in to the TIVO-3 trial, only approximately $8.7 million of the final $20.0 million research and development payment by EUSA would be subject to the 30% sublicense fee due to KKC. Refer to the section above, “Out License Agreements - EUSA”, for further discussion of the actual 30% sublicense fees incurred and paid to-date to KKC.
The Company and KKC each have access to and can benefit from the other party’s clinical data and regulatory filings with respect to tivozanib and biomarkers identified in the conduct of activities under the KKC Agreement, as related to the amended Field for oncology development. Under the KKC Agreement, the Company is obligated to use commercially reasonable efforts to develop and commercialize tivozanib in its territory.
The KKC Agreement will remain in effect until the expiration of all of the Company’s royalty and sublicense revenue obligations, determined on a product-by-product and country-by-country basis, unless terminated earlier. If the Company fails to meet its obligations under the KKC Agreement and is unable to cure such failure within specified time periods, KKC can terminate the KKC Agreement, resulting in a loss of our rights to tivozanib and an obligation to assign or license to KKC any intellectual property or other rights the Company may have in tivozanib, including its regulatory filings, regulatory approvals, patents and trademarks for tivozanib.
August 1, 2019 Amendment to the KKC Agreement
In addition to the non-refundable upfront payment to the Company pursuant to the amendment to the KKC Agreement in the amount of $25.0 million and the waiver of the $18.0 million milestone for United States approval of tivozanib, the Company earned and received a $2.8 million development milestone payment in August 2020 pursuant to the amendment to the KKC Agreement upon the acceptance of KKC’s investigational new drug, or IND, application for a non-oncology use of tivozanib by the Pharmaceuticals and Medical Devices Agency of Japan on August 2, 2020. KKC is also required to make remaining milestone payments to the Company of up to an aggregate of $387.9 million upon the successful achievement of certain development and sales milestones of tivozanib in non-oncology indications. KKC is required to make tiered royalty payments to the Company on net sales of tivozanib in non-oncology indications in the Company’s territory, which range from high single digit to low double digits as a percentage of net sales. The royalty rate escalates within this range based on increasing tivozanib sales, subject to certain adjustments. KKC’s royalty payment obligations in a particular country in the Company’s territory begin on the date of the first commercial sale of tivozanib in that country, and end on the later of the expiration date of the last valid claim of a patent application or patent owned by KKC covering tivozanib or 10 years after the date of first commercial sale of tivozanib in non-oncology indications in that country. No milestone payments were earned in the year ended December 31, 2021. During the year ended December 31, 2020, the Company received a $2.8 million development milestone payment.
If KKC sublicenses any of its rights to tivozanib to a third-party, KKC is required to pay the Company a percentage of amounts received from the respective sublicensees related to the Company’s territory, including upfront license fees, milestone payments and royalties, but excluding amounts received in respect of research and development reimbursement payments or equity investments, subject to certain limitations.
Accounting Analysis Under the August 1, 2019 Amendment to the KKC Agreement
Following the repurchase of non-oncology rights by KKC, the amended KKC Agreement is accounted for as two distinct agreements: (i) the KKC Agreement by which the Company has upfront, milestone and royalty payment obligations to KKC related to the Company’s oncology development of tivozanib in the amended Field for the Company’s territory that continues to be accounted for under ASC 730, Research and Development, and (ii) the amended KKC
Agreement by which KKC has upfront, milestone and royalty payment obligations to the Company related to its non-oncology development of tivozanib for the Company’s territory that will be accounted for under ASC 606.
The Company evaluated the amendment to the KKC Agreement under ASC 606 and determined that KKC met the definition of a “Customer” as the Company considers the licensing or sale of intellectual property rights to be an output of the Company’s ordinary activities and is central to the operations of the Company. The Company determined that the amendment to the KKC Agreement contained a single performance obligation related to the Company’s transfer of rights to non-oncology intellectual property and know-how to KKC, excluding the rights the Company has sublicensed to EUSA under the EUSA Agreement. In addition, the Company determined that the $25.0 million non-refundable upfront payment received from KKC in September 2019 constituted the amount of the consideration to be included in the transaction price and attributed this amount to the Company’s single performance obligation. The Company satisfied this performance obligation during the third quarter of 2019. Accordingly, the Company recognized the $25.0 million in consideration as revenue in the third quarter of 2019. The Company concluded the performance obligation was satisfied at a point in time because any know-how or clinical data generated from the Company’s ongoing oncology development of tivozanib would not benefit KKC’s non-oncology development of tivozanib.
In the third quarter of 2020, the Company increased the transaction price to $27.8 million to include the $2.8 million development milestone that was earned in August 2020 upon the acceptance of KKC’s IND application for a non-oncology use of tivozanib by the Pharmaceuticals and Medical Devices Agency of Japan. Accordingly, the Company recognized the $2.8 million in consideration as revenue in the third quarter of 2020 as the Company did not have any ongoing performance obligations under the amendment to the KKC Agreement.
None of KKC’s remaining development and regulatory milestones to the Company related to its non-oncology development of tivozanib for the Company’s territory were included in the transaction price, as these milestone amounts were fully constrained. As part of its evaluation of the constraint, the Company considered multiple factors: (i) regulatory approvals are outside of the control of KKC; (ii) certain development and regulatory milestones are contingent upon the success of future clinical trials, if any, which is out of the control of KKC; and (iii) efforts by KKC. Any consideration related to development and regulatory milestones owed by KKC to the Company will be recognized when the corresponding milestones are no longer constrained as the Company does not have any ongoing performance obligations. Any consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as these amounts have been determined to relate predominantly to the intellectual property transferred to KKC and therefore are recognized at the later of when the performance obligation is satisfied or the related sales occur.
(5) Other Accrued Liabilities
Other accrued expenses consisted of the following (in thousands):
December 31,
2021 December 31,
FOTIVDA U.S. Product Royalties 2,011 -
FOTIVDA Federal Rebates, Customer Credits and Co-Pay Assistance 1,170 -
Professional Fees 1,107 1,061
Other 1,133 320
Total 5,421 1,381
(6) Hercules Loan Facility
On May 28, 2010, the Company entered into a loan and security agreement (the “First Loan Agreement”) with Hercules Capital Inc. and certain of its affiliates (“Hercules”). The First Loan Agreement was subsequently amended in March 2012, September 2014, May 2016 and amended and restated in December 2017 (the “2017 Loan Agreement” and as amended by the 2020 Loan Amendment (as defined below) and the 2021 Loan Amendment (as defined below), the “Loan Agreement”).
On August 7, 2020, the Company entered into a first amendment to the 2017 Loan Agreement (the “2020 Loan Amendment”) to provide the Company, subject to certain terms and conditions, with an additional term loan in an aggregate principal amount of up to $35.0 million (the “2020 Loan Facility”) in up to four tranches to be used to refinance outstanding loans under the 2017 Loan Agreement, and for general working capital purposes. The Company received the
initial $15.0 million of the 2020 Loan Facility upon the closing of the 2020 Loan Amendment, of which approximately $9.7 million was used to retire the then outstanding balance under the 2017 Loan Agreement and of which approximately $5.3 million was new loan funding which was used for general working capital purposes.
The remainder of the loan amount is available to the Company, at its option, subject to certain terms and conditions, including upon the achievement of the following milestones: (i) the second tranche in the initial amount of $10.0 million (“Tranche Two”) was available through June 30, 2021 upon achieving FDA approval of FOTIVDA (“Performance Milestone I”), (ii) the third tranche of $5.0 million (“Tranche Three”) was initially available from July 1, 2021 through January 31, 2022 assuming the Company was to achieve $20.0 million in net product revenues from sales of FOTIVDA, by no later than December 31, 2021 (“Performance Milestone II”), and (iii) the fourth tranche of $5.0 million (“Tranche Four”) was initially available through June 30, 2022 contingent upon the achievement of both Performance Milestone I and Performance Milestone II, and subject to the consent of Hercules.
The 2020 Loan Amendment also amended the 2017 Loan Agreement by: (i) extending maturity until September 1, 2023, which is extendable to September 1, 2024 at the Company’s option assuming the Tranche Three funding has occurred, (ii) providing for an interest-only period beginning on the closing date of 2020 Loan Amendment and ending on September 30, 2021, which period may be extended through September 30, 2022 provided the Company achieves Performance Milestone I and further extendable through March 31, 2023 after the Tranche Three funding has occurred, if at all, and (iii) revising the per annum interest rate to the greater of (x) 9.65% and (y) an amount equal to 9.65% plus the prime rate as reported in the Wall Street Journal minus 3.25% as determined daily, provided however, that the per annum interest rate shall not exceed 15%. Principal payments were scheduled to commence on October 1, 2021 at the earliest, as described above. The interest rate as of December 31, 2021 was 9.65%.
Per the terms of the 2020 Loan Facility, principal will be repaid in equal monthly installments following the conclusion of the interest-only period. The Company may prepay all of the outstanding principal and accrued interest under the 2020 Loan Facility, subject to a prepayment charge up to 3.0% in the first year following the closing of the 2020 Loan Amendment, decreasing to 2.0% in year two and 1.0% in year three. The Company is obligated to make an end-of-term payment of 6.95% of the aggregate amount of loan funding received under the 2020 Loan Facility on the earlier of the maturity of the loan or the date on which the Company prepays any outstanding loan balance. The approximate $0.8 million end-of-term payment under the 2017 Loan Agreement continued to be due and was paid on July 1, 2021. In connection with the 2020 Loan Amendment, the Company incurred approximately $0.3 million in loan issuance costs paid directly to Hercules, which are accounted for as a loan discount. The 2020 Loan Amendment was accounted for as a loan modification in accordance with ASC 470-50.
The 2020 Loan Facility includes various financial and operating covenants, including that the Company maintain an unrestricted cash position of at least $10.0 million through the date the Third Tranche funding is received and at least $5.0 million thereafter through the maturity of the loan. The Company was also required to achieve greater than or equal to 75% of its forecasted net product revenues from its sales of tivozanib over a six month trailing period, as defined and measured on a monthly basis, effective upon the earlier of receiving Third Tranche funding and the month of April 2022.
On February 1, 2021, the Company entered into the second amendment to the 2017 Loan Agreement (the “2021 Loan Amendment”), which increased the 2020 Loan Facility from up to $35.0 million to up to $45.0 million following FDA approval of FOTIVDA. The 2021 Loan Amendment makes certain changes to the 2020 Loan Amendment, including, among other things, (i) increasing Tranche Two funding upon achieving Performance Milestone I from $10.0 million to $20.0 million, thereby increasing the total amount of then unfunded term loan commitments under the 2020 Loan Facility from $20.0 million to $30.0 million, (ii) increasing the amount of net product revenues from sales of FOTIVDA required to achieve Performance Milestone II from $20.0 million to $35.0 million and changing the deadline for achieving Performance Milestone II from December 31, 2021 to April 1, 2022 and (iii) increasing the amount of the financial covenant for the maintenance of an unrestricted cash position from at least $10.0 million to at least $15.0 million from the date the Tranche Two funding is received until the date the Tranche Three funding is received and at least $10.0 million thereafter through the maturity of the Loan Agreement. In connection with the 2021 Loan Amendment, the Company incurred approximately $0.1 million in loan issuance costs paid directly to Hercules, which are accounted for as a loan discount.
On March 11, 2021, the Company completed the $20.0 million drawdown of Tranche Two funding under the 2021 Loan Amendment that was made available in connection with the achievement of Performance Milestone I upon FDA approval of FOTIVDA on March 10, 2021. The achievement of Performance Milestone I extended the interest-only period by twelve months from September 30, 2021 to September 30, 2022 and increased the amount of unrestricted cash
required for the Company to satisfy the minimum financial covenant during the period between receiving Tranche Two funding and Tranche Three funding from $10.0 million to $15.0 million.
On December 22, 2021, the Company completed the $5.0 million drawdown of Tranche Three funding under the 2021 Loan Amendment that was made available in connection with the achievement of Performance Milestone II upon the achievement of $35.0 million in net product revenues from sales of FOTIVDA. The achievement of Performance Milestone II extended the interest-only period by six months from September 30, 2022 to March 31, 2023, extended the loan maturity by one year from September 1, 2023 to September 1, 2024 and decreased the amount of unrestricted cash required for the Company to satisfy the minimum financial covenant from $15.0 million to $10.0 million thereafter through the maturity of the Loan Agreement.
As of December 31, 2021, the total principal balance was $40.0 million, principal payments are scheduled to commence on April 1, 2023 and the corresponding end-of-term payments under the 2020 Loan Facility, in the aggregate amount of approximately $2.8 million, are due upon the current loan maturity date of September 1, 2024. As of December 31, 2021, $5.0 million remains available to the Company in committed funding under the 2020 Loan Facility, in Tranche Four funding that was at our election and subject to the consent of Hercules. The unamortized discount to be recognized over the remainder of the loan period was approximately $2.0 million and $1.2 million as of December 31, 2021 and December 31, 2020, respectively. Per the 2017 Loan Agreement, the end-of-term payment of approximately $0.8 million was paid on July 1, 2021, as scheduled.
On March 8, 2022, the Company entered into the 2022 Loan Amendment. The 2022 Loan Amendment (i) changed the operating covenant to decrease the achievement of greater than or equal to 75% of the Company's forecasted net product revenues from its sales of tivozanib over a six-month trailing period to 65%, as defined and measured on a monthly basis, and extended the month of commencement from April 2022 to June 2022, (ii) added a cash waiver, at the Company's election, in the event its actual net product revenues from its sales of tivozanib over a six-month trailing period are below the monthly minimum operating covenant of 65%, such that the Company's unrestricted cash position is equal to or greater than the then total outstanding principal under the Loan Agreement for each day of such month, (iii) changed Tranche Four funding, in the amount of $5.0 million, that was subject to the consent of Hercules to the achievement of $30.0 million in net product revenues from sales of FOTIVDA over a trailing three-month period, or Performance Milestone III, and extended the availability of Tranche Four funding from June 30, 2022 to December 15, 2022, and (iv) increased the amount of unrestricted cash required for the Company to satisfy the minimum financial covenant from $10.0 million to $15.0 million upon the earlier of receiving the Tranche Four funding or January 1, 2023, through the maturity of the Loan Agreement.
The 2020 Loan Facility is secured by substantially all of the Company’s assets, excluding intellectual property. The 2020 Loan Facility provides that certain events shall constitute a default by the Company, including failure by the Company to pay amounts under the 2020 Loan Amendment when due; breach or default in the performance of any covenant under the 2020 Loan Amendment by the Company, subject to certain cure periods; insolvency of the Company and certain other bankruptcy proceedings involving the Company; default by the Company of obligations involving indebtedness in excess of $500,000; and the occurrence of an event or circumstance that would have a material adverse effect upon the business of the Company. As of December 31, 2021, the Company was in compliance with all loan covenants, Hercules has not asserted any events of default and the Company does not believe that there has been a material adverse effect as defined in the 2020 Loan Amendment.
The Company has determined that the risk of subjective acceleration under the material adverse events clause is remote and therefore has classified the outstanding principal as a long-term liability based on the timing of scheduled principal payments.
Future minimum payments under the loans payable outstanding as of December 31, 2021 are as follows (in thousands):
Year Ending December 31:
Amount
2022 $ 3,885
2023 22,528
2024 24,406
$ 50,819
Less amount representing interest (8,039)
Less unamortized discount (2,040)
Less deferred charges (2,780)
Less loans payable current, net of discount -
Loans payable, net of current portion and discount $ 37,960
(7) Common Stock
As of December 31, 2021, the Company had 50,000,000 authorized shares of common stock, $0.001 par value, of which 34,474,710 shares were issued and outstanding.
Public Offering - March 2021
On March 26, 2021, the Company completed an underwritten public offering of 6,900,000 shares of its common stock, including the full exercise by the underwriters of their option to purchase an additional 900,000 shares, at the public offering price of $8.00 per share for gross proceeds of approximately $55.2 million. The net offering proceeds to the Company were approximately $51.7 million after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.
Universal Shelf Registration Statement
On November 9, 2020, the Company filed a shelf registration statement on Form S-3 with the SEC, which covers the offering, issuance and sale of up to $300.0 million of its common stock, preferred stock, debt securities, warrants and/or units (the “2020 Shelf”). The 2020 Shelf (File No. 333-249982) was declared effective by the SEC on November 18, 2020 and was filed to replace the Company’s then existing shelf registration statement, which was terminated. As of December 31, 2021, there was approximately $213.0 million available for future issuance of common stock, preferred stock, debt securities, warrants and/or units.
Public Offering - June 2020
On June 19, 2020, the Company completed an underwritten public offering of 9,725,000 shares of its common stock, including the partial exercise by the underwriters of their option to purchase an additional 1,225,000 shares, at the public offering price of $5.25 per share for gross proceeds of approximately $51.1 million. Three stockholders beneficially holding more than 5% of the Company’s voting securities, including an entity affiliated with New Enterprise Associates and two other stockholders, purchased an aggregate of 4,503,571 shares in this offering at the same public offering price per share as the other investors. At such time, entities affiliated with New Enterprise Associates (collectively) beneficially held more than 5% of the Company’s voting securities. The net offering proceeds to the Company were approximately $47.7 million after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.
Reverse Stock Split - February 2020
On February 13, 2020, the holders of a majority of the Company’s outstanding shares of common stock approved the reverse stock split and gave the Company’s board of directors discretionary authority to select a ratio for the split ranging from 1-for-5 to 1-for-15. The Company’s board of directors approved the reverse stock split at a ratio of 1-for-10 on February 13, 2020. On February 19, 2020, the Company effected a reverse stock split of its outstanding shares of common stock at a ratio of one-for-ten pursuant to a Certificate of Amendment to its Certificate of Incorporation filed with the Secretary of State of the State of Delaware. The reverse stock split was reflected on Nasdaq beginning with the opening
of trading on February 20, 2020. The primary purpose of the reverse stock split was to enable the Company to regain compliance with the $1.00 minimum bid price requirement for continued listing on Nasdaq.
The reverse stock split affected all issued and outstanding shares of the Company’s common stock, as well as the number of authorized shares of the Company’s common stock and the number of shares of common stock available for issuance under the Company’s equity incentive plans. The reverse stock split reduced the number of shares of the Company’s issued and outstanding common stock from approximately 160.8 million to approximately 16.1 million. In addition, the reverse stock split effected a reduction in the number of shares of the Company’s common stock issuable upon the exercise of stock options and warrants outstanding immediately prior to the reverse stock split, with a proportional increase in the respective exercise prices. The reverse stock split proportionately reduced the number of authorized shares of the Company’s common stock from 500.0 million shares to 50.0 million. The reverse stock split did not change the par value of the Company’s common stock or the authorized number of shares of the Company’s preferred stock. All share and per share amounts give effect to the reverse stock split on a retroactive basis.
Expired Offering Warrants from April 2019 Public Offering - Expiration Date of April 8, 2021
In April 2019, the Company completed an underwritten public offering of 2,173,913 shares of its common stock and warrants to purchase an aggregate of 2,500,000 shares of its common stock (“the Offering Warrants”), including warrants to purchase an aggregate of 326,086 shares of its common stock sold pursuant to the underwriter’s partial exercise of its overallotment option, at the public offering price of $11.40 per share and $0.10 per warrant for gross proceeds of approximately $25.0 million. The Offering Warrants were immediately exercisable upon issuance at an exercise price of $12.50 per share, subject to adjustment in certain circumstances, and expired two years from the date of issuance on April 8, 2021. Any Offering Warrants that had not been exercised for cash prior to their expiration were to be automatically exercised via cashless exercise on the expiration date. The shares and warrants were issued separately and were separately transferable. An entity affiliated with New Enterprise Associates purchased 434,782 shares and warrants to purchase an aggregate of 434,782 shares in this offering at the same public offering price per share as the other investors. At such time, entities affiliated with New Enterprise Associates (collectively) beneficially held more than 5% of the Company’s voting securities. The net offering proceeds to the Company were approximately $22.8 million after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The Company determined the shares of common stock and the Offering Warrants represented freestanding financial instruments. In addition, the Company conducted an assessment of the classification of the Offering Warrants and, based on their terms, concluded the Offering Warrants were equity-classified. Accordingly, the net offering proceeds of $22.8 million were recorded within stockholders’ equity (deficit).
Public Offering - April 2019
In April 2019, the Company completed an underwritten public offering of 2,173,913 shares of its common stock and warrants to purchase an aggregate of 2,500,000 shares of its common stock (“the 2019 Offering Warrants”), including warrants to purchase an aggregate of 326,086 shares of its common stock sold pursuant to the underwriter’s partial exercise of its overallotment option, at the public offering price of $11.40 per share and $0.10 per warrant for gross proceeds of approximately $25.0 million. The 2019 Offering Warrants were immediately exercisable upon issuance at an exercise price of $12.50 per share, subject to adjustment in certain circumstances, and will expire two years from the date of issuance upon their scheduled expiration on April 8, 2021. Any 2019 Offering Warrants that have not been exercised for cash prior to their expiration shall be automatically exercised via cashless exercise on the expiration date. The shares and warrants were issued separately and are separately transferable. An entity affiliated with New Enterprise Associates purchased 434,782 shares and warrants to purchase an aggregate of 434,782 shares in this offering at the same public offering price per share as the other investors. At such time, entities affiliated with New Enterprise Associates (collectively) beneficially held more than 5% of the Company’s voting securities. The net offering proceeds to the Company were approximately $22.8 million after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. As of December 31, 2020, 2019 Offering Warrants to purchase 2,500,000 shares of the Company’s common stock were outstanding. The Company determined the shares of common stock and the 2019 Offering Warrants represented freestanding financial instruments. In addition, the Company conducted an assessment of the classification of the Offering Warrants and, based on their terms, concluded the 2019 Offering Warrants are equity-classified. Accordingly, the net offering proceeds of $22.8 million have been recorded within stockholders’ equity (deficit).
In March 2021, 2019 Offering Warrants exercisable for 247,391 shares of common stock were exercised for approximately $3.1 million in cash proceeds. On April 8, 2021, all of the remaining 2,252,609 2019 Offering Warrants expired and no shares of the Company’s common stock were issued via automatic cashless exercises of unexercised 2019
Offering Warrants on the date of expiration as the $12.50 exercise price was greater than the Company’s closing stock price of $7.01 on April 8, 2021.
Sales Agreement with SVB Leerink
In February 2018, the Company entered into a sales agreement with SVB Leerink LLC (“SVB Leerink” and the “SVB Leerink Sales Agreement”) pursuant to which the Company may issue and sell shares of its common stock from time to time up to an aggregate amount of $50.0 million, at its option, through SVB Leerink as its sales agent, with any sales of common stock through SVB Leerink being made by any method that is deemed an “at-the-market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), or in other transactions pursuant to an effective shelf registration statement on Form S-3. The Company agreed to pay SVB Leerink a commission of up to 3% of the gross proceeds of any sales of common stock pursuant to the SVB Leerink Sales Agreement. The Company sold 470,777 shares, 1,251,555 shares, 1,070,175 shares and 330,688 shares pursuant to the SVB Leerink Sales Agreement, resulting in proceeds net of commissions of approximately $10.3 million, $7.5 million, $5.9 million and $3.4 million in the fourth quarter of 2018, February 2019, November 2020 and March 2021, respectively. As of December 31, 2021, approximately $22.2 million was available for issuance in connection with future stock sales pursuant to the SVB Leerink Sales Agreement.
Expired PIPE Warrants from May 2016 Private Placement - Expiration Date of May 16, 2021
In May 2016, the Company entered into a securities purchase agreement with a select group of qualified institutional buyers, institutional accredited investors and accredited investors pursuant to which the Company sold 1,764,242 units, at a price of $9.65 per unit, for gross proceeds of approximately $17.0 million. Each unit consisted of one share of the Company’s common stock and a warrant to purchase one share of the Company’s common stock (the “PIPE Warrants”). The PIPE Warrants had an exercise price of $10.00 per share and expired five years from the date of issuance on May 16, 2021. Certain of the Company’s directors and executive officers purchased an aggregate of 54,402 units in this offering at the same price as the other investors. The net offering proceeds to the Company were approximately $15.4 million after deducting placement agent fees and other offering expenses payable by the Company. PIPE Warrants exercisable for 80,309 shares of common stock had been exercised for approximately $0.8 million in cash proceeds and all of the remaining 1,683,933 PIPE Warrants expired on May 16, 2021.
(8) Stock-based Compensation
Stock Incentive Plan
The Company previously maintained the 2010 Stock Incentive Plan (the “2010 Plan”) for employees, consultants, advisors and directors, as amended in March 2013, June 2014 and June 2017.
In April 2019, the Company’s board of directors adopted the 2019 Equity Incentive Plan (the “2019 Plan”) and on June 12, 2019 the stockholders approved the 2019 Plan at the Annual Meeting of Stockholders. The 2019 Plan provides similar terms as the 2010 Plan, including: (i) a provision for the grant of equity awards such as stock options and restricted stock; (ii) that the exercise price of incentive stock options cannot be less than 100% of the fair market value of the common stock on the date of the grant for participants who own less than 10% of the total combined voting power of stock of the Company and not less than 110% for participants who own more than 10% of the total combined voting power of the stock of the Company; (iii) that options and restricted stock granted under the 2019 Plan vest over periods as determined by the board of directors, which generally are equal to four years; and (iv) that options granted under the 2019 Plan expire over periods as determined by the board of directors, which generally are ten years from the date of grant. In April 2020, the board of directors adopted an amendment to the 2019 Plan to increase the total number of shares reserved under the Plan by 1,300,000 shares, among other things. This amendment was approved by stockholders at the Annual Meeting of Stockholders held on June 10, 2020. In April 2021, the board of directors adopted an additional amendment to the 2019 Plan to increase the total number of shares reserved under the Plan by 2,200,000. This amendment was approved by stockholders at the Annual Meeting of Stockholders held on June 9, 2021.
Awards may be made under the 2019 Plan for up to the sum of (i) 4,500,000 shares of common stock and (ii) such additional number of shares of common stock (up to 1,068,901 shares) as is equal to (x) the number of shares of common stock reserved for issuance under the 2010 Plan that were available for grant under the 2010 Plan immediately prior to the date the 2019 Plan was approved by the Company’s stockholders and (y) the number of shares of common stock subject to awards outstanding under the 2010 Plan, which awards expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company pursuant to a contractual repurchase right. As of December 31, 2021,
there were 2,401,114 shares of common stock available for future issuance under the 2019 Plan and no shares of common stock available for future issuance under the 2010 Plan.
The following table summarizes stock option activity during the year ended December 31, 2021:
Options Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Outstanding at January 1, 2021
1,816,690 $ 11.04 7.53 $ 170,000
Granted 1,751,218 8.37
Exercised (2,479) 5.97
Forfeited (409,050) 11.87
Outstanding at December 31, 2021
3,156,379 $ 9.45 7.55 $ 5,720
Exercisable at December 31, 2021
1,357,101 $ 11.72 5.82 $ 1,907
The aggregate intrinsic value is based upon the Company’s closing stock price of $4.69 on December 31, 2021.
The fair value of stock options, subject only to service or performance conditions, that are granted to employees is estimated on the date of grant using the Black-Scholes option-pricing model. The following tables summarize the assumptions used in the Black-Scholes option-pricing model in the years ended December 31, 2021, 2020 and 2019:
Years Ended
December 31,
2021 2020 2019
Volatility factor 56.17% - 102.66%
94.37% - 102.48%
88.27% - 98.81%
Expected term (in years) 0.25 - 6.25
5.50 - 6.25
5.50 - 6.25
Risk-free interest rates 0.06% - 1.33%
0.31% - 1.67%
1.43% - 2.55%
Dividend yield - - -
Based upon these assumptions, the weighted-average grant date fair value of stock options granted during the years ended December 31, 2021, 2020 and 2019 was $6.49, $4.54 and $5.70 respectively.
As of December 31, 2021, there was $10.1 million of total unrecognized stock-based compensation expense related to stock options granted to employees under the Plan. The expense is expected to be recognized over a weighted-average period of 2.88 years. The intrinsic value of options exercised was a nominal amount in the years ended December 31, 2021, 2020 and 2019, respectively.
Employee Stock Purchase Plan
In February 2010, the board of directors adopted the 2010 Employee Stock Purchase Plan (the “ESPP”), as amended in March 2013 and in November 2017. In April 2021, the board of directors adopted an amendment to the 2010 ESPP Plan to increase the total number of shares reserved under the Plan by 500,000 shares, pursuant to which the Company may sell up to an aggregate of 576,400 shares of Common Stock. This amendment was approved by stockholders at the Annual Meeting of Stockholders held on June 9, 2021. The ESPP allows eligible employees to purchase common stock at a price per share equal to 85% of the lower of the fair market value of the common stock at the beginning or end of each six-month period during the term of the ESPP. As of December 31, 2021, there were 412,403 shares available for future issuance under the ESPP.
Pursuant to the ESPP, the Company sold a total of 111,456 shares of common stock during the year ended December 31, 2021 at purchase prices of $4.38 and $4.40, which represents 85% of the closing price of the Company’s common stock on December 1, 2020 and December 14, 2021. The Company sold a total of 5,971 shares of common stock during the year ended December 31, 2020 at purchases prices of $6.46 and $4.57, which represents 85% of the closing price of the Company’s common stock on December 1, 2019 and November 30, 2020, respectively. The Company did not sell any shares of common stock pursuant to the ESPP during the year ended December 31, 2019. The total stock-based
compensation expense recorded as a result of the ESPP was $0.3 million during the year ended December 31, 2021, and a nominal amount during the years ended 2020 and 2019, respectively.
(9) Commitments and Contingencies
Operating Leases
On March 5, 2020, the Company entered into the Winter Street Sublease to relocate the Company’s corporate headquarters previously located at One Broadway in Cambridge, Massachusetts for $47.00 per square foot, or approximately $0.5 million per year in base rent, subject to certain operating expenses, taxes and annual base rent increases of approximately 3%. On November 17, 2021, the Company amended the Winter Street Sublease to reduce the square feet of office space from 10,158 square feet to 6,465 square feet. The amended Winter Street Sublease provided that (i) the security deposit of $0.3 million would be applied toward the remaining base rent payable to the landlord to satisfy in full the base rent obligations through the expiration date of November 29, 2022 and (ii) the landlord would make renovations to improve the space. The amended Winter Street Sublease term remained the same and continues through November 29, 2022.
Previously, the Company leased office space under a month-to-month lease. Rent expense under the operating leases amounted to $0.6 million, $0.6 million and $0.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Manufacturing Commitments
The Company has entered into a contract with a clinical manufacturing organization (“CMO”) for the manufacture of tivozanib (FOTIVDA) in the United States, which includes minimum annual purchase requirements in the range of $0.5 million to $1.4 million through 2028. In addition, the Company has a contract with a second CMO for the manufacture of clinical drug supply for ficlatuzumab and AV-380, for which the Company has manufacturing commitments in 2022 in the aggregate amount of approximately $9.0 million. Additionally, the Company has license fee obligations of up to $2.0 million due to a former CMO for ficlatuzumab drug manufacturing.
Employment Agreements
On March 8, 2021, the Company adopted the Executive Severance and Change in Control Benefits Plan (the "Severance Benefits Plan") for certain of our employees, including each of our executive officers. The severance benefits provided in the Severance Benefits Plan supersede the separation benefits provided under the terms of any covered employee’s severance and change in control agreement and our Key Employee Change in Control Benefits Plan. Under the terms of the Severance Benefits Plan, if the executive’s employment is terminated without cause or if the executive terminates his employment for good reason, such executive will be entitled to receive severance equal to his or, her base salary, benefits and prorated bonuses for a period of time equal to 12 months or, for the chief executive officer base salary for a period of time equal to 12 months and a bonus amount subject to a specified calculation. In addition, if any covered employee’s employment is terminated by the Company without cause or by the employee for good reason on the date of or within 18 months following a change of control, such covered employee will be entitled to receive severance for a period of time ranging from 9 months to 24 months, depending upon the position of the covered employee.
(10) Income Taxes
The Company accounts for income taxes under the provisions of ASC 740. The Company recorded no tax provision for the years ended December 31, 2021 and 2020, respectively, due to generating taxable losses in all filing jurisdictions.
A reconciliation of the expected income tax benefit computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows for the years ended December 31, 2021, 2020 and 2019:
Years Ended December 31,
2021 2020 2019
Income tax computed at federal statutory tax rate 21.0 % 21.0 % 21.0 %
State taxes, net of federal benefit 3.6 % 6.7 % 1.3 %
Research and development credits 1.6 % 1.5 % (4.2) %
PIPE Warrants 0.1 % 2.9 % (25.9) %
Other permanent differences (0.9) % (0.5) % 1.8 %
Other (0.5) % (1.1) % 5.7 %
Change in valuation allowance (24.9) % (30.5) % 0.3 %
Total - % - % - %
With limited exceptions, the Company has incurred net operating losses from inception. At December 31, 2021 the Company had domestic federal, state, and United Kingdom (UK) net operating loss carryforwards of approximately $613.1 million, $508.4 million, and $6.0 million respectively, available to reduce future taxable income. The federal net operating loss carryforwards expire beginning in 2022 and continue through 2037 and the state loss carryforwards begin to expire in 2030 and continue through 2041. The Company’s federal net operating losses include $110.5 million, which do not expire. The foreign net operating loss carryforwards in the UK does not expire. The Company also had federal and state research and development tax credit carryforwards of approximately $12.7 million and $4.3 million, respectively, available to reduce future tax liabilities and which expire at various dates. The federal credits expire beginning in 2023 through 2040 and the state credits expire beginning in 2022 through 2036. The net operating loss and research and development carryforwards are subject to review and possible adjustment by the Internal Revenue Service and may be limited in the event of certain changes in the ownership interest of significant stockholders.
The Company’s net deferred tax assets as of December 31, 2021 and 2020 are as follows (in thousands):
December 31,
2021 2020
(in thousands)
Deferred tax assets:
NOL carryforwards $ 160,833 $ 148,689
Research and development credits 16,088 15,271
Deferred revenue and R&D reimbursements 149 742
Other temporary differences 5,930 5,001
Total deferred tax assets: 183,000 169,703
Valuation allowance (183,000) (169,703)
Total $ - $ -
A full valuation allowance has been recorded in the accompanying consolidated financial statements to offset these deferred tax assets because the future realizability of such assets is uncertain. This determination is based primarily on the Company’s historical and expected future losses. The valuation allowance increased by $13.3 million and $10.9 million during the years ended December 31, 2021 and 2020, respectively, which was primarily due to the generation of net operating losses and tax credits.
The Company applies the provisions of ASC 740, Income Taxes, for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. Unrecognized tax benefits represent tax positions for which reserves have been established. A full valuation allowance has been provided against the Company’s deferred tax assets, so that the effect of the unrecognized tax benefits is to reduce the gross amount of the deferred tax asset and the corresponding valuation allowance. Since the Company has incurred net operating losses since inception, it has never been subject to a revenue agent review. The Company is currently open to examination under the statute of limitations by the Internal Revenue Service and state jurisdictions for the tax years ended 2018 through 2021. Carryforward tax attributes generated in years past may still be adjusted upon future examination if
they have or will be used in a future period. The Company is currently not under examination by the Internal Revenue Service or any other jurisdictions for any tax years.
Utilization of the net operating loss carryforwards and research and development tax credit carryforwards may be subject to an annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has not recently conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since the last study was completed due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since the last study was completed, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization.
The Company may from time to time be assessed interest or penalties by major tax jurisdictions. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. No interest and penalties have been recognized by the Company to date.
The Company anticipates that the amount of unrecognized tax benefits recorded will not change in the next twelve months.
The following is a reconciliation of the Company’s gross uncertain tax positions at December 31, 2021, 2020 and 2019:
Years Ended December 31,
2021 2020 2019
(in thousands)
Amount established upon adoption $ 1,078 $ 1,200 $ 1,200
Additions for current year tax provisions - - -
Additions for prior year tax provisions - - -
Reductions of prior year tax provisions (113) (122) -
Balance as of end of year $ 965 $ 1,078 $ 1,200
(11) Employee Benefit Plan
In 2002, the Company established the AVEO Pharmaceuticals, Inc. 401(k) Plan (the “401(k) Plan”) for its employees, which is designed to be qualified under Section 401(k) of the Code. Eligible employees are permitted to contribute to the 401(k) Plan within statutory and 401(k) Plan limits. The Company makes matching contributions of 50% of the first 5% of employee contributions. The Company made matching contributions of $0.3 million, $0.1 million and $0.1 million for each of the years ended December 31, 2021, 2020 and 2019, respectively.
(12) Quarterly Results (Unaudited)
Three Months Ended
March 31, 2021 June 30, 2021 September 30, 2021 December 31, 2021
(in thousands, expect per share data)
(unaudited)
Revenues:
FOTIVDA U.S. product revenue, net* $ 1,066 $ 6,735 $ 14,318 $ 16,755
Partnership licensing and royalty revenue 854 821 855 891
1,920 7,556 15,173 17,646
Operating expenses:
Cost of products sold* 138 822 1,744 2,033
Research and development 5,797 6,878 7,502 6,121
Selling, general and administrative* 15,100 14,920 15,142 15,652
21,035 22,620 24,388 23,806
Loss from operations (19,115) (15,064) (9,215) (6,160)
Other income (expense), net:
Interest expense, net (611) (1,128) (1,153) (1,153)
Change in fair value of PIPE Warrant liability (2,396) 2,595 - -
Other income - - - 58
Other income (expense), net (3,007) 1,467 (1,153) (1,095)
Net income (loss) $ (22,122) $ (13,597) $ (10,368) $ (7,255)
Net loss per share - basic and diluted $ (0.81) $ (0.40) $ (0.30) $ (0.21)
Weighted average number of common shares outstanding 27,429 34,362 34,374 34,384
*FOTIVDA is the Company's first commercial product and was approved by the FDA for marketing and sale in the United States on March 10, 2021 for the treatment of adult patients with relapsed or refractory advanced RCC following two or more prior systemic therapies.
Three Months Ended
March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020
(in thousands, expect per share data)
(unaudited)
Partnership licensing and royalty revenue $ 784 $ 749 $ 3,600 $ 886
Operating expenses:
Research and development 7,826 4,419 5,860 4,574
Selling, general and administrative 3,672 3,737 5,800 9,008
11,498 8,156 11,660 13,582
Loss from operations (10,714) (7,407) (8,060) (12,696)
Other income (expense), net:
Interest expense, net (315) (349) (419) (522)
Change in fair value of PIPE Warrant liability 2,648 450 86 1,714
Other income (expense), net 2,333 101 (333) 1,192
Net income (loss) $ (8,381) $ (7,306) $ (8,393) $ (11,504)
Net loss per share - basic and diluted $ (0.52) $ (0.42) $ (0.33) $ (0.44)
Weighted average number of common shares outstanding 16,081 17,364 25,808 26,252
(13) Legal Proceedings
As of the date of filing this Annual Report on Form 10-K, there are no material outstanding legal proceedings against the Company or its current officers or directors.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. 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 defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of December 31, 2021. In designing and evaluating our disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were (1) designed to ensure that material information relating to us is made known to our management including our principal executive officer and principal financial officer by others, particularly during the period in which this report was prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports the Company files or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Management’s report on the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) appears below.
Internal Control Over Financial Reporting
(a) Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
•Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and our expenditures are being made only in accordance with authorizations of our management and directors; and
•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on its assessment, management believes that, as of December 31, 2021, our internal control over financial reporting was effective based on those criteria.
Our independent registered public accounting firm has issued an attestation report of our internal control over financial reporting. This report appears below.
(b) Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of AVEO Pharmaceuticals, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited AVEO Pharmaceuticals, Inc.’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, AVEO Pharmaceuticals, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated March 14, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 14, 2022
Changes in Internal Control Over Financial Reporting
During the year ended December 31, 2021, we implemented certain internal controls in connection with our product sales of FOTIVDA upon the commercial launch in the United States on March 22, 2021. There were no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the years ended December 31, 2021, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. Other Information
Executive Severance and Change in Control Benefits Plan
On March 8, 2021, our board of directors approved the adoption of an Executive Severance and Change in Control Benefits Plan, or the severance benefits plan, for certain of our employees, including each of our executive officers. The severance benefits plan supersedes any and all prior arrangements for the provision of severance benefits to covered employees that may have been in effect prior to March 8, 2021 with respect to any termination of employment that would result in the payment of benefits under the severance benefits plan, including the separation benefits provided under the terms of any covered employee’s severance and change in control agreement and our Key Employee Change in Control Benefits Plan.
Under the terms of the severance benefits plan, if the employment of any of our executive officers is terminated by us without cause, by reason of such executive officer’s disability, or by the executive officer for good reason, in any case prior to or more than 18 months following a change in control, each as defined in the plan, provided that the executive officer is not otherwise ineligible to receive severance benefits under the severance benefits plan and subject to the executive officer’s execution and nonrevocation of a general release of claims in our favor, we will (i) continue to pay the executive officer’s then-current base salary for a period of 12 months, (ii) make contributions to the cost of COBRA coverage on behalf of the officer and his or her applicable dependents for a period of up to 12 months and, (iii) in the case
of our chief executive officer, pay, in a single lump-sum, an amount equal to our chief executive officer’s target bonus for the year in which our chief executive officer’s date of termination occurs, pro-rated to reflect the portion of the year during which our chief executive officer provided services to us.
Further, under the terms of the severance benefits plan, if any covered employee’s employment is terminated by us without cause or by the employee for good reason on the date of or within 18 months following a change in control, provided that the covered employee is not otherwise ineligible to receive severance benefits under the severance benefits plan and subject to the employee’s execution and nonrevocation of a general release of potential claims in our favor, we will (i) pay, in the case of our chief executive officer, an amount equal to the sum of 24 months’ of our chief executive officer’s then-current base salary (or his or her base salary in effective prior to the change in control, if greater), plus an amount equal to 150% of our chief executive officer’s target annual bonus for the year in which such termination occurs (or, if greater, his or her target annual bonus for the year in which the change in control occurs), plus a pro rata portion of our chief executive officer’s target annual bonus for the year in which such termination occurs (or, if greater, his or her target annual bonus for the year in which the change in control occurs), such amount to be paid in substantially equal installments over the course of 18 months, (ii) in the case of our other executive officers, an amount equal to the sum of 12 months’ of such executive officer’s then-current base salary, plus an amount equal to 100% of such executive officer’s target annual bonus for the year in which such termination occurs (or, if greater, his or her target annual bonus for the year in which the change in control occurs), and a pro rata portion of such executive officer’s target annual bonus for the year in which such termination occurs (or, if greater, his or her target annual bonus for the year in which the change in control occurs), such amount to be paid, in substantially equal installments over the course of 12 months, (iii) in the case any covered employee with the title of senior vice president or above (other than our chief executive officer and other executive officers), an amount equal to the sum of 12 months’ of such employee’s then-current base salary (or his or her base salary in effective prior to the change in control, if greater), plus an amount equal to 100% of such employee’s target annual bonus for the year in which such termination occurs (or, if greater, his or her target annual bonus for the year in which the change in control occurs), plus a pro rata portion of such employee’s target annual bonus for the year in which such termination occurs (or, if greater, his or her target annual bonus for the year in which the change in control occurs), such amount to be paid, in substantially equal installments over the course of 12 months and (iv) in the case of our other covered employees, an amount equal to the sum of nine months’ of such employee’s then-current base salary (or his or her base salary in effective prior to the change in control, if greater), plus an amount equal to 75% of such employee’s target annual bonus for the year in which such termination occurs (or, if greater, his or her target annual bonus for the year in which the change in control occurs), and a pro rata portion of such employee’s target annual bonus for the year in which such termination occurs (or, if greater, his or her target annual bonus for the year in which the change in control occurs), such amount to be paid in substantially equal installments over the course of nine months. Each covered employee would also be entitled to receive (x) any earned but unpaid annual bonus for the most recently completed fiscal year, (y) contributions to the cost of COBRA coverage on behalf of the covered employee and his or her applicable dependents for a period of up to 18 months, in the case of our chief executive officer, 12 months in the case of any of our other executive officers and six months in the case of our other covered employees and (z) full vesting acceleration of any then-outstanding equity awards granted to the covered employee by us that vest based solely on the passage of time.
All contributions to the cost of COBRA coverage on behalf of a covered employee and his or her applicable dependents under the severance benefits plan shall be determined on the same basis as our contribution to company-provided health and dental insurance coverage in effect for an active employee with the same coverage elections, provided that if such contributions to the cost of COBRA coverage violate the nondiscrimination requirements of applicable law, the contributions shall not be made.
If the plan administrator of the severance benefits plan reasonably determines in good faith that a covered employee receiving benefits under the plan has failed to comply with the terms of the plan, including his continuing obligations under the release, we may require payment to us of any benefits described above that the covered employee has already received to the extent permitted by applicable law and any payments or benefits not yet received shall immediately be forfeited.
Our board of directors may amend, modify, or terminate the severance benefits plan at any time in its sole discretion. However, any amendment, modification or termination prior to a chance in control that adversely affects the rights of a covered employee must be unanimously approved by our board, including any independent directors and our chief executive officer. In addition, no amendment, modification or termination may affect the rights of a covered employee then receiving payments or benefits under the severance benefits plan without the consent of such person and no amendment, modification or termination made after a change in control may be effective for 18 months
2022 Amendment to 2020 Credit Facility
On March 8, 2022, we entered into the a Loan Amendment with Hercules (the “2022 Loan Amendment”). The 2022 Loan Amendment makes the $5.0 million Tranche Four funding available upon achieving $30.0 million in trailing three-month net product revenues from sales of FOTIVDA by no later than December 15, 2022, instead of being available at the discretion of the lenders by no later than June 30, 2022. The 2022 Loan Amendment makes certain other changes to the Loan Agreement, including, among other things, (i) increasing the minimum unrestricted cash position financial covenant from $10.0 million to $15.0 million, effective upon the earlier to occur of January 1, 2023 or such date on which the Tranche Four funding is received and continuing through the maturity of the Loan Agreement, (ii) decreasing the monthly forecasted net product revenues operating covenant from achievement of greater than or equal to 75% of our forecasted net product revenues from our sales of tivozanib over a 6-month trailing period, to achievement of greater than or equal to 65% of our forecasted net product revenues from our sales of tivozanib over a 6-month trailing period, effective beginning on the period ended June 2022, and (iii) waiving such monthly forecasted net product revenues operating covenant entirely if our unrestricted minimum cash position equals or exceed the total outstanding obligations under the Loan Agreement.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. Directors, Executive Officers and Corporate Governance
The information required by this Item 10 will be contained in the sections entitled “Election of Directors,” “Corporate Governance” and “Delinquent Section 16(a) Reports,” if applicable, appearing in the definitive proxy statement we will file in connection with our 2022 Annual Meeting of Stockholders and is incorporated by reference herein. The information required by this item relating to executive officers may be found below.
We post our Code of Business Conduct and Ethics, which applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, in the “Corporate Governance” sub-section of the “Investors” section of our website at www.aveooncology.com. We intend to disclose on our website any amendments to, or waivers from, the Code of Business Conduct and Ethics that are required to be disclosed pursuant to the disclosure requirements of Item 5.05 of Form 8-K.
The following table lists the positions, names and ages of our executive officers as of March 11, 2022:
Executive Officers
Michael P. Bailey 56 Chief Executive Officer, President and Director
Michael J. Ferraresso 48 Chief Commercial Officer
Erick J. Lucera 54 Chief Financial Officer
Jebediah Ledell 46 Chief Operating Officer
Michael P. Bailey was appointed President and Chief Executive Officer and a member of our board of directors in January 2015. Mr. Bailey joined our company in September 2010 as Chief Commercial Officer and was named Chief Business Officer in June 2013. Prior to joining our company, Mr. Bailey served as Senior Vice President, Business Development and Chief Commercial Officer at Synta Pharmaceuticals Corp., a biopharmaceutical company focused on research, development and commercialization of oncology medicines, from 2008 to September 2010. From 1999 to 2008, Mr. Bailey worked at ImClone Systems Incorporated, a biopharmaceutical company focused on the development and commercialization of treatments for cancer patients. During his nine-year tenure at ImClone, he was responsible for commercial aspects of the planning and launch of ERBITUX® (cetuximab) across multiple oncology indications, as well as new product planning for the ImClone development portfolio, which included CYRAMZA® (ramucirumab) and PORTRAZZA® (necitumumab). In addition, Mr. Bailey was a key member of the strategic leadership committees for ImClone and its North American and worldwide partnerships and led their commercial organization, most recently as Senior Vice President of Commercial Operations. Prior to his role at ImClone, Mr. Bailey managed the cardiovascular development portfolio at Genentech, Inc., a biotechnology company, from 1997 to 1999. Mr. Bailey started his career in the pharmaceutical industry as part of SmithKline Beecham’s Executive Marketing Development Program, where he held a variety of commercial roles from 1992 to 1997, including sales, strategic planning, and product management. Since July 2020, Mr. Bailey currently serves as a member of the board of directors and chair of the Governance Committee and serves
on the audit and clinical committees of IMV Inc. Mr. Bailey received a B.S. in psychology from St. Lawrence University and an M.B.A. in international marketing from the Mendoza College of Business at University of Notre Dame.
Michael J. Ferraresso was appointed Chief Commercial Officer in March 2021. Mr. Ferraresso joined our company in December 2017 as Senior Vice President, Business Analytics and Commercial Operations. Prior to joining our company, Mr. Ferraresso served as Vice President, Commercial Operations at Verastem, Inc., a biopharmaceutical company, from January 2017 to November 2017. From August 2013 to January 2017, Mr. Ferraresso served as Vice President, Commercial at Infinity Pharmaceuticals, Inc., a biopharmaceutical company. Prior to his role at Infinity Pharmaceuticals, Inc., Mr. Ferraresso served in sales and commercial operations roles of increasing responsibility at several biotechnology and pharmaceutical companies, including at AMAG Pharmaceuticals, Inc., Critical Therapeutics, Inc., Praecis Inc., Ascent Pediatrics Inc. and Muro Pharmaceutical Inc. Mr. Ferraresso has extensive experience in commercial strategy including partnerships, development, pricing and field deployment models and has launched Oprapred™, Plenaxis™, Zyflo™ and Feraheme™. Mr. Ferraresso holds a B.A. in economics from Assumption College.
Erick J. Lucera was appointed Chief Financial Officer in January 2020. From August 2016 to December 2019, Mr. Lucera served as Chief Financial Officer of Valeritas Holdings, Inc., a commercial-stage medical technology company. From May 2015 to August 2016, Mr. Lucera served as the Chief Financial Officer, Treasurer and Secretary of Viventia Bio Inc., a biotechnology company focused on developing targeted protein therapeutics for the treatment of cancer. From December 2012 to April 2015, Mr. Lucera served as Vice President, Corporate Development at Aratana Therapeutics, Inc., a veterinary biopharmaceutical company. Mr. Lucera also previously served as Vice President, Corporate Development at Sunshine Heart, Inc., a medical device manufacturer, from March 2012 to December 2012. Prior to his role at Sunshine Heart, Mr. Lucera also served as Vice President, Healthcare Analyst at Eaton Vance Management, a global asset management company from 2008 to 2011 and held various positions at Intrepid Capital Partners, Independence Investment Associates, LLC and Price Waterhouse & Co. from 1990 to 2008. Since October 2021, Mr. Lucera has served as a member of the board of directors, chairman of the audit committee and member of the compensation committee and nominating and corporate governance committee of Bone Biologics Corporation. Since August 2017, Mr. Lucera has served as a member of the board of directors and chairman of the audit committee of Beyond Air, Inc. Mr. Lucera holds a C.P.H. from Harvard University, an M.S. in finance from Boston College, an MBA from Indiana University, Bloomington, and a B.S. in accounting from the University of Delaware. Mr. Lucera currently holds a CFA designation.
Jebediah Ledell was appointed Chief Operating Officer in December 2021. From September 2019 to November 2021, Mr. Ledell served as Chief Operating Officer at Enzyvant Therapeutics, Inc., a biotechnology company. From April 2017 to April 2019, Mr. Ledell served as the Chief Operating Officer of Compass Therapeutics, Inc., a clinical-stage, oncology-focused biopharmaceutical company developing proprietary antibody-based therapeutics to treat multiple human diseases. Mr. Ledell also previously served as Chief Operating Officer at Horizon Discovery Group plc, a gene-editing company, from June 2014 to December 2017. Prior to his role at Horizon, Mr. Ledell held multiple technology, operations and development roles at Zalicus Inc. Mr. Ledell holds a B.S. in Chemical Engineering from Worcester Polytechnic Institute.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. Executive Compensation
The information required by this Item 11 will be contained in the sections entitled “Executive and Director Compensation,” “Executive and Director Compensation-Compensation Committee Interlocks and Insider Participation” and “Executive and Director Compensation-Compensation Committee Report” appearing in the definitive proxy statement we will file in connection with our 2022 Annual Meeting of Stockholders and is incorporated by reference herein.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 will be contained in the sections entitled “Ownership of Our Common Stock” and “Executive and Director Compensation-Equity Compensation Plan Information” appearing in the definitive proxy statement we will file in connection with our 2022 Annual Meeting of Stockholders and is incorporated by reference herein.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. Certain Relationships and Related Person Transactions, and Director Independence
The information required by this Item 13 will be contained in the sections entitled “Certain Relationships and Related Person Transactions” appearing in the definitive proxy statement we will file in connection with our 2022 Annual Meeting of Stockholders and is incorporated by reference herein.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. Principal Accountant Fees and Services
The information required by this Item 14 will be contained in the section entitled “Corporate Governance-Principal Accountant Fees and Services” appearing in the definitive proxy statement we will file in connection with our 2022 Annual Meeting of Stockholders and is incorporated by reference herein.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. Exhibits, Financial Statement Schedules
(a) Documents filed as part of Form 10-K.
(1) Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) Schedules
Schedules have been omitted as all required information has been disclosed in the financial statements and related footnotes.
(3) Exhibits
The Exhibits listed in the Exhibit Index are filed as a part of this Form 10-K.