EDGAR 10-K Filing

Company CIK: 1175505
Filing Year: 2021
Filename: 1175505_10-K_2021_0001564590-21-014463.json

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ITEM 1. BUSINESS
Item 1. Business.
Our Company
We are a clinical-stage biotechnology company focused on developing immune modulators and precision therapies to improve the lives of patients with solid tumor cancers. Our primary focus is on developing immuno-oncology and targeted cancer therapies. Each of our product candidates has an innovative mechanism of action and addresses patient populations for which better therapies are needed. In addition, we use companion diagnostics where appropriate to allow us to select patients most likely to benefit from treatment with our product candidates. The most advanced product candidates that we or our partners are developing are identified below.
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Bemarituzumab (FPA144) is an antibody that inhibits fibroblast growth factor receptor 2b, or FGFR2b, and that induces antibody-dependent cellular cytotoxicity that we are studying in a clinical trial in combination with 5-fluorouracil (5-FU), leucovorin and oxaliplatin, a standard-of-care chemotherapy regimen known as mFOLFOX6, as front-line treatment of patients with FGFR2b+, non-HER2+ gastric (stomach) or gastroesophageal junction, or GEJ, cancer. In December 2017, we granted Zai Lab (Shanghai) Co., Ltd., or Zai Lab, an exclusive license to develop and commercialize bemarituzumab in China, Hong Kong, Macau and Taiwan.
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FPT155 is a soluble CD80 fusion protein that enhances co-stimulation of T cells through CD28 that we are studying in a clinical trial in multiple cancers.
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FPA157 is an anti-CCR8 antibody that is engineered to deplete CCR8-expressing intratumoral regulatory CD4+ T cells. We are conducting IND-enabling activities for FPA157.
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BMS-986258 is an anti-T cell immunoglobulin and mucin domain-3, or TIM-3, antibody that our partner, Bristol-Myers Squibb Company, or BMS, is studying in a clinical trial in combination with Opdivo® (nivolumab) in patients with advanced malignant tumors.
Our product candidates are typically only-in-class, first-in-class or meaningfully differentiated from other in-class therapeutics. We generally look for single-agent activity or clear activity in, for example, tumor types that are rarely sensitive to checkpoint inhibitors.
We have two late-stage research programs. These programs arose from our prior in-house target discovery and validation and protein therapeutic generation and engineering capabilities, which we eliminated in 2019. We expect to advance each of these programs through preclinical development relying mostly on outsourced and contracted capabilities. In addition, we plan to supplement our product pipeline from time to time by selectively acquiring or licensing, on an exclusive basis, rights to product candidates from biotechnology and pharmaceutical companies.
COVID-19 Business Update
In response to the global spread of the ongoing COVID-19 pandemic, we have implemented business continuity plans designed to address and mitigate the impact of the pandemic on our employees and our business. While we are not experiencing any material financial impacts at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, our business, financial condition, results of operations and growth prospects could be materially adversely affected. We continue to closely monitor the effects of the COVID-19 pandemic as we evolve our business continuity plans and response strategy. In March 2020, our entire workforce, other than those whose job responsibilities require them to be physically present at our offices, transitioned to working remotely, which we have continued through the date of this Annual Report. To date, our remote working arrangements have not significantly impacted our ability to maintain our business operations.
Clinical Development and Preclinical Activities
We continue to support our active clinical sites and provide investigational drug supply for patients enrolled in our ongoing clinical trials. In response to the ongoing COVID-19 pandemic, we and our contract research organizations, or CROs, have taken measures to implement remote and virtual approaches, including remote patient monitoring, where appropriate and possible, to maintain patient safety and trial continuity and to preserve the integrity of our clinical trials. The COVID-19 pandemic may also negatively impact our and our CROs’ ability to collect, clean and report clinical trial data or interact with ethics committees or other regulatory authorities due to limitations in employee resources, access to clinical sites or otherwise.
We rely on CROs to perform most of the activities related to the conduct of our clinical trials, and we expect to advance our preclinical and late-stage research programs through preclinical development relying mostly on out-sourced and contracted capabilities. The ongoing COVID-19 pandemic increases the risk that the CROs or other service providers we engage will not be able to perform their contractual obligations relating to our clinical trials or preclinical studies in a timely or satisfactory manner. For example, resource limitations and social distancing requirements may affect the ability of our service providers to timely perform preclinical studies of our product candidates, which would delay our timelines and our potential clinical development of those product candidates.
If the ongoing COVID-19 pandemic persists, we could experience significant disruptions to and delays in our clinical development and preclinical activities, which would adversely affect our business, financial condition, results of operations and growth prospects.
Supply Chain
We are working closely with our contract manufacturing organizations, or CMOs, and other suppliers to manage our supply chain activities and mitigate potential disruptions to our drug product supplies as a result of the ongoing COVID-19 pandemic. We currently expect to have adequate supply of our product candidates and any third-party drug products that may be used to conduct our current and planned preclinical and clinical activities. However, if the ongoing COVID-19 pandemic persists for an extended period of time and impacts these CMOs or other suppliers, or if the pandemic impacts essential distribution systems, we could experience disruptions to our supply chain and operations, and associated delays in the manufacturing and supply of our product candidates or third-party drug products, which would adversely impact our ability to conduct and complete our preclinical studies and clinical trials in accordance with our timelines or at all.
Other Financial and Corporate Impacts
We may need or desire to seek additional funds through public or private equity or debt financings, collaborations, or strategic alliances and licensing arrangements. The ongoing COVID-19 pandemic has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, and if we need or desire to access additional capital in the future, we may be unable to do so and our operations may be negatively impacted.
The extent of the impact of the ongoing COVID-19 pandemic on our business, including on our clinical and preclinical programs, and the value of and market for our common stock is highly uncertain and will depend on future developments that cannot be predicted with confidence at this time, such as the ultimate duration, spread and severity of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the countries in which we and our collaborators, partners and service providers operate, including in the countries where we and our partners are conducting clinical trials, the effectiveness of actions taken globally to contain and treat the disease, including the widespread availability and adoption of safe and effective vaccines against COVID-19, and how quickly and to what extent normal economic and operating conditions resume. For example, if remote working arrangements for our business, or those of our partners or service providers, are extended for longer than we currently expect, we may need to reassess our priorities and our near- and longer-term corporate objectives.
We continue to assess the impact of the ongoing COVID-19 pandemic on our business and operations. For additional information on the risks posed to our business by the COVID-19 pandemic, see Part I, Item 1A. Risk Factors of this Annual Report.
Strategy
Our goal is to build a leadership position in the development and commercialization of oncology therapeutics. The key elements of our strategy to achieve this goal are:
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Focus on oncology therapeutics. There continues to be significant medical need for innovative and effective cancer therapies. With the significant experience and expertise of our clinical scientists in the field of oncology, we believe we are well positioned to develop and clinically evaluate effective and innovative protein therapeutics.
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Continue to advance and expand our pipeline. We have a robust pipeline of proprietary and partnered targeted therapeutics that address multiple cell types in the tumor microenvironment. We and our partners are currently advancing bemarituzumab, FPT155 and BMS-986258 through clinical development and FPA157 and certain partnered programs through preclinical development. We also have two late-stage research programs. We plan to focus our resources on the further development of our product candidates, advancing our preclinical and late-stage research programs into clinical and preclinical development and supplementing our ongoing development pipeline from time to time by selectively acquiring or in-licensing, on an exclusive basis, rights to develop product candidates from biotechnology and pharmaceutical companies.
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Establish strategic license agreements and product and clinical collaborations to supplement our development capabilities and generate funding. From time to time, we plan to establish additional product and clinical collaborations. These collaborations will allow us to supplement our development, manufacturing, regulatory and commercialization capabilities to broaden and accelerate clinical development and potential commercialization of our product candidates, provide us with significant funding to advance our pipeline and validate our technology.
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Build a U.S.-focused commercial enterprise by retaining U.S. commercial rights for our products. As our product candidates near commercialization, we plan to build sales and marketing capabilities in the United States that we can adequately serve as we work toward becoming a focused commercial organization. We currently have global rights to bemarituzumab, FPT155, FPA157 and our proprietary preclinical and research-stage programs, except that we granted Zai Lab an exclusive license to develop and commercialize bemarituzumab in China, Hong Kong, Macau and Taiwan.
Our Pipeline
The following table shows the stage of development of the most advanced product candidates that we are developing or that have come from our pipeline and are being developed or supported by our collaborators:
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* Partnered with Zai Lab - see “Part I-Item 1. Collaborations” of this Annual Report for a description of our December 2017 license and collaboration agreement with Zai Lab, or the China collaboration agreement.
** Partnered with BMS. Development is being conducted exclusively by BMS - see “Part I-Item 1. Collaborations” of this Annual Report for a description of our collaboration agreement with BMS.
† Development is being conducted exclusively by Seagen, Inc.
Clinical Programs
Bemarituzumab (FPA144)
Bemarituzumab is an antibody that inhibits FGFR2b that we are developing to treat epithelial cancers that overexpress FGFR2b. We have developed, in collaboration with a third-party companion diagnostic development partner, an immunohistochemistry-, or IHC-, based assay to identify patients with FGFR2b+ gastric and GEJ cancer who would be most likely to benefit from treatment with bemarituzumab. We plan to conduct additional work with our third-party companion diagnostic development partner to adapt this IHC-based assay to identify FGFR2b overexpression in other epithelial cancers such as non-small cell lung, breast and ovarian cancers to support our clinical development of bemarituzumab to treat FGFR2b+ epithelial cancers.
We believe that bemarituzumab acts on tumor cells in two ways:
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bemarituzumab binds to FGFR2b and blocks certain FGFs from binding to FGFR2b, preventing these FGFs from promoting the growth of the tumor cells; and
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once bemarituzumab binds to FGFR2b on the surface of the tumor cell, bemarituzumab recruits natural killer immune cells into the tumor microenvironment to kill the tumor cell in a process called antibody-dependent cell-mediated cytotoxicity, or ADCC.
Clinical Development of Bemarituzumab
We are completing a global Phase 2 clinical trial of bemarituzumab in combination with mFOLFOX6 as front-line treatment of patients with advanced FGFR2b+, non-HER2+ gastric or GEJ cancer, which we refer to as the FIGHT trial. The FIGHT trial was designed to evaluate the safety and efficacy of bemarituzumab in combination with standard-of-care mFOLFOX6 chemotherapy as compared to placebo in combination with mFOLFOX6 chemotherapy in front-line gastric and GEJ cancers. We are conducting the FIGHT trial in China in collaboration with Zai Lab. The FIGHT trial enrolled 155 patients in 15 countries across Asia, the European Union and the United States, with 77 patients randomized to the bemarituzumab arm and 78 patients randomized to the placebo arm.
We identified patients for inclusion in the FIGHT trial using both an IHC test, which allowed us to detect FGFR2b overexpression on the tumor tissue in a biopsy specimen, and a ctDNA blood-based test, which allowed us to detect FGFR2 gene amplification from DNA shed by tumor cells in blood plasma. FGFR2 gene amplification is a cause of FGFR2b overexpression, and measuring FGFR2 gene amplification in the blood is an indirect way of identifying tumors that overexpress FGFR2b that we may otherwise not identify using an IHC test. We excluded from eligibility for the trial any patients known to be HER2+. We screened over 900 patients and found that approximately 30% of non-HER2+ gastric and GEJ cancers overexpress FGFR2b. The frequency of FGFR2b overexpression was similar across Asia, the European Union and the United States.
In November 2020, we announced that all three primary and secondary endpoints in the FIGHT trial met pre-specified statistical significance (at a 2-sided alpha of 0.20) as compared to placebo in combination with mFOLFOX6. The primary endpoint in the FIGHT trial was progression-free survival, or PFS, and the secondary efficacy endpoints were overall survival, or OS, and objective response rate, or ORR. In January 2021, clinical results from the FIGHT trial were presented in a late-breaking oral presentation at the 2021 American Society of Clinical Oncology Gastrointestinal Cancers Virtual Annual Symposium, or the 2021 ASCO GI presentation. As of the September 28, 2020 data cutoff date for the 2021 ASCO GI presentation, the FIGHT trial demonstrated the following efficacy results for bemarituzumab in combination with mFOLFOX6 as compared to placebo in combination with mFOLFOX6:
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an increase in median PFS from 7.4 months in the placebo arm to 9.5 months in the bemarituzumab arm (hazard ratio 0.68; 95% confidence interval 0.44 - 1.04; p = 0.073);
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an increase in median OS from 12.9 months in the placebo arm to not reached in the bemarituzumab arm (hazard ratio 0.58; 95% confidence interval 0.35 - 0.95; p = 0.027); and
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an improvement in ORR of 13.1%, from 33.3% in the placebo arm to 46.8% in the bemarituzumab arm (95% confidence interval -29.0% to 2.8%; p = 0.106).
Additional analysis of the data showed a correlation between higher levels of FGFR2b overexpression and an increase in PFS and OS benefit in patients in the bemarituzumab arm, confirming both the importance of the FGFR2b target and the activity of bemarituzumab against the FGFR2b target.
The incidence of all of the following adverse events was comparable between patients in the bemarituzumab treatment arm and patients in the placebo arm of the study: adverse events of any grade (100% vs. 98.7%, respectively), serious adverse events (31.6% vs. 36.4%, respectively) and deaths due to adverse events (6.6% vs. 5.2%, respectively). Stomatitis (31.6% vs 13.0%) and elevated transaminases (34.2% vs 19.5%) were more common in the bemarituzumab arm as compared to the placebo arm of the study. Treatment-emergent adverse events that were grade 3 or higher were also more frequently reported in patients receiving bemarituzumab in combination with mFOLFOX6 (82.9%) as compared to patients receiving placebo in combination with mFOLFOX6 (74.0%).
Ocular events are common in therapies targeting FGFR and were also reported in the FIGHT trial. As expected, corneal events were reported more frequently in the bemarituzumab arm (67.1% vs 10.4%), with the most common being dry eye (26.3%), keratitis (15.8%) and punctate keratitis (14.5%). More patients discontinued bemarituzumab (34.2%) compared to placebo (5.2%) due to an adverse event, and the majority of these patients (21 of 26 patients) discontinued bemarituzumab due to an ocular event. The discontinuation of bemarituzumab due to an ocular event decreased the median duration of exposure to bemarituzumab by 3.2 weeks; from 25.3 weeks (n=55, range: 2.0 to 71.7 weeks) for patients who did not experience an ocular event to 22.1 weeks (n=21, range: 12.0 to 46.7 weeks) for patients who experienced an ocular event. There were no reported treatment-emergent adverse events of retinal pigment epithelial detachment or hyperphosphatemia in patients receiving bemarituzumab in combination with mFOLFOX6.
The data observed in the FIGHT trial support the advancement of the development of bemarituzumab as a potential treatment for FGFR2b+, non-HER2+ gastric and GEJ cancer. Accordingly, we plan to initiate a Phase 3 clinical trial of bemarituzumab in gastric and GEJ cancer by the end of 2021. For future clinical trials of bemarituzumab, we plan to work closely with investigators and advisors to incorporate best practices based on our findings from the FIGHT trial to better identify and minimize the occurrence of corneal adverse events and to manage these events when they do occur, including baseline eye exams, prophylactic lubricating eye drops and close monitoring for signs and symptoms of corneal toxicity, including dry eye.
In addition, we believe the FIGHT data support the potential development of bemarituzumab in other epithelial cancers that overexpress FGFR2b, including non-small cell lung cancer, breast cancer and ovarian cancer. We plan to initiate clinical development of bemarituzumab in other epithelial cancers that overexpress FGFR2b by the end of the year.
Market Opportunity
Globally, gastric cancer is the fifth most common malignancy with the third highest mortality. It is estimated that nearly 500,000 patients were diagnosed with gastric or GEJ cancer in 2020 globally. Of these patients, approximately 330,000 patients were diagnosed with advanced-stage disease, of which approximately 260,000 are diagnosed with HER2- metastatic gastric or GEJ cancer, and nearly 75,000 of these patients have FGFR2b+ cancers. No new frontline therapies have been approved for these patients in over a decade, and systemic chemotherapy remains the standard of care. We believe bemarituzumab has the potential to offer new advancements in the treatment of FGFR2b+, HER2- metastatic gastric or GEJ cancers.
In June 2016, the U.S. Food and Drug Administration, or the FDA, granted Orphan Drug Designation to bemarituzumab for the treatment of gastric cancer, including GEJ cancer, in patients whose tumors overexpress FGFR2b.
In addition to gastric and GEJ cancer, the literature have reported meaningful FGFR2b overexpression in numerous other epithelial tumors, including non-small cell lung cancer, breast cancer and ovarian cancer. We believe the data we observed in the FIGHT trial support the potential development of bemarituzumab in these and other cancers that overexpress FGFR2b.
Under our China collaboration agreement, we granted Zai Lab an exclusive license to develop bemarituzumab in China, Hong Kong, Macau and Taiwan. We plan to continue to seek strategic collaborators to develop and commercialize bemarituzumab in other territories. We plan to retain the right to commercialize or co-commercialize bemarituzumab in the United States.
FPT155
FPT155 is a soluble CD80-Fc fusion protein. CD80 is a member of the B7 family of checkpoint inhibitors that is involved in modulating T cell priming and activation. This program came from our in vivo screens, which demonstrated that a soluble form of CD80 had potent in vivo anti-tumor activity when compared with 500 other immune-related proteins. FPT155 uses the binding interactions of soluble CD80 to (i) block CTLA-4 from competing for endogenous CD80, allowing CD28 signaling to prevail in T cell activation in the tumor microenvironment and (ii) directly engage CD28 to enhance its co-stimulatory T cell activation activity without inducing super agonism.
Clinical Development of FPT155
We are conducting a Phase 1a/1b clinical trial of FPT155 in patients with solid tumors. We have completed enrollment of patients at the 560 mg (flat dosing every 3 weeks) monotherapy dose level and have begun enrolling patients at the 840 mg (flat dosing every 3 weeks) monotherapy dose level. We have observed pharmacodynamic biomarker data in the Phase 1a dose escalation portion of the trial that show expansion of central memory T cells in the blood, which is consistent with the predicted mechanism of action of FPT155 that has been observed in preclinical studies.
As part of the trial, we have also tested FPT155 as monotherapy in exploratory cohorts with tumor types and at dose levels at which we have not observed any dose-limiting toxicities and at which we have observed efficacy in preclinical models, with the objective of gaining additional data on safety, pharmacokinetics and potential preliminary single-agent clinical activity of FPT155. In this exploratory cohort, we enrolled patients with tumors likely to have T cell infiltration, which are commonly referred to as “warm” or “hot” tumors.
Although we anticipate single-agent activity of FPT155, early safety data we have observed in the trial and preclinical data suggest that FPT155 may be safely combined with an anti-PD-1 therapy, and that the combination will be synergistic. Accordingly, we are evaluating patients in a dose escalation cohort in the Phase 1a portion of the trial to evaluate the combination of FPT155 and pembrolizumab in patients with PD(L)-1 treated non-small cell lung cancer. We are currently enrolling patients in the third combination cohort (280 mg of FPT155 flat dosing every three weeks). We plan to follow the dose escalation of the combination with an expansion cohort evaluating a selected dose of FPT155 in combination with pembrolizumab in the same patient population.
We expect to determine the development path for FPT155 in “warm” and “hot” tumors in 2021 based on monotherapy clinical results at the 560mg and 840mg dose levels and combination clinical results from the ongoing dose escalation.
BMS-986258
BMS-986258 is a fully human monoclonal antibody against TIM-3, an immune checkpoint receptor that is known to limit the duration and magnitude of T cell responses. BMS-986258 binds to TIM-3 that is expressed on certain T cells, including tumor infiltrating lymphocytes. This abrogates T cell inhibition, activates antigen-specific T lymphocytes and enhances cytotoxic T cell-mediated tumor cell lysis, which together result in decreased tumor growth. BMS-986258 is BMS’s first clinical candidate arising from our March 2014 immuno-oncology research collaboration.
Clinical Development of BMS-986258
BMS is conducting a Phase 1/2 clinical trial of BMS-986258 in combination with Opdivo and in combination with Halozyme Therapeutics, Inc.’s rHuPH20 in patients with advanced malignant tumors (NCT03446040).
Preclinical Programs
FPA157
FPA157 is an anti-CCR8 antibody that is engineered to eliminate CCR8-expressing CD4+ regulatory T cells within solid tumors. This program originated from an in-house screen that we used to identify extracellular targets preferentially expressed by CD4+ regulatory T cells that reside within tumors. Preclinical efficacy studies performed in mouse models confirmed that depletion of CCR8-expressing intratumoral regulatory T cells yields a potent anti-tumor response. We believe FPA157 will provide therapeutic benefit to patients by removing the restraints that intratumoral regulatory T cells impose on anti-tumor immunity, and that these effects may be distinct from the PD-1 pathway.
We are currently conducting IND-enabling activities for FPA157.
Late-Stage Research Programs
We currently have two late-stage research programs that arose from our work with our discovery capabilities. We expect to advance each of our late-stage research programs through preclinical development relying mostly on outsourced and contracted capabilities.
Collaborations and License Agreements
A part of our strategy is to establish collaborations with strategic partners. These collaborations allow us to supplement our development, manufacturing, regulatory and commercialization capabilities to broaden and accelerate clinical development and commercialization of our product candidates, provide us with significant funding to advance our pipeline and validate our technology.
In addition, our strategy for supplementing our ongoing development pipeline from time to time is to selectively acquire or license, on an exclusive basis, rights to develop product candidates from biotechnology and pharmaceutical companies. We continue to evaluate for potential acquisition or licensing assets that are IND-ready or in early clinical development and that we can leverage our in-house development capabilities to develop to data read-outs in the near- to medium-term. Our primary focus remains on oncology therapeutics.
A summary of our key product, clinical and discovery collaborations and license agreements is set forth below. For information regarding the financial terms of the following agreements, including amounts we have received through December 31, 2020, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Overview - Collaboration and License Revenue.”
Collaborations
Zai Lab China License and Collaboration Agreement
In December 2017, we entered into the China collaboration agreement with Zai Lab, pursuant to which we granted Zai Lab an exclusive license to develop and commercialize bemarituzumab, and all fragments, conjugates, derivatives and modifications thereof, or the licensed antibody, in China, Hong Kong, Macau, and Taiwan, each a region, and collectively, the territory.
Under the terms of the China collaboration agreement, Zai Lab will be responsible, at its expense, for (i) developing and commercializing products containing the licensed antibody, each, a licensed product, under a territory development plan, and (ii) performing certain development activities to support our global development and registration of licensed products, including the FIGHT trial, in the territory, under a global development plan. In addition, Zai Lab agreed to reimburse us for certain global development activities, which is limited to a maximum of $10.0 million, and certain costs for the development of companion diagnostics.
In January 2018, pursuant to the terms of the China collaboration agreement, Zai Lab paid us a $5.0 million non-refundable and non-creditable upfront fee ($4.2 million after netting value-added tax withholdings). Additionally, pursuant to the China collaboration agreement, with respect to each licensed product, we will be eligible to receive up to $39.0 million in specified developmental and regulatory milestone payments.
Zai Lab will also be obligated to pay us a royalty, on a licensed product-by-licensed product and region-by-region basis, in the high teens or low twenties, depending on the number of patients Zai Lab enrolled in the FIGHT trial, subject to reduction in certain circumstances, on net sales of each licensed product in the territory until the latest of (i) 11 years after the first commercial sale of such licensed product in such region, (ii) the expiration of certain patents covering such licensed product in such region, and (iii) the date on which any applicable regulatory, pediatric, orphan drug or data exclusivity with respect to such licensed product expires in such region. We cannot determine the date on which Zai Lab’s potential royalty payment obligations to us would expire because Zai Lab has not yet developed any licensed products under the agreement, and we therefore cannot at this time identify the date of the first commercial sale of or expiration of any related patents covering or regulatory exclusivity periods with respect to any licensed products.
Under the China collaboration agreement, provided that Zai Lab enrolls and treats a specified number of patients in the FIGHT trial in China, Zai Lab is eligible to receive a low single-digit percentage royalty, on a licensed product-by-licensed product basis, on net sales of a licensed product outside the territory until 10 years after the first commercial sale of each such licensed product outside the territory.
Unless earlier terminated by either party, the China collaboration agreement will expire on a licensed product-by-licensed product and region-by-region basis upon the expiration of Zai Lab’s payment obligations with respect to each licensed product under the agreement. Zai Lab may terminate the agreement in its entirety at any time with advance written notice. Either party may terminate the agreement in its entirety with written notice for the other party’s material breach if such party fails to cure the breach. We may terminate the agreement in its entirety with written notice for Zai Lab’s material breach of its diligence obligations with respect to development and obtaining marketing approval, and may terminate the agreement on a region-by-region basis for Zai Lab’s breach of its diligence obligations with respect to timely commercialization of a licensed product in a region following marketing approval. We may terminate the agreement in its entirety if Zai Lab or its affiliates or sublicensees commences a legal action challenging the validity, enforceability or scope of any of our patents in the territory. Either party also may terminate the agreement in its entirety upon certain insolvency events involving the other party.
BMS Immuno-oncology Research Collaboration
In March 2014, we entered into a research collaboration and license agreement, or the immuno-oncology research collaboration, with BMS pursuant to which we and BMS are collaborating to carry out a research program to (i) discover novel interacting proteins in two undisclosed immune checkpoint pathways using our target discovery platform, (ii) further the understanding of target biology with respect to targets in these checkpoint pathways, and (iii) discover and pre-clinically develop compounds suitable for development for human therapeutic uses against targets in these checkpoint pathways. Based on data arising from our initial screens, in January 2016, we amended the immuno-oncology research collaboration to add an additional undisclosed checkpoint pathway to the research program, for a total of three immune checkpoint pathways.
In December 2017, we earned a $5.0 million milestone payment under the discovery collaboration agreement in connection with BMS’s filing of an IND for BMS-986258, BMS’s anti-TIM-3 antibody. This antibody is BMS’s first clinical candidate arising from the collaboration.
The initial three-year research term of the immuno-oncology research collaboration ended in March 2017. BMS exercised its option to extend the research term to March 2018 and then again to extend the research term for an additional year to March 2019. BMS agreed to provide us with funding for our additional research during the extended term. BMS does not have the right to extend the research term beyond March 2019.
In connection with entering into the immuno-oncology research collaboration, BMS paid us an upfront payment of $20.0 million. We are eligible to receive up to $240.0 million per collaboration target in specified developmental-, regulatory- and commercialization-related contingent payments comprising aggregate developmental-related contingent payments of up to $53.0 million, aggregate regulatory-related contingent payments of up to $74.0 million and aggregate commercialization-related contingent payments of up to $113.0 million. We are also eligible to receive up to $60.0 million in sales-based contingent payments per collaboration product.
For each commercialized product under the immuno-oncology research collaboration that is directed toward a target in a checkpoint pathway, BMS is also obligated to pay us tiered mid-single digit to low double-digit percentage royalties, subject to reduction in certain circumstances, on net sales of such product for the longer of (i) 12 years after the first commercial sale of such product, (ii) the life of certain licensed patents covering such product or (iii) the date on which any applicable regulatory, pediatric, orphan drug or data exclusivity with respect to such product expires. We cannot determine the date on which BMS’s potential royalty payment obligations to us would expire because BMS has not yet commercialized any products under the immuno-oncology research collaboration, and we therefore cannot identify the date of the first commercial sale of or expiration of any related patents covering such product.
Unless earlier terminated by either party, the immuno-oncology research collaboration will expire on a product-by-product and country-by-country basis upon the expiration of all of BMS’s payment obligations under the immuno-oncology research collaboration agreement. BMS may terminate the immuno-oncology research collaboration agreement in its entirety or on a collaboration target-by-collaboration target basis at any time with advance written notice. Either party may terminate the immuno-oncology research collaboration agreement in its entirety or on a collaboration target-by-collaboration target basis with written notice for the other party’s material breach if such other party fails to timely cure the breach. Either party also may terminate the immuno-oncology research collaboration agreement in its entirety upon certain insolvency events involving the other party.
License Agreements
License Agreement with Galaxy
In December 2011, we entered into a license agreement with Galaxy Biotech LLC, or Galaxy, pursuant to which Galaxy granted us an exclusive worldwide license to develop and commercialize FGFR2b antibodies, including bemarituzumab. Under the license agreement, we are obligated to use commercially reasonable efforts to develop and commercialize at least one licensed product in at least one tumor indication.
In May 2016, we amended the license agreement to revise certain milestone definitions, reduce certain milestone payments and add certain development-related milestone payments that were triggered by dosing of certain patients in the Phase 1 clinical trial of bemarituzumab, which milestones were deemed achieved as of December 31, 2016. In May 2017, we further amended the license agreement to align the net sales definition under the agreement to the net sales definition under any sublicense we may grant under the agreement and to amend the termination provisions to allow for a direct license between Galaxy and any sublicensee upon termination of the agreement.
Through December 31, 2020, we made milestone payments to Galaxy totaling $14.6 million. We are obligated to pay Galaxy additional milestone payments of up to $77.4 million, comprising aggregate intellectual property-related milestone payments of up to $3.0 million, aggregate development-related milestone payments of up to $17.5 million for development in two indications, aggregate regulatory-related milestone payments of up to $41.5 million for two indications and aggregate commercial-related milestone payments of up to $30.0 million. We are also obligated to pay tiered royalties on net sales of bemarituzumab from the high-single digits to the low-double digits.
Our license agreement with Galaxy will remain in effect until the expiration of our royalty obligations in all countries. For each licensed product, we are obligated to pay Galaxy royalties on net sales of such product on a country-by-country basis for the longer of the life of the licensed patents covering such licensed product in such country or 10 years after the first commercial sale of such licensed product in such country. We cannot determine the date on which our royalty payment obligations to Galaxy would expire because no commercial sales of bemarituzumab have occurred and the last-to-expire relevant patent covering bemarituzumab in a given country may change in the future. Galaxy currently has issued patents, which we have licensed, covering bemarituzumab in the United States, Europe, China, Japan and other countries that expire in 2029. Further patents may issue from pending patent applications in these and other countries and these patents would expire in 2029. These patent expiration dates do not reflect any patent term adjustments or extensions that may be available.
We may terminate the license agreement for convenience in its entirety or on a country-by-country basis upon prior written notice to Galaxy. Either party may terminate the license agreement in its entirety or with respect to certain countries after the first commercial sale of a licensed product in certain circumstances in the event of an uncured material breach by the other party. Either party may terminate the license agreement in the event of the other party’s filing or institution of bankruptcy, reorganization, liquidation or receivership proceedings or upon an assignment of a substantial portion of its assets for the benefit of creditors. Galaxy may terminate the license agreement if we or any of our affiliates challenge the validity or enforceability of any patent licensed to us by Galaxy under the license agreement or if we aid or assist any affiliate or third party in such a challenge other than as required by law.
Non-Exclusive License with BioWa-Lonza
In February 2012, we entered into a license agreement with BioWa, Inc. and Lonza Sales AG, or BioWa-Lonza, pursuant to which BioWa-Lonza granted us a non-exclusive license to use their Potelligent® CHOK1SV technology, including the CHOK1SV cell line, and a non-exclusive license to related know-how and patents. This license is necessary to produce our bemarituzumab antibody.
Under the agreement, we made milestone payments to BioWa-Lonza totaling $1.2 million through December 31, 2020. We are obligated to pay BioWa-Lonza additional milestone payments of up to $24.7 million for regulatory and commercialization milestones achieved in our bemarituzumab antibody program. We are also obligated to pay BioWa-Lonza tiered royalties on net sales of bemarituzumab up to mid-single digit percentages of the proceeds of such sales.
Our license agreement with BioWa-Lonza will remain in effect until the expiration of our royalty obligations. For each licensed product, we are obligated to pay BioWa-Lonza royalties on net sales of such licensed product on a country-by-country basis for the longer of the life of the licensed patents covering such licensed product in such country or 10 years after the first commercial sale of such licensed product in a major market country, which includes the United States. However, because we believe the last-to-expire patents currently licensed to us under the license agreement would expire in less than 10 years, we believe the date on which our royalty payment obligations to BioWa-Lonza would expire in any country would be 10 years after the first commercial sale of such product in a major market country.
We may terminate the license agreement for convenience subject to our continuing obligation to pay royalties. BioWa-Lonza may terminate the license agreement in the event of our uncured material breach, if we oppose or dispute the validity of patents licensed to us under the license agreement or if we are declared insolvent, make an assignment for the benefit of creditors, are the subject of bankruptcy proceedings or have a receiver or trustee appointed for substantially all our property.
Intellectual Property
Our intellectual property is critical to our business and we strive to protect it, including by obtaining and maintaining patent protection in the United States and internationally for our product candidates and other biological discoveries relating to new targets, pathways and relevant inventions and technologies that are important to our business. For our product candidates, we generally initially pursue patent protection covering both compositions of matter and methods of use.
Throughout the development of our product candidates, we seek to identify additional means of obtaining patent protection that would potentially enhance commercial success, including through additional methods of use, combination therapy, biomarker and companion diagnostic related claims. We also rely on trade secrets relating to our product candidates and seek to protect and maintain the confidentiality of proprietary information to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.
Our success will also depend significantly on our ability to obtain rights to intellectual property held by third parties that may be necessary or useful to our business, including for the discovery, development and commercialization of our product candidates. We generally obtain rights to third-party intellectual property through exclusive or non-exclusive licenses. For example, we entered into a non-exclusive license with BioWa-Lonza to use their proprietary protein expression and cell line technology, which is necessary to produce certain of our product candidates. If we are not able to obtain rights to intellectual property held by third parties that are necessary or useful to our business, our business could be harmed, possibly materially.
The patent positions of biotechnology companies like ours are generally uncertain and involve complex legal, scientific and factual questions. In addition, the coverage claimed in a patent application can be significantly limited before the patent is issued, and its scope can be reinterpreted after issuance. Consequently, we may not obtain or maintain adequate patent protection for any of our product candidates. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient proprietary protection from competitors. Any patents that we hold may be challenged, circumvented or invalidated by third parties. For a more comprehensive discussion of the risks related to our intellectual property, please see “Risk Factors - Risks Related to Our Intellectual Property.”
The patent portfolios for our most advanced programs are summarized below:
Bemarituzumab
Our bemarituzumab patent portfolio includes patents and patent applications we exclusively licensed from Galaxy, as well as U.S. and foreign patents and patent applications wholly owned by us. The patent portfolio covers compositions of matter, methods of use, companion diagnostics, combination therapies and formulations relating to bemarituzumab. The issued U.S. patents and issued foreign patents, covering compositions of matter and methods of use, expire between 2029 and 2034. Patents that may issue from the pending U.S. and foreign applications would expire between 2029 and 2039.
FPT155
Our patent portfolio for FPT155 includes pending U.S. and foreign patent applications wholly owned by us. Those pending applications cover compositions of matter, methods of use, combination therapies, biomarkers and formulations relating to FPT155. The issued U.S. patent covering compositions of matter and methods of use, expires in 2036. Patents that may issue from the pending U.S. and foreign applications would expire between 2036 and 2041.
Manufacturing
We currently have process development capabilities. Historically, we generally performed cell line and process development for our product candidates and manufactured quantities of our product candidates necessary to conduct preclinical studies of those product candidates. We expect to increasingly rely on third-party service providers and may in the foreseeable future outsource all or a portion of the cell line and process development activities that we currently conduct, as well as the manufacturing of quantities of our product candidates for use in preclinical studies. We do not have and do not currently plan to acquire or develop the facilities or capabilities to manufacture bulk drug substance or filled drug product for use in human clinical trials or commercialization. We rely on third-party manufacturers to produce bulk drug substance required for our clinical trials and expect to continue to rely on third parties to manufacture clinical trial drug supplies for the foreseeable future. We also contract with additional third parties for the filling, labeling, packaging, storage and distribution of investigational drug products. We have personnel with significant technical, manufacturing, analytical, quality and project management experience to oversee our third-party manufacturers and to manage manufacturing and quality data and information for regulatory compliance purposes.
We must manufacture drug product for clinical trial use in compliance with current Good Manufacturing Practices, or cGMP. cGMP regulations include requirements relating to organization of personnel, buildings and facilities, equipment, control of components and drug 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. The manufacturing facilities for our products must meet cGMP requirements and FDA satisfaction before any product is approved. Our third-party manufacturers and their facilities are also subject to periodic inspections by the FDA and other authorities to assess our and their compliance with applicable regulations, including inspection and review of the procedures and operations used in the testing and manufacture of our products. Failure to comply with statutory and regulatory requirements subjects a manufacturer to possible legal or regulatory action, including warning letters, the seizure or recall of products, injunctions, consent decrees placing significant restrictions on or suspending manufacturing operations and civil and criminal penalties. These actions could have a material impact on the availability of our products. Contract manufacturers often encounter difficulties involving production yields, quality control and quality assurance, as well as shortages of qualified personnel.
Commercialization
We have not yet established sales, marketing or product distribution operations. We generally expect to retain some commercial rights in the United States for our product candidates in specialty markets.
Competition
The biotechnology and pharmaceutical industries are characterized by continuing technological advancement and significant competition. While we believe that our product candidates, technology, knowledge, experience and scientific resources provide us with competitive advantages, we face competition from major pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research institutions, among others. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. Key product features that would affect our ability to effectively compete with third-party therapeutics include the efficacy, safety and convenience of our products and the ease of use and effectiveness of any companion diagnostics. The level of generic competition and the availability of reimbursement from government and other third-party payors will also significantly affect the pricing and competitiveness of our products. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.
The acquisition and licensing of pharmaceutical product candidates is also very competitive. More established companies that have strategies to license or acquire products may have competitive advantages over us, as may other emerging companies that take similar or different approaches to product acquisitions and licensing.
Many of the companies against which we may compete have significantly greater financial resources and expertise in development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific, clinical and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
Government Regulation and Product Approval
In the United States, the FDA regulates protein therapeutics like bemarituzumab, FPT155, FPA157 and our other product candidates as biological drug products, or biologics, under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act and related regulations. Biologics are also subject to other federal, state and local statutes and regulations. Failure to comply with the applicable United States regulatory requirements at any time during the product development or approval process or after approval may subject an applicant to administrative or judicial actions. These actions could include the suspension or termination of clinical trials by the FDA or an Institutional Review Board, or IRB, the FDA’s refusal to approve pending applications or supplements, revocation of a biologics license, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, import detention, injunctions, civil penalties or criminal prosecution. Any administrative or judicial action involving us or our product candidates could have a material adverse effect on us.
The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements on the clinical development, manufacture and marketing of biologics. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, quality control, effectiveness, safety, purity, potency, labeling, storage, distribution, recordkeeping and reporting, approval, import and export, advertising and promotion and post-market surveillance of biologics, including our current and potential future product candidates.
The FDA’s and comparable regulatory agencies’ policies may change and additional government regulations may be enacted that could prevent or delay regulatory approval of any current or future product candidates or approval of product or manufacturing changes, new disease indications, or label changes. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the United States or abroad.
Biologics Product Development
The process required by the FDA before biologics may be marketed in the United States generally involves the following:
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Preclinical laboratory and animal testing;
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submission of an Investigational New Drug, or IND, application, which must become effective before clinical trials can begin;
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adequate and well-controlled human clinical trials to establish the safety, purity and potency of the proposed biologic for its intended use or uses;
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pre-approval inspection of manufacturing facilities and clinical trial sites; and
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FDA approval of a Biologics License Application, or BLA, which must occur before a biologic can be marketed or sold.
The testing and approval process requires substantial time and financial resources, and we cannot be certain that any new approvals for our product candidates will be granted on a timely basis, if at all.
Before testing any compound in human subjects, a company must develop extensive preclinical data. Preclinical testing generally includes laboratory evaluation of product chemistry and formulation as well as toxicological and pharmacological studies in several animal species to assess the quality and safety of the product. Animal studies must be performed in compliance with the FDA’s Good Laboratory Practice, or GLP, regulations and the United States Department of Agriculture’s Animal Welfare Act and related regulations.
Prior to commencing the first clinical trial in humans, an IND application must be submitted to the FDA. A company must submit preclinical testing results to the FDA as part of the IND, and the FDA must evaluate whether there is an adequate basis for testing the drug in humans. The IND application automatically becomes effective 30 days after receipt by the FDA unless, within the 30-day time period, the FDA raises concerns or questions about the conduct of the clinical trial and places the trial on clinical hold. In such case, the sponsor of the IND application must resolve any outstanding concerns with the FDA before the clinical trial can begin. Further, an independent IRB for each site proposing to conduct the clinical trial must review and approve the clinical trial plan before the trial commences at that site. Informed consent must also be obtained from each trial subject. Regulatory authorities, an IRB, a data safety monitoring board or the study sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable safety risk.
A clinical trial sponsor is required to submit to the National Institutes of Health, or NIH, for public posting on NIH’s clinical trial website details about certain active clinical trials and clinical trial results. For purposes of BLA approval, human clinical trials are typically conducted in the following phases, which may overlap:
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Phase 1 - the biologic is initially given to healthy human subjects or patients and tested for safety, dosage tolerance, reactivity, absorption, metabolism, distribution and excretion. These trials may also provide early evidence of effectiveness. During Phase 1 clinical trials, sufficient information about the investigational product’s effects may be obtained to permit the design of well-controlled and scientifically valid Phase 2 clinical trials.
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Phase 2 - clinical trials are conducted in a limited number of patients in the target population to identify possible adverse effects and safety risks, to determine the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more expensive Phase 3 clinical trials.
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Phase 3 - when Phase 2 clinical trials demonstrate that a dosage range of the product appears effective and has an acceptable safety profile and provide sufficient information for the design of Phase 3 clinical trials, Phase 3 clinical trials are undertaken to provide statistically significant evidence of clinical efficacy and to further test for safety in an expanded patient population at multiple clinical trial sites. Phase 3 clinical trials are performed after preliminary evidence suggesting effectiveness of the drug has been obtained, and are intended to further evaluate dosage, effectiveness and safety, to establish the overall benefit-risk relationship of the investigational drug and to provide an adequate basis for product approval by the FDA.
All clinical trials must be conducted in accordance with Good Clinical Practice, or GCP, requirements in order for the resulting data to be considered reliable for regulatory purposes.
The Biologics License Application Approval Process
In order to obtain approval to market a biologic in the United States, a BLA that provides data establishing to the FDA’s satisfaction the safety and effectiveness of the investigational product for the proposed indication must be submitted to the FDA. Each BLA submission requires a substantial user fee payment unless a waiver or exemption applies. The application includes all relevant data available from pertinent nonclinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to, among other things, the product’s chemistry, manufacturing, controls and proposed labeling. The application may include data from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a product, as well as supplemental data from alternative sources, including studies initiated by investigators.
The FDA will initially review a BLA for completeness before it accepts such BLA for filing. Under the FDA’s procedures, the agency has 60 days from its receipt of a BLA, or the filing period, to determine whether the application will be accepted for filing based on the agency’s threshold determination that the application is sufficiently complete to permit substantive review. After the BLA submission is accepted for filing, the FDA reviews the BLA to determine, among other things, whether the proposed product is safe, efficacious, pure and potent, which includes determining whether the product is effective for its intended use, and whether the product is being manufactured in accordance with cGMP and in a manner that assures and preserves the product’s identity, strength, quality, potency and purity. The FDA may refer applications for novel products or products that present difficult questions of safety or efficacy to an advisory committee, which is typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and, if so, under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
During the approval process, the FDA will also determine whether a Risk Evaluation and Mitigation Strategy, or REMS, is necessary to assure that the benefits of the biologic outweigh its risks. Depending on what the FDA considers necessary for the safe use of the drug, a REMS may include various elements, ranging from a medication guide or patient package insert to training and certification requirements for prescribers and/or pharmacies to safe use conditions that must be in place before the drug is dispensed. If the FDA concludes that a REMS is needed, the BLA applicant must submit a proposed REMS that the FDA deems satisfactory in order for the FDA to approve the BLA.
The FDA’s standard review time for a BLA for a new molecular entity is 10 months from the end of the filing period. Based on pivotal clinical trial results submitted in a BLA, at the discretion of the FDA or upon the request of an applicant, the FDA may grant a priority review designation to a product, which sets the target date for FDA action on the application at six months from the end of the filing period. Priority review is given for a product that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness compared to marketed products or offer a therapy where no satisfactory alternative therapy exists. Priority review designation does not change the scientific or medical standard for approval or the quality of evidence necessary to support approval.
After the FDA completes its review of a BLA, it will either communicate to the sponsor that it will approve the product or issue a complete response letter to communicate that it will not approve the BLA in its current form and to inform the sponsor of changes that the sponsor must make or additional clinical, nonclinical or manufacturing data that must be received before the FDA can complete review and ultimately approve the application, with no implication regarding the ultimate approvability of the application. If a complete response letter is issued, the sponsor may either resubmit the BLA, addressing all deficiencies identified in the letter, or withdraw the application. Resubmitting a BLA in response to a complete response letter can add additional time to the approval process for a product.
Before approving a BLA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and are adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA may inspect one or more clinical trial sites to assure compliance with GCP. If the FDA determines the application, manufacturing process or manufacturing facilities are not acceptable, it typically will outline the deficiencies and often will request additional testing or information. This may significantly delay further review of the application. If the FDA finds that a clinical site did not conduct a clinical trial of the product in accordance with GCP, the FDA may determine the data generated by the site should be excluded from the primary efficacy analyses provided in the BLA. Additionally, notwithstanding the submission of any requested additional data or information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
The testing and approval process for a biologic requires substantial time, effort and financial resources and may take several years to complete. Data obtained from clinical activities are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely basis or at all. We may encounter difficulties or unanticipated costs in our efforts to secure necessary governmental approvals, which could delay or preclude us from marketing our products.
The FDA may require, or companies may pursue, additional clinical trials after a product is approved. These additional Phase 4 clinical trials may be made a condition to be satisfied for continuing product approval. The results of Phase 4 clinical trials can confirm the effectiveness of a product candidate and can provide important safety information. Conversely, the results of Phase 4 clinical trials can raise new issues of safety or effectiveness that were not apparent during the original review of the BLA for a product, which may result in product restrictions or even withdrawal of product approval. The FDA has express statutory authority to require sponsors to conduct post-marketing studies or clinical trials to specifically address safety issues identified by the FDA. If any of our products are subject to post-marketing requirements and commitments, there may be resource and financial implications for our business.
Even if a product candidate receives regulatory approval, the approval will be limited to specific disease states, patient populations or dosages, or might contain significant limitations on use in the form of warnings, precautions or contraindications, or in the form of onerous risk management plans, restrictions on distribution, or post-marketing study or clinical trial requirements. Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product, requirements to conduct additional studies or trials, or even complete withdrawal of the product from the market. In addition, we cannot predict what adverse governmental regulations may arise from future United States or foreign governmental action.
FDA Post-Approval Requirements
Any products manufactured or distributed by us or on our behalf pursuant to FDA approvals are subject to continuing regulation by the FDA, including requirements for recordkeeping, reporting of adverse experiences with the biologic, and submitting biological product deviation reports to notify the FDA of unanticipated changes in distributed products. Manufacturers are required to register their facilities with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP standards. As a result, we and our third-party manufacturers must implement certain quality processes, and manufacturing controls and comply with documentation requirements in order to ensure that any approved product is safe and has the identity and strength, and meets the quality, purity and potency characteristics, that it purports to have. Certain states also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, some of which require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. We cannot be certain that we or our present or future suppliers will be able to comply with cGMP and other FDA regulatory requirements. If our present or future suppliers are not able to comply with these requirements, the FDA may halt our clinical trials, refuse to approve any BLA or other application, force us to recall a drug from distribution, shut down manufacturing operations or withdraw approval of the BLA for any affected biologic. Noncompliance with cGMP or other requirements can result in issuance of warning letters, civil and criminal penalties, seizures, and injunctive action.
The FDA and other federal and state agencies closely regulate the labeling, marketing and promotion of drugs. While doctors may prescribe any product approved by the FDA for any use as long as consistent with any REMS restrictions, if applicable, a company can only make claims relating to safety and efficacy of a product that are consistent with FDA approval, and the company is allowed to market a drug only for the particular use and treatment approved by the FDA. In addition, any claims we make relating to our products in advertising or promotion must be appropriately balanced with important safety information and otherwise be adequately substantiated. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising, injunctions, potential civil and criminal penalties, criminal prosecution and agreements with governmental agencies that materially restrict the manner in which we may promote or distribute drug products. Government regulators, including the Department of Justice and the Office of the Inspector General of the Department of Health and Human Services, as well as state authorities, have recently increased their scrutiny of the promotion and marketing of drugs.
Orphan Drug and Orphan Medicinal Product Designation and Exclusivity
The Orphan Drug Act provides incentives for the development of products intended to treat rare diseases or conditions, which are generally diseases or conditions that affect fewer than 200,000 individuals in the United States. If a sponsor demonstrates that a biologic is intended to treat a rare disease or condition, the FDA will grant orphan designation for that product. Orphan designation must be requested before submitting a BLA.
Under the Pediatric Research Equity Act, or the PREA, submission of a pediatric assessment is not typically required for pediatric investigation of a product that has been granted orphan drug designation. However, under the FDA Reauthorization Act of 2017, the scope of the PREA was extended to require pediatric studies for products intended for the treatment of an adult cancer that are directed at a molecular target that the Secretary of Health and Human Services determines to be substantially relevant to the growth or progression of a pediatric cancer.
The benefits of orphan drug designation include research and development tax credits and exemption from FDA user fees. Orphan designation, however, does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. Generally, if a product that receives orphan designation is approved for the orphan indication, it receives orphan drug exclusivity, which prohibits the FDA from approving another product with the same active ingredient for the same use for seven years. Additionally, if a biologic designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan drug exclusivity.
Orphan drug exclusivity will not bar approval of another product under certain circumstances, including if a subsequent product with the same active ingredient for the same indication is shown to be clinically superior to the approved product on the basis of greater efficacy or safety, or provides a major contribution to patient care, or if the company with orphan drug exclusivity is not able to meet market demand. Further, the FDA may approve more than one product for the same orphan indication or disease as long as the products contain different active ingredients. As a result, even if one of our product candidates receives orphan drug exclusivity, the FDA can still approve other drugs that have a different active ingredient for use in treating the same indication or disease, which could create a more competitive market for us.
After the FDA grants orphan designation, the FDA publicly discloses the identity of the applicant, as well as the name of the therapeutic agent and its designated orphan use.
Similarly, the European Commission grants orphan medicinal product designation to products intended for the treatment, prevention or diagnosis of a disease that is life-threatening or chronically debilitating affecting not more than five in 10,000 people. In order to receive orphan designation, there must also be no satisfactory method of diagnosis, prevention or treatment of the condition, or if such a method exists, the medicine must be of significant benefit to those affected by the condition. In addition, sponsors are required to submit to the European Medicines Agency’s, or EMA’s, Pediatric Committee, or the PDCO, and comply with a pediatric investigation plan, or a PIP, in order to initiate pivotal clinical investigation and seek marketing authorization for pediatric use of the product in the EU.
Designated orphan medicinal products are entitled to a range of incentives during the development and regulatory review process, including scientific assistance for study protocols, a partial or total reduction in fees and eligibility for conditional marketing authorization. Once authorized, orphan medicinal products are entitled to 10 years of market exclusivity in all EU member states. However, marketing authorization may be granted to a similar medicinal product with the same orphan indication during the 10-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 of such product. Marketing authorization may also be granted to a similar medicinal product with the same orphan indication if the similar product is established to be safer, more effective or otherwise clinically superior to the original orphan medicinal product. After five years, a member state can request that the period of market exclusivity be reduced to six years if it can be demonstrated the criteria for orphan designation no longer apply and the medicine is sufficiently profitable. The period of market exclusivity may be extended by two years for medicines that have also complied with an agreed PIP.
Biologics Price Competition and Innovation Act of 2009
The Biologics Price Competition and Innovation Act of 2009, or BPCIA, created a licensure framework for biosimilars, which could ultimately subject our biological product candidates to competition from biosimilars. Under the BPCIA, a manufacturer may submit an abbreviated application for licensure of a biologic that is “biosimilar to” a referenced branded biologic. This abbreviated approval pathway is intended to permit a biosimilar to come to market more quickly and less expensively than if a “full” BLA were submitted by relying to some extent on the FDA’s previous review and approval of the reference biologic to which the proposed product is similar.
Under the BPCIA, a biosimilar sponsor’s ability to seek or obtain approval through the abbreviated pathway is limited by periods of exclusivity granted to the sponsor of the reference product. No biosimilar application may be submitted until four years after the date of approval of the reference product, and no such application, once submitted, may receive final approval until twelve years after that same date (with a potential six-month extension of exclusivity if certain pediatric studies are conducted and the results are reported to the FDA). Once approved, biosimilar products likely would compete with (and in some circumstances, may be deemed under the law to be “interchangeable with”) the previously approved reference product.
FDA Regulation of Companion Diagnostics
As part of our clinical development plans, we have engaged third-party collaborators to develop companion diagnostics to identify patients most likely to respond to certain of our product candidates. Companion diagnostics are classified as medical devices under the Federal Food, Drug, and Cosmetic Act in the United States. The FDA regulates medical device design and development, preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling, storage, reporting, recordkeeping, advertising and promotion, export and import, sales and distribution and post-market surveillance. Unless an exemption applies, companion diagnostics require marketing clearance or approval from the FDA prior to commercial distribution. The two primary types of FDA marketing authorization applicable to a medical device are premarket notification, also called 510(k) clearance, and premarket approval, or PMA. The use of companion diagnostics with therapeutic products raises important concerns about the safety and effectiveness of both the companion diagnostic devices and the corresponding therapeutic products and, therefore, the companion diagnostic will ordinarily require PMA before it is marketed. Because the companion diagnostic tests that we are developing or may develop in the future are essential for the safety and effective use of certain of our therapeutics, these diagnostic tests would be subject to the PMA approval process.
The PMA process is costly, lengthy and uncertain as to outcome. PMA applications must be supported by valid scientific evidence, which typically requires extensive data, including technical, preclinical, clinical and manufacturing data, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device. For companion diagnostic tests, a PMA application typically includes data regarding analytical and clinical validation studies. As part of its review of the PMA, the FDA will conduct a pre-approval inspection of the manufacturing facility or facilities to ensure compliance with the Quality System Regulation, which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures. FDA review of an initial PMA application is required by statute to take six months. If the FDA evaluations of both the PMA application and the manufacturing facilities are favorable, the FDA will either issue an approval letter or an approvable letter, which usually contains a number of conditions that must be met in order to secure final approval of the PMA. If the FDA’s evaluation of the PMA or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter. A not approvable letter will outline the deficiencies in the application, and where practical, will identify what is necessary to secure approval of the PMA. The FDA may also determine that additional clinical trials are necessary, in which case the PMA may be delayed for several months or years while such trials are conducted, after which the data are then submitted in an amendment to the PMA application. Once granted, a PMA may be withdrawn by the FDA if compliance with post-approval requirements, conditions of approval or other regulatory standards are not maintained or problems are identified following initial marketing.
We and any third party collaborator that we engage to develop companion diagnostics will work cooperatively to generate the data required for submission with the PMA application, and will remain in contact with the Center for Devices and Radiological Health, or CDRH, at the FDA to ensure that any changes in requirements are incorporated into the development plans. We anticipate that meetings with the FDA with regard to our drug product candidates, as well as companion diagnostic product candidates, will include representatives from the Center for Drug Evaluation and Research, or the CDER, and CDRH to ensure that the BLA and PMA submissions are coordinated to enable the FDA to conduct a parallel review of both submissions. FDA guidance addresses issues critical to developing companion diagnostics, such as biomarker qualification, establishing clinical validity, the use of retrospective data, the appropriate patient population and whether the FDA will require that the device and the drug be approved simultaneously. According to the guidance, if safe and effective use of a therapeutic product depends on a diagnostic, then the FDA generally will require approval or clearance of the diagnostic contemporaneously with the FDA’s approval of the therapeutic product. We plan to structure our programs for the development of our companion diagnostics to be consistent with this guidance.
In the European Economic Area, or the EEA, in vitro medical devices are required to conform with essential requirements by undergoing a conformity assessment procedure. The conformity assessment varies according to the type of medical device and its classification. For low-risk devices, the conformity assessment can be carried out internally, but for higher risk devices it requires the intervention of an accredited EEA Notified Body. If successful, the conformity assessment concludes with the drawing up by the manufacturer of an EC Declaration of Conformity entitling the manufacturer to affix the CE mark to its products and to sell them throughout the EEA. We expect our companion diagnostic will require a conformity assessment through an accredited EEA Notified Body, and that the data generated for the U.S. registration will be sufficient to satisfy the regulatory requirements for the European Union and other countries.
Coverage and Reimbursement
In both domestic and foreign markets, sales of any products for which we may receive regulatory approval will depend in part upon the availability of coverage and reimbursement from third-party payors. Such third-party payors include government health programs, such as Medicare and Medicaid, private health insurers and managed care providers and other organizations. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Assuming coverage is granted, the reimbursement rates paid for covered products might not be adequate. Even if favorable coverage status and adequate reimbursement rates are attained, less favorable coverage policies and reimbursement rates may be implemented in the future. The marketability of any products for which we may receive regulatory approval for commercial sale may suffer if the government and other third-party payors fail to provide coverage and adequate reimbursement to allow us to sell such products on a competitive and profitable basis. For example, under these circumstances, physicians may limit how much or under what circumstances they will prescribe or administer our products and patients may decline to purchase such products. This, in turn, could affect our ability to successfully commercialize our products and impact our profitability, results of operations, financial condition and future success.
The market for any product candidates for which we may receive regulatory approval will depend significantly on the degree to which these products are listed on third-party payors’ drug formularies or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included on such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a particular branded drug on their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available. In addition, because each third-party payor may individually establish coverage and reimbursement policies, obtaining coverage and adequate reimbursement can be a time-consuming and costly process. We may be required to provide scientific and clinical support for the use of any product to each third-party payor separately with no assurance that approval would be obtained, and we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost-effectiveness of our products. We cannot be certain that our product candidates will be considered cost-effective. This process could delay the market acceptance of any product candidates for which we may receive approval and could have a negative effect on our future revenues and operating results. Additionally, companion diagnostic tests that we or our collaborators may develop require coverage and reimbursement separate and apart from the coverage and reimbursement for their companion pharmaceutical or biologics products. Similar challenges to obtaining coverage and reimbursement, applicable to pharmaceutical or biologics products, will apply to companion diagnostic tests.
Anti-Kickback, False Claims, Physician Payments Sunshine and Other Healthcare Laws
In addition to FDA restrictions on marketing, several other types of U.S. state and federal laws are relevant to certain marketing practices in the pharmaceutical and medical device industries, including their interactions with healthcare providers. These laws include the federal Anti-Kickback Statute, false claims statutes, and the federal Physician Payments Sunshine Act and other healthcare laws. We are subject to these laws and they may affect our business. The federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, lease, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, formulary managers and other individuals and entities on the other hand. Violations of the federal Anti-Kickback Statute are punishable by imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal healthcare programs. The federal Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 and subsequent legislation, or collectively, the Affordable Care Act, among other things, amended the intent requirement of the federal Anti-Kickback Statute, such that a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in order to have violated the statute. In addition, the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the Federal False Claims Act. There are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions; however, the exceptions and safe harbors are drawn narrowly, and practices that do not fit squarely within an exception or safe harbor may be subject to scrutiny.
The federal False Claims Act prohibits, among other things, any person from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment to a government program, or knowingly making, or causing to be made, a false record or statement material to a false or fraudulent claim. Many pharmaceutical and other healthcare companies have faced investigations and private lawsuits and, in many cases, have agreed to significant and burdensome settlements under these laws for a variety of allegedly improper promotional and marketing activities, including inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates; providing free product to customers with the expectation that the customers would bill federal programs for the product; providing consulting fees and other benefits to physicians to induce them to prescribe products; or engaging in promotion for “off-label” uses. Federal False Claims Act violations may result in significant civil monetary penalties, including three times the damages incurred by the government from the violation and exclusion from participation in federal healthcare programs. The majority of U.S. states also have statutes or regulations similar to the federal Anti-Kickback Statute and federal False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, and in some states, apply regardless of the payor.
The federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and its implementing regulations, or HIPAA, imposes criminal liability for knowingly and willfully executing a scheme to defraud any healthcare benefit program, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, or knowingly and willfully making false statements relating to healthcare matters. HIPAA also imposes obligations on certain covered entities, which include healthcare providers, health plans and healthcare clearinghouses, as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information and their covered subcontractors, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information.
The federal Physician Payments Sunshine Act, being implemented as the Open Payments Program, requires certain manufacturers of products for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program to track payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as physician ownership and investment interests, and to publicly report such data. Beginning in 2022, applicable manufacturers will also be required to report information regarding payments and other transfers of value provided during the previous year to physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, anesthesiologist assistants, and certified nurse midwives. Manufacturers subject to the Open Payments Program must submit a report on or before the 90th day of each calendar year disclosing reportable payments made in the previous calendar year. Failure to comply with the reporting obligations may result in civil monetary penalties.
Several states now require pharmaceutical companies to report expenses relating to the marketing and promotion of pharmaceutical products in those states and to report gifts and payments to individual healthcare providers in those states. Some of these states also prohibit certain marketing-related activities, including the provision of gifts, meals, or other items to certain healthcare providers. Some states also require pharmaceutical companies to implement compliance programs or marketing codes and report information on the pricing of certain drugs. Certain state and local laws also require the registration of pharmaceutical sales representatives.
Because of the breadth of these laws and the narrowness of available statutory exceptions and regulatory exemptions, it is possible that some of our business activities could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the federal or state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including significant criminal or civil monetary penalties, damages, fines, imprisonment, exclusion from participation in government programs, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, private “qui tam” actions brought by individual whistleblowers in the name of the government, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.
Healthcare Reform
The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our product candidates profitably, even if they are approved for sale. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and expanding access. In the United States, the pharmaceutical and medical device industries have been a particular focus of these efforts and have been significantly affected by major legislative initiatives.
In March 2010, the Affordable Care Act was enacted, which includes measures that have changed the way healthcare is financed by both governmental and private insurers. There have been executive, judicial and Congressional challenges to certain aspects of the Affordable Care Act. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the Affordable Care Act have been signed into law. The Tax Cuts and Jobs Act of 2017, or the Tax Act, includes a provision that became effective January 1, 2019 and repealed the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year, which payment is commonly referred to as the “individual mandate.” In addition, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the Affordable Care Act-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminated the health insurer tax. The Bipartisan Budget Act of 2018, or the BBA, among other things, amended the Affordable Care Act, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” On December 14, 2018, a Texas U.S. District Court Judge ruled that the Affordable Care Act is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the Affordable Care Act are invalid as well. The U.S. Supreme Court is currently reviewing the case, although it is unknown when a decision will be made. Further, although the U.S. Supreme Court has not yet ruled on the constitutionality of the Affordable Care Act, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the Affordable Care Act marketplace. The executive order also instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the Affordable Care Act. It is unclear how the Supreme Court ruling, other such litigation and the healthcare reform measures of the Biden administration will impact the Affordable Care Act and our business.
Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. These changes include aggregate reductions to Medicare payments to providers of 2% per fiscal year pursuant to the Budget Control Act of 2011, which began in 2013, and due to subsequent legislative amendments to the statute, including the BBA, will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020 through March 31, 2021, unless additional Congressional action is taken. The American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
Further, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for products. At the federal level, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. It is unclear whether the Biden administration will work to reverse these measures or pursue similar policy initiatives. At the state level, legislatures are also increasingly passing legislation and implementing regulations designed to control pharmaceutical and biologics 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. It is also possible that additional governmental action will be taken in response to the COVID-19 pandemic.
Foreign Regulation
In addition to regulations in the United States, we are and will continue to be subject to a variety of foreign regulations governing our activities outside of the United States, including clinical trials and commercial sales and distribution of our product candidates. Whether or not we obtain FDA approval for a product candidate, we must obtain approval from the comparable regulatory authorities of foreign countries or economic areas, such as the European Union, before we may commence clinical trials or market products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly across jurisdictions, and the time required to obtain marketing approval in jurisdictions outside of the United States may be longer or shorter than that required for FDA approval.
Other Regulations
We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now or in the future.
Employees and Human Capital Resources
As of December 31, 2020, we had 51 full-time employees and no part-time employees. Of these employees, 27 were primarily engaged in research and development activities and 12 have an M.D. or a Ph.D. degree.
In October 2019, we implemented a corporate restructuring, pursuant to which we eliminated 63 positions across all functions. We completed this restructuring in 2020.
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees. The principal purposes of our equity and cash incentive plans are to attract, retain and reward personnel through the granting of stock-based and cash-based compensation awards in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities to achieve our objectives.
Corporate Information
Our principal corporate offices are located at 111 Oyster Point Boulevard, South San Francisco, California 94080 and our telephone number is (415) 365-5600. We were incorporated in December 2001 in Delaware and completed our initial public offering in September 2013.
Available Information
Our website address is www.fiveprime.com. We make available on our website, free of charge, this Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and our 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 Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or the SEC. The SEC maintains a website that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov. The information found on our website is not incorporated by reference into this Annual Report on Form 10-K or any other report we file with or furnish to the SEC.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
This Annual Report contains forward-looking information based on our current expectations. Because our business is subject to many risks and our actual results may differ materially from any forward-looking statements made by or on behalf of us, this section includes a discussion of important factors that could affect our business, operating results, financial condition and the trading price of our common stock. You should carefully consider these risk factors, together with all of the other information included in this Annual Report as well as our other publicly available filings with the Securities and Exchange Commission, or SEC. Such risks may be amplified by the COVID-19 pandemic and its potential impact on our business and the global economy.
Risks Related to Our Business and Industry
The ongoing COVID-19 pandemic, and efforts to reduce the spread of COVID-19, could adversely impact our business and operations, including our clinical trials.
In response to the ongoing COVID-19 pandemic and in an effort to control the spread of COVID-19, state and local authorities continue to mandate travel and other restrictions and issue “shelter-in-place” and similar orders, which, among other things, direct individuals to shelter at their places of residence, direct businesses and governmental agencies to cease non-essential operations at physical locations, prohibit certain non-essential gatherings, and require cessation of non-essential travel. In response to these public health directives and orders, in March 2020, our entire workforce, other than those whose job responsibilities require them to be physically present at our offices, transitioned to working remotely, which we have continued through the date of this Annual Report. The effects of the government orders and directives, together with our remote working arrangements, may negatively impact productivity, disrupt our business, delay the progress of our clinical and preclinical programs, and exacerbate other risks to our business, including an increased risk of cybersecurity incidents and unauthorized dissemination of confidential or other sensitive information relating to us or third parties. Although certain restrictions have been or may be lifted or loosened in certain geographic areas, failure to contain the disease and the occurrence of further outbreaks of COVID-19 has required reinstatement of restrictions in certain parts of the United States and globally, and the extent to which these restrictions will remain in effect and the duration of these restrictions are uncertain. In addition, while certain vaccines against COVID-19 have received preliminary emergency use authorization for use by the U.S. Food and Drug Administration, or FDA, and comparable foreign regulatory authorities, it is uncertain when vaccines will be widely available to the broader population and whether they will be widely adopted, which may further extend the duration of government restrictions. The magnitude of each of the risks to our business will depend, in part, on the duration and severity of the pandemic itself and the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and other similar, and perhaps more severe, disruptions in our operations could result from the pandemic and may negatively impact our business, operating results and financial condition.
Government orders and restrictions may also adversely impact the business operations of our collaborators, partners and service providers, including our CROs, that conduct most of the activities related to the conduct of our clinical trials and our CMOs that may produce our supply of drug product for use in our clinical trials and preclinical studies. If any of these third parties experience disruptions in their operations as a result of COVID-19, such as temporary facilities closures or suspension of services, the conduct of our clinical trials or preclinical studies could be delayed.
We do not currently expect that COVID-19 and the resulting government orders and restrictions will have a material impact on the supply of any of our product candidates or third-party drug products that may be used in our clinical trials or preclinical studies. However, if the ongoing COVID-19 pandemic persists and impacts our CMOs or other suppliers, or if the pandemic impacts essential distribution systems, we could experience disruptions to our supply chain and operations, and associated delays in the manufacturing and supply of our product candidates or third-party drug products, which would adversely impact our ability to conduct and complete our clinical trials and preclinical studies in accordance with our timelines or at all.
In addition, the ongoing COVID-19 pandemic may affect the initiation and conduct of our or our partners’ current and planned clinical trials. Clinical site initiation may also be delayed due to prioritization of hospital resources toward the COVID-19 pandemic, and patients enrolled in our clinical trials may not be able to receive treatment in accordance with the relevant clinical trial protocol if, for example, quarantines impede patient movement or interrupt healthcare services. Similarly, COVID-19 may negatively impact our ability to recruit and retain patients for participation in our clinical trials, and principal investigators and clinical site staff who, as healthcare providers, may have heightened exposure to COVID-19, may be unable to participate in or continue participating in our clinical trials, each of which would adversely impact our clinical trials and our ability to conduct our trials in accordance with our timelines.
Additionally, ongoing clinical trials may be negatively affected by the COVID-19 pandemic if we or our partners experience delays in or are required to delay or pause various aspects of our trials, including site initiation, patient recruitment and enrollment, patient dosing, distribution of clinical trial materials, trial monitoring, data collection, cleaning and reporting, or data analysis, as a result of limitations in employee resources, access to clinical trial sites or otherwise. Even if we are able to collect clinical data throughout the duration of the pandemic, the quality, completeness or interpretability of that data may be negatively affected, including as a result of deviations from the clinical trial protocol, disruptions in patient screening or dosing or disruptions in patient evaluations. As a result, we may be unable to conduct and complete our ongoing and planned clinical trials in a timely manner or at all, which may increase our costs and prevent us from completing development of and obtaining approval for and commercializing our product candidates.
The extent of the impact of the ongoing COVID-19 pandemic on our business, including on our clinical and preclinical programs, and the value of and market for our common stock is highly uncertain and will depend on future developments that cannot be predicted with confidence at this time, such as the ultimate duration, spread and severity of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the countries in which we and our collaborators, partners and service providers operate, including in the countries where we and our partners are conducting clinical trials, the effectiveness of actions taken globally to contain and treat the disease, including the widespread availability and adoption of safe and effective vaccines against COVID-19, and how quickly and to what extent normal economic and operating conditions resume. For example, if remote working arrangements for our business, or those of our partners or service providers, are extended for longer than we currently expect, we may need to reassess our priorities and our near- and longer-term corporate objectives. Accordingly, we do not yet know the full extent of potential delays or other effects on our business, healthcare systems or the global economy as a whole. However, these impacts, or any combination of them, could adversely affect our business, financial condition, results of operations and growth prospects.
In addition, to the extent the COVID-19 pandemic adversely affects our business and results of operations, it may heighten the other risks and uncertainties described in this “Risk Factors” section.
Our FIGHT trial evaluating the combination of bemarituzumab and mFOLFOX6 in patients with FGFR2b+, non-HER2+ gastric or GEJ cancer achieved all three efficacy endpoints. However, we will require substantial additional capital and resources to continue development of, seek regulatory approval for and commercialize bemarituzumab globally.
As discussed elsewhere in this Annual Report, in November 2020, we announced that all three primary and secondary endpoints in our global Phase 2 clinical trial evaluating bemarituzumab in combination with 5-fluorouracil, or 5-FU, leucovorin, and oxaliplatin, a standard of care chemotherapy regimen known as mFOLFOX6, as front-line treatment of patients with advanced FGFR2b+, non-HER2+ gastric or gastroesophageal junction, or GEJ, cancer, or the FIGHT trial, met pre-specified statistical significance (at a 2-sided alpha of 0.20) as compared to placebo in combination with mFOLFOX6.
We are evaluating pathways for further development and approval of bemarituzumab in combination with mFOLFOX6 as a potential treatment for FGFR2b+, non-HER2+ gastric or GEJ cancer and plan to advance discussions with regulatory authorities worldwide to determine next steps for the program. We plan to initiate a global Phase 3 clinical trial to further evaluate bemarituzumab in combination with mFOLFOX6 by the end of 2021. Based on the data observed in the FIGHT trial, we are also evaluating options for potential development of bemarituzumab in combination with standard of care chemotherapy and other therapeutic agents in other epithelial cancers that overexpress FGFR2b, including non-small cell lung cancer, breast cancer and ovarian cancer. We will require substantial additional capital in order to further develop, seek regulatory approval for and commercialize bemarituzumab, which we may not be able to obtain on reasonable terms or at all. We may also be required to increase our workforce, potentially at a rapid pace, develop expertise in areas with which we may have limited experience, such as in sales and marketing, and obtain access to additional commercial manufacturing capabilities to which we do not currently have access. Our inability to achieve any of the foregoing or to otherwise successfully complete development of bemarituzumab may result in delays in, or prevent us from, obtaining approval for and commercializing bemarituzumab.
If clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce meaningfully positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
Before obtaining marketing approval from regulatory authorities to sell our product candidates, we or our partners must conduct extensive clinical trials to demonstrate the safety and efficacy of such product candidates in humans. Clinical testing is expensive and difficult to design and implement, generally takes many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical studies and early clinical trials may not predict the success of later clinical trials and interim results of a clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in later-stage clinical trials due to lack of efficacy or unacceptable safety profiles of their product candidates, notwithstanding promising results in earlier trials. Even though we have already generated results from certain preclinical studies and clinical trials of our product candidates, we do not know whether the clinical trials of our product candidates that we or our partners may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market any of these product candidates in any particular jurisdiction or jurisdictions. If later-stage clinical trials for one or more of our product candidates do not produce favorable results, we or our partners may be unable to obtain regulatory approval for such product candidates.
Delays in clinical testing will delay the commercialization of our product candidates, increase our costs and harm our business.
We do not know whether any of our clinical trials will begin as and when planned, will need to be amended or restructured or will be completed on schedule, or at all. Our product development costs will increase if we experience delays in clinical testing. Significant clinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which would impair our ability to successfully commercialize our product candidates and may harm our business, results of operations and prospects. Events which may result in a delay in or unsuccessful completion of clinical development include:
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the impact of public health epidemics, such as the COVID-19 pandemic currently impacting countries worldwide;
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delays in reaching an agreement with or failure to obtain authorization from the FDA or other comparable regulatory authorities and institutional review boards, or IRBs;
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imposition of a clinical hold following an inspection of our manufacturing or clinical trial operations, including clinical trial sites, by the FDA or other comparable regulatory authorities, or a decision by the FDA, other comparable regulatory authorities, IRBs or us, or a recommendation by a data safety monitoring board, to suspend or terminate a clinical trial at any time for safety or other reasons;
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delays in reaching, or the inability to reach, agreement on acceptable terms with prospective CROs, clinical trial sites, laboratory service providers, companion diagnostic development partners, contract manufacturing organizations, or CMOs, and other service providers we may engage to support the conduct of our clinical trials or eventual commercialization of our products;
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deviations from the clinical trial protocol by clinical trial sites or investigators or failure to conduct a clinical trial in accordance with regulatory requirements;
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failure of third parties, such as CROs or other service providers, to satisfy their contractual duties or meet expected deadlines;
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delays in the testing, validation and manufacturing of product candidates and the delivery of these product candidates to clinical trial sites;
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for clinical trials testing combination treatment of our product candidates with third-party drug products, delays in procuring such third-party drug products and the delivery of such third-party drug products to clinical trial sites, or the inability to procure such third-party drug products at all;
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for clinical trials in selected patient populations, delays in identifying and auditing central or other laboratories that develop or use assays to identify eligible patients for our clinical trials, delays in the validation of such assays or their transfer to such laboratories, or the failure of the clinical trial, as designed, to enroll the patient population necessary to meet the primary endpoints of such clinical trial;
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with respect to patients in any of our clinical trials, delays in completing their participation in any such clinical trial or returning for post-treatment follow-up, or failure to complete such participation or return for such follow-up at all;
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the occurrence of side effects, disease progression or other events requiring patients to drop out of before completing their participation in our clinical trials;
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withdrawal of one or more clinical trial sites from our clinical trials, including as a result of any investigator ceasing his or her affiliation with any such site, changes to any applicable standard of care or the ineligibility of any such site to participate in our clinical trials;
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administrative actions or changes in government policies, laws or regulations affecting any aspect of the conduct of our clinical trials; or
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lack of adequate funding to continue our clinical trials.
For example, we have conducted and are in the process of completing the FIGHT trial in China in collaboration with Zai Lab (Shanghai) Co., Ltd., or Zai Lab. Zai Lab’s ability to conduct the FIGHT trial and any future clinical trial of bemarituzumab in combination with mFOLFOX6 in China depends on Zai Lab’s and our ability to comply with the government policies, laws and regulations applicable to conducting clinical trials in China. The government policies, laws and regulations in China are evolving rapidly, and changes to these policies, laws and regulations are difficult to predict. If any such government policies, laws or regulations in China evolve in a way that makes it more difficult or inefficient for us or Zai Lab to conduct the FIGHT trial or any such future clinical trial in China, we may experience delays in conducting such trials at clinical trial sites in China, which would delay our ability to obtain approval for and commercialize bemarituzumab.
In addition, in order to successfully conduct the FIGHT trial and any future clinical trial of bemarituzumab in combination with mFOLFOX6 in each country where the trial is taking place, we must obtain sufficient clinical supply of each component of mFOLFOX6 to administer the mFOLFOX6 regimen to patients in each such country. If we experience delays in obtaining or are unable to obtain sufficient supply of any component of the mFOLFOX6 regimen in any country, we may experience delays in conducting the FIGHT trial or any such future clinical trial at clinical trial sites in such country, which would delay our ability to obtain approval for and commercialize bemarituzumab.
Additionally, our and our partners’ ability to successfully and timely complete our clinical trials requires that patients be treated with the relevant product candidate in accordance with the clinical trial protocol for the clinical trial testing such product candidate, including the specific dosing schedules and other timelines set forth in such protocol. The impact of public health epidemics, such as the COVID-19 pandemic currently impacting countries worldwide, may delay or prevent patients from receiving treatment in accordance with the protocol and the required timelines, which could delay our clinical trials, or prevent us from completing our clinical trials at all, and harm our ability to obtain approval for such product candidate.
If we or our partners are unable to timely complete clinical development for any of our product candidates, we may incur additional costs and our ability to achieve development, regulatory, commercialization or sales milestones or to generate and receive royalties on product sales and product revenues for any such product candidate may be impaired.
If we or our partners are unable to timely enroll patients in our clinical trials, we will be unable to complete these trials on a timely basis.
The timely completion of clinical trials largely depends on the rate of patient enrollment. Many factors affect the rate of patient enrollment, including:
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the impact of public health epidemics, such as the COVID-19 pandemic currently impacting countries worldwide;
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the size and nature of the patient population;
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the number and location of clinical trial sites;
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competition with other companies for clinical trial sites or patients;
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the eligibility and exclusion criteria for the clinical trial;
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for clinical trials in selected patient populations, the ability and time required to properly identify for inclusion in the clinical trial the population of patients we seek to enroll;
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the design of the clinical trial;
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the ability to obtain and maintain patient consents;
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the failure of enrolled patients to complete their participation in the trial; and
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clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.
We currently face and will continue to face significant competition in recruiting patients for our and our partners’ current and future clinical trials, and we or our partners may be unable to timely enroll the patients necessary to complete clinical trials on a timely basis or at all.
In addition, enrollment in and the conduct of our clinical trials may be affected by the ongoing COVID-19 pandemic. For example, clinical site initiation and patient enrollment may be delayed due to prioritization of hospital resources towards the COVID-19 pandemic, and patients enrolled in our clinical trials may not be able to receive treatment in accordance with the relevant clinical trial protocol if, for example, quarantines impede patient movement or interrupt healthcare services. Similarly, COVID-19 may negatively impact our ability to recruit and retain patients for participation in our clinical trials, and principal investigators and clinical site staff who, as healthcare providers, may have heightened risk of exposure to COVID-19, may be unable or unwilling to participate in or continue participating in our clinical trials. Additionally, we may experience interruption of key clinical trial activities, such as clinical trial site monitoring and data collection, cleaning, reporting and analysis, due to limitations on travel, quarantines or social distancing protocols imposed or recommended by federal, state or local authorities, employers and others in connection with the COVID-19 pandemic, including reduced access to clinical trial sites resulting from such restrictions. As a result, we may face delays in meeting our anticipated timelines for our ongoing and planned clinical trials.
We may not successfully develop or commercialize our current or future product candidates, which may force us to terminate our development efforts for one or more programs.
The success of our business depends primarily upon our ability to develop and commercialize protein therapeutics. We currently have three late-stage research and preclinical programs, including FPA157, that arose from our work with our in-house discovery capabilities and validation and protein therapeutic generation and engineering capabilities, which we eliminated in 2019. In addition, we plan to supplement our ongoing development pipeline from time to time by selectively acquiring or licensing, on an exclusive basis, rights to product candidates from biotechnology and pharmaceutical companies.
Our efforts to preclinically develop potential new protein therapeutic candidates may initially show promise, yet fail to yield product candidates for clinical development or candidates that we successfully clinically develop and ultimately commercialize for numerous reasons, including the following:
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our research methodology may not successfully identify potential product candidates;
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our product candidates may yield unexpected results in research or preclinical studies that make such product candidates unsuitable for further development;
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product manufacturing difficulties may limit product yield or produce undesirable product characteristics that may increase our costs, cause delays or make our product candidates unmarketable;
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third parties on whom we may rely to generate antibody or other product candidates may fail to produce candidates that we can successfully validate or that have the characteristics necessary to become marketable product candidates;
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we may design one or more of our clinical trials in a way that makes it difficult or impossible to meet the primary endpoints of such trial, which could make further clinical development of the applicable product candidate infeasible, even if that product candidate proves to be efficacious;
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our product candidates may cause adverse effects in patients, even after successful initial toxicology studies or early-stage clinical trials, which may make our product candidates unsuitable for approval or otherwise unmarketable;
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our product candidates may have unacceptable safety profiles or otherwise fail to provide a meaningful benefit to patients; or
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our collaboration partners may change their development profiles or plans for our partnered product candidates or abandon a therapeutic area for or the development of a partnered product candidate.
The occurrence of any of these events may force us to abandon our development efforts for one or more programs, which would have a material adverse effect on our business, operating results and prospects and could potentially require us to cease operations.
If we are unable to advance our late-stage research or preclinical programs and any future product candidates into and through clinical development, or if we experience significant delays in doing so, our business may be materially harmed.
Our ability to generate product revenues, which we do not expect to occur for many years, if ever, will depend heavily on our and our partners’ ability to successfully advance our late-stage research or preclinical programs, including FPA157, and any future product candidates into and through clinical development. The outcome of preclinical studies of any of our future product candidates may not predict the success of such product candidates in clinical trials. Moreover, preclinical results regarding a product candidate are often susceptible to varying interpretations and analyses and may not translate into similar results when the product candidate is tested clinically in humans. Many companies have believed their product candidates performed satisfactorily in preclinical and early clinical studies, but such product candidates have nonetheless failed during clinical development. Our inability to successfully complete preclinical or clinical development of any of our future product candidates could cause us to incur additional costs, delay or prevent our ability to advance these product candidates into clinical development or commercialization, or impair our ability to receive development, regulatory, commercialization or sales milestone payments from our current or future collaboration partners or to generate and receive royalties on product sales or product revenues from our current or future collaboration partners.
We and our product candidates are subject to a multitude of manufacturing risks, the occurrence of any of which could substantially increase our costs and limit supply of such product candidates.
The process of manufacturing our product candidates is complex and subject to a number of risks, including the following:
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The biologics manufacturing process is susceptible to product loss due to contamination, equipment failure, improper installation or operation of equipment or vendor or operator error leading to manufacturing process deviations. Even minor deviations from specified manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our products or in the manufacturing facilities in which our products are made, such manufacturing facilities may need to be closed for an extended time to investigate and remediate the contamination.
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The manufacturing facilities in which our products are made, and their ability to successfully and timely manufacture our products, could be adversely affected by equipment failures, labor and raw material shortages, natural disasters, power failures and numerous other factors.
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Any adverse developments affecting manufacturing operations for our products may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products to clinical trial sites. If any of our products fail to meet specifications, we may also have to take inventory write-offs and incur other charges and expenses or undertake costly remediation efforts or seek more expensive manufacturing alternatives.
Certain raw materials necessary for the manufacture of our products, such as growth media, resins and filters, are sourced from a single supplier. We do not have agreements in place that guarantee our supply or the price of these raw materials. Any significant delay in the acquisition, decrease in the availability or increase in the price of these raw materials could considerably delay the manufacture of our product candidates, which could adversely impact the timing of any planned clinical trials or the regulatory approval of those product candidates.
We currently have process development capabilities. Historically, we generally performed cell line and process development for our product candidates and manufactured quantities of our product candidates necessary to conduct preclinical studies of those product candidates. We are increasingly relying on third-party service providers with respect to cell line and process development activities, as well as the manufacturing of quantities of our product candidates for use in preclinical studies. We do not have, and we do not have current plans to acquire or develop, the facilities or capabilities to manufacture bulk drug substance or filled drug product for use in human clinical trials or commercialization. We rely on third-party manufacturers to produce bulk drug substance required for our clinical trials and expect to continue to rely on third parties to manufacture drug supplies for our clinical trials, as well as any commercial drug product for any of our product candidates that may receive regulatory approval, for the foreseeable future. We also contract with additional third parties for the filling, labeling, packaging, storage and distribution of investigational drug products.
We have not contracted with alternate suppliers in the event that our third-party manufacturers or other third parties on whom we rely to provide us with clinical trial drug supplies are unable to scale production, including for larger clinical trials or commercial-scale production, or if we otherwise experience any problems with these manufacturers or other third parties. For example, public health epidemics, such as the COVID-19 pandemic currently impacting countries worldwide, may impact the ability of our existing or future manufacturers to perform their obligations under our manufacturing agreements with such parties. Any problems we experience with our current manufacturers or these third parties could delay the manufacturing of our product candidates or the progress of our clinical trials or preclinical studies, or the ultimate successful commercialization of any products for which we receive regulatory approval, which could increase our costs and harm our results of operations. In addition, if we are unable to arrange for alternative third-party manufacturing sources, or are unable to do so on commercially reasonable terms or in a timely manner, the development and potential commercialization of our product candidates may be delayed.
Our reliance on third-party manufacturers subjects us to risks to which we would not be subject if we manufactured product candidates internally, including potential failure of any such third party to abide by regulatory and quality assurance requirements, breach of the manufacturing agreement by such third party due to factors beyond our control (including the third party’s failure to manufacture our product candidates or any products we may eventually commercialize in accordance with our specifications) and termination of or a decision not to renew such agreement by such third party, based on its own business priorities, at a time when finding and retaining a replacement manufacturer may be costly or damaging to our business.
The regulatory approval processes of the FDA and comparable foreign regulatory authorities are lengthy, time-consuming and inherently unpredictable. Failure to obtain regulatory approval for our product candidates would substantially harm our business.
The FDA and comparable foreign regulatory authorities extensively and rigorously regulate and evaluate the manufacture, testing, distribution, advertising and marketing of drug products prior to granting marketing approvals with respect to such products. This approval process generally requires, at minimum, testing of any product candidate in preclinical studies and clinical trials to establish its safety and effectiveness, and confirmation by the FDA and comparable foreign regulatory authorities that any such product candidate, and any parties involved in its manufacturing, testing and development, complied with current Good Manufacturing Practices, or GMP, current Good Laboratory Practices, or GLP, and current Good Clinical Practices, or GCP, regulations, standards and guidelines during such manufacturing, testing and development. The time required to obtain approval to market a product candidate from the FDA or any comparable foreign regulatory authority is unpredictable, but typically takes many years following the commencement of clinical trials and depends on numerous factors, including the conduct of manufacturing, testing and development activities with respect to such product candidate and the substantial discretion of the applicable regulatory authorities. In addition, approval policies, regulations, or the type or amount of preclinical and clinical data necessary to obtain approval may change over the course of a product candidate’s development and may vary across jurisdictions. We have not obtained regulatory approval for any of our product candidates and it is possible that none of our existing or potential future product candidates will ever obtain regulatory approval.
Any of our product candidates could fail to receive regulatory approval from the FDA or a comparable foreign regulatory authority for many reasons, including:
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the FDA’s or such comparable foreign regulatory authority’s disagreement with the design or implementation of our clinical trials testing any such product candidate;
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our failure to demonstrate that a product candidate is effective for its proposed indication and has an acceptable safety profile;
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our failure to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
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the failure of our clinical trial data for a product candidate to meet the level of statistical significance required for regulatory approval;
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the FDA’s or such comparable foreign regulatory authority’s disagreement with our interpretation of data from preclinical studies or clinical trials testing a product candidate;
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the insufficiency of our clinical trial data for a product candidate to support the submission and filing of a Biologic License Application or other regulatory submission or to obtain regulatory approval for such product candidate;
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our failure to obtain approval from the FDA or such comparable foreign regulatory authority for the manufacturing or testing processes or facilities of CMOs or CROs with whom we contract for clinical and commercial product supply or preclinical or clinical testing; or
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changes in the applicable standard of care or the FDA’s or such comparable foreign regulatory authority’s approval policies or regulations that render our preclinical and clinical data for a product candidate insufficient for regulatory approval.
The ongoing COVID-19 pandemic could cause delays in the timing of our interactions with the FDA or other regulatory authorities, including due to absenteeism by governmental employees or the diversion of regulatory authority efforts and attention to other activities related to COVID-19, which could delay or limit our ability to make planned regulatory submissions or otherwise progress our programs in accordance with our timelines, and delay or limit our ability to obtain approval for and commercialize our product candidates.
The FDA or a comparable foreign regulatory authority may require additional information, including preclinical or clinical data, to support approval of a product candidate, which may delay or prevent approval and our commercialization plans, or result in our decision to abandon the development program with respect to such product candidate. In addition, if we were to obtain approval for any of our product candidates, regulatory authorities may approve any such product candidate for fewer or more limited indications than we request, may grant approval contingent on the performance of costly post-marketing clinical trials or establishment of risk evaluation and mitigation strategy, or REMS, drug safety programs, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate.
Our product candidates may cause undesirable side effects that could delay or prevent their regulatory approval, limit their commercial profiles, if approved, or result in significant negative consequences following any marketing approval.
Our product candidates may cause undesirable side effects in patients, which could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities or otherwise limit the commercial potential of any such product candidate. Our clinical trial results could reveal an unacceptable severity or prevalence of side effects. If this were to occur, we may elect to suspend or terminate our clinical trials or the FDA or comparable foreign regulatory authorities could order us to cease our clinical trials or deny approval of our product candidates for any or all targeted indications. Drug-related side effects could negatively affect patient recruitment for our clinical trials, cause enrolled patients to drop out of a clinical trial and result in product liability claims. Any of these occurrences may significantly harm our business, financial condition and prospects.
Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by any such product, numerous potentially significant negative consequences could result, including:
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we may suspend marketing of, or withdraw or recall, such product;
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regulatory authorities may withdraw approvals of such product;
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regulatory authorities may require additional warnings on the label for such product;
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regulatory authorities may issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings about such product;
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regulatory authorities may require the establishment or modification of a REMS or a similar program that may, for instance, restrict distribution of such product and impose burdensome implementation requirements on us;
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regulatory authorities may require that we conduct post-marketing studies;
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we could be sued and held liable for harm caused to patients; and
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our reputation may suffer.
Any of these events could prevent us from achieving or maintaining marketing approval for or acceptance of a product candidate or otherwise materially harm the commercial prospects for such product, if approved, and could significantly harm our business, results of operations and prospects.
Certain of our product candidates, including bemarituzumab, are expected to be effective only in certain selected patient populations. If we are unable to successfully develop and obtain FDA approval for companion diagnostics for these product candidates, or experience significant delays in doing so, we may not obtain marketing approval for such product candidates or realize their full commercial potential.
Certain of our current product candidates, including bemarituzumab, may be effective only in selected patient populations. For any such product candidate, we expect that the FDA and comparable foreign regulatory authorities may require the development and regulatory approval of at least one companion diagnostic as a condition to approving such product candidate for use in patients within the selected patient population. We do not have experience in or capabilities for developing or commercializing companion diagnostics and have depended and will continue to depend on the sustained cooperation and effort of our third-party diagnostic development collaborators to perform these functions.
For example, we are developing bemarituzumab to treat epithelial cancers that overexpress FGFR2b. We have developed, in collaboration with a third-party companion diagnostic development partner, an IHC-based assay to identify patients with FGFR2b+ gastric and GEJ cancer who would be most likely to benefit from treatment with bemarituzumab. We plan to conduct additional work with our third-party companion diagnostic development partner to adapt this IHC-based assay to identify FGFR2b overexpression in other epithelial cancers such as non-small cell lung, breast and ovarian cancers to support our clinical development of bemarituzumab to treat FGFR2b+ epithelial cancers.
Companion diagnostics are subject to regulation by the FDA and comparable foreign regulatory authorities as medical devices and may require separate regulatory approval prior to commercialization. For any companion diagnostic that we develop for use with one of our product candidates, we or our collaboration partners may experience delays in obtaining or may fail to obtain regulatory approval for such companion diagnostic, which could delay its development and harm our business. If we or our collaboration partners are unable to obtain necessary regulatory approvals for our companion diagnostics, including for bemarituzumab, or experience delays in doing so, we may suffer significant negative consequences, including:
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the applicable product candidate may not receive marketing approval if it’s safe and effective use depends on use of a companion diagnostic; or
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we may not realize the full commercial potential of the applicable product candidate if, among other reasons, we are unable to appropriately identify patients that are likely to respond to treatment with such product candidate.
The occurrence of any of these events would harm our business, possibly materially.
Even if our product candidates receive regulatory approval, they may face future development and regulatory difficulties, which may prevent us from commercializing our products and generating revenue.
Even if we obtain regulatory approval for a product candidate in a particular jurisdiction, the product would be subject to ongoing requirements by the FDA or applicable comparable foreign regulatory authorities governing the manufacture, quality control, further development, labeling, packaging, storage, distribution, safety surveillance, import, export, advertising, promotion, recordkeeping and reporting of safety and other post-market information of or with respect to such product. The FDA and comparable foreign regulatory authorities will continue to closely monitor the safety profile of any product after approval. If the FDA or any comparable foreign regulatory authority becomes aware of new safety information after approval of any of our product candidates, it may require labeling changes or establishment of a REMS or similar program, impose significant restrictions on the product’s indicated uses or marketing, or impose ongoing requirements for costly post-approval studies or post-market surveillance.
In addition, drug product manufacturers and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities to evaluate compliance with GMP and GLP regulations, standards and guidelines. If we or a regulatory authority discover previously unknown problems with one of our product candidates, such as side effects or adverse events of unanticipated severity or frequency, or problems with the facility where such product candidate is manufactured, a regulatory authority may impose restrictions on that product, the manufacturing facility or us, including requiring recall or withdrawal of such product from the market or suspension of manufacturing. If we, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory authority may:
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issue warning letters or untitled letters;
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mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;
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require us to enter into a consent decree, which may require payment of various monetary fines and reimbursement for inspection costs, impose due dates for specific actions by us, and impose penalties for non-compliance;
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seek an injunction or bring other court action to impose civil or criminal penalties or monetary fines;
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suspend or withdraw regulatory approval for our product candidates;
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suspend any ongoing clinical trials of our product candidates;
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refuse to approve pending applications or supplements to applications that we have filed with respect to our product candidates;
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suspend or impose restrictions on our or our manufacturing facilities’ operations, including costly new manufacturing requirements; or
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seize or detain products, refuse to permit the import or export of products, or require us to initiate a product recall.
The occurrence of any event or penalty described above may limit or prevent our ability to commercialize our products and generate revenue.
Advertising and promotion of any product candidate that obtains approval in the United States will be heavily scrutinized by the FDA, the Department of Justice, the Department of Health and Human Services’ Office of Inspector General, state attorneys general, members of Congress and the public. While doctors may prescribe products for off-label uses as the FDA and other regulatory agencies do not regulate a doctor’s choice of drug treatment made in the doctor’s independent medical judgment, they do restrict promotional communications from companies or their sales force with respect to off-label uses of products for which marketing clearance has not been issued. Companies may only share truthful and not misleading information that is otherwise consistent with a product’s FDA-approved labeling. Violations of applicable laws and regulations, including promotion of our products for unapproved or off-label uses, may subject us to enforcement letters, inquiries, investigations and civil and criminal sanctions by the government. Similarly, comparable foreign regulatory authorities will heavily scrutinize advertising and promotion of any product candidate that obtains approval outside of the United States.
In the United States, engaging in the impermissible promotion of products for off-label uses can also subject a company to false claims litigation under federal and state statutes, which can lead to civil and criminal penalties and fines and agreements that materially restrict the manner in which such company promotes or distributes drug products. These false claims statutes include the federal False Claims Act, which allows any individual to bring a lawsuit against a pharmaceutical company on behalf of the federal government alleging submission of false or fraudulent claims or that such company caused another entity or individual to present such false or fraudulent claims for payment by a federal program such as Medicare or Medicaid. If the government prevails in the lawsuit, the individual will receive a portion of any fines or settlement funds. Since 2004, False Claims Act lawsuits against pharmaceutical companies have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements involving fines exceeding $1.0 billion based on certain sales practices promoting off-label drug uses. This growth in litigation has increased the risk that a pharmaceutical company will have to defend against false claims actions, pay settlement fines or restitution, agree to comply with burdensome reporting and compliance obligations and be excluded from Medicare, Medicaid and other federal and state healthcare programs. If we do not lawfully promote any of our products that may receive marketing approval, we may become subject to such litigation and our inability to successfully defend the company in such litigation may material adversely affect our business, financial condition and results of operations.
The policies of the FDA or any comparable foreign regulatory authority may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or policies or new requirements or policies that may be adopted, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
Our failure to obtain regulatory approval in international jurisdictions would prevent us from marketing our product candidates outside the United States.
In order to market and sell our products in other jurisdictions, we or our collaboration partners must obtain separate marketing approvals and comply with numerous and varying regulatory requirements in those jurisdictions. The approval procedures vary among countries and can involve additional testing. The time required to obtain approval outside of the United States may differ substantially from that required to obtain FDA approval. The regulatory approval processes outside the United States generally include all the risks associated with obtaining FDA approval and may include additional risks that we cannot predict. In addition, in many countries outside the United States, we or our collaboration partners must secure product reimbursement approvals before regulatory authorities will approve a product for sale in that country. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. We may not obtain foreign regulatory approvals for our product candidates on a timely basis, if at all.
We are conducting certain of our clinical trials in countries outside of the United States and will need to obtain marketing approval for our product candidates in each such country before we can sell our products there. For example, we have conducted and are in the process of completing the FIGHT trial in China in collaboration with Zai Lab and are relying on Zai Lab’s ability to obtain approval for bemarituzumab in China, Taiwan, Hong Kong and Macau, or collectively, Greater China, from the China Food and Drug Administration. However, Zai Lab’s ability to obtain approval in Greater China depends on Zai Lab’s and our ability to comply with the government policies, laws and regulations applicable to conducting clinical trials and obtaining approval for and commercializing drug products in Greater China. The government policies, laws and regulations in China are evolving rapidly and future changes are difficult to predict. If any such government policies, laws or regulations evolve in a way that make it more difficult or inefficient for Zai Lab or us to clinically develop, obtain approval for or commercialize bemarituzumab in China, the conduct of the FIGHT trial or any future clinical trials of bemarituzumab in combination with mFOLFOX6 may be delayed, which will delay our ability to obtain approval for and commercialize bemarituzumab.
Further, data and results from clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country or by one regulatory authority outside the United States does not ensure approval by regulatory authorities in any other country or jurisdiction or by the FDA, while a failure or delay in obtaining regulatory approval for any of our product candidates in one country or by one regulatory authority may have a negative effect on the regulatory approval process in other countries or jurisdictions and may significantly diminish the commercial prospects of that product candidate, which may cause our business prospects to decline. Also, regulatory approval for any of our product candidates may be withdrawn in any country or jurisdiction. If we fail to comply with the regulatory requirements in international jurisdictions, we may not receive the necessary marketing approvals for our product candidates in these jurisdictions, our target market for these product candidates will be reduced, we may be unable to realize the full market potential of these product candidates and our business will be adversely affected.
The withdrawal of the United Kingdom from the EU, commonly referred to as Brexit, may adversely impact our ability to obtain regulatory approvals for our product candidates in the United Kingdom or the EU, result in restrictions or imposition of taxes and duties for importing our product candidates into the United Kingdom or the EU and may require us to incur additional expenses in order to develop, manufacture and commercialize our product candidates in the United Kingdom or the EU.
Following the result of a referendum in 2016, the United Kingdom left the European Union, or EU, on January 31, 2020, an event commonly referred to as Brexit. Pursuant to the formal withdrawal arrangements agreed between the United Kingdom and the EU, the United Kingdom was subject to a transition period until December 31, 2020, or the Transition Period, during which EU rules continued to apply. A trade and cooperation agreement, or the Trade and Cooperation Agreement, which outlines the future trading relationship between the United Kingdom and the European Union, was agreed upon in December 2020.
Since a significant proportion of the regulatory framework in the United Kingdom applicable to our business and our product candidates is derived from EU directives and regulations, Brexit has had, and may continue to have, a material impact on the regulatory regime with respect to the development, manufacture, importation, approval and commercialization of our product candidates in the United Kingdom and the EU. For example, Great Britain is no longer be covered by the centralized procedures for obtaining EU-wide marketing authorization from the European Medicines Agency, or EMA, and a separate marketing authorization will be required to market our product candidates in Great Britain. It is currently unclear whether the Medicines & Healthcare products Regulatory Agency, or MHRA, is sufficiently prepared to handle the increased volume of marketing authorization applications that it is likely to receive. Any delay in obtaining, or inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would result in delays in or prevent us from commercializing our product candidates in the United Kingdom or the EU and restrict our ability to generate revenue and achieve or sustain profitability. If we are forced to restrict or delay efforts to seek regulatory approval in the United Kingdom or the EU for our product candidates, we may have to incur significant additional expenses to operate our business, which could significantly and materially harm or delay our ability to generate revenues or achieve or sustain profitability.
While the Trade and Cooperation Agreement provides for the tariff-free trade of medicinal products between the United Kingdom and the EU, there may be additional non-tariff costs to such trade which did not exist prior to the end of the Transition Period. Further, should the United Kingdom diverge from the EU from a regulatory perspective with respect to medicinal products, tariffs could be put into place in the future. We could, therefore, both now and in the future, face significant additional expenses (when compared to the position prior to the end of the Transition Period) in the operation of our business, which could significantly and materially harm or delay our ability to generate revenues or achieve or sustain profitability. Any further changes in international trade, tariff and import/export regulations as a result of Brexit or otherwise may subject us to unexpected duty costs or other non-tariff barriers. These developments, or the perception that any of them could occur, may significantly reduce global trade and, in particular, trade between the impacted nations and the United Kingdom.
In addition, Brexit may influence the attractiveness of the United Kingdom as a place to conduct clinical trials. The EU’s regulatory environment for clinical trials is being harmonized as part of the Clinical Trial Regulations, which are due to enter into full effect at the end of 2021, but it is currently unclear to what extent the United Kingdom will seek to align its regulations with those of the EU. Failure of the United Kingdom to closely align its regulations with those of the EU may affect the cost of conducting clinical trials in the United Kingdom as compared to other countries or make it harder to seek marketing authorization for our product candidates based on clinical trials conducted in the United Kingdom. In the short term, there will be few changes to clinical trials that only have sites in the United Kingdom. The MHRA has confirmed that the sponsor of a clinical trial can be based in the European Economic Area, or EEA, for an initial period following the Transition Period. Further investigational medicinal products can be supplied directly from the EU/EEA to a clinical trial site in Great Britain without further oversight until January 1, 2022, and to Northern Ireland beyond such date. The United Kingdom is now a “third country” for the purpose of clinical trials that have sites in the EEA. For such clinical trials, the sponsor/legal representative must be based in the EEA, and the trial must be registered on the EU Clinical Trials Register (including data from clinical trial sites outside of the EEA).
We face substantial competition from third parties that may develop or commercialize products before or more successfully than we do.
The biotechnology industry is intensely competitive and subject to rapid and significant technological change. We face worldwide competition from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies with respect to our current product candidates and will face such competition with respect to our future product candidates. Many of our competitors have significantly greater financial, technical and human resources than we do. Smaller and early-stage companies may also prove to be significant competitors, particularly through their collaborative arrangements with large and established companies.
Our competitors may obtain regulatory approval for their products more rapidly than we do or may obtain patent protection or other intellectual property rights that limit our ability to develop or commercialize our product candidates or otherwise effectively compete in the markets for our product candidates. Our competitors may also develop, acquire or license on an exclusive basis products that are more effective, more convenient, more widely accepted or less costly or have better safety profiles than our product candidates and may also be more successful in manufacturing and marketing such products than we are with respect to our product candidates. In addition, if third parties obtain regulatory approval for their products before we do, such products may change the treatment landscape for our product candidates and affect our ability to successfully launch and commercialize any products for which we receive regulatory approval.
We also currently and will in the future compete with other companies in recruiting and retaining qualified personnel, establishing clinical trial sites and enrolling patients in clinical trials, as well as in acquiring technologies complementary to, or necessary for, our research and development programs.
In addition, we plan to supplement our ongoing development pipeline from time to time by selectively acquiring or licensing, on an exclusive basis, rights to develop product candidates from biotechnology and pharmaceutical companies. We continue to evaluate for potential acquisition or licensing assets that are IND-ready or in early clinical development and that we can leverage our in-house development capabilities to develop to data read-outs in the near- to medium-term. Our primary focus remains on oncology therapeutics. The acquisition and licensing of pharmaceutical product candidates is very competitive, and we expect to compete with third parties seeking to acquire or license product candidates in which we are interested, including more established companies that have strategies to license or acquire products and may have competitive advantages over us, as well as other emerging companies that take similar or different approaches to product acquisitions and licensing.
Although there are no approved therapies that specifically target the signaling pathways that our current product candidates are designed to modulate or inhibit, there are numerous drugs that are currently approved to treat the same diseases or indications for which our current product candidates may be useful and many of these currently-approved therapies act through mechanisms similar to those of our current product candidates. Many of these approved drugs are well-established therapies or products, or are in well-established classes of drugs, and are widely accepted by physicians, patients and third-party payors. Approved drugs with which our products may compete may include branded drugs that may be subject to patent protection and generic drugs, each of which may offer key differentiators based on efficacy, safety or available coverage and reimbursement. Insurers and other third-party payors may also encourage the use of generic products or specific branded products. We expect that if our product candidates are approved, they will be priced at a significant premium over competitive generic, including branded generic, products. This may make it difficult for us to differentiate our products from currently-approved therapies, which may adversely impact our business strategy. In addition, many companies are developing new therapeutics and we cannot predict if and how the applicable standards of care will change as our product candidates progress through clinical development.
If bemarituzumab in combination with mFOLFOX6 were approved for the treatment of previously untreated, advanced FGFR2b+/HER2- gastric or GEJ cancer, it could face competition from currently-approved and marketed products, including chemotherapeutic agents, such as 5-fluorouracil, S-1, capecitabine, doxorubicin, cisplatin, epirubicin, oxaliplatin, leucovorin, carboplatin, paclitaxel, irinotecan, docetaxel, including combination regimens involving the foregoing, such as mFOLFOX6 and EOX, as well as antibodies that bind to PD1/PD-L1, including Bristol-Myers Squibb Company, or BMS/Ono Pharmaceutical Co., Ltd.’s, or Ono, Opdivo monotherapy, Opdivo in combination with BMS/Ono’s Yervoy® (ipilimumab) anti-CTLA-4 antibody or Opdivo in combination with chemotherapy, Merck & Co., Inc.’s Keytruda® (pembrolizumab) anti-PD1 antibody, alone or in combination with chemotherapy, AstraZeneca UK Limited, or AstraZeneca/MedImmune, LLC’s, or MedImmune, Imfinzi® (durvalumab) anti-PD-L1 antibody in combination with AstraZeneca/MedImmune’s tremelimumab anti-CTLA4 antibody, BeiGene Ltd.’s tislelizumab anti-PD1 antibody, Innovent Biologics Inc./Eli Lilly and Company’s Tyvyt® (sintilimab) anti-PD1 antibody, Incyte Corporation/MacroGenics, Inc./Zai Lab’s retifanlimab (INCMGA0012) anti-PD1 antibody, and Jiangsu Hengrui Medicine Co., Ltd.’s AiRuiKa™ (camrelizumab, SHR-1210) anti-PD1 antibody, Elevar Therapeutics, Inc./Jiangsu Hengrui Medicine Co., Ltd.’s rivoceranib (ex-China)/apatinib (China) small molecule targeting VEGFR2 and Astellas Pharma Inc.’s zolbetuximab anti-Claudin 18.2 antibody in combination with chemotherapy. It is possible bemarituzumab will be used in combination with or be adjunctive to one or more of these therapies and potential therapies, or that bemarituzumab will be used at different stages of the treatment regimen or disease progression.
We believe that our ability to successfully compete will depend on, among other things:
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the efficacy and safety profile of our product candidates, including relative to marketed products, including the standard of care therapies for diseases or indications for which we are developing our product candidates, and product candidates undergoing development by third parties;
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the time it takes for our product candidates to complete clinical development and receive marketing approval, including our ability to take advantage of any expedited regulatory or approval pathways;
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our and our partners’ ability to successfully launch and commercialize any of our product candidates that receive regulatory approval;
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our and our partners’ ability to manufacture commercial quantities of any of our product candidates that receive regulatory approval, including in sufficient amounts to meet the market demand;
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the price of our products, including in comparison to branded or generic competitors;
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the availability of coverage and reimbursement levels under private and governmental health insurance plans, including Medicare, that enable patients to access any of our product candidates that receive regulatory approval;
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acceptance of any of our product candidates that receive regulatory approval by patients and physicians and other healthcare providers; and
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our ability to establish, maintain and protect intellectual property rights related to our product candidates.
Our product candidates may not achieve the level of market acceptance among physicians, patients, healthcare payors and others in the medical community necessary for commercial success.
Even if our product candidates receive regulatory approval, they may not gain the level of market acceptance among physicians, patients, healthcare payors and others in the medical community necessary for commercial success. Whether and the extent to which our product candidates achieve commercial success will also depend on coverage of and adequate reimbursement for these product candidates by third-party payors, including government payors, which may be difficult or time-consuming to obtain, may be limited in scope and may not be available or otherwise obtained in all jurisdictions in which we may seek to market our approved product candidates. The degree of market acceptance of any of our approved product candidates will depend on numerous factors, including:
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the efficacy and safety profile of the product candidate, as demonstrated in clinical trials;
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the acceptance of the product candidate as a safe and effective treatment by physicians, clinics and patients;
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the timing of market introduction of both the product candidate and products competitive to such product candidate;
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the clinical indications for which the product candidate is approved;
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the potential and perceived advantages of the product candidate over alternative treatments, including any similar generic treatments;
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the cost of treatment with the product candidate in relation to alternative treatments;
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the pricing of our products and the availability of coverage and adequate reimbursement by third parties and government authorities;
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the relative convenience and ease of administration of the product candidate;
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the frequency and severity of adverse events caused by the product candidate;
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the effectiveness of sales and marketing efforts with respect to the product candidate; and
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the existence and nature of any unfavorable publicity relating to the product candidate.
If any of our product candidates is approved but does not achieve an adequate level of acceptance by physicians, hospitals, healthcare payors and patients, we may not generate or derive sufficient revenue from that product candidate to enable us to achieve or sustain profitability.
Even if we commercialize one or more of our product candidates, these product candidates may become subject to unfavorable pricing regulations, third-party coverage and reimbursement practices or healthcare reform initiatives, which could harm our business.
The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, even if we obtain marketing approval for a product in a particular country, we may be subject to price regulations that delay the commercial launch of such product, possibly for lengthy time periods, which could negatively impact the revenues we generate from the sale of such product in that particular country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if such product candidates obtain marketing approval.
Our ability to successfully commercialize any products will also depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, determine which medications they will cover, establish reimbursement levels for medications and attempt to control costs by limiting such coverage and reimbursement levels. Increasingly, third-party payors are requiring that pharmaceutical companies provide such third-party payors with predetermined discounts from list prices and are challenging the prices charged for medications. We cannot be sure that coverage and reimbursement will be available for any product that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Coverage and reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If coverage and reimbursement for any product candidate for which we obtain marketing approval are not available or reimbursement is available only at limited levels, we may be unable to successfully commercialize any such product candidate.
There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or any comparable foreign regulatory authority. Moreover, eligibility for coverage and reimbursement does not guarantee that a drug will be paid for in all cases or at a rate that covers our costs, including with respect to research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may only be provided on a temporary basis. Reimbursement rates may vary depending on the approved uses for the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Additionally, companion diagnostic tests that we or our collaborators may develop require coverage and reimbursement separate and apart from the coverage and reimbursement for their companion pharmaceutical or biologics products. Similar challenges to obtaining coverage and reimbursement, applicable to pharmaceutical or biologics products, will apply to companion diagnostic tests. Our inability to promptly obtain coverage and profitable reimbursement rates from both government-funded and private payors for any of our approved products or companion diagnostic tests that we or our collaborators may develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
Enacted and future legislation may increase the difficulty and cost of commercialization of our product candidates and affect the prices we may charge for such product candidates.
The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidate for which we obtain marketing approval.
In March 2010, Congress enacted the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the Affordable Care Act, which includes measures that have changed the way healthcare is financed by both governmental and private insurers. There have been executive, judicial and congressional challenges to certain aspects of the Affordable Care Act. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the Affordable Care Act have been signed into law. The federal Tax Cuts and Jobs Act of 2017, or the Tax Act, includes a provision that became effective on January 1, 2019 and repealed the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year, which payment is commonly referred to as the “individual mandate.” In addition, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the Affordable Care Act-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminated the health insurer tax. The Bipartisan Budget Act of 2018, or the BBA, among other things, amended the Affordable Care Act, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” On December 14, 2018, a Texas U.S. District Court judge ruled that the Affordable Care Act is unconstitutional in its entirety because the individual mandate was repealed by Congress as part of the Tax Act. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the Affordable Care Act are invalid as well. The U.S. Supreme Court is currently reviewing the case, although it is unknown when a decision will be made. Further, although the U.S. Supreme Court has not yet ruled on the constitutionality of the Affordable Care Act, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the Affordable Care Act marketplace. The executive order also instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the Affordable Care Act. It is unclear how the Supreme Court ruling, other such litigation and the healthcare reform measures of the Biden administration will impact the Affordable Care Act and our business.
Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. These changes include aggregate reductions to Medicare payments to providers of 2% per fiscal year pursuant to the Budget Control Act of 2011, which began in 2013, and due to subsequent legislative amendments to the statute, including the BBA, will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020 through March 31, 2021 due to the COVID-19 pandemic, unless Congress takes additional action. The American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
Further, there has been increasing legislative and enforcement interest in the United States with respect to drug pricing practices. Specifically, there have been several recent U.S. congressional inquiries and proposed and enacted federal legislation designed to, among other things, increase transparency in drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for drugs. At the federal level, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. For example, on July 24, 2020 and September 13, 2020, the Trump administration announced several executive orders related to prescription drug pricing that seek to implement several of the administration’s proposals. As a result, the FDA released a final rule on September 24, 2020, effective November 30, 2020, providing guidance for states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Medicare 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 pending review by the Biden administration until March 22, 2021. On November 20, 2020, CMS issued an interim final rule implementing the Trump administration’s Most Favored Nation executive order, which would tie Medicare Part B payments for certain physician-administered drugs to the lowest price paid in other
economically advanced countries, effective January 1, 2021. On December 28, 2020, the U.S. District Court in Northern California issued a nationwide preliminary injunction against implementation of the interim final rule. It is unclear whether the Biden administration will work to reverse these measures or pursue similar policy initiatives. In addition, there have been and continue to be similar initiatives at the state level to reduce drug costs.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislative, administrative or executive action. We expect that the healthcare reform measures that have been adopted and may be adopted in the future may result in more rigorous coverage criteria and additional downward pressure on the price that we receive for any approved product, which could materially harm our future revenues. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain or maintain profitability or successfully commercialize our products.
It is also possible that additional governmental action will be taken in response to the COVID-19 pandemic.
We may become subject to product liability lawsuits, which could cause us to incur substantial liabilities and limit commercialization of any products we may develop.
We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and will face an even greater risk if we commercially sell any products that receive marketing approval. Product liability claims may be brought against us by patients, including those enrolled in our clinical trials, healthcare providers or others that use, administer or sell our products. If we cannot successfully defend ourselves against claims that our product candidates or products that we may develop or commercialize caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, product liability claims may result in:
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decreased demand for our product candidates or any products that receive marketing approval;
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termination of clinical trials at particular sites or entire clinical trial programs;
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injury to our reputation and significant negative media attention;
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withdrawal of patients from participation in our clinical trials;
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significant costs to defend the related litigation;
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substantial monetary awards payable to claimants, including patients enrolled in our clinical trials or patients that have been treated with any of our products that may receive regulatory approval;
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loss of revenue;
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diversion of management and scientific resources from our business operations; and
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inability to commercialize any products that have received marketing approval.
We currently hold $10.0 million in clinical trial liability insurance coverage, which may not adequately cover all liabilities that we may incur. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. We intend to expand our product liability insurance coverage to include the sale of commercial products if we obtain marketing approval for one or more of our product candidates, but we may be unable to obtain such product liability insurance on commercially reasonable terms. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claim or series of claims brought against us, particularly if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.
Our relationships with healthcare providers, third-party payors and customers will be subject to applicable anti-kickback, fraud and abuse, transparency, privacy and other healthcare laws and regulations, violation of which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our current and future arrangements with healthcare providers, third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and
relationships through which we market, sell and distribute any of our products that have received marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:
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The federal Anti-Kickback Statute prohibits any person or entity from, among other things, knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, the referral of an individual for the furnishing or arranging for the furnishing, or the purchase, lease or order, or arranging for or recommending purchase, lease or order, of any good or service for which payment may be made under a federal healthcare program, such as Medicare or Medicaid;
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The federal false claims laws, including the civil federal False Claims Act (which can be enforced by private citizens through whistleblower or qui tam actions), impose civil and criminal penalties against individuals or entities for knowingly presenting, or causing to be presented, to the federal government claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
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The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal liability for knowingly and willfully executing a scheme to defraud any healthcare benefit program, knowingly and willfully embezzling or stealing any money or other assets of a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare fraud offense or knowingly and willfully making false statements relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and their implementing regulations, also impose obligations on certain healthcare providers, health plans and healthcare clearinghouses, known as covered entities, as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information and subcontractors of such business associates that use, disclose or otherwise process individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
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The federal Open Payments program requires manufacturers of drugs, devices, biologics or medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS information related to “payments or other transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by such physicians and their immediate family members, which will be expanded beginning in 2022 to require applicable manufacturers to report information regarding payments and other transfers of value made to physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, anesthesiologist assistants and certified nurse midwives during the previous year; and
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Analogous state and foreign laws and regulations impose similar restrictions to those described above, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; state and foreign laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; state laws that require pharmaceutical companies to report information on the pricing of certain drugs; state and local laws that require the registration of pharmaceutical sales representatives; and state and foreign laws that govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by or are in conflict with HIPAA, including the EU General Data Protection Regulation, or GDPR, which imposes privacy and security obligations on any entity that collects or processes health data from individuals located in the EU and became enforceable on May 25, 2018. As well as complicating our compliance efforts, these laws could subject us to penalties or significant legal liability in the event that we fail or are unable to comply. For example, significant non-compliance with the GDPR may result in the imposition of fines of up to 20 million euros or up to four percent of the annual global turnover of the responsible entity, whichever is greater.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law interpreting 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, imprisonment, exclusion from government-funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, reputational harm and the curtailment or restructuring of our operations. If any physician or other healthcare provider or entity with whom we expect to do business is found to have violated applicable laws, that person or entity may be subject to significant criminal, civil or administrative sanctions, including exclusions from government-funded healthcare programs.
We must attract and retain highly skilled employees to succeed.
To succeed, we must recruit, develop, retain, manage and motivate qualified clinical, scientific, technical, general and administrative and management personnel while facing significant competition for experienced personnel. In January 2019, we announced our implementation of a corporate restructuring, or the January 2019 restructuring, to focus our resources on our clinical development and preclinical and late-stage research programs. In connection with the January 2019 restructuring, we eliminated 41 positions, representing approximately 20% of our then-current headcount. In October 2019, we implemented a second corporate restructuring, or the October 2019 restructuring, to extend our cash runway and ensure our long-term sustainability. In connection with the October 2019 restructuring, we reduced our workforce by 63 positions across all functions. We believe the restructurings harmed our ability to attract and retain qualified personnel and resulted in reduced morale among our remaining personnel. In addition, as disclosed elsewhere in this “Risk Factors” section, we anticipate that we may need to expand our workforce, potentially at a rapid pace, in order to advance bemarituzumab into a Phase 3 clinical trial and to prepare to seek regulatory approval for and commercialize bemarituzumab. We may also need to hire personnel in functions with which we have limited experience, such as sales and marketing.
Our inability or failure to successfully attract and retain qualified personnel, particularly at the management level, could adversely affect our ability to execute our business plan and harm our operating results. In particular, the loss of one or more of our executive officers could be detrimental if we cannot recruit suitable replacements in a timely manner. The competition for qualified personnel in the pharmaceutical field is intense and we may be unable to continue to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel.
Many of the other pharmaceutical companies with which we compete for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we have. These companies may also provide more diverse opportunities and better or more chances for development or career advancement. Some of these characteristics may appeal more to high-quality candidates than what we offer. If we are unable to continue to attract and retain personnel, the rate at which we can develop and advance current and future product candidates, and our success in doing so, will be limited and our business may be harmed.
Our operations are vulnerable to interruption by natural disasters, including fire and earthquake, public health epidemics, such as the COVID-19 pandemic, telecommunications failure, geo-political actions, including war and terrorism, political and economic instability and other events beyond our control, which could harm our business.
Our computer and other systems, or those of our partners, CROs or other service providers, may fail or be interrupted, including due to natural disasters, including earthquakes, typhoons, floods, and fires, public health epidemics, such as the COVID-19 pandemic currently impacting countries worldwide, hardware, software, telecommunication or electrical failures, geo-political actions, including war and terrorism, or political and economic instability, which could significantly disrupt or harm our business or operations. For example, a computing system failure could result in the loss of research or preclinical or clinical data important to our research or development programs, interrupt the conduct of ongoing research or otherwise impair our ability to operate, which could result in delays in the advancement of our programs or cause us to incur costs to recover or reproduce lost data. Our facility is in a seismically-active region. We have not undertaken a systematic analysis of the potential consequences to our business and financial results from a major earthquake, fire, power loss, terrorist activity or other disaster and do not have a recovery plan for such disasters. In addition, we do not carry sufficient insurance to compensate us for actual losses that may occur from interruption of our business and any losses or damages incurred by us could harm our business.
Our business operations depend significantly on information technology systems, and a cyber-attack or other significant disruption or breach of our information technology systems, or those of third parties on whom we may rely or with whom we share confidential information, could cause us significant financial, legal, regulatory, business and reputational harm.
We are increasingly dependent on information technology systems and infrastructure, including mobile technologies, to operate our business. In the ordinary course of our business, we collect, store, process and transmit sensitive information, including intellectual property, proprietary business information, personal information and other confidential information belonging to us and to third parties. It is critical that we do so in a secure manner to maintain the confidentiality, integrity and availability of such sensitive information. We also outsource elements of our operations, including elements of our information technology infrastructure, to third-party vendors, and as a result, these vendors may have access to our computer networks or our confidential information. In addition, many of those vendors subcontract or outsource to other third parties some of their responsibilities under our agreements with such vendors. While all information technology operations are inherently vulnerable to inadvertent or intentional security breaches, incidents, attacks and exposures, the accessibility and distributed nature of our information technology systems, and the nature of the sensitive information stored on these systems, make such systems particularly vulnerable to internal and external attacks, both unintentional and malicious. In addition, as disclosed elsewhere in this report, including in this “Risk Factors” section, in response to the ongoing COVID-19 pandemic, state and local authorities have issued shelter-in-place orders and implemented other restrictions to control the spread of COVID-19. These restrictions have resulted in office closures and travel restrictions that have required our and our vendors’ and business partners’ personnel to transition to remote working arrangements, which increases the risk that our systems, or those of our vendors or business partners, and any confidential or sensitive information contained in such systems may be subject to a security breach, incident, attack or other exposure. Potential vulnerabilities can be exploited through inadvertent or intentional actions of our employees, third-party vendors, and business partners, or by malicious third parties. Attacks of this nature are increasing in their frequency, levels of persistence, sophistication and intensity and are being conducted by sophisticated and organized groups and individuals, including organized criminal groups, “hacktivists,” nation-states and others, with a wide range of motives, including industrial espionage, and expertise. In addition to the extraction of sensitive information, such attacks could involve the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of such information. In addition, the prevalent use of mobile devices, including personal mobile devices, increases the risk of the occurrence of data security incidents.
Data security incidents or other significant disruptions affecting our, our vendors’ or our business partners’ information technology systems could adversely affect our business operations and result in loss or misappropriation of, or unauthorized access to, use or disclosure of, or the prevention of access to, sensitive information, which could cause us financial, legal, regulatory, business and reputational harm. In addition, disruptions to our information technology systems could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed, current or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce such data.
There is no way to know with certainty whether we have experienced any data security incidents that we have not yet discovered. While we have no reason to believe this to be the case, attackers have become sophisticated with respect to concealing their access to systems, and many companies whose information security systems have been attacked are not aware that they have been attacked. Any event that leads to unauthorized access, use or disclosure of personal information, including personal information of our employees or patients or investigators in our clinical trials, could disrupt our business, harm our reputation, compel us to comply with applicable federal, state or foreign breach notification laws, subject us to time-consuming, distracting and expensive litigation, regulatory investigations and oversight or mandatory corrective action, require us to verify the correctness of certain stored information, or otherwise subject us to liability under applicable laws, regulations and our contracts with third parties, including those that require us to protect the privacy and security of personal information. This could cause us to incur significant costs and expose us to significant legal and financial liability and reputational harm. In addition, if there is any failure or perceived failure by us or our vendors or business partners to comply with our or their privacy, confidentiality or data security-related legal or other obligations to third parties, or if there are any security incidents or other inappropriate access events that result in the unauthorized access, release or transfer of sensitive information, including personally identifiable information, we may be the subject of governmental investigations, enforcement actions, regulatory fines, litigation, or public statements against us by advocacy groups or others, third parties, including clinical trial sites, regulators or current and potential business partners, may lose trust in us, and we could be subject to claims by third parties that we have breached our privacy- or confidentiality-related obligations, which could materially and adversely affect our business and prospects. Moreover, data security incidents and other unauthorized access can be difficult to detect, and any delay in identifying such incidents or unauthorized access may lead to increased harm of the types described above. While we have implemented technical and organizational measures designed to ensure a level of security appropriate to the risks involved, there can be no assurance that such measures have prevented or will prevent service interruptions or security incidents.
Our employees and consultants, collaborators and other third parties may engage in misconduct or other improper activities, including insider trading and activities that violate regulatory standards and requirements.
Our employees and consultants, collaborators and other third parties with whom we interact may engage in fraudulent or illegal activity. Misconduct by these parties could include intentional, reckless or negligent conduct that violates United States and international laws and regulations, including laws requiring the true, complete and accurate reporting of financial and other information or data, drug manufacturing standards and healthcare fraud and abuse laws and regulations. In particular, sales, marketing and business arrangements in the healthcare industry, including the sale of pharmaceutical products, are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. Such 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. It is not always possible to detect, identify and deter misconduct by our employees or third parties, and the precautions we take to detect and prevent this activity may not be effective to control risks or losses or protect us from governmental investigations or other actions or lawsuits stemming from an actual or perceived failure to comply 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, such actions could result in the imposition of significant monetary fines or other sanctions, including the imposition of civil, criminal and administrative penalties, damages, imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm, diminished profits and future earnings and curtailment of operations, any of which could adversely affect our ability to operate our business and our results of operations. Whether or not we are successful in defending against such actions or investigations, this could cause us to incur substantial costs, including legal fees, and divert the attention of management in our defending against any such actions or responding to related investigations.
Risks Related to Our Dependence on Third Parties
Zai Lab has exclusive rights to develop and commercialize bemarituzumab in Greater China. Zai Lab’s failure to timely develop or commercialize bemarituzumab would have a material adverse effect on our business and operating results.
We granted Zai Lab an exclusive license to develop and commercialize bemarituzumab in Greater China, subject to certain rights that we retained in that territory. Our China collaboration with Zai Lab may not be successful for various reasons, including the following:
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bemarituzumab may fail to demonstrate in clinical trials sufficient efficacy and an acceptable safety profile to support regulatory approval;
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Zai Lab may not be able to obtain from us or manufacture, as applicable, bemarituzumab in a sufficiently timely or cost-effective manner to support clinical development and potential commercialization;
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Zai Lab may be unable to obtain regulatory approval to commercialize bemarituzumab, even if preclinical and clinical testing is successful;
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Zai Lab may not succeed in obtaining sufficient reimbursement for bemarituzumab if approved;
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existing or future products or technologies developed by competitors may be safer, more effective, more conveniently delivered to patients or otherwise better accepted than bemarituzumab; and
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public health crises, such as the ongoing COVID-19 pandemic currently impacting countries worldwide, may adversely impact the development and commercialization of bemarituzumab.
In addition, we could be adversely affected by:
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Zai Lab’s failure to timely perform its obligations under our collaboration agreement;
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Zai Lab’s failure to timely or fully develop or effectively commercialize bemarituzumab; or
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a material contractual dispute with Zai Lab.
The occurrence of any of the foregoing could adversely impact the likelihood and timing of any milestone payments we are eligible to receive under our collaboration agreement with Zai Lab, could have a material adverse effect on our business, results of operations and prospects and would likely cause our stock price to decline. In addition, reimbursement for our research and development expenses and other payments we may receive from Zai Lab may fluctuate from period to period, which may adversely affect our stock price.
Zai Lab has the right to terminate its collaboration agreement with us without cause as well as upon the existence of certain conditions and, in some cases, Zai Lab may terminate on short notice. Zai Lab could also pursue alternative potentially competitive products, therapeutic approaches or technologies as a means of developing treatments for the diseases targeted by bemarituzumab during the course of our collaboration.
We may not succeed in establishing and maintaining additional license agreements or product or clinical collaborations with strategic partners, which could adversely affect our ability to generate funding or develop and commercialize product candidates.
A part of our strategy is to establish license agreements and product and clinical collaborations with strategic partners, including major biotechnology or pharmaceutical companies, with respect to the product candidates we are researching or developing. These licenses and collaborations allow us to supplement our development, manufacturing, regulatory and commercialization capabilities to broaden and accelerate clinical development and commercialization of our product candidates, provide us with significant funding to advance our pipeline and validate our technology. We face significant competition in seeking appropriate partners for additional licenses and collaborations and the negotiation process is time-consuming and complex and the outcome uncertain. Moreover, we may not succeed in our efforts to establish additional licenses or collaborations or other alternative arrangements for any of our other existing or future product candidates and programs because development of our product candidates and programs may be deemed to be too early in development or third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy or otherwise to timely become competitive marketable products, if approved. Even if we succeed in our efforts to establish new product licenses or collaborations, the terms that we agree upon may not be favorable to us and we may not be able to maintain such licenses or collaborations if, for example, development or approval of the applicable product candidate is delayed or sales of such product candidate, once approved, are disappointing. Any delay in entering into new license or collaboration agreements related to our product candidates could delay the development and commercialization of such product candidates and reduce their competitiveness if they reach the market.
Moreover, if we fail to timely establish and maintain licenses or collaborations related to our product candidates:
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we would not receive revenue from these licenses or collaborations within the timeframe we planned or at all;
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our cash expenditures related to continued development of these product candidates would increase and we may need to seek additional financing;
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if we are unable to secure additional financing, the development of our current or future product candidates may be delayed or terminated;
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we may be required to hire additional employees for which we have not budgeted, or otherwise develop expertise in areas in which we may have limited experience, such as sales and marketing; and
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we will bear all the risk related to the development of any such product candidates.
We may not succeed in executing strategic transactions to acquire or in-license rights to additional product candidates.
We plan to supplement our ongoing development pipeline from time to time by selectively acquiring or in-licensing, on an exclusive basis, rights to develop product candidates from biotechnology and pharmaceutical companies. We continue to evaluate for potential acquisition or licensing assets that are IND-ready or in early clinical development and that we can leverage our in-house development capabilities to develop to data read-outs in the near- to medium-term. Our primary focus remains on oncology therapeutics. If we are unable to identify product candidates or otherwise successfully execute transactions granting us rights to such product candidates within our desired timeframes or at all, we will not be able to grow our development pipeline, which could adversely affect our business and financial condition. We may fail to successfully execute strategic acquisitions of or in-licenses for rights to develop product candidates for numerous reasons. Suitable acquisition or in-licensing opportunities may not exist, which could impair our ability to grow or obtain access to products or technologies that may be important to the development of our business. Other pharmaceutical companies, many of which may have substantially greater financial and other resources, compete with us for these opportunities and may succeed in acquiring or licensing third-party product candidates before we do. Even if appropriate opportunities are available, we may not be able to successfully identify such opportunities or they may not be available to us on terms that are commercially reasonable or otherwise acceptable to us.
We rely on CMOs, CROs and other third-party service providers to develop and produce drug product for and conduct our clinical trials and to conduct services related to our preclinical and late-stage research programs, and the unsatisfactory performance by such CMOs, CROs or other third-party service providers may harm our business.
We rely on CROs to perform most of the activities related to the conduct of our clinical trials, including site identification, screening, preparation, training, initiation and monitoring, document preparation and coordination, program management and data management. We do not directly control the conduct, timing, expense or quality of the performance of these activities. The performance of our CROs will impact the quality and validity of our clinical trial results, which we rely on for business planning purposes and include in submissions to regulatory authorities. Although we contract with CROs to conduct most clinical trial-related activities, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable clinical protocol and legal and regulatory requirements. Our reliance on CROs does not relieve us of our legal and regulatory responsibilities with respect to our clinical trials.
We and our CROs are required to comply with GCP, which are regulations, standards and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities, for all of our product candidates in clinical development. Regulatory authorities enforce GCP requirements through periodic inspections of clinical trial sponsors, principal investigators and clinical trial sites. If we or any of our CROs fail to comply with applicable GCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot ensure that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials are being conducted in accordance with GCP requirements. In addition, we must conduct our clinical trials using drug product developed and produced in accordance with GLP and GMP requirements. Our failure, or the failure of our CMOs, CROs or clinical trial sites, to comply with applicable GLP, GMP or GCP may require us to repeat preclinical studies and clinical trials, which would delay the regulatory approval process.
Our CMOs, CROs and other third-party service providers, and their representatives that perform services for us, are not our employees. Except for remedies available to us in connection with our agreements with such CMOs, CROs and other third-party service providers, we cannot control whether they devote sufficient time and resources to our ongoing clinical, preclinical and research programs. Our CMOs, CROs and other third-party service providers may not successfully carry out their contractual duties or obligations or meet expected deadlines, and the quality or accuracy of the data they obtain may be compromised, including due to their failure to adhere to regulatory requirements or for other reasons, including failure of our clinical CROs to adhere to our clinical protocols. In addition, our CROs and other third parties we engage in connection with the conduct of our clinical trials may experience business interruptions as a result of shelter-in-place or similar orders or other effects of the ongoing COVID-19 pandemic. As a result, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. In such a case, our
results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed or significantly limited.
Risks Related to Intellectual Property
If we are unable to obtain, maintain or protect intellectual property rights, we may not be able to compete effectively in our market.
Our success depends in significant part on our ability and the ability of our licensors and collaborators to obtain, maintain and defend patents and other intellectual property rights and to operate without infringing the intellectual property rights of others. We have filed numerous patent applications both in the United States and in foreign jurisdictions to obtain patent rights to inventions we have discovered. We have also licensed patent and other intellectual property rights to and from our partners and other third parties. Pursuant to some of these licenses, we have the right to prepare, file and prosecute patent applications and maintain and enforce the patents that are the subject of these licenses, whereas our partners or other third parties have such rights under other licenses.
In circumstances where we do not have the right to control the preparation, filing and prosecution of patent applications or to maintain the patents covering technology that we license to or from third parties, including our collaborators, we have to rely on such third parties to fulfill these responsibilities. Consequently, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. If our current or future licensors, licensees or collaborators fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If our licensors, licensees or collaborators are not fully cooperative or disagree with us as to the strategy for prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised.
The patent prosecution process is expensive and time-consuming. We and our current or future licensors, licensees or collaborators may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we or our licensors, licensees or collaborators will fail to file patent applications covering inventions made in the course of development and commercialization activities before a competitor or other third party files a patent application covering or publishes information disclosing a similar, independently-developed invention. Such competitor’s or third party’s patent application or other publication may hinder our or our licensors’, licensees’ or collaborators’ ability to obtain patent protection for these inventions or may limit the scope of patent protection we or our licensors, licensees or collaborators may obtain.
The patent position of biotechnology and pharmaceutical companies generally is uncertain, involves complex legal and factual questions and is the subject of much litigation. As a result, the scope, validity, enforceability and commercial value of our and our current or future licensors’, licensees’ or collaborators’ patent rights, as well as whether any patents will ever be issued based on applications claiming such patent rights, are uncertain. Our and our current or future licensors’, licensees’ or collaborators’ pending and future patent applications may not result in issued patents that protect our technology or products, in whole or in part, or that effectively exclude others from commercializing similar or otherwise competitive technologies and products. During the patent prosecution process, we or our licensors, licensees or collaborators may be required to narrow the scope of the claims of pending and future patent applications, which may limit the scope of protection of any patents that may issue from such applications. Our and our licensors’, licensees’ or collaborators’ rights in the technology claimed in patent applications cannot be enforced against third parties using such technology unless and until a patent issues from such applications, and then only to the extent the issued claims effectively cover such technology.
Furthermore, because the amount of time required for the development, testing and regulatory review of new product candidates is lengthy, patents protecting such candidates might expire before or shortly after such candidates are approved for commercialization. As a result, our owned and licensed patent portfolios may not provide us with adequate protection against third parties seeking to commercialize products similar or identical to ours. We expect to request extensions of patent terms to the extent available in countries where we obtain issued patents. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits, in certain cases, a patent term extension of up to five years beyond the expiration of the patent. However, there are no assurances that the FDA or any comparable foreign regulatory authority will grant such extensions, in whole or in part. If we fail to obtain patent term extensions for any reason, our competitors may launch their products earlier than might otherwise be anticipated.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting, enforcing and defending patents covering our product candidates in all countries throughout the world would be prohibitively expensive, and our or our licensors’ or collaborators’ intellectual property rights in some countries outside the United States may be less extensive than those in the United States. Moreover, the requirements for patentability in certain foreign countries, particularly developing countries, differ materially from those of the United States and such requirements also vary among foreign countries. For example, compared to the United States, China’s patentability requirements are more stringent and may limit the scope of a patent’s claims solely to the specific examples described in the patent. Therefore, it may be more difficult to obtain patent protection in certain countries relative to others.
The laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we and our licensors or collaborators may not be able to prevent third parties from using our and our licensors’ or collaborators’ inventions in certain countries outside the United States. In jurisdictions where we have not obtained patent protection, competitors may use our and our licensors’ or collaborators’ technologies to develop their own products. Competitors may also export infringing products to territories where we and our licensors or collaborators have patent protection but enforcement is not as strong or effective as in the United States. These products may compete with our product candidates and our and our licensors’ or collaborators’ patents or other intellectual property rights may not be sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems in certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property rights, particularly those relating to biopharmaceuticals, which could make it difficult for us and our licensors or collaborators to stop the infringement of our and our licensors’ or collaborators’ patents or marketing of competing products in violation of our and our licensors’ or collaborators’ proprietary rights generally. Proceedings to enforce our and our licensors’ or collaborators’ patent rights in foreign jurisdictions could result in substantial costs and divert our and our licensors’ or collaborators’ efforts and attention from other aspects of our business and could provoke third parties to assert counterclaims against us or our licensors or collaborators, which could put our and our licensors’ or collaborators’ patents at risk of being invalidated or interpreted narrowly. We or our licensors or collaborators may not prevail in any lawsuits that we or our licensors or collaborators initiate and, even if we or our licensors or collaborators prevail, the damages or other remedies awarded, if any, may not be commercially meaningful, particularly in light of any expenses incurred in connection with the initiation and conduct of such lawsuits.
Biosimilar drug manufacturers or other competitors may challenge the scope, validity or enforceability of our or our licensors’ or collaborators’ foreign patents, requiring us or our licensors or collaborators to engage in complex, lengthy and costly litigation or other proceedings outside of the United States. Biosimilar drug manufacturers may develop, seek approval for and launch biosimilar versions of our products. India, certain countries in Europe and certain developing countries, including China, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we and our licensors or collaborators may have limited remedies if compelled to grant a license to a third party, which could materially diminish the value of the applicable patents and limit our potential revenue opportunities. Accordingly, we may be unable to derive a significant commercial advantage from our and our licensors’ or collaborators’ intellectual property rights or our enforcement of those rights.
Changes to patent laws could diminish the value of patents in general, thereby impairing our ability to protect our rights in our product candidates.
The ability of a party to obtain and enforce patents in the biopharmaceutical industry is inherently uncertain, due in part to ongoing changes to applicable patent laws. Depending on decisions by Congress, the federal courts, and the U.S. Patent and Trademark Office, or USPTO, the laws and regulations governing patents could change in unpredictable ways and could weaken our and our licensors’ or collaborators’ ability to obtain new patents or to enforce existing or future patents.
For example, several of the Supreme Court’s rulings in patent cases in recent years have either narrowed the scope of patent protection available under certain circumstances or weakened the rights of patent owners in certain situations. Therefore, there is increased uncertainty with regard to our and our licensors’ or collaborators’ ability to obtain patents in the future, as well as uncertainty with respect to the value that any of our patents may have once they have issued. Additionally, significant changes to the patent laws under the Leahy-Smith America Invents Act of 2011, or the Leahy-Smith Act, have affected how patent applications are prosecuted and challenged in the U.S. Those changes include implementation of a “first-to-file” system, effective in 2013, for determining entitlement to inventions claimed by more than one party, as well as creation of new administrative proceedings for challenging issued patents. As such, there is increased uncertainty with respect to both outcome and costs associated with the prosecution of patent applications and the enforcement or defense of issued patents controlled by us or our licensors or collaborators, which could have a material adverse effect on our business and financial condition.
Obtaining and maintaining patent protection requires compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated if we fail to comply with these requirements.
Patent holders are required to pay periodic maintenance and annuity fees to the USPTO and foreign patent agencies over the lifetime of any issued patent. The USPTO and foreign patent agencies also require compliance with various procedural, documentary, fee payment and other similar requirements during the patent application and prosecution process. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official communications within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, certain non-compliance events may result in irrevocable abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If we or our licensors or collaborators fail to maintain the patents and patent applications covering our product candidates, our competitors might be able to enter the market and compete with such product candidates, which would have a material adverse effect on our business.
We may need to protect or enforce our intellectual property through litigation or other proceedings, which could be expensive, time-consuming and unsuccessful and have a material adverse effect on the success of our business.
Third parties may infringe our or our licensors’ or collaborators’ patents or misappropriate or otherwise violate our or our licensors’ or collaborators’ intellectual property rights. In the future, we or our licensors or collaborators may initiate legal proceedings to enforce or defend our or our licensors’ or collaborators’ intellectual property rights or to protect our or our licensors’ or collaborators’ trade secrets. The outcome of such proceedings may determine or alter the validity or scope of intellectual property rights we own or control. Also, third parties may initiate legal proceedings, including litigation or administrative proceedings, against us or our licensors or collaborators to challenge the validity or scope of intellectual property rights we own or control. These proceedings can be expensive and time-consuming and many of our or our licensors’ or collaborators’ adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we or our licensors or collaborators can. Accordingly, despite our or our licensors’ or collaborators’ efforts and the legitimacy of our or our licensors’ or collaborators’ arguments and positions in these proceedings, we or our licensors or collaborators may not be able to prevent third parties from infringing or misappropriating intellectual property rights we or our licensors or collaborators own or control, particularly in countries where the laws may not protect those rights as fully as in the United States. Litigation or administrative proceedings could result in substantial costs and diversion of management resources, which could harm our business and financial results. In addition, in a patent infringement proceeding, a court may decide that a patent owned by or licensed to us is invalid or unenforceable, or may refuse to impose monetary damages or enjoin the infringing party from using the technology at issue on the grounds that our or our licensors’ or collaborators’ patents do not cover the technology in question. Any legal proceeding involving one or more of our or our licensors’ or collaborators’ patents could put such patents at risk of being invalidated, held unenforceable or interpreted narrowly.
Derivation or interference proceedings in the United States or similar proceedings in other jurisdictions may be necessary to determine the priority of inventions with respect to our or our licensors’ or collaborators’ patents or patent applications. An unfavorable outcome in these proceedings could require us or our licensors or collaborators to cease using the technology covered by the applicable patents or patent applications and commercializing our product candidates or to attempt to license rights to such technology from the prevailing party. Our business could be harmed if the prevailing party does not offer us or our licensors or collaborators a license or offers a license on terms that are not commercially reasonable or are otherwise unfavorable to us. Even if we or our licensors or collaborators obtain a license, it may be non-exclusive, allowing our competitors to gain access to the same technologies licensed to us or our licensors or collaborators. In addition, if the breadth or strength of protection provided by our or our licensors’ or collaborators’ patents and patent applications is threatened, potential collaborators may be dissuaded from partnering with us with respect to the development or commercialization of our affected current or future product candidates. Even if we prevail in such a proceeding, such a proceeding may cause us to incur substantial costs and distract our management and other employees from our business and operations.
Furthermore, because intellectual property litigation and certain other legal proceedings require discovery, which may in some cases be substantial, there is a risk that our confidential information could be compromised by disclosure during the course of such proceedings. There could also be public announcements of the results of hearings, motions or other interim rulings or developments in the proceedings, and if securities analysts or investors perceive these results to be negative, the price of shares of our common stock may be materially adversely affected.
If we breach the agreements under which third parties have licensed intellectual property rights to us, we could lose the ability to use certain of our technologies or continue the development and commercialization of our product candidates.
Our commercial success depends upon our ability, and the ability of our licensors and collaborators, to develop, manufacture, market and sell product candidates without infringing the proprietary rights of third parties. Third parties currently, and may in the future, hold intellectual property rights, including patent rights, that are important or necessary for the development or commercialization of our product candidates. As a result, we are a party to a number of licenses that are important to our business and expect to enter into additional licenses in the future. For example, we have entered into non-exclusive licenses with third parties, including BioWa, Inc. and Lonza Sales AG, to use their proprietary protein expression and cell line technologies, which are necessary to produce our product candidates. If we fail to comply with the obligations under these license agreements, including payment and diligence terms, our licensors may have the right to terminate these agreements, in which event we may not be able to develop, manufacture, market or sell any product candidate that, or the development or manufacturing of which, is covered by the rights licensed under these agreements and may face other contractual penalties. Such an occurrence could materially adversely affect the value of any product candidate being developed using technology licensed under any such agreement. Termination of, or reduction or elimination of our rights under, these agreements may require us to negotiate new or reinstated agreements, which may not be available to us on equally favorable or otherwise commercially reasonable terms, or at all, or cause us to lose our rights we had under the original agreements, including our rights to intellectual property or technology important to or necessary for our development programs.
Third parties may initiate legal proceedings against us alleging that we infringe their intellectual property rights, or we may initiate legal proceedings against third parties to challenge the validity or scope of intellectual property rights controlled by such third parties. The outcome of any of these proceedings would be uncertain and could have a material adverse effect on the success of our business.
Third parties may initiate legal proceedings against us or our licensors or collaborators alleging that we or our licensors or collaborators infringe the intellectual property rights controlled by these third parties, or we or our licensors or collaborators may initiate legal proceedings against third parties to challenge the validity or scope of intellectual property rights controlled by these third parties, including in oppositions, interferences, reexaminations, inter partes reviews, post-grant reviews or derivation proceedings in the United States or comparable proceedings in other jurisdictions. These proceedings can be expensive and time-consuming and many of our or our licensors’ or collaborators’ adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we or our licensors or collaborators can.
An unfavorable outcome in any of these proceedings could require us or our licensors or collaborators to cease using the relevant technology or developing or commercializing our product candidates, or to attempt to license any necessary rights to such technology from the prevailing party. Our business could be harmed if the prevailing party does not offer us or our licensors or collaborators a license, or otherwise offers a license on terms that are not commercially reasonable or are otherwise unfavorable to us. Even if we or our licensors or collaborators obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us or our licensors or collaborators. In addition, we could be found liable for monetary damages if we are found to have infringed a patent, including treble damages and attorneys’ fees if such infringement was willful. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business.
Furthermore, because intellectual property litigation and certain other legal proceedings require discovery, which may in some cases be substantial, there is a risk that our confidential information could be compromised by disclosure during the course of such proceedings involving third party intellectual property rights. There could also be public announcements of the results of hearings, motions or other interim rulings or developments in the proceedings, and if securities analysts or investors perceive these results to be negative, the price of shares of our common stock may be materially adversely affected.
We may be subject to claims by third parties asserting that we or our employees have misappropriated their intellectual property or that such third parties own what we regard as our own intellectual property.
Many of our employees, including members of our senior management, were previously employed at universities or at other biotechnology or pharmaceutical companies, including our competitors or potential competitors, and executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we work to ensure that our employees do not use the proprietary information or know-how of others in their work for us, including through written contractual obligations, we may be subject to claims that we or our employees have used or disclosed confidential information or intellectual property, including trade secrets or other proprietary information, of a former employer of any such employee. Litigation may be necessary to defend against these claims.
If we are unable to successfully defend against any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Such intellectual property rights could be determined to be owned by a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available to us at all, may not be available to us on commercially reasonable terms or may include obligations that are otherwise unfavorable for us. Even if we successfully defend against such claims, litigation could result in substantial costs and distract management from our day-to-day operations.
Our inability to protect our confidential information and trade secrets would harm our business and competitive position.
In addition to seeking patents covering our technology and products, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into confidentiality agreements with parties who have access to them, including our employees, corporate collaborators, scientific collaborators, contract manufacturers and other service providers, advisors and other third parties. We also enter into confidentiality and intellectual property, including patent, assignment agreements with our employees and consultants. Despite these efforts, any of these parties, including our current or former employees or consultants and those of our service providers or collaborators, may breach the applicable agreements and disclose our confidential information, including our trade secrets, and we may not be able to obtain adequate remedies for any such breach. Bringing a claim against a party for illegally disclosing or misappropriating a trade secret is difficult, expensive and time-consuming and the outcome of any resulting litigation or other proceeding is unpredictable. Additionally, litigation involving our trade secrets puts us at significant risk that such trade secrets will be publicly disclosed, thereby significantly reducing or eliminating their value and potentially increasing competition and otherwise harming our business. Further, some courts both within and outside the United States may be less willing or unwilling to protect trade secrets. If a competitor lawfully obtained or independently developed any of our trade secrets, we would have no right to prevent such competitor from using any such trade secret to compete with us, which could harm our competitive position.
Risks Related to Our Financial Position and Capital Needs
We will require additional capital to finance our operations, which may not be available to us on acceptable terms or at all. As a result, we may not complete the development and commercialization of our current or future product candidates.
As a research and development company, our operations have consumed substantial amounts of cash since inception. We have sufficient cash and cash equivalents to fund our projected operating expenses and capital expenditure requirements for at least the next 12 months. We expect our research and development expenses may increase in connection with our ongoing activities, particularly if we advance our product candidates further into clinical development, advance additional product candidates into clinical trials and increase the number and size of our clinical trials. In addition, circumstances may cause us to consume capital more rapidly than we currently anticipate, including as a result of the COVID-19 pandemic. For example, we may be required to conduct additional research or development activities or studies for a product candidate or substantially redesign a product candidate, each of which could lengthen the development process and increase our development costs for such product candidate. If we initiate additional clinical trials for certain product candidates, we may need to raise additional funds or otherwise obtain funding through product collaborations beyond the collaborations we currently have in place. In any event, we will require additional capital to develop, obtain regulatory approval for and to commercialize our current and future product candidates.
If we need to secure additional financing, fundraising efforts may divert our management from our day-to-day activities, which may adversely affect our ability to develop and commercialize current and future product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. The COVID-19 pandemic has resulted in a significant disruption of global financial markets. If the disruption persists and deepens and global economic conditions worsen, we could experience an inability to access additional capital or engage in strategic transactions on terms reasonable to us, or at all. If we are unable to or otherwise do not raise additional capital when required or on acceptable terms, we may need to:
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significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates or cease all or a portion of our operations;
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seek collaborations for research and development programs at an earlier stage than we would otherwise desire or on terms less favorable than might otherwise be available; or
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relinquish or license to third parties on unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves.
If we need to conduct additional fundraising activities and we do not raise additional capital in sufficient amounts or on terms acceptable to us, we may be required to halt or delay our ongoing development efforts and may be prevented from pursuing further development and commercialization of our product candidates, and we may be required to halt or delay any acquisition or in-licensing of new product candidates or may be prevented from pursuing further acquisition or in-licensing opportunities, each of which could have a material adverse effect on our business, operating results and prospects.
The time through which our financial resources will adequately support our operations could vary as a result of numerous factors, including factors discussed elsewhere in this “Risk Factors” section. Our future funding requirements, both short- and long-term, will depend on many factors, including:
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the initiation, progress, timing, costs and results of preclinical and clinical studies for our current product candidates and any future product candidates;
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the outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA and comparable foreign regulatory authorities, including the potential that such authorities may require us to perform more studies than we expect;
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the cost to establish, maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecuting, maintaining, defending and enforcing any of our patents or other intellectual property rights;
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the effect of competing technological and market developments;
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market acceptance of any of our product candidates that may receive regulatory approval;
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the costs of acquiring, licensing or investing in additional businesses, products, product candidates and technologies;
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the cost and timing of selecting, auditing and validating a manufacturing site for commercial-scale manufacturing; and
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the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval and that we choose to commercialize ourselves or with our collaboration partners.
If a lack of available capital means that we cannot expand our operations or otherwise capitalize on our business opportunities, our business, financial condition and results of operations could be materially adversely affected.
Raising additional capital may dilute our existing stockholders, restrict our operations or require us to relinquish rights to our technologies.
Until we generate sufficient product revenue, if ever, we expect to finance our future cash needs through public or private equity or debt offerings and collaborations, strategic alliances and other similar licensing transactions. Additional capital may not be available on reasonable terms, if at all. On August 6, 2020, we entered into a sales agreement with Cowen and Company, LLC, or Cowen, acting as sales agent, pursuant to which we may offer and sell, from time to time through Cowen, shares of our common stock having an aggregate offering price of up to $75.0 million, in a series of one or more at-the-market equity offerings, or collectively, the ATM facility. During 2020, we raised approximately $7.1 million in net proceeds under the ATM facility. In addition, in November 2020, we closed on a public offering of our common stock, resulting in net proceeds of approximately $163.2 million after deducting underwriting discounts and commissions and offering expenses payable by us. To the extent that we raise additional funds through the issuance of additional debt or equity securities, our fixed payment obligations could increase and the ownership interests of our existing stockholders may be diluted. Furthermore, these securities may have rights senior to those of our common stock and could contain covenants that restrict our operations and potentially impair our competitiveness, including limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.
We expect to incur net losses for the foreseeable future.
We are a clinical-stage biotechnology company with a limited operating history. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate efficacy with an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale, have not generated any revenue from product sales to date and continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in almost every period since our inception in 2001. For the year ended December 31, 2020, we reported a net loss of $84.3 million.
Although we may from time to time report profitable results, we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from quarter to quarter. We expect our operating expenses to increase as we advance our research and development of, and seek regulatory approvals for, our product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown circumstances that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.
We currently have no source of product revenue and may never become consistently profitable.
To date, we have not generated any revenue from commercialization of our product candidates. Our ability to generate product revenue and ultimately become profitable depends upon our ability, alone or with our partners, to successfully commercialize products, including our current product candidates and other product candidates that we may develop, in-license or acquire in the future. We do not anticipate that we will generate revenue from the sale of products for the foreseeable future. Our ability to generate future product revenue from our current or future product candidates also depends on additional factors, including our or our partners’ ability to:
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successfully complete research and clinical development of current and future product candidates;
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establish and maintain supply and manufacturing relationships with third parties to ensure adequate, timely and compliant manufacturing of bulk drug substances and drug products to maintain our or our partners’ supply of such bulk drug substances and drug products;
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launch and commercialize any product candidates for which we obtain marketing approval, and if we launch independently or with certain partners, successfully establish a sales force and marketing and distribution infrastructure;
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obtain coverage and adequate product reimbursement from third-party payors, including government payors;
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successfully and timely develop, validate and obtain any necessary regulatory approvals for companion diagnostics to any of our approved product candidates;
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achieve market acceptance for any of our or our partners’ approved products;
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acquire rights to and otherwise establish, maintain and protect intellectual property rights necessary to develop and commercialize our product candidates; and
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attract, hire and retain qualified personnel.
In addition, because of the numerous risks and uncertainties generally associated with development of pharmaceutical products, including that they may not advance through clinical development or achieve the endpoints of applicable clinical trials, we are unable to predict the timing or amount of expenses associated with development of our product candidates, or if or when we will achieve or maintain profitability. In addition, our expenses could increase beyond our current expectations if we decide to or are required by the FDA or any comparable foreign regulatory authority to perform studies or trials in addition to those that we currently anticipate. Even if we successfully complete the development and regulatory processes described above, we expect that we will incur significant costs in connection with launching and commercializing our products.
Even if we generate revenue from the sale of any of our products that may be approved, we may not become profitable and may need to obtain additional funding to continue operations. If we fail to become profitable or do not sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations.
Risks Related to the Ownership of Our Common Stock and Other General Matters
The market price of our stock is volatile.
The trading price of our common stock has been and is likely to continue to be volatile. Since shares of our common stock were sold in our initial public offering in September 2013, our closing stock price as reported on The Nasdaq Global Market and The Nasdaq Global Select Market has ranged from $1.86 to $60.89 through March 15, 2021. The following factors, in addition to other risk factors described in this “Risk Factors” section and elsewhere in this report, may have a significant impact on the market price of our common stock:
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results or status of or plans for clinical trials of our product candidates or those of our competitors, as well as interpretation and perception of such results, status or plans by third parties;
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announcements by us, our partners or our competitors of significant acquisitions, strategic collaborations, joint ventures, collaborations or capital commitments;
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success or failure of products or technologies that compete or may compete with our product candidates and technologies;
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regulatory actions with respect to our product candidates or our competitors’ products;
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actual or anticipated changes in our or our partners’ growth rates relative to our competitors;
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failure of our partners to effectively execute or changes in our partners’ strategies with respect to our product candidates or collaborations;
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regulatory or legal developments in the United States and other countries;
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developments or disputes concerning our patent applications, issued patents or other proprietary rights;
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our dependence on third parties, including CMOs, CROs and collaboration partners, including those we may engage to develop and provide us with companion diagnostic products;
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recruitment or departure of key personnel;
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level of expenses related to any of our product candidates or clinical development programs;
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results of our efforts to in-license or acquire additional product candidates or products;
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actual or anticipated changes in estimates as to our financial results, development timelines or recommendations by securities analysts;
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variations in our financial results or those of companies that are perceived to be comparable to us;
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fluctuations in the valuation of companies perceived by investors to be comparable to us;
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share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
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announcements or expectations of additional financing efforts;
•
sales of our common stock by us, our insiders or our other stockholders;
•
changes in the structure of healthcare payment systems;
•
market conditions in the pharmaceutical and biotechnology sectors; and
•
general economic, industry, political and market conditions and overall fluctuations in the financial markets in the United States and abroad, including as a result of ongoing COVID-19 pandemic.
In addition, the stock market in general, and The Nasdaq Global Select Market and biotechnology companies, in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the relevant companies, including in connection with the ongoing COVID-19 pandemic, which has resulted in decreased stock prices for many companies notwithstanding the lack of a fundamental change in their underlying business models or prospects. Broad market and industry factors, including potentially worsening economic conditions and other adverse effects or developments relating to the ongoing COVID-19 pandemic, may negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of the above risks or any of a broad range of other risks, including those described in this “Risk Factors” section, could have a dramatic and material adverse impact on the market price of our common stock.
If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business or our market, our stock price and trading volume could decline.
The trading market for our common stock is influenced by the research and reports that equity research analysts publish about us and our business. We have only limited research coverage by equity research analysts. Equity research analysts may elect not to initiate research coverage of our common stock or may discontinue research coverage, and a lack of research coverage may adversely affect the market price of our common stock. We do not have any control over the analysts or the content and opinions included in their reports. The price of our shares could decline if one or more equity research analysts downgrade our shares or issue other unfavorable commentary or research about us. If one or more equity research analysts ceases coverage of us or fails to publish reports on us regularly, demand for our shares could decrease, which in turn could cause the trading price or trading volume of our common stock to decline.
We may be subject to securities litigation, which is expensive and could divert management attention.
The market price of our common stock has declined over in recent years and may continue to be volatile. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation and we may become a target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
Our principal stockholders and management own a significant percentage of our stock and may be able to exert significant control over matters subject to stockholder approval.
As of December 31, 2020, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately 24% of our common stock. This concentration of share ownership may adversely affect the trading price of our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. As a result, these stockholders, acting together, could significantly influence all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. The interests of these stockholders may not always coincide with our interests or the interests of other stockholders.
Sales of a substantial number of shares of our common stock in the public market by our existing stockholders could cause our stock price to fall.
Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our common stock.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We are subject to the periodic reporting requirements of the Securities and Exchange Act of 1934, as amended, or the Exchange Act. We designed our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.
Changes in tax laws or regulations that are applied adversely to us may have a material adverse effect on our business, financial condition or results of operations.
New tax laws or regulations could be enacted at any time, and existing tax laws or regulations could be interpreted, modified or applied in a manner that is adverse to us, which could adversely affect our business and financial condition. For example, the Tax Act resulted in many significant changes to the U.S. tax laws, including changes in corporate tax rates, the utilization of our net operating loss carryforwards, or NOLs, and other deferred tax assets, the deductibility of expenses, and the taxation of foreign earnings. Future guidance from the Internal Revenue Service and other tax authorities with respect to the Tax Act may affect us, and certain aspects of the Tax Act could be repealed or modified by future legislation. For example, the CARES Act modified certain provisions of the Tax Act. In addition, it is uncertain if and to what extent various states will conform to the Tax Act, the CARES Act, or any newly enacted federal tax legislation. The impact of changes under the Tax Act, the CARES Act, or future reform legislation could increase our future U.S. tax expense and could have a material adverse impact on our business and financial condition.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
Our NOLs could expire unused and be unavailable to offset future income tax liabilities because of their limited duration or because of restrictions under U.S. tax law. Our NOLs generated in tax years ending on or prior to December 31, 2017 are permitted to be carried forward for only 20 years under applicable U.S. tax law. Our federal NOLs generated in tax years ending after December 31, 2017 may be carried forward indefinitely, but the deductibility of federal NOLs generated in tax years beginning after December 31, 2020 is subject to certain limitations. It is uncertain if and to what extent various states will conform to these provisions of U.S. tax law.
In addition, under Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” its ability to use its pre-change NOLs and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points (by value) over their lowest ownership percentage over a rolling three-year period. We may have experienced ownership changes in the past and may experience ownership changes in the future as a result of shifts in our stock ownership, some of which are outside our control. As a result, if we earn net taxable income, our ability to use our pre-change NOLs to offset such taxable income may be subject to limitations.
Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. In addition, California Assembly Bill 85, or AB 85, was signed into law by Governor Gavin Newsom on June 29, 2020. AB 85 suspends the California NOL deductions for 2020, 2021 and 2022 for certain taxpayers and imposes a limitation of certain California tax credits for 2020, 2021 and 2022. AB 85 disallows the use of California NOL deductions if the taxpayer recognizes business income and its adjusted gross income is greater than $1,000,000. The carryover periods for NOL deductions disallowed by this provision will be extended. As a result, if we earn net taxable income during this period, our ability to use tax attributes may be limited and increase state taxes owed. Consequently, even if we achieve profitability, we may not be able to utilize a material portion of our NOLs and certain other tax attributes, which could have a material adverse effect on cash flow and results of operations.
Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would benefit our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could make it more difficult or costly for a third party to acquire us, even if doing so would benefit our stockholders, and could make it more difficult to remove our current management. These provisions include:
•
authorizing the issuance of “blank check” preferred stock, the terms of which we may establish and shares of which we may issue without stockholder approval;
•
prohibiting cumulative voting in the election of directors, which would otherwise allow for less than a majority of stockholders to elect director candidates;
•
prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;
•
eliminating the ability of stockholders to call a special meeting of stockholders; and
•
establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, who are responsible for appointing the members of our management. Because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware, or the DGCL, which may discourage, delay or prevent someone from acquiring us or merging with us whether or not it is desired by or beneficial to our stockholders. Under the DGCL, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction. Any provision of our amended and restated certificate of incorporation or amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change of control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.

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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.
Our principal executive office is currently located in South San Francisco, California and consists of 115,466 square feet of office and laboratory space, all of which is located in a single building, which we have leased pursuant to a lease agreement, or the corporate facility lease, that expires on December 31, 2027.
In September 2020, we entered into a sublease agreement with Sutro Biopharma, Inc., or Sutro, pursuant to which we agreed to sublet to Sutro the 115,466 square feet of office and laboratory space that we currently lease in South San Francisco, or the premises. Under the sublease agreement, we are currently subletting three of the four floors of the premises, or the initial premises, and we will sublet the fourth floor on the date that is 24 months following July 2, 2021 or sooner if Sutro provides six months’ prior written notice. The sublease agreement expires on December 31, 2027.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
On March 18, 2021, Elaine Wang, a purported stockholder of the company, commenced an action in the United States District Court for the District of Delaware, captioned Elaine Wang v. Five Prime Therapeutics, Inc. et al., Case No. 1:21-cv-00395-UNA, against the company and the current members of our board of directors asserting claims under Sections 14(e), 14(d)(4), and 20(a) of the Securities Exchange Act of 1934 challenging the adequacy of certain public disclosures made by us concerning our proposed transaction with Amgen Inc., or Amgen. The lawsuit seeks, among other things, an injunction preventing consummation of the proposed transaction with Amgen, rescission of the proposed transaction or rescissory damages in the event it is consummated, an accounting by the defendants for all damages caused to the plaintiff, and the award of attorneys’ fees and expenses. Defendants have not been served with nor have they answered the complaint. Defendants believe the claims asserted in the complaint are without merit.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
None.
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 Global Select Market under the symbol “FPRX.”
Holders of Record
As of March 15, 2021, we had 46,572,029 shares of common stock outstanding held by approximately 24 stockholders of record. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock and do not anticipate paying any cash dividends in the foreseeable future. Payment of cash dividends, if any, in the future will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.
Recent Sales of Unregistered Equity Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data.
As a smaller reporting company, we are not required to provide disclosure for this Item.

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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 of our financial condition and results of operations in conjunction with the financial statements and the related notes included elsewhere in this Annual Report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in “Special Note Regarding Forward-Looking Statements and Industry Data” and “Risk Factors.”
Overview
We are a clinical-stage biotechnology company focused on developing immune modulators and precision therapies to improve the lives of patients with solid tumor cancers. Our primary focus is on developing immuno-oncology and targeted cancer therapies. Each of our product candidates has an innovative mechanism of action and addresses patient populations for which better therapies are needed. In addition, we use companion diagnostics where appropriate to allow us to select patients most likely to benefit from treatment with our product candidates. The most advanced product candidates that we or our partners are developing are identified below.
•
Bemarituzumab (FPA144) is an antibody that inhibits fibroblast growth factor receptor 2b, or FGFR2b, and that induces antibody-dependent cellular cytotoxicity that we are studying in a clinical trial in combination with 5-fluorouracil (5-FU), leucovorin and oxaliplatin, a standard-of-care chemotherapy regimen known as mFOLFOX6, as front-line treatment of patients with FGFR2b+, non-HER2+ gastric (stomach) or gastroesophageal junction, or GEJ, cancer. In December 2017, we granted Zai Lab (Shanghai) Co., Ltd., or Zai Lab, an exclusive license to develop and commercialize bemarituzumab in China, Hong Kong, Macau and Taiwan.
•
FPT155 is a soluble CD80 fusion protein that enhances co-stimulation of T cells through CD28 that we are studying in a clinical trial in multiple cancers.
•
FPA157 is an anti-CCR8 antibody that is engineered to deplete CCR8-expressing intratumoral regulatory CD4+ T cells. We are conducting IND-enabling activities for FPA157.
•
BMS-986258 is an anti-T cell immunoglobulin and mucin domain-3, or TIM-3, antibody that our partner, BMS, is studying in a clinical trial in combination with Opdivo (nivolumab) in patients with advanced malignant tumors.
Our product candidates are typically only-in-class, first-in-class or meaningfully differentiated from other in-class therapeutics. We generally look for single-agent activity or clear activity in, for example, tumor types that are rarely sensitive to checkpoint inhibitors.
We have two late-stage research programs. These programs arose from our prior in-house target discovery and validation and protein therapeutic generation and engineering capabilities, which we eliminated in 2019. We expect to advance each of these programs through preclinical development relying mostly on outsourced and contracted capabilities. In addition, we plan to supplement our product pipeline from time to time by selectively acquiring or licensing, on an exclusive basis, rights to product candidates from biotechnology and pharmaceutical companies.
We have no products approved for commercial sale and have not generated any revenue from product sales to date. We continue to incur significant research and development and other expenses related to our ongoing operations, and we expect that our expenses will increase as we advance our product candidates into later stages of clinical development and increase the number of product candidates in clinical development. We have incurred losses in almost every period since our inception in 2001. For the years ending December 31, 2020 and 2019, we reported a net loss of $84.3 million and $137.2 million, respectively.
COVID-19 Business Update
In response to the global spread of the ongoing COVID-19 pandemic, we have implemented business continuity plans designed to address and mitigate the impact of the pandemic on our employees and our business. While we are not experiencing any material financial impacts at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, our business, financial condition, results of operations and growth prospects could be materially adversely affected. We continue to closely monitor the effects of the COVID-19 pandemic as we evolve our business continuity plans and response strategy. In March 2020, our entire workforce, other than those whose job responsibilities require them to be physically present at our offices, transitioned to working remotely, which we have continued through the date of this Annual Report. To date, our remote working arrangements have not significantly impacted our ability to maintain our business operations.
The extent of the impact of the ongoing COVID-19 pandemic on our business, including on our clinical and preclinical programs, and the value of and market for our common stock is highly uncertain and will depend on future developments that cannot be predicted with confidence at this time, such as the ultimate duration, spread and severity of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the countries in which we and our collaborators, partners and service providers operate, including in the countries where we and our partners are conducting clinical trials, the effectiveness of actions taken globally to contain and treat the disease, including the widespread availability and adoption of safe and effective vaccines against COVID-19, and how quickly and to what extent normal economic and operating conditions resume.
We continue to assess the impact of the ongoing COVID-19 pandemic on our business and operations. For additional information on the impacts and risks posed to our business by the COVID-19 pandemic, see Part I, Item 1. Business and Part I, Item 1A. Risk Factors of this Annual Report.
Critical Accounting Policies and Estimates
We based our management’s discussion and analysis of financial condition and results of operations upon our financial statements, which we prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We evaluate our critical accounting policies and estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, and these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results under different assumptions and conditions may differ from these estimates. Our significant accounting policies are more fully described in Note 2 to our financial statements.
We define our critical accounting policies as those accounting principles that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles. We believe our critical accounting policies include the recognition of revenue, completeness of clinical trial accruals, stock-based compensation, income taxes and impairment of long-lived assets, each discussed in more detail as follows:
Revenue Recognition
The terms of our license and collaborative research and development agreements include upfront and license fees, research, development and other funding or reimbursements, milestone and other contingent payments for the achievement of defined collaboration objectives and certain preclinical, clinical, regulatory and sales-based events, as well as royalties on sales of commercialized products. Arrangements that include upfront payments may require deferral of revenue recognition to a future period until we perform obligations under these arrangements. We record research and development funding payable to us as accounts receivable when our right to consideration is unconditional. The event-based milestone and other contingent payments represent variable consideration, and we use the most likely amount method to estimate this variable consideration. Given the high degree of uncertainty around the occurrence of these events, we determine the milestone and other contingent amounts to be fully constrained until the uncertainty associated with these payments is resolved. We will recognize revenue from sales-based royalty payments when or as the sales occur. We will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur.
A performance obligation is a promise in a contract to transfer a distinct good or service and is the unit of accounting. A contract’s transaction price is allocated among each distinct performance obligation based on relative standalone selling price and recognized when, or as, the applicable performance obligation is satisfied. We elected to use the practical expedient permitted related to adoption, which does not require us to disclose certain information regarding our remaining performance obligations as of the end of the reporting period prior to the initial date of adoption. Additionally, we elected the practical expedient for certain research and development funding which allows us to recognize revenue in the amount for which we have a right to invoice if our right to consideration is an amount that corresponds directly to the value of our performance completed to date. As a result, we effectively bypass the steps of determining the transaction price and allocating that transaction price to the performance obligation.
Completeness of Clinical Trial Accruals
We estimate preclinical study and clinical trial expenses based on the services performed pursuant to contracts with research institutions and CROs and CMOs that conduct and manage preclinical studies and clinical trials on our behalf based on actual time and expenses incurred by such entities. Further, we accrue expenses related to clinical trials based on the level of patient enrollment and activity according to the relevant agreement. We monitor patient enrollment levels and related activity to the extent reasonably possible and adjust estimates accordingly. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates.
Stock-Based Compensation
We recognize compensation expense using a fair value-based method for costs related to all share-based payments. We have granted restricted stock awards, or RSAs, some of which are subject to performance conditions or market conditions. For RSAs subject to performance conditions, stock-based compensation cost is based on the closing market price of our common stock at the date of grant and is recognized as expense using the accelerated attribution recognition method when it is probable that the performance condition will be achieved. For RSAs subject to market conditions, we base the fair value of the awards on a Monte Carlo simulation model and recognize stock-based compensation cost commencing at the grant date over the derived service period. Performance- and market-based awards require estimates as to the probability of certain outcomes-the probability of the achievement of performance conditions and the probability of various market-based outcomes, respectively-which require a high degree of judgment.
Income Taxes
We account for income taxes using the liability method, under which deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis 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.
As of December 31, 2020, our total net deferred tax assets, net of gross deferred tax liabilities, were $182.3 million. Due to our lack of earnings history, the net deferred tax assets have been fully offset by a valuation allowance. In assessing the realizability of deferred tax assets, we considered whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences representing net future deductible amounts become deductible. Due to our history of losses and lack of other positive evidence, we determined that it is more likely than not that our net deferred tax assets will not be realized, and therefore, the net deferred tax assets are fully offset by a valuation allowance.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the assets may not be recoverable. Recoverability of these assets is measured by comparing their carrying amounts to the future undiscounted cash flows the assets are expected to generate. If an asset is impaired, the impairment to be recognized equals the amount by which the carrying value exceeds the asset’s fair value. The primary measure of fair value is discounted cash flows, which includes significant estimates primarily related to the discount rate and projected cash flows. The discount rate considers the relevant risk associated with asset-specific characteristics and the uncertainty related to the ability to achieve the projected cash flows.
New Accounting Standards
See Note 2 of our financial statements contained elsewhere in this Annual Report.
Financial Overview
The following sections of this Management’s Discussion & Analysis generally discuss 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Annual Report can be found in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 27, 2020.
Collaboration Revenue and License Revenue
We have not generated any revenue from product sales. We have derived our revenue to date from upfront payments, research and development funding and milestone payments under agreements with our collaboration partners and licensees. We currently have an active cabiralizumab license and collaboration agreement with BMS, an active collaboration and license agreement with Zai Lab for bemarituzumab and a license agreement with Seagen. We completed the research terms of our immuno-oncology research collaboration with BMS in March 2019. In February 2020, we entered into a license agreement with Seagen. For additional information on these agreements, see the description of these agreements set forth in this section below.
The following is a comparison of collaboration and license revenue by agreement:
Year Ended December 31,
(in millions)
Milestone payments: (1)
Cabiralizumab Collaboration - BMS
$
-
$
-
$
25.0
Other payments:
China Collaboration - Zai Lab
5.5
4.4
5.1
Cabiralizumab Collaboration - BMS
2.6
9.1
13.4
Immuno-oncology Research Collaboration - BMS
-
1.4
6.1
License Agreement - Seagen
5.1
-
-
Other
-
-
0.3
Total
$
13.2
$
14.9
$
49.9
(1) Includes milestone payments recognized at a point in time. Other payments may also include milestone payments recognized over time.
We expect that the level of revenue we generate will fluctuate from period to period as a result of the timing and amount of milestone, reimbursable expenses and other payments we receive in the course of our existing collaborations and licenses and as a result of the deferred revenue that we recognize, including due to revisions to estimates related to reimbursable activities or estimates of actual or estimated costs as a percentage of total budgeted costs, or as a result of entry into any new collaborations and license agreements.
BMS Immuno-Oncology Research Collaboration
In March 2014, we entered into a research collaboration and license agreement, or the immuno-oncology research collaboration, with BMS to carry out a research program to (i) discover novel interacting proteins in two undisclosed immune checkpoint pathways, which we refer to as the checkpoint pathways, using our target discovery platform; (ii) further the understanding of target biology with respect to targets in these checkpoint pathways; and (iii) discover and pre-clinically develop compounds suitable for development for human therapeutic uses against targets in these checkpoint pathways. Under the immuno-oncology research collaboration, we granted to BMS an exclusive, worldwide license to research, develop and commercialize products directed towards certain targets in the checkpoint pathways. BMS has an option to take exclusive licenses to additional targets we may identify in these checkpoint pathways pursuant to the research plan under the immuno-oncology research collaboration. Based on data arising from our activities under the research plan, in January 2016, we amended the immuno-oncology research collaboration to add an additional checkpoint pathway to the research program, for a total of three immune checkpoint pathways.
We received an upfront non-refundable payment of $20.0 million from BMS in connection with the execution of the immuno-oncology research collaboration. BMS also paid us $13.7 million in research funding from 2014 through 2019, during which we performed certain research activities. In connection with entering into the immuno-oncology research collaboration, BMS purchased 994,352 shares of our common stock at a price per share that exceeded the fair value of our common stock by a total of $2.4 million. We are eligible to receive certain developmental-, regulatory- and sales-based contingent payments with respect to each target subject to the immuno-oncology research collaboration and royalties on sales of products related to such targets, if any.
We identified one performance obligation for the research license to access our technology, the exclusive commercial license and research activities. BMS’s option to select additional collaboration targets is not priced at a discount and therefore does not represent one or more performance obligations for which the transaction price would be allocated. The transaction price of $36.1 million includes the $20.0 million upfront fee, $13.7 million of research funding and $2.4 million of equity premium. We concluded that the transaction price should not include the variable consideration related to maintenance fees and unachieved developmental and regulatory milestones as this consideration was considered to be constrained as it is probable that the inclusion of such variable consideration could result in a significant reversal in revenue in the future. Any milestone payments triggered during the periods presented are included in the table at the start of this section. We will recognize any consideration related to sales-based payments (including milestones and royalties) when the related sales occur, as we have determined that these amounts relate predominantly to the license granted and therefore will be recognized on the later to occur of satisfaction of the performance obligation or the occurrence of the related sales. We will re-evaluate the transaction price at each reporting period as uncertain events are resolved and other changes in circumstances occur. For the year ended December 31, 2020, no adjustments were made to the transaction price.
Under the input method, we recognize revenue on the basis of our efforts or inputs applicable to the satisfaction of a performance obligation (e.g., resources consumed, labor hours expended, costs incurred or time elapsed) relative to the total expected inputs applicable to the satisfaction of that performance obligation. We concluded that we will recognize revenue based on actual costs incurred as a percentage of total budgeted costs as we complete our performance obligation. As the performance obligation was fully satisfied through March 31, 2019, the transaction price of $36.1 million was fully recognized as collaboration revenue. Revenue recognized from the performance obligations was $0 million, $1.4 million and $6.1 million for the years ended December 31, 2020, 2019 and 2018, respectively.
As of December 31, 2020 and 2019, we had no deferred revenue relating to the immuno-oncology research collaboration.
BMS License and Collaboration Agreement
In October 2015, we entered into a license and collaboration agreement, or the cabiralizumab collaboration agreement, pursuant to which we granted BMS exclusive global rights to develop and commercialize certain colony stimulating factor-1 receptor, or CSF1R, antibodies, including our monoclonal CSF1R-inhibiting antibody that we refer to as cabiralizumab, and all modifications, derivatives, fragments, or variants of such antibodies, each of which we refer to as a licensed antibody. Under the terms of the cabiralizumab collaboration agreement, BMS is responsible, at its expense, for developing products containing licensed antibodies, each of which we refer to as a licensed product, under a development plan, subject to our option, at our own expense, to conduct certain studies, including registration-enabling studies to support approval of cabiralizumab. BMS is responsible for manufacturing and commercializing each licensed product and we retain rights to a U.S. co-promotion option. The cabiralizumab collaboration agreement supersedes the clinical trial collaboration agreement we entered into with BMS in November 2014, or the original collaboration agreement. We assessed the two agreements separately as standalone agreements.
In February 2020, BMS informed us that its randomized, controlled multi-arm Phase 2 clinical trial testing cabiralizumab in combination with Opdivo, with and without chemotherapy, in second-line patients with pancreatic cancer (NCT03336216) did not meet its primary endpoint. BMS informed us that while it has no near-term plans for additional sponsored development of cabiralizumab, it will continue to support the evaluation of cabiralizumab in select, ongoing investigator-sponsored trials and may continue to assess future development opportunities for cabiralizumab.
We received an upfront non-refundable payment of $30.0 million from BMS in connection with the execution of the original collaboration agreement. We completed enrollment and treatment of patients in our Phase 1a/1b clinical trial to evaluate the safety, tolerability and preliminary efficacy of combining Opdivo, BMS’s programmed-death 1 (PD-1) immune checkpoint inhibitor, with cabiralizumab in multiple tumor types, which we commenced under the original collaboration agreement. BMS bears all costs and expenses relating to this trial, including manufacturing costs for the supply of cabiralizumab, except that we are responsible for our own internal costs, including internal personnel costs.
Under the original collaboration agreement, we identified one performance obligation for the execution of a Phase 1a/1b clinical trial of cabiralizumab in combination with Opdivo. The transaction price consists of the $30.0 million upfront fee under the original collaboration agreement.
We used the input method to measure progress toward completion of the performance obligation and concluded that we will recognize revenue based on actual costs incurred by our CRO as a percentage of total budgeted costs as we complete our performance obligation. We will recognize revenue from reimbursements when we have the right to invoice BMS. As the performance obligation was fully satisfied through June 30, 2020, the transaction price of $30.0 million was fully recognized as collaboration revenue. We recognized $0.8 million, $4.4 million and $6.6 million of the transaction price as revenue for the years ended December 31, 2020, 2019 and 2018, respectively. Revenue recognized for reimbursements was $1.8 million, $4.7 million and $6.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Under the cabiralizumab collaboration agreement, we identified the following performance obligations: (1) license grant to BMS and (2) transfer of licensed know-how to BMS. The transaction price consisted of a $350.0 million non-refundable up-front fee. As the performance obligations were fully satisfied in 2015, the transaction price of $350.0 million was fully recognized as revenue concurrent with the transfer of the license and know-how in 2015. We concluded that the transaction price should not yet include milestone payments that may become due as they are fully constrained. Any milestone payments triggered during the periods presented are included in the table at the start of this section. We will recognize any consideration related to royalties when the related sales occur, as we have determined that these amounts relate predominantly to the license granted and therefore will be recognized upon the occurrence of the related sales. We will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur. For the year ended December 31, 2020, no adjustments were made to the transaction price.
As of December 31, 2020 and 2019, we had deferred revenue relating to the license and collaboration agreements of $0 million and $0.8 million, respectively.
Zai Lab China License and Collaboration Agreement
In December 2017, we entered into a license and collaboration agreement, or the China collaboration agreement, with Zai Lab (Shanghai) Co., Ltd, or Zai Lab, pursuant to which we granted Zai Lab an exclusive license to develop and commercialize bemarituzumab, and all fragments, conjugates, derivatives and modifications thereof, or the licensed antibody, in China, Hong Kong, Macau and Taiwan, each a region and collectively, the territory. Zai Lab will be responsible, at its expense, for (i) developing and commercializing products containing the licensed antibody, each, a licensed product, under a territory development plan and (ii) performing certain development activities to support our global development and registration of licensed products, including our global Phase 2 clinical trial of bemarituzumab in combination with mFOLFOX6 as front-line treatment of patients with advanced FGFR2b+, non-HER2+ gastric or GEJ cancer, or the FIGHT trial, in the territory under a global development plan.
We received an upfront non-refundable and non-creditable payment of $5.0 million ($4.2 million after netting of value-added tax withholdings) from Zai Lab in connection with the execution of the China collaboration agreement. With respect to each licensed product, we are eligible to receive developmental and regulatory milestone payments. Zai Lab will also be obligated to pay us a royalty, on a licensed product-by-licensed product and region-by-region basis. In addition, Zai Lab agreed to reimburse us for the costs of certain global development activities, up to a maximum of $10.0 million, and certain costs for the development of companion diagnostics.
We identified the following performance obligations: (1) license grant to Zai Lab together with the transfer of licensed know-how, development drug supply and global development activities, or the license grant, and (2) development of companion diagnostics. Zai Lab has the option to purchase commercial drug supply from us pursuant to a separate commercial supply agreement to be negotiated in the future. The commercial drug supply will be accounted for as a separate contract when Zai Lab exercises this option. As of December 31, 2020, the transaction price of $9.6 million consists of the $4.2 million upfront fee, $3.7 million of expected reimbursement from Zai Lab for global development activities and a $1.7 million clinical development milestone payment. We have not included the remaining regulatory milestone payments in the transaction price as all such milestone amounts are fully constrained. Any milestone payments triggered during the periods presented are included in the table at the start of this section. We will recognize any consideration related to royalties when the related sales occur, as we determined that these amounts relate predominantly to the license granted and therefore will be recognized upon the occurrence of the related sales. We concluded that the reimbursement of costs incurred for the development of companion diagnostics qualifies for the practical expedient under Topic 606, which allows us to recognize revenue in the amount for which we have a right to invoice if our right to consideration is an amount that corresponds directly to the value to Zai Lab of our performance completed to date. We therefore effectively bypass the steps of determining the transaction price and allocating that transaction price to the performance obligation. We will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur. For the year ended December 31, 2020, the transaction price decreased to $9.6 million from $14.7 million, primarily as a result of our decision to amend the FIGHT trial from a Phase 3 design to a randomized Phase 2 trial.
We use the input method to measure progress toward completion of the performance obligation for the license grant. We concluded that revenue will be recognized based on actual costs incurred by our CRO as a percentage of total budgeted costs as we complete our performance obligation. For the year ended December 31, 2020, the total budgeted costs used in our measure of progress decreased as a result of our decision to amend the FIGHT trial from a Phase 3 design to a randomized Phase 2 trial. The decrease in total budgeted costs resulted in further progress made towards satisfying our performance obligation for the license grant and a cumulative catch-up adjustment to revenue. There was a deduction to our contract liabilities as of December 31, 2020 for performance obligations satisfied during the year ended December 31, 2020 and for performance obligations satisfied in prior periods related to the update to our measure of progress. We will recognize revenue from reimbursements for the development of companion diagnostics when we have the right to invoice Zai Lab.
Revenue recognized for the license grant performance obligation was $3.6 million, $1.4 million and $1.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. Revenue recognized for the companion diagnostics development performance obligation was $1.9 million, $3.0 million and $3.3 million for the years ended December 31, 2020, 2019 and 2018, respectively. Of the remaining transaction price of $2.9 million, we recorded $2.1 million in deferred revenue, which we will recognize over the estimated performance period for satisfaction of the performance obligations. The remaining $0.8 million of the transaction price will be recorded in deferred revenue when invoiced as we complete global development activities.
As of December 31, 2020 and 2019, we had deferred revenue relating to the China collaboration agreement of $2.1 million and $5.1 million, respectively.
Seagen License Agreement
In February 2020, we entered into a license agreement, or the Seagen license agreement, with Seagen Inc., or Seagen, pursuant to which we granted Seagen an exclusive worldwide license to a family of monoclonal antibodies that are directed to a single target and Seagen is responsible for research, development, manufacturing and commercialization of novel antibody-drug conjugate products based on these antibodies.
We received an upfront non-refundable payment of $5.0 million from Seagen in connection with the execution of the Seagen license agreement. We are eligible to receive up to (i) $132.0 million in specified developmental and regulatory milestone payments for the first achievement of such milestone events by the first licensed product, (ii) $68.0 million in specified developmental and regulatory milestone payments for the first achievement of such milestone events by the second licensed product, and (iii) $19.0 million in specified developmental and regulatory milestone payments for each achievement of such milestone events by a subsequent licensed product. We are also eligible to receive up to $162.5 million in sales-based contingent payments per licensed product. Seagen will also be obligated pay us a mid-single-digit percentage royalty on net sales of each licensed product in a region until the latest of: (i) 11 years after the first commercial sale of such licensed product in such region; (ii) the expiration of certain patents covering such licensed product in such region; and (iii) the date on which any applicable regulatory exclusivities with respect to such licensed product expire in such region. We are also eligible to receive annual maintenance fees of $0.2 million and reimbursement for consulting support and certain prosecution and maintenance costs for our patents.
We identified one performance obligation for the license grant. The transaction price consists of the $5.0 million upfront fee. As the performance obligation was fully satisfied as of March 31, 2020, the transaction price of $5.0 million was fully recognized. We concluded that the transaction price should not include the variable consideration related to maintenance fees and unachieved developmental and regulatory milestones as this consideration was considered to be constrained as it is probable that the inclusion of such variable consideration could result in a significant reversal in revenue in the future. Any milestone payments triggered during the periods presented are included in the table at the start of this section. We will recognize any consideration related to sales-based payments when the related sales occur, as we have determined that these amounts relate predominantly to the license granted and therefore will be recognized on the later to occur of satisfaction of the performance obligation or the occurrence of the related sales. We will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur.
For the year ended December 31, 2020, we recognized revenue of $0.1 million for reimbursements.
Research and Development
Research and development expenses consist of costs we incur in performing internal and collaborative research and development activities. Expenses incurred related to collaborative research and development agreements generally approximate the revenue recognized under these agreements. Research and development costs consist of salaries and benefits, including associated stock-based compensation, laboratory supplies and facility costs, as well as fees paid to other entities that conduct certain research and development activities, including manufacturing, on our behalf.
We are conducting research and development activities on several disease targets and product candidates.
We have a research and development team that designs, manages and evaluates the results of all our research and development activities. Historically, we conducted most of our core target discovery and early research and preclinical activities internally and relied more heavily on third parties, such as CROs and CMOs, for the execution of our IND-enabling and development activities, such as GLP toxicology studies, drug substance and drug product manufacturing, lab-developed test and companion diagnostic development, and the conduct of our clinical trials. In connection with our October 2019 corporate restructuring, we eliminated our in-house target discovery and validation and protein therapeutics generation and engineering capabilities. Because we now have a significantly reduced scope of in-house and preclinical capabilities, we expect to continue to advance our late-stage research and preclinical programs, including FPA157, and any future programs through preclinical development relying mostly on out-sourced and contracted capabilities. In addition, we are increasingly relying on third-party service providers with respect to cell line and process development activities, as well as the manufacturing of quantities of our product candidates for use in preclinical studies.
We account for research and development costs on a program-by-program basis. In the early phases of research and discovery, our costs are often related to evaluation and validation activities and research activities that are not necessarily allocable to a specific program. We assign costs for such activities to a distinct non-program related project code. We allocate research and development management, overhead, common usage laboratory supplies and facility costs on a full-time equivalent basis.
The following is a comparison of our research and development expenses:
Year Ended December 31,
(in millions)
Development programs:
Cabiralizumab
$
2.7
$
9.1
$
15.8
Bemarituzumab
28.2
42.9
63.1
FPA150
7.5
24.3
18.8
FPT155
16.6
13.0
-
FP-1039
-
-
0.1
Subtotal development programs
55.0
89.3
97.8
Preclinical programs
6.8
-
19.1
Discovery collaborations
-
0.6
3.3
Early research and discovery
3.7
24.2
36.2
Total research and development expenses
$
65.5
$
114.1
$
156.4
We expect that most of the research and development expenses we incur will continue to relate to activities to support our clinical development programs and our preclinical and late-stage research programs. Our research and development expenses may increase as we advance our current product candidates through clinical development and our preclinical and late-stage research programs into and through preclinical and clinical development and if we add candidates to our product pipeline through strategic acquisitions or licensing of product candidates from other biotechnology or pharmaceutical companies. In particular, our research and development expenses may increase if we increase the number and size of our clinical trials, including by advancing into registrational trials.
In January 2019, we implemented a corporate restructuring, or the January 2019 restructuring, to focus our resources on clinical development and late-stage research programs. Pursuant to the January 2019 restructuring, we eliminated 41 employee positions, representing approximately 20% of our then-current headcount, primarily in areas relating to research, pathology and manufacturing. The January 2019 restructuring was completed during the first quarter of 2019, and restructuring charges to-date amounted to approximately $1.9 million for research and development employee-related costs.
In October 2019, we announced a second corporate restructuring, or the October 2019 restructuring, to extend our cash runway and ensure long-term sustainability. As part of the October 2019 restructuring:
•
We reduced our workforce by 63 positions across all functions.
•
Due to our reduced focus on research activities, we sold the majority of the laboratory equipment we owned through an auction conducted by a third-party vendor in April 2020. We recorded a gain of $3.4 million for the proceeds of such auction against research and development expense within our statement of operations and comprehensive loss, all during the second quarter of 2020. As the laboratory equipment was not allocable to a specific program, we allocated the gain against all of our programs on a full-time equivalent basis.
•
In order to reduce our corporate facilities footprint, in September 2020, we entered into a sublease agreement, or the facility sublease, with Sutro Biopharma, Inc., or Sutro, pursuant to which we agreed to sublet to Sutro the approximately 115,466 rentable square feet of office and laboratory space that we currently lease at 111 Oyster Point Boulevard, South San Francisco, California. The facility sublease is subordinate to the underlying corporate facility lease. In connection with our entry into the facility sublease, in October 2020, we entered into an agreement to rent laboratory space, which we refer to as the laboratory facility lease. We began occupying this space in December 2020. For additional information regarding the facility sublease and laboratory facility lease, see Note 5 of our financial statements contained elsewhere in this Annual Report.
The October 2019 restructuring was completed during the fourth quarter of 2020, and restructuring charges to-date amounted to approximately $4.0 million for research and development employee-related costs.
The process to obtain marketing approval of a drug candidate, including preclinical and clinical development and the development of manufacturing processes, is costly and time-consuming. We or our partners may never succeed in achieving marketing approval for any of our drug candidates. Numerous factors may affect the probability of success for each drug candidate, including preclinical and clinical results, competition, manufacturing capability and commercial viability.
The successful development of our drug candidates is highly uncertain and may not result in products that are approved for marketing by the FDA or any comparable foreign regulatory authority. The costs and duration of the processes necessary to achieve marketing approval for each drug candidate can vary significantly and are difficult to predict. Given the uncertainty associated with clinical trial patient enrollment and the risks inherent in the development process, estimating the duration and completion costs of current or future clinical trials of our drug candidates or if, or to what extent, we will generate revenues from the commercialization and sale of any of our approved drug candidates is difficult and uncertain. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the outcome of research, preclinical and clinical activities with respect to each drug candidate, as well as ongoing assessments as to each drug candidate’s commercial potential. We will need to raise additional capital and may seek to enter into additional collaborations in the future to advance and complete the development and commercialization of our current and future drug candidates.
General and Administrative
General and administrative expenses consist primarily of salaries and related benefits, including associated stock-based compensation, related to our executive, finance, legal, business development, human resource and support functions. Other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses, travel expenses and professional fees for auditing and tax and legal services, including intellectual property-related legal services.
Our general and administrative expenses may increase in the event that we need to expand operations to support future potential increases in research and development activities. Also, we expect our intellectual property-related legal expenses, including those related to preparing, filing and prosecuting patent applications and maintaining patents, to increase as our intellectual property portfolio expands.
In connection with our October 2019 restructuring, we incurred approximately $1.3 million of restructuring charges to-date for general and administrative employee-related costs.
Other Income, Net
Other income, net consists primarily of interest income earned on our cash, cash equivalents and marketable securities and sublease income (beginning in the fourth quarter of 2020).
Results of Operations
Year Ended December 31,
(in millions)
Revenue:
Collaboration revenue
$
8.2
$
14.9
$
49.9
License revenue
5.0
-
-
Total revenue
13.2
14.9
49.9
Operating expenses:
Research and development
65.5
114.1
156.4
General and administrative
40.5
42.7
39.6
Total operating expenses
106.0
156.8
196.0
Other income, net
1.9
4.7
5.7
Loss before income tax
(90.9
)
(137.2
)
(140.4
)
Income tax benefit
6.6
-
-
Net loss
$
(84.3
)
$
(137.2
)
$
(140.4
)
Collaboration Revenue and License Revenue
Collaboration revenue and license revenue decreased by $1.7 million, or 11%, to $13.2 million for the year ended December 31, 2020 from $14.9 million for the year ended December 31, 2019. This decrease was primarily due to a $6.5 million decrease from progress made towards satisfying our performance obligation under the original cabiralizumab collaboration with BMS, a $1.4 million decrease as we completed the research term of our immuno-oncology research collaboration with BMS and a $1.1 million decrease in the reimbursement of costs incurred for the development of companion diagnostics from our China collaboration with Zai Lab. The decrease was offset by a $5.1 million increase in license revenue and other activity under the Seagen license agreement executed in February 2020 and a $2.2 million increase in collaboration revenue from our China collaboration with Zai Lab resulting from a decrease in the budgeted costs used to measure progress toward completion of the performance obligation as a result of our decision to amend the FIGHT trial from a Phase 3 design to a randomized Phase 2 trial.
Research and Development
Research and development expenses decreased by $48.6 million, or 43%, to $65.5 million for the year ended December 31, 2020 from $114.1 million for the year ended December 31, 2019. This decrease was primarily due to a $19.2 million decrease in overall compensation costs due to the October 2019 restructuring, a $7.9 million decrease in clinical trial expenses across all clinical trials, a $6.0 million decrease in manufacturing costs related to our bemarituzumab and FPA150 programs, a $5.3 million decrease in costs related to our preclinical programs, a $4.6 million decrease in allocated costs, a $3.4 million decrease in companion diagnostics costs related to our bemarituzumab program, a $3.4 million decrease related to a gain recorded from the sale of laboratory equipment in April 2020, a $3.3 million decrease in bioanalytics and central laboratory costs related to the reduction of activities in the FIGHT trial and the winding down of our cabiralizumab and FPA150 clinical trials, a $1.2 million decrease in other clinical and specialty laboratory costs related to our bemarituzumab program and the winding down of our cabiralizumab and FPA150 clinical trials and a $1.0 million decrease due to reducing our use of temporary resources. The decrease was offset by a $5.4 million increase in impairment charges related to long-lived assets (a $7.3 million impairment charge on the operating lease right-of-use asset and related leasehold improvements and furniture and fixtures recorded in the third quarter of 2020 in connection with the facility sublease, as compared to a $1.9 million impairment charge on our laboratory equipment recorded primarily during the fourth quarter of 2019 in connection with the October 2019 restructuring) and a $1.3 million increase in other miscellaneous research and development costs.
General and Administrative
General and administrative expenses decreased by $2.2 million, or 5%, to $40.5 million for the year ended December 31, 2020 from $42.7 million for the year ended December 31, 2019. This decrease was primarily due to a $9.4 million decrease in overall compensation costs due to the October 2019 restructuring, a $2.1 million decrease in depreciation expense as a result of the sale of laboratory equipment in April 2020 and a $1.8 million net decrease in other miscellaneous general and administrative costs. The decrease was offset by a $6.5 million impairment charge on the operating lease right-of-use asset and related leasehold improvements and furniture and fixtures recorded in the third quarter of 2020 in connection with the facility sublease and a $4.6 million increase in allocated costs.
Other Income, Net
Other income, net decreased by $2.8 million, or 60%, to $1.9 million for the year ended December 31, 2020 from $4.7 million for the year ended December 31, 2019. This decrease was primarily due to a $3.9 million decrease in interest income resulting from overall lower investment balances until the closing of our public offering in November 2020 as well as lower interest rates. This decrease was offset by a $1.1 million increase in sublease income in connection with the facility sublease that was entered into in September 2020.
Income Taxes
We recorded an income tax benefit of $6.6 million for the year ended December 31, 2020 for a tax refund of minimum tax paid for 2015. The refund was available to us after we carried back our 2017 net operating losses. As provided by the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, we were able to request the refund of the 2015 alternative minimum tax upon the filing of our 2019 income tax return. We did not record an income tax provision for the year ended December 31, 2019 as we expected to be in a taxable loss position for that year, and the net deferred tax assets are fully offset by a valuation allowance as we believe it is not more likely than not that the benefit will be realized.
On March 27, 2020, the CARES Act was signed into law in response to the COVID-19 pandemic. GAAP requires recognition of the tax effects of new legislation during the reporting period that includes the enactment date. The CARES Act includes changes to the tax provisions that benefit business entities and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act. The tax relief measures for businesses include a five-year net operating loss carryback, suspension of the annual deduction limitation of 80% of taxable income from net operating losses generated in a tax year beginning after December 31, 2017, changes in the deductibility of interest, acceleration of alternative minimum tax credit refunds, payroll tax relief, technical corrections on net operating loss carryforwards for fiscal year taxpayers and acceleration of depreciation for qualified improvement property. The CARES Act also provides other non-tax benefits to assist those impacted by the pandemic. We made a request to refund alternative minimum tax credits in the third quarter of 2020 by filing our 2019 income tax return.
On June 29, 2020, Governor Gavin Newsom signed California Assembly Bill 85, or AB 85, into law. AB 85 suspends the California net operating loss deductions for 2020, 2021 and 2022 for certain taxpayers and imposes a limitation of certain California tax credits for 2020, 2021 and 2022. AB 85 disallows the use of California net operating loss deductions if the taxpayer recognizes business income and its adjusted gross income is greater than $1,000,000. The carryover periods for net operating loss deductions disallowed by this provision will be extended. Additionally, any business credit will only offset a maximum of $5,000,000 of California tax. Given our expected loss position in the current year, AB 85 will not impact the current year provision. We will continue to monitor possible California net operating loss and credit limitations and their impact in future periods.
Liquidity and Capital Resources
As of December 31, 2020, we had $287.3 million in cash, cash equivalents and marketable securities invested in money market funds, U.S. Treasury securities, agency bonds, and commercial paper. Our cash equivalents and marketable securities have an average maturity of approximately eight months and the longest maturity is 18 months.
In November 2020, we closed on a public offering of 8,280,000 shares of our common stock, or the November 2020 offering, which included 1,080,000 shares sold upon the underwriters’ full exercise of their option to purchase additional shares, resulting in aggregate gross proceeds of $163.4 million, before deducting underwriting discounts and commissions and offering expenses payable by us, and net proceeds of approximately $163.2 million after deducting these amounts.
In August 2020, we entered into a sales agreement with Cowen and Company, LLC, or Cowen, acting as sales agent, pursuant to which we may offer and sell, from time to time through Cowen, shares of our common stock having an aggregate offering price of up to $75.0 million in a series of one or more at-the-market equity offerings, or collectively, the ATM facility. All shares of our common stock sold have been or will be issued pursuant to our shelf registration statement on Form S-3 (File No. 333-228206). During 2020, we raised approximately $7.1 million in net proceeds under the ATM facility.
In January 2018, we closed on a public offering of 5,897,435 shares of our common stock, which included 769,230 shares sold upon the underwriters’ full exercise of their option to purchase additional shares, resulting in aggregate gross proceeds of $115.0 million, before deducting underwriting discounts and commissions and offering expenses payable by us, and net proceeds of approximately $107.6 million after deducting these amounts.
In addition to our existing cash and cash equivalents, we are eligible to receive research and development funding and to earn milestone and other contingent payments for the achievement of defined collaboration objectives and certain nonclinical, clinical, regulatory and sales-based events and royalty payments under our collaboration and license agreements. Our ability to earn these milestone and contingent payments and royalties and the timing of these milestones and royalties is primarily dependent upon the outcome of our collaborators’ and licensees’ research and development activities and remains uncertain. Our rights to payment under our collaboration and license agreements are our only committed external sources of funds.
Funding Requirements
Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical and preclinical research and development services, including clinical trial, manufacturing, laboratory and related supplies, legal, patent and other regulatory expenses and general overhead costs. We believe our use of CROs and CMOs provides us with flexibility in managing our spending and limits our cost commitments at any point in time.
Because our product candidates are in various stages of clinical and preclinical development and the outcome of these efforts is uncertain, we cannot predict the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether or when we may achieve profitability. Until such time that we can generate substantial product revenues, if ever, we expect to finance our cash needs through collaboration and license agreements and, if necessary, equity or debt financings. Except for any obligations of our collaborators or licensees to reimburse us for research and development expenses or to make milestone or royalty payments under our agreements with them, we do not have any committed external sources of liquidity. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interests of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders. If we raise additional funds through collaboration or license arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. The ongoing COVID-19 pandemic has resulted in a significant disruption of global financial markets. If the disruption persists and deepens, and if we need or desire to access additional capital in the future, we may be unable to do so and our operations may be negatively impacted. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Based on our research and development plans and our timing expectations related to the progress of our programs, we expect that our existing cash and cash equivalents and marketable securities as of December 31, 2020 will enable us to fund our operating expenses and capital expenditure requirements for at least the next twelve months.
Cash Flows
Year Ended December 31,
(in millions)
Net cash used in operating activities
$
(64.7
)
$
(113.9
)
$
(122.5
)
Net cash (used in) provided by investing activities
(110.6
)
126.2
(2.5
)
Net cash provided by (used in) financing activities
188.9
(0.5
)
109.2
Operating Activities
Net cash used in operating activities includes our net loss, working capital changes and net non-cash charges, all of which are highly variable.
For the year ended December 31, 2020, net cash used in operating activities was $64.7 million and consisted of net loss of $84.3 million and $7.0 million from changes in working capital, offset by $26.6 million in net non-cash charges.
•
The primary drivers of our changes in working capital included a reduction in deferred revenue from progress made towards satisfying our performance obligation under the China collaboration agreement resulting from our decision to amend the FIGHT trial from a Phase 3 design to a randomized Phase 2 trial, ongoing payments under our operating leases and personnel-related payments made in 2020 in connection with the completion of activities related to the October 2019 restructuring.
•
Net non-cash charges included approximately $10.2 million of stock-based compensation expense, $8.8 million from the impairment of right-of-use assets, $5.0 million from the impairment of fixed assets, $3.2 million of depreciation and amortization expense, $2.7 million from the amortization of right-of-use assets and $0.4 million from the write-off of right-of-use assets, offset by a $3.6 million gain on the sale of fixed assets and $0.1 million for amortization of premiums on marketable securities.
For the year ended December 31, 2019, net cash used in operating activities was $113.9 million and consisted of net loss of $137.2 million and $7.0 million from changes in working capital, offset by $30.3 million in net non-cash charges.
•
The primary drivers of our changes in working capital included a reduction in deferred revenue from progress made towards satisfying our performance obligation under the original cabiralizumab collaboration with BMS and completion of the research term of our immuno-oncology research collaboration with BMS in March 2019, as well as ongoing payments under our operating leases.
•
Net non-cash charges included approximately $22.8 million of stock-based compensation expense, $5.3 million of depreciation and amortization expense, $2.4 million from the amortization of right-of-use assets and $2.0 million from the impairment of laboratory equipment, offset by $2.2 million for amortization of premiums on marketable securities.
Investing Activities
For the year ended December 31, 2020, net cash used in investing activities was $110.6 million and consisted of the purchase of marketable securities of $286.3 million, offset by the maturities of marketable securities of $169.0 million and $6.7 million received from the sale of fixed assets.
For the year ended December 31, 2019, net cash provided by investing activities was $126.2 million and consisted of the maturities of marketable securities of $321.0 million, offset by the purchase of marketable securities of $193.1 million and payments for purchases of property and equipment of $1.7 million.
Financing Activities
For the year ended December 31, 2020, net cash provided by financing activities was $188.9 million and consisted of $163.2 million in net proceeds from the November 2020 offering, $7.1 million in net proceeds from sales of our common stock under the ATM facility, $16.7 million in proceeds from disgorgement of a stockholder’s short-swing profits and $4.2 million received from employee stock option exercises, offset by $2.3 million paid to satisfy tax withholding obligations from the net share issuance of restricted stock awards.
For the year ended December 31, 2019, net cash used in financing activities was $0.5 million and consisted of $1.6 million paid to satisfy tax withholding obligations from the net share issuance of restricted stock awards, offset by $1.1 million received from employee stock option exercises.
Contractual Obligations and Contingent Liabilities
The following table summarizes our significant contractual obligations as of December 31, 2020:
Less Than
More Than
(in millions)
Total
1 Year
1 to 3 Years
3 to 5 Years
5 Years
Facility leases, operating (1)
$
60,777
$
8,389
$
17,221
$
16,973
$
18,194
Facility sublease, operating (2)
(40,367
)
(2,547
)
(6,310
)
(15,213
)
(16,297
)
Total obligations, net
$
20,410
$
5,842
$
10,911
$
1,760
$
1,897
(1)
Represents future minimum lease payments under the corporate facility lease and the laboratory facility lease. The minimum lease payments for our corporate office and laboratory facilities do not include common area maintenance charges or real estate taxes.
(2)
Represents future minimum lease payments under the facility sublease.
The contractual obligations table above does not include any potential future milestone payments to third parties as part of certain collaboration and in-licensing agreements, which could total up to $102.1 million, or any potential future royalty payments we may be required to make under our license agreements, including with:
•
Galaxy, under which we were granted an exclusive worldwide license for the development, manufacturing and commercialization of anti-FGFR2b antibodies; and
•
BioWa-Lonza, under which we were granted a non-exclusive license to use their Potelligent® CHOK1SV technology, including the CHOK1SV cell line, and a non-exclusive license to related know-how and patents.
Payments under these agreements are not included in the above contractual obligations table due to the uncertainty of the occurrence of the events requiring payment under these agreements, including our share of potential future milestone and royalty payments. These payments generally become due and payable only upon achievement of certain developmental-, regulatory- or sales-based milestones or sales-based events.
Off-Balance Sheet Arrangements
During the periods presented, we did not have, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The market risk inherent in our financial instruments and in our financial position reflects the potential losses arising from adverse changes in interest rates and concentration of credit risk. As of December 31, 2020, we had cash, cash equivalents and marketable securities of $287.3 million, consisting of money market funds, U.S. Treasury securities, agency bonds, and commercial paper. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Our cash equivalents and marketable securities have an average maturity of approximately eight months and the longest maturity is 18 months. Due to the generally short-term maturities of our cash equivalents and marketable securities and the low risk profile of our marketable securities, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash equivalents and marketable securities. We can hold our marketable securities until maturity, and we therefore do not expect a change in market interest rates to affect our operating results or cash flows to any significant degree.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
The financial statements required by this item are set forth beginning on page of this Annual Report.

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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
As of December 31, 2020, management, with the participation of our disclosure committee, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.
Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2020, the design and operation of our disclosure controls and procedures were effective.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our 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 U.S. generally accepted accounting principles, or GAAP. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our 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.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020 based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), or COSO. Based on our evaluation under the criteria set forth in Internal Control-Integrated Framework issued by COSO, our management concluded our internal control over financial reporting was effective as of December 31, 2020.
Our independent registered public accounting firm, Ernst & Young LLP, audited the effectiveness of our internal control over financial reporting. Ernst & Young LLP has issued their attestation report which is included herein.
Changes in Internal Control over Financial Reporting.
There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Five Prime Therapeutics, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Five Prime Therapeutics, Inc.’s internal control over financial reporting as of December 31, 2020, 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, Five Prime Therapeutics, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, 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 balance sheets of the Company as of December 31, 2020 and 2019, and the related statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020 and the related notes, and our report dated March 22, 2021 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 Annual 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
San Francisco, California
March 22, 2021

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
Information About Our Board of Directors
Our Board of Directors, or our Board, currently comprises eight directors. Our amended and restated certificate of incorporation, or our certificate of incorporation, provides for a classified Board consisting of three classes of directors. Each of Class 1 and Class 2 consists of three directors, and Class 3 consists of two directors. Each class serves a staggered three-year term. Set forth below are the names, ages and length of service of members of our Board.
Directors
Age(1)
Term
Expires
Position(s) Held
Director
Since
Thomas Civik
President, Chief Executive Officer and Director(2)
Peder K. Jensen
Director
Lori Lyons-Williams
Director
Franklin M. Berger, CFA
Director
William R. Ringo
Chairman of the Board and former Chief Executive Officer(3)
Kapil Dhingra, M.B.B.S.
Director
Garry Nicholson
Director
Carol Schafer
Director
(1)
Ages as of March 22, 2021.
(2)
Mr. Civik commenced his service as our President and Chief Executive Officer and a member of our Board on April 13, 2020.
(3)
Mr. Ringo became our interim Chief Executive Officer on September 19, 2019 and resigned from such position on April 13, 2020 in connection with Mr. Civik’s appointment as President and Chief Executive Officer. He continued to serve as a non-executive employee of the company through May 31, 2020.
Biographical information for each director, including each such individual’s principal occupation, business experience and education, and an explanation of the qualifications, skills and experience that we believe are relevant to such individual’s service on our Board, are set forth below. Unless otherwise indicated, principal occupations shown for each continuing director have extended for five or more years.
Thomas Civik has served as President, Chief Executive Officer and a member of our Board since April 2020. From November 2017 until September 2019, Mr. Civik served as Chief Commercial Officer of Foundation Medicine, Inc., a genomic profiling and molecular information company. From December 2000 to November 2017, Mr. Civik served in positions of increasing responsibility at Genentech, Inc., or Genentech, most recently serving as Vice President and Franchise Head leading the commercialization efforts for the Avastin®, Tarceva®, Tecentriq®, and Alecensa®, products. From July 1992 to December 2000, he served at Sanofi S.A. in sales and marketing roles of increasing responsibility. Mr. Civik received an M.B.A. in business strategy and marketing from the Kellogg School of Management at Northwestern University and a B.A. in political science from Saint Norbert College. We believe that Mr. Civik’s extensive commercial expertise and experience in executive and leadership positions at other biotechnology companies give him the qualifications, skills and financial expertise to serve on our Board.
Peder K. Jensen, M.D. has served as a member of our Board since July 2011. Dr. Jensen is currently President of Bay Way Consultants, LLC, a consulting firm founded by Dr. Jensen in 2010 that advises pharmaceutical and biotechnology companies. Dr. Jensen has over 30 years of global drug development experience in both pharmaceutical and biotechnology companies and has been responsible for more than 40 new drug approvals in the U.S., Europe and Japan during his career. Dr. Jensen’s experience includes over 20 years with Schering-Plough Corporation, or Schering-Plough, a global pharmaceutical company, and then Merck & Co., Inc., or Merck, after the merger of Schering-Plough with Merck in 2009. Dr. Jensen most recently served at Schering-Plough as Corporate Senior Vice President, and General Manager, R&D for Japan and Asia/Pacific from 2006 to 2010. Dr. Jensen has also served at British Biotech plc and Chiron Corporation, or Chiron, in clinical development executive positions and earlier in his career at CIBA-GEIGY Limited. Dr. Jensen is also a member of the board of directors of Acorda Therapeutics, Inc., a public biotechnology company. Dr. Jensen previously served as a member of the board of directors of BioCryst Pharmaceuticals, Inc., which was a public pharmaceutical company during Dr. Jensen’s service as a director. Dr. Jensen received an M.D. from the University of Copenhagen, where he also completed his post-graduate medical training in neurology and internal medicine. We believe that Dr. Jensen’s experience in executive positions at several pharmaceutical companies and the clinical development of pharmaceuticals in several therapeutic areas and his service as a director of other publicly traded and privately held life science companies give him the qualifications, skills and financial expertise to serve on our Board.
Lori Lyons-Williams has served as a member of our Board since June 2019. Ms. Lyons-Williams served as Chief Commercial Officer at Dermira, Inc., or Dermira, a biopharmaceutical company, from December 2016 until May 2020, when the company was acquired by Eli Lilly and Company, or Eli Lilly. During her tenure at Dermira, she was responsible for the strategic, financial and operational leadership of the company’s product portfolio. From January 2002 to August 2016, Ms. Lyons-Williams worked at Allergan, Inc., or Allergan, a public biotechnology company, where she held positions of increasing responsibility, most recently as Vice President, Sales & Marketing, Urology. Ms. Lyons-Williams also served as a member of the Allergan Commercial Leadership Team and the Operational Leadership Team. Ms. Lyons-Williams received a B.A. in Interdisciplinary Studies from Virginia Polytechnic Institute and State University and an M.B.A., Marketing from the Carlson School of Management at the University of Minnesota. We believe that Ms. Lyons-Williams’s extensive commercial expertise and experience in executive and leadership positions at other biotechnology companies give her the qualifications, skills and financial expertise to serve on our Board.
Franklin M. Berger, CFA has served as a member of our Board since September 2010. Mr. Berger is a consultant to biotechnology industry participants, including major biopharmaceutical firms, mid-capitalization biotechnology companies, specialist asset managers and venture capital companies, providing business development, strategic, financing, partnering and royalty acquisition advice. Mr. Berger is also a biotechnology industry analyst with over 25 years of experience in capital markets and financial analysis. Mr. Berger worked at Sectoral Asset Management Inc. as a founder of the small-cap focused NEMO Fund from 2007 through June 2008. From May 1998 to March 2003, he served at J.P. Morgan Securities LLC, most recently as Managing Director, Equity Research and Senior Biotechnology Analyst. Previously, Mr. Berger served in similar capacities at Salomon Smith Barney Inc. and Josephthal & Co. Mr. Berger also serves on the board of directors of Atea Pharmaceuticals, Inc., Atreca, Inc., BELLUS Health, Inc., ESSA Pharma Inc. and Kezar Life Sciences, Inc., each of which is a public biotechnology company. Mr. Berger previously served as a member of the board of directors of BioTime, Inc., Immune Design Corp., or Immune Design, Seagen Inc., Tocagen Inc. and Proteostasis Therapeutics, Inc., each of which was a public company during Mr. Berger’s service as a director. Mr. Berger received a B.A. in International Relations and an M.A. in International Economics, both from Johns Hopkins University, and an M.B.A. from the Harvard Business School. We believe that Mr. Berger’s financial background and experience as an equity analyst in the biotechnology industry combined with his experience serving on the boards of directors of multiple public companies gives him the qualifications, skills and financial expertise to serve on our Board and are important to our strategic planning and financing activities.
William R. Ringo has served as Chairman of the Board since January 2019 and a member of our Board since October 2014. He also served as our interim Chief Executive Officer from September 2019 to April 2020. From June 2010 to December 2016, Mr. Ringo served as a senior advisor to Barclays Healthcare Group. From April 2008 until his retirement in April 2010, Mr. Ringo served as Senior Vice President of Business Development, Strategy and Innovation at Pfizer Inc., or Pfizer, a public pharmaceutical company, and was responsible for guiding Pfizer’s overall strategic planning and business development activities. Prior to joining Pfizer, Mr. Ringo served as an executive in residence at Warburg Pincus and Sofinnova Ventures. From August 2004 to April 2006, Mr. Ringo served as President and Chief Executive Officer of Abgenix, Inc., or Abgenix, a biotechnology company acquired by Amgen Inc., or Amgen. Prior to Abgenix, Mr. Ringo served for 28 years at Eli Lilly in numerous executive roles, including Product Group President for Oncology and Critical Care, President of Internal Medicine Products, President of the Infectious Diseases Business Unit and Vice President of Sales and Marketing for U.S. Pharmaceuticals. Following Mr. Ringo’s retirement from Eli Lilly in 2001, Mr. Ringo served on various boards of directors, including of InterMune, Inc., where he served as the non-executive chairman of the board of directors after serving as interim Chief Executive Officer from June 2003 to September 2003. Mr. Ringo currently serves on the board of directors of Assembly Biosciences, Inc., a public biotechnology company. Mr. Ringo was previously a member of the board of directors of Dermira, Immune Design, Onyx Pharmaceuticals, Inc., Mirati Therapeutics, Inc. and Sangamo Therapeutics, Inc., each of which was a public company during Mr. Ringo’s service as a director. Mr. Ringo received a B.S. in business administration and an M.B.A. from the University of Dayton. We believe that Mr. Ringo’s experience serving as a director of other publicly traded and privately held life science companies and serving in executive positions at several biotechnology and pharmaceutical companies and in the venture capital industry gives him the qualifications, skills and financial expertise to serve on our Board.
Kapil Dhingra, M.B.B.S. has served as a member of our Board since December 2015. Dr. Dhingra currently serves as the Managing Member of KAPital Consulting, LLC, a healthcare consulting firm that he founded in 2008. Dr. Dhingra has over 25 years of experience in oncology clinical research and drug development. From 1999 to 2008, Dr. Dhingra worked at F. Hoffmann-La Roche & Co., where he served in roles of increasing responsibility, most recently as Vice President, Head of the Oncology Disease Biology Leadership Team and Head of Oncology Clinical Development. From 2000 to 2008, he held a Clinical Affiliate appointment at Memorial Sloan Kettering Cancer Center. From 1996 to 1999, Dr. Dhingra worked at Eli Lilly, where he served in roles of increasing responsibility, most recently as Senior Clinical Research Physician. Dr. Dhingra also served as a Clinical Associate Professor of Medicine at the Indiana University School of Medicine from 1997 to 1999. Prior to Eli Lilly, Dr. Dhingra was a member of the faculty of M.D. Anderson Cancer Center from 1989 to 1996. Dr. Dhingra currently serves on the board of directors of Median Technologies Inc., Autolus Therapeutics plc, Replimune Group, Inc. and Black Diamond Therapeutics, Inc. Dr. Dhingra previously served as a member of the board of directors of Micromet, Inc., until its acquisition by Amgen, Advanced Accelerator Applications S.A., until its acquisition by Novartis International AG, or Novartis, and YM Biosciences Inc., until its acquisition by Gilead Sciences, Inc., or Gilead, each of which was a public company during Dr. Dhingra’s service as a director. Dr. Dhingra received his M.B.B.S. from the All India Institute of Medical Sciences in New Delhi, India. He completed his residency in internal medicine at Lincoln Medical and Mental Health Center and New York Medical College and completed his fellowship in hematology and oncology at Emory University School of Medicine. We believe that Dr. Dhingra’s experience in executive positions at several pharmaceutical companies and in the clinical development of pharmaceuticals in several therapeutic areas, including in oncology, and his service as a director of other publicly traded life science companies give him the qualifications and skills to serve on our Board.
Garry Nicholson has served as a member of our Board since May 2017. Mr. Nicholson served as President and Chief Executive Officer of XTuit Pharmaceuticals, Inc. from September 2015 to October 2016. From May 2008 to April 2015, Mr. Nicholson served in executive leadership roles at Pfizer, most recently as President, Pfizer Oncology. Prior to joining Pfizer, Mr. Nicholson worked at Eli Lilly where he held roles of increasing responsibility, most recently as the Global Oncology Platform Leader. Mr. Nicholson currently serves on the board of directors of G1 Therapeutics, Inc., NextCure, Inc. and Turning Point Therapeutics, Inc., each of which is a public biopharmaceutical company. Mr. Nicholson previously served as a member of the board of directors of Tesaro, Inc., which was a public company until it was acquired by GlaxoSmithKline plc. Mr. Nicholson received a B.S. in Pharmacy from the University of North Carolina at Chapel Hill and an M.B.A. from the University of South Carolina. We believe that Mr. Nicholson’s experience serving in executive positions with public and private biopharmaceutical companies, his experience serving on the board of directors of a public company and his business and operations experience give him the qualifications, skills and financial expertise to serve on our Board.
Carol Schafer has served as a member of our Board since May 2019. Ms. Schafer has more than 25 years of experience in investment banking, equity capital markets, corporate finance and business development and has worked extensively within the biopharmaceutical industry. Ms. Schafer currently serves as managing partner at Hyphen Advisors, LLC, a firm that provides advisory, consulting and board services to public and private companies and boards of directors on topics such as financing strategy and execution, financial planning and analysis, investor access and messaging and strategic initiatives. From April 2007 to September 2018, Ms. Schafer worked at Wells Fargo Securities LLC, most recently as Vice Chair in Equity Capital Markets. From December 2003 to February 2007, Ms. Schafer served as Vice President, Finance and Business Development at Lexicon Pharmaceuticals, Inc., a public biotechnology company. From January 1986 to November 2003, Ms. Schafer worked at J.P. Morgan, where she held positions of increasing responsibility, most recently as Managing Director in Equity Capital Markets. Ms. Schafer currently serves on the board of directors of Idera Pharmaceuticals, Inc., Insmed Incorporated and Repare Therapeutics Inc., each of which is a public biotechnology company. Ms. Schafer received a B.S. in Mathematics and Computer Science from Boston College and an M.B.A. from New York University. We believe that Ms. Schafer’s deep financial background, her experience in the financial services and banking industries, including providing strategic support to companies in the healthcare sector, and her experience as a director of publicly traded biotechnology companies give her the qualifications, skills and financial expertise to serve on our Board.
Information About Our Executive Officers Who Are Not Directors
The following table sets forth certain information about our executive officers who are not also directors.
Executive Officers
Age(1)
Position(s) Held
Officer Since
Helen Collins, M.D.
Executive Vice President and Chief Medical Officer
Francis W. Sarena
Chief Strategy Officer and Secretary
David V. Smith
Executive Vice President and Chief Financial Officer
(1)
Ages as of March 22, 2021.
The principal occupation, business experience and education of each executive officer who is not also a director are set forth below.
Helen Collins, M.D. has served as Executive Vice President since August 2019 and Chief Medical Officer since March 2017. She also served as Senior Vice President from March 2017 to August 2019 and Vice President of Clinical Development from June 2016 to March 2017. From June 2013 to June 2016, Dr. Collins held positions of increasing responsibility at Gilead, most recently as Program and Clinical Lead for Gilead’s GS-5829 (BET inhibitor) and GS-4059 (BTK inhibitor) programs. From November 2009 to May 2013, Dr. Collins held positions of increasing responsibility at Amgen, most recently as Global Lead, Oncology Biosimilars. Prior to joining Amgen, Dr. Collins practiced as a medical oncologist and hematologist for 12 years at Redwood Regional Medical Group, or RRMG, and served as President of RRMG from 2006 to 2009. In 2005, Dr. Collins co-founded the non-profit North Bay Cancer Alliance, whose mission is to increase local access to education and cancer care in counties in the northern San Francisco Bay Area. Dr. Collins received a A.B. in Chemistry from Bryn Mawr College and an M.D. from The Johns Hopkins University School of Medicine. Dr. Collins completed her residency in internal medicine at The Johns Hopkins Hospital and completed her fellowship at Stanford University School of Medicine, where she concentrated in gastrointestinal cancer. Dr. Collins is board certified in both oncology and internal medicine.
Francis W. Sarena has served as our Chief Strategy Officer since September 2016 and as Secretary since December 2010. He also served as Executive Vice President from August 2015 to September 2016, as our General Counsel from December 2010 to September 2016, as Senior Vice President from January 2013 to August 2015 and as Vice President from December 2010 to January 2013. From December 2008 to July 2010, Mr. Sarena served as Vice President, General Counsel and Secretary of Facet Biotech Corporation, a public biotechnology company that was spun off from PDL BioPharma, Inc., or PDL BioPharma, in December 2008 and that was later acquired by Abbott Laboratories in April 2010. From April 2006 to December 2008, Mr. Sarena served at PDL BioPharma in positions of increasing responsibility, most recently as Vice President, General Counsel and Secretary from June 2008 to December 2008. Prior to April 2006, Mr. Sarena served as an associate at Bingham McCutchen LLP where he represented public and private life science and high-tech clients primarily in merger and acquisition transactions, corporate and securities law matters and equity financing transactions. Mr. Sarena received a B.S. in Finance from San Francisco State University and a J.D. from the University of California, Berkeley.
David V. Smith has served as our Executive Vice President and Chief Financial Officer since November 2018. From May 2012 until its acquisition by Thermo Fisher Scientific Inc. in March 2018, Mr. Smith served as Chief Operating Officer of IntegenX, Inc., a biotechnology company. From December 2006 to July 2011, Mr. Smith served as Executive Vice President and Chief Financial Officer of Thoratec Corporation, a public medical device company that was later acquired by St. Jude Medical. From 1999 until its acquisition by Novartis in 2006, Mr. Smith served in positions of increasing responsibility at Chiron, most recently as Vice President and Chief Financial Officer. From 1997 until its acquisition by Corixa Corporation in 1999, Mr. Smith served as Vice President, Finance and Chief Financial Officer of Anergen, Inc., or Anergen, a private biotechnology company. Prior to Anergen, Mr. Smith served in various roles at Genentech, IBM Corporation and Syntex Corporation. Mr. Smith currently serves as a member of the board of directors and chair of the audit committee of Codexis, Inc., a public biotechnology company. Mr. Smith previously served as a member of the board of directors of Achieve Life Sciences, Inc. (formerly known as OncoGenex Pharmaceuticals Inc.), a public biotechnology company. Mr. Smith received an M.B.A., Finance from Golden Gate University and a B.A. in Economics and History from Willamette University.
Audit Committee
Our audit committee is responsible for assisting our Board in its oversight of the integrity of our financial statements, the qualifications and independence of our independent auditors and our internal financial and accounting controls. Our audit committee has direct responsibility for the appointment, compensation, retention (including termination) and oversight of our independent auditors, and our independent auditors report directly to our audit committee. Our audit committee has authority to engage legal counsel and other consultants, accountants, experts and advisors as it deems appropriate to carry out its responsibilities.
Messrs. Berger and Nicholson and Ms. Schafer served as members of our audit committee through June 30, 2020, with Mr. Nicholson serving as the chairman. Effective July 1, 2020, the Board reconstituted the composition of the audit committee. At that time, Mr. Ringo and Ms. Lyons-Williams were appointed as members of our audit committee and Mr. Berger and Ms. Schafer ceased serving as members of our audit committee. Thereafter, Messrs. Nicholson and Ringo and Ms. Lyons-Williams served as members of our audit committee, with Mr. Nicholson serving as the chairman. Each member of our audit committee is, or was during the period in which he or she served, an independent director under the corporate governance standards of the Nasdaq Listing Rules and the independence requirements of Rule 10A-3 of the Securities Exchange Act of 1934, or the Exchange Act. In addition, our Board determined that each member of our audit committee is, or was during the period in which he or she served, financially literate and that Mr. Ringo qualifies as an “audit committee financial expert,” as such term is currently defined in Item 407(d)(5) of Regulation S-K. In making this determination, our Board considered Mr. Ringo’s formal education and the nature and scope of Mr. Ringo’s previous experience, as further described in the section of this Annual Report titled “Information About Our Board of Directors,” coupled with his past and present service on various audit committees. Our audit committee operates under a written charter that satisfies the applicable standards of the Securities and Exchange Commission, or SEC, and the Nasdaq Listing Rules, which is available in the “Corporate Governance” section of our investor relations website at investor.fiveprime.com/corporate-governance. The inclusion of our website address here and elsewhere in this Annual Report does not include or incorporate by reference the information on our website into this Annual Report.
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics, or our code of conduct, that applies to all our employees, officers, directors and agents, including those officers responsible for financial reporting. The code of conduct is available on our website at investor.fiveprime.com/corporate-governance.
We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding future amendments to, or waivers from, any provision of our code of conduct that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, by posting such information on our website at the Internet address set forth above.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our directors, certain officers, including our executive officers, and persons who own more than 10% of our common stock to report to the SEC their initial ownership of our common stock and any subsequent changes in that ownership. The SEC has established specific due dates for these reports and we are required to disclose in in this Annual Report any late filings or failures to file.
Based solely on our review of such reports filed electronically with the SEC and written representations from reporting persons that no other reports were required during the fiscal year ended December 31, 2020, we believe that, during the 2020 fiscal year, all of our directors and officers complied with all Section 16(a) filing requirements applicable to them, except that a late Form 4 report was filed for (i) David White, our Vice President, Finance and Principal Accounting Officer, on February 26, 2020 to report a transaction that occurred on January 20, 2020 and (ii) David V. Smith, our Executive Vice President and Chief Financial Officer, on March 11, 2020 to report four transactions that occurred on February 24, 2020.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
Our named executive officers for the year ended December 31, 2020 are as follows:
•
Thomas Civik, President and Chief Executive Officer (commenced this position effective April 13, 2020);
•
Helen Collins, M.D., Executive Vice President and Chief Medical Officer;
•
Francis W. Sarena, Chief Strategy Officer and Secretary; and
•
William R. Ringo, former interim Chief Executive Officer (resigned from this position effective April 13, 2020).
Summary Compensation Table
The following table shows information regarding the compensation of our named executive officers during the fiscal years ended December 31, 2020 and 2019. Since Mr. Civik was not a named executive officer during the previous fiscal year, we provided information with respect to his compensation solely with respect to the year ended December 31, 2020.
Name and Principal Position
Year
Salary
($)
Bonus
($)
Option
Awards
($)(1)
Stock
Awards
($)(1)
Non-Equity
Incentive Plan
Compensation
($)(2)
All Other Compensation
($)(3)
Total
($)
Thomas Civik
President and
Chief Executive Officer
$
420,405
(4)
-
$
827,856
$
204,000
$
404,000
(5
)
$
331,000
(6)
$
2,187,261
Helen Collins, M.D.
Executive Vice President
$
477,500
$
192,000
(7)
$
587,403
$
157,500
$
303,400
$
6,000
$
1,723,803
and Chief Medical Officer
$
456,253
-
$
503,664
$
461,660
(8)
$
175,000
$
6,000
$
1,602,578
Francis W. Sarena
Chief Strategy Officer
$
462,749
$
209,250
(7)
$
587,403
$
157,500
$
330,600
$
6,000
$
1,753,502
and Secretary
$
451,494
-
$
433,248
$
432,760
(8)
$
189,000
$
6,000
$
1,512,502
William R. Ringo(9)
Chairman of the Board
and Former Chief
$
295,828
(10
)
$
151,881
(11
)
$
506,095
(12
)
-
-
$
114,859
(13
)
$
1,068,663
Executive Officer
$
250,336
(10
)
$
103,919
(11
)
$
437,896
(12
)
$
96,200
(14
)
-
$
79,123
(13
)
$
967,473
(1)
Amounts reflect the grant date fair value of equity awards determined in accordance with ASC 718. For information regarding other assumptions underlying the value of equity awards, see Note 2 to our financial statements and the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Use of Estimates - Stock-Based Compensation” included in this Annual Report. These amounts do not correspond to the actual value that our named executive officers will recognize.
(2)
Consists of amounts earned under our Annual Bonus Plan, or our Bonus Plan, based on the achievement of company and individual performance goals and other factors deemed relevant by our compensation committee. For additional information, see the section of this Annual Report titled “Executive Compensation - Narrative Disclosure to Summary Compensation Table - Annual Performance-Based Cash Compensation.”
(3)
Amount includes $6,000 received by each of Dr. Collins and Mr. Sarena during each of 2019 and 2020 and $6,000 received by Mr. Civik during 2020 as a company match under our 401(k) plan.
(4)
Amount consists of base salary received by Mr. Civik from April 13, 2020, the date of his appointment as our President and Chief Executive Officer and start date at the company, through December 31, 2020.
(5)
In accordance with our Bonus Plan, Mr. Civik’s 2020 bonus amount was prorated based on his partial year of service for 2020, which service began on April 13, 2020.
(6)
Amount includes $325,000 received by Mr. Civik for relocation to the San Francisco Bay Area pursuant to Mr. Civik’s offer letter. For additional information, see the section of this Annual Report titled “Executive Compensation - Narrative Disclosure to Summary Compensation Table - Employment Arrangements - Mr. Civik’s Offer Letter.”
(7)
Amount consists of a retention bonus approved by our compensation committee. For additional information, see the section of this Annual Report titled “Executive Compensation - Narrative Disclosure to Summary Compensation Table - Executive Compensation Elements - Retention Cash Awards.”
(8)
For performance-based retention restricted stock awards granted on June 24, 2019, the grant date fair value was determined, (i) with respect to shares of restricted stock subject to performance conditions relating to the market price of our common stock, based on a risk-neutral Monte Carlo simulation model, and (ii) with respect to shares of restricted stock subject to other performance conditions, based on our assumptions as of June 24, 2019 of the probabilities of the applicable performance conditions being achieved.
(9)
Mr. Ringo served as our interim Chief Executive Officer from September 19, 2019 until April 13, 2020 and continued to serve as a non-executive employee thereafter through May 31, 2020. The amounts set forth in this table reflect compensation received by Mr. Ringo in connection with his service as a director from January 1, 2019 through September 18, 2019, as our interim Chief Executive Officer and as a non-executive employee beginning on September 19, 2019 and ending on May 31, 2020, and as a director from June 1, 2020 through December 31, 2020.
(10)
Amounts include (i) $81,875 of director fees received by Mr. Ringo for his service in 2019 as a director prior to the commencement of his employment as our interim Chief Executive Officer on September 19, 2019, (ii) $59,167 of director fees received by Mr. Ringo for his service as a director in 2020 following completion of his service as our interim Chief Executive Officer and as a non-executive employee on May 31, 2020, and (iii) $5,203 as compensation for accrued vacation time received by Mr. Ringo in 2020 in connection with his resignation from his position as an employee of the company effective May 31, 2020.
(11)
Mr. Ringo was not eligible to receive a bonus under our Bonus Plan for his service as our interim Chief Executive Officer or as a non-executive employee during 2019 and 2020. Pursuant to Mr. Ringo’s offer letter, the compensation committee determined Mr. Ringo’s bonus promptly following the end of his service as our interim Chief Executive Officer and as a non-executive employee, and determined Mr. Ringo’s bonus for 2019 and 2020 to be $103,919 and $151,881, respectively, for a total bonus amount of $255,800. For additional information, see the section of this Annual Report titled “Executive Compensation - Narrative Disclosure to Summary Compensation Table - Employment Arrangements - Mr. Ringo’s Offer Letter.” Mr. Ringo’s 2019 bonus amount was not determined as of the date we filed our proxy statement for our 2020 annual meeting of stockholders, or the 2020 proxy statement. As such, Mr. Ringo’s bonus compensation for 2019 was not reflected in the Summary Compensation Table in the 2020 proxy statement.
(12)
Amounts reflect the grant date fair values of the following awards granted to Mr. Ringo by our Board: (i) an option to purchase 15,000 shares of our common stock granted on June 10, 2019 pursuant to our non-employee director compensation policy in connection with his service as a member of our Board, which shares vested in their entirety on May 13, 2020, and (ii) options to purchase shares of our common stock granted to Mr. Ringo in connection with his service as our interim Chief Executive Officer and as a non-executive employee beginning on September 19, 2019 and ending on May 31, 2020. For additional information regarding options granted to Mr. Ringo in connection with his service as our interim Chief Executive Officer and as a non-executive employee, see the section of this Annual Report titled “Executive Compensation - Narrative Disclosure to Summary Compensation Table - Employment Arrangements - Mr. Ringo’s Offer Letter.”
(13)
Amounts include compensation paid pursuant to our offer letter agreement with Mr. Ringo and certain other compensation for expenses incurred, as set forth in the following table. For additional information, see the section of this Annual Report titled “Executive Compensation - Narrative Disclosure to Summary Compensation Table - Employment Arrangements - Mr. Ringo’s Offer Letter.”
Type of Compensation
Amount of
Compensation
(2019)
Amount of
Compensation
(2020)
Short-term housing costs
$
42,300
$
54,000
Transportation and moving costs
$
9,936
$
22,414
Tax gross-ups for short-term housing, transportation and moving costs
$
26,887
$
38,445
(14)
Amount reflects the grant date fair value of 10,000 shares of restricted common stock granted to Mr. Ringo by our Board on January 9, 2019 in connection with his appointment as Chairman of our Board. These shares vested in their entirety on January 9, 2020.
Narrative Disclosure to Summary Compensation Table
Executive Compensation Elements
The primary elements of our executive compensation program for 2020 were:
•
base salary;
•
annual performance-based cash compensation;
•
long-term equity incentive awards;
•
retention equity incentive awards; and
•
severance and change in control benefits.
In addition to these primary elements of executive compensation, we also offer our executive officers broad-based health and welfare benefits and 401(k) plan benefits consistent with the benefits we provide to our other full-time, salaried employees.
Base Salary
The purpose of base salary compensation is to provide each executive with a competitive level of fixed cash compensation that is paid regularly throughout the year. The amount of base salary we pay each executive is determined by our compensation committee primarily based upon the range of salaries for similar positions at peer companies and takes into consideration the executive officer’s experience, knowledge, skills, education, performance and contributions to the company. Base salary is the only element of compensation that is fixed; the remainder and majority of each executive officer’s potential compensation is composed of variable compensation that is designed to incentivize shorter-term (annual) or longer-term performance of the company.
Our compensation committee reviewed and evaluated the base salaries of our executive officers and approved the 2020 and 2021 annual base salaries for the named executive officers shown in the table below. To the extent our compensation committee determined that an executive officer’s annual base salary was consistent with comparable positions in our then-current peer group, no changes were made.
Executive Officer
2020 Annual
Base Salary
2021 Annual
Base Salary
Thomas Civik
$
584,000
$
612,000
Helen Collins, M.D.
$
480,000
$
496,800
Francis W. Sarena
$
465,000
$
481,300
William R. Ringo
$
631,000
(1)
-
(1)
In connection with Mr. Ringo’s resignation from his position as interim Chief Executive Officer on April 13, 2020, and pursuant to Mr. Ringo’s offer letter, the compensation committee agreed to continue paying Mr. Ringo at an annualized base salary rate of $631,000 through April 30, 2020 and at an annualized base salary rate of $315,500 for the month of May 2020, in recognition of his reduced time commitment to the company during this transition period. Mr. Ringo resigned from his position as an employee of the company effective May 31, 2020.
Annual Performance-Based Cash Compensation
Pursuant to our Bonus Plan, each executive officer, except for Mr. Ringo, was eligible to receive a target bonus determined as a percentage of his or her annual base salary. Our compensation committee determined these target bonus percentages for each executive officer position primarily based on the range of target bonus percentages for similar positions at peer companies. Each executive officer’s target bonus was subject to weighting based on achievement of corporate goals and personal goals. The target bonus percentage and weighting for each of our named executive officers, except for Mr. Ringo, for 2020 is shown in the table below.
Executive Officer
Total Target
Bonus (%)
Corporate Goal
Weighting
Personal Goal
Weighting
Thomas Civik
%
%
%
Helen Collins, M.D.
%
%
%
Francis W. Sarena
%
%
%
Each of the corporate goal and personal goal components of an employee’s bonus target is subject to a multiplier for each Bonus Plan year. The multiplier for corporate goal achievement is based on the company’s overall achievement of its corporate goals, among other considerations deemed relevant by the compensation committee, and may be up to a maximum of 175% of the respective employee’s bonus target with respect to corporate goals. The multiplier for personal goal achievement is based on each employee’s achievement of his or her personal goals, among other considerations deemed relevant by management, or with respect to the executive officers, by the compensation committee, and may be up to a maximum of 175% of the respective employee’s bonus target with respect to personal goals.
In January 2021, our compensation committee reviewed and evaluated the company’s performance against our 2020 corporate goals. Based on a consideration of our performance against our 2020 corporate goals and additional factors, our compensation committee approved a corporate goal multiplier of 160% for our Bonus Plan for 2020. In February 2021, our compensation committee reviewed and evaluated the performance of each executive officer against his or her 2020 personal goals. Based on each executive officer’s individual performance and respective contributions to the company in 2020 and additional factors, our compensation committee approved personal goal multipliers of 150% for each of Dr. Collins and Mr. Sarena.
Taking into consideration the individual performance of our named executive officers and applying the corporate goal multiplier of 160%, our compensation committee approved the 2020 cash incentive payments to our named executive officers shown in the Summary Compensation Table above.
Mr. Ringo was not eligible to receive a bonus under the Bonus Plan for his service as an employee of the company. For additional information regarding the bonus amount paid to Mr. Ringo for his service as an employee of the company, see the section of this Annual Report titled “Executive Compensation - Narrative Disclosure to Summary Compensation Table - Employment Arrangements - Mr. Ringo’s Offer Letter.”
Long-Term Incentive Compensation
Long-term incentive compensation is generally the largest portion of each executive’s overall compensation and is variable and at-risk. This element of compensation is comprised of equity awards that we grant in connection with the start of each executive officer’s employment and annual grants of long-term incentive equity awards in connection with our annual performance review process, which we customarily conclude in February of each year. These equity awards generally vest over several years to focus our executives on the company’s success over a multi-year period and promote the retention of our executive officers.
In February 2020, our compensation committee approved annual grants to our named executive officers of the stock option and restricted stock awards shown in the table below.
Option Awards(1)
Restricted Stock Awards(2)
Executive Officer
(number of shares)
(grant date fair value)(3)
(number of shares)
(grant date fair value)(3)
Helen Collins, M.D.
90,000
$
291,555
15,000
$
78,750
Francis W. Sarena
90,000
$
291,555
15,000
$
78,750
(1)
The stock option awards set forth in this table vest and become exercisable at the rate of 1/48 of the total number of shares subject to the applicable option award each month after the grant date of February 24, 2020, subject to the executive officer’s continuous service to the company through each vest date.
(2)
The restricted stock awards set forth in this table vested with respect to one-third of the shares subject to the applicable restricted stock award on February 24, 2021 and will vest with respect to one-third of the shares subject to the applicable restricted stock award on each of February 24, 2022 and 2023, subject to the executive officer’s continuous service to the company through each vest date.
(3)
For more information on how we determined the grant date fair value of these awards, see footnote 1 to our Summary Compensation Table.
In connection with Mr. Ringo’s service as our interim Chief Executive Officer and a non-executive employee, our compensation committee granted to Mr. Ringo on or promptly after the 19th day of each calendar month an option to purchase a number of shares of our common stock having a fair value of (i) $120,000 for each month during the term of his service as our interim Chief Executive Officer, and (ii) $60,000 for the month of May 2020 during which he served a non-executive employee. Each such option vested in its entirety on the 19th day of the calendar month following the calendar month in which such option was granted.
In April 2020, our compensation committee granted to Mr. Civik an option to purchase 480,000 shares of our common stock and 75,000 shares of restricted common stock in connection with Mr. Civik’s appointment as our President and Chief Executive Officer. Mr. Civik’s stock option award will vest with respect to 25% of the shares subject to the option on the first anniversary of the grant date and 1/48 of the shares subject to the option monthly thereafter, in each case, subject to his continued service to the company through each vest date. Mr. Civik’s restricted stock award will vest with respect to one-third of the shares subject to the award on each of April 13, 2021, 2022 and 2023.
In February 2021, in connection with our annual performance review process, our compensation committee met to review the annual equity awards proposed for grant to our executive officers, including Mr. Civik, Dr. Collins and Mr. Sarena. Shortly before that meeting, Amgen submitted to the Company a proposal to acquire the company for $32.00 per share of our common stock. The compensation committee determined at that meeting to not approve the annual equity awards and determined instead that should the company enter into a definitive agreement with a third party for the acquisition of the company, then the compensation committee would approve, in lieu of the proposed annual equity awards, cash awards equal in value to the value that the proposed annual equity awards would have in an acquisition transaction. On March 16, 2021, after our entry into the Agreement and Plan of Merger with Amgen and Franklin Acquisition Sub, Inc., or the merger agreement, our compensation committee approved cash awards to Mr. Civik, Dr. Collins and Mr. Sarena in lieu of the originally proposed annual stock option and restricted stock awards. The value of these cash awards was determined based on the number of stock option and restricted stock awards that would have otherwise been granted to each such executive officer and the merger consideration of $38.00 per share offered by Amgen and an assumed option exercise price of $22.23 per share, which was the closing price of our common stock on February 26, 2021, the date the compensation committee was originally scheduled to approve the annual equity awards to our executive officers. The determination of the cash value of these awards is further described in the table below. These cash awards will be paid only upon closing of the merger contemplated by the merger agreement, which is expected to occur by the end of the second quarter of 2021. These cash awards will automatically expire and not become payable if the closing of the merger does not occur by December 31, 2021. For additional information regarding the merger agreement, see Note 15, Subsequent Event, to the financial statements included in this Annual Report, and the discussion in Item 14 of this Annual Report.
2021 Annual Cash Awards
Executive Officer
Proposed
Number of
Shares of
Restricted
Stock
Merger
Consideration
Value per
Share
($)
Cash Award
($)(1)
Proposed
Number of
Shares
Underlying
Stock
Options
Assumed
Exercise
Price
($)
Cash Award
($)(2)
Thomas Civik
36,000
$
38.00
$
1,368,000
216,000
$
22.23
$
3,406,320
Helen Collins, M.D.
11,800
$
38.00
$
448,400
71,000
$
22.23
$
1,119,670
Francis W. Sarena
9,400
$
38.00
$
357,200
56,500
$
22.23
$
891,005
(1)
Amounts reflect the proposed number of shares of restricted stock multiplied by the merger consideration of $38.00 per share of our common stock.
(2)
Amounts reflect the proposed number of shares of common stock underlying stock options, multiplied by the difference between the merger consideration of $38.00 per share and $22.23, the closing price per share of our common stock on February 26, 2021, or $15.77.
Retention Equity Incentive Awards
In October 2019, we undertook a corporate restructuring to eliminate approximately 50% of our then-current headcount, initiated activities to reduce our corporate facilities footprint by either subletting a significant portion of our leased space or subletting the entirety of our building and relocating to smaller facilities and undertook other cost-savings efforts to extend our cash runway. As a result, on February 24, 2020, our compensation committee approved retention option and restricted stock awards for certain of our executive officers, including Dr. Collins and Mr. Sarena, as shown in the table below.
Option Awards(1)
Restricted Stock Awards(2)
Executive Officer
(number of shares)
(grant date fair value)(3)
(number of shares)
(grant date fair value)(3)
Helen Collins, M.D.
90,000
$
295,848
15,000
$
78,750
Francis W. Sarena
90,000
$
295,848
15,000
$
78,750
(1)
The stock option awards set forth in this table vested and became exercisable with respect to 25% of the shares subject to the applicable option award on February 24, 2021, and the remainder vest and become exercisable with respect to 1/48 of the shares subject to the applicable option award monthly thereafter, subject to the executive officer’s continuous service to the company through each vest date.
(2)
The restricted stock awards set forth in this table vested with respect to one-third of the shares subject to the applicable restricted stock award on February 24, 2021 and will vest with respect to one-third of the shares subject to the applicable restricted stock award on each of February 24, 2022 and 2023, subject to the executive officer’s continuous service to the company through each vest date.
(3)
For more information on how we determined the grant date fair value of these awards, see footnote 1 to our Summary Compensation Table.
Retention Cash Awards
In January 2020, our compensation committee approved the grant of a retention bonus to each of Dr. Collins and Mr. Sarena pursuant to letter agreements between the company and each such executive officer dated January 15, 2020. Pursuant to their respective agreements, each of Dr. Collins and Mr. Sarena received a cash retention bonus on December 31, 2020 equal to such executive officer’s respective bonus target under the Bonus Plan for the 2020 calendar year, as shown in the table below.
2020 Bonus Target
Executive Officer
% of Base Salary
($)
Helen Collins, M.D.
%
$
192,000
Francis W. Sarena
%
$
209,250
The cash retention bonuses were in addition to the bonuses Dr. Collins and Mr. Sarena earned with respect to their respective 2020 performance under our Bonus Plan for 2020.
Severance and Change in Control Benefits
Executive Severance Benefit Plan
We believe that offering reasonable and competitive severance benefits as part of an overall compensation package is necessary to effectively compete for and attract and retain executive talent. In November 2019, our compensation committee adopted our Executive Severance Benefit Plan and Summary Plan Description, or the Severance Plan, pursuant to which we provide employees in the role of Vice President or higher, including our named executive officers, except for Mr. Ringo, with compensation and benefits in the event of a termination by us of any such employee’s employment without “cause” or a resignation from employment by such employee for “good reason,” each as defined in the Severance Plan, and, collectively, an involuntary termination.
Mr. Ringo was not eligible to participate in the Severance Plan and was not eligible to receive severance benefits upon his termination, or the completion of his service, as our interim Chief Executive Officer and a non-executive employee.
The Severance Plan provides that for an involuntary termination that occurs any time except for within three months prior to or 12 months following a change in control of the company, an executive officer will be entitled to receive: (i) cash severance equal to the product of (x) the sum of such executive officer’s (A) annual base salary rate in effect on the date of the involuntary termination and (B) “target bonus,” as defined in the Severance Plan, and (y) the relevant factor set forth in the table below; (ii) payment or reimbursement of COBRA premiums, provided that such executive officer is eligible for and timely elects COBRA coverage, through the earlier of (1) the number of months after the involuntary termination set forth in the table below, (2) the date such executive officer and his or her covered dependents, if any, are no longer eligible for COBRA coverage or (3) the date such executive officer and his or her covered dependents, if any, become eligible for group health insurance through another employer; and (iii) acceleration of vesting of all unvested outstanding equity awards subject to time-based vesting provisions that would have vested within the number of months set forth in the table below following such involuntary termination. Outstanding equity awards subject to performance-based vesting will not accelerate under the Severance Plan in the event of an involuntary termination that occurs any time except for within three months prior to or 12 months following a change in control.
Notwithstanding the provisions set forth in the Severance Plan to the contrary, if any executive officers were granted equity awards prior to the effective date of the Severance Plan that were, as of immediately prior to the effective date of the Severance Plan, subject to acceleration of vesting in connection with an involuntary termination pursuant to an agreement between us and such executive officer, such equity awards would accelerate pursuant to the terms of the applicable severance agreement rather than the Severance Plan.
Cash Severance
Factor
COBRA Premium
Reimbursement
and Acceleration
of Vesting of
Equity Awards
Chief Executive Officer
1.0
12 months
Other Named Executive Officers
0.75
9 months
In addition, if the involuntary termination occurs within three months prior to or 12 months following a change in control, then, in lieu of the benefits described above, an executive officer will be entitled to: (i) cash severance equal to the product of (x) the sum of such executive officer’s (A) annual base salary rate in effect on the date of the involuntary termination and (B) target bonus, and (y) the relevant factor set forth in the table below; (ii) payment or reimbursement of COBRA premiums, provided that such executive officer is eligible for and timely elects COBRA coverage, through the earlier of (1) the number of months after the involuntary termination set forth in the table below, (2) the date such executive officer and his or her covered dependents, if any, are no longer eligible for COBRA coverage or (3) the date such executive officer and his or her covered dependents, if any, become eligible for group health insurance through another employer; and (iii) 100% acceleration of vesting of all unvested outstanding equity awards subject to time-based vesting provisions. Outstanding equity awards subject to performance-based vesting will accelerate based on target performance.
Cash Severance
Factor
COBRA Premium
Reimbursement
Chief Executive Officer
2.0
24 months
Other Named Executive Officers
1.5
18 months
In addition, the Severance Plan provides that in the event that the severance payment and other benefits, or collectively, the payment, provided for or otherwise payable to the executive officer constitute “parachute payments” within the meaning of Section 280G of the U.S. Internal Revenue Code of 1986, as amended, or the Code, and are subject to the excise tax imposed by Section 4999 of the Code, then we will pay to such executive officer (i) the largest portion of the payment that would result in no portion of the payment being subject to such excise tax or (y) the largest portion, up to and including the total, of the payment, after taking into account all applicable taxes, including such excise tax (all computed at the highest applicable marginal rate), that results in the executive officer’s receipt, on an after-tax basis, of the greatest economic benefit.
Notwithstanding anything to the contrary in the Severance Plan, no severance payments or benefits will become payable to an executive officer until such executive officer has a “separation of services” within the meaning of Section 409A of the Code, or Section 409A. If an executive officer is subject to Section 409A and is a “specified employee” within the meaning of Section 409A at the time of the involuntary termination, then any separation benefits due to the executive officer under the Severance Plan will become payable in a lump sum payment on the date six months and a day following the date of such involuntary termination.
The Severance Plan requires that the executive officer execute a general release of claims in favor of us to mitigate any potential liability or dispute or the initiation of any litigation with the departing executive officer and also requires the departing executive officer to comply with the confidentiality agreement and any other agreement between us and such departing executive officer following the termination of such executive officer’s employment.
Other Benefits
All our named executive officers, except for Mr. Ringo, are eligible to receive our standard employee benefits, including our 401(k) plan, medical, dental, vision, short- and long-term disability and group life insurance and our 2013 Employee Stock Purchase Plan, in each case on the same basis as our other employees, including the matching contributions provided under our 401(k) plan. Our 401(k) plan provides that each participant may contribute up to 100% of his or her pre-tax compensation, up to a statutory limit of $19,500 in each of 2020 and 2021. We provide a company match equal to 50% of the amount contributed by an employee, up to a maximum amount of $6,000 per year, and pay all company matches in cash. Participants who are at least 50 years old can also make “catch-up” contributions of an additional $6,500 above the statutory limit in each of 2020 and 2021. Our 401(k) plan also permits us to make discretionary contributions, subject to established limits and a vesting schedule. To date, we have not made any discretionary contributions to the plan on behalf of participating employees. Our compensation committee periodically reviews the levels of benefits provided to our executive officers to ensure they remain reasonable and consistent with its compensation philosophy.
Perquisites
We do not as a general practice provide perquisites or other personal benefits to our executive officers that differ materially from those available to employees generally. In certain cases, we provide certain executive officers with relocation and mortgage assistance benefits that we negotiated as part of these executive officers’ new hire offer packages. For example, we provided Mr. Civik with relocation assistance benefits as part of his new hire offer package, as described in the section of this Annual Report titled “Executive Compensation - Narrative Disclosure to Summary Compensation Table - Employment Arrangements - Mr. Civik’s Offer Letter.” In addition, during the term of his service as an employee of the company, we provided Mr. Ringo with short-term housing and transportation assistance, as described in the section of this Annual Report titled “Executive Compensation - Narrative Disclosure to Summary Compensation Table - Employment Arrangements - Mr. Ringo’s Offer Letter.”
Employment Arrangements
We entered into employment offer letter agreements with each of our named executive officers. Each of the offer letters with our named executive officers provides or provided, as applicable, for “at will” employment and sets forth the initial compensation arrangements for the executive officer, including with respect to the executive officer’s initial base salary, annual target cash bonus opportunity and new hire equity awards (each of which is disclosed in more detail in the table below titled “Outstanding Equity Awards at Fiscal Year-End,” to the extent it was not exercised by the applicable executive officer (with respect to option awards) or vested (with respect to restricted stock awards) as of December 31, 2020). The terms and conditions of each offer letter agreement, except for Mr. Ringo’s offer letter, were negotiated by our then-current Chief Executive Officer and were approved by either our Board or compensation committee. Mr. Ringo’s offer letter was negotiated by Dr. Jensen, the chairman of our compensation committee, and approved by our full compensation committee.
Mr. Civik’s Offer Letter
Effective April 13, 2020, our Board appointed Mr. Civik to serve as our President and Chief Executive Officer. In connection with his appointment, on April 6, 2020, we entered into an offer letter with Mr. Civik, pursuant to which we agreed to pay Mr. Civik an annual base salary of $584,000 and set his target annual cash bonus opportunity at 60% of his base salary.
Pursuant to Mr. Civik’s offer letter, our compensation committee granted to Mr. Civik an option to purchase 480,000 shares of our common stock and 75,000 shares of restricted common stock. The shares subject to the option award will vest with respect to 25% of the shares subject to the option on the first anniversary of the grant date and 1/48 of the shares subject to the option monthly thereafter, in each case, subject to Mr. Civik’s continued service to the company through each vest date. The shares subject to the restricted stock award will vest over three years in equal annual installments on each anniversary of the grant date, in each case, subject to Mr. Civik’s continued service to the company through each vest date.
Pursuant to Mr. Civik’s offer letter, we provided Mr. Civik with a lump sum payment of $325,000 in support of his relocation to the San Francisco Bay Area. Mr. Civik will repay the entire lump sum payment for relocation on or prior to his termination date if he voluntarily resigns his employment or if we terminate his employment for Cause (as defined in the Severance Plan) within two years of his date of hire.
Mr. Ringo’s Offer Letter
Effective September 19, 2019, our Board appointed Mr. Ringo to serve as our interim Chief Executive Officer. In connection with his appointment, on October 4, 2019, we entered into an offer letter with Mr. Ringo, pursuant to which we agreed to pay Mr. Ringo a semi-monthly salary of $25,000, which is equal to an annualized base salary rate of $600,000. On October 8, 2019, we entered into a first amendment to Mr. Ringo’s offer letter, pursuant to which we agreed to pay to Mr. Ringo an additional $25,000 in consideration of Mr. Ringo’s service as our interim Chief Executive Officer from September 19, 2019 to October 4, 2019, the date we entered into Mr. Ringo’s offer letter. In February 2020, our compensation committee reviewed Mr. Ringo’s base salary and approved an increase of his base salary to $631,000, effective March 1, 2020.
Pursuant to Mr. Ringo’s offer letter, we agreed to pay Mr. Ringo a one-time bonus for his service as interim Chief Executive Officer, with a target amount equal to 50% of the aggregate base salary we paid to Mr. Ringo for his service as interim Chief Executive Officer. In February 2020, the compensation committee increased Mr. Ringo’s target bonus to 60% of the aggregate base salary we paid to Mr. Ringo for his service as interim Chief Executive Officer. Accordingly, the target amount of Mr. Ringo’s bonus was 50% of the aggregate base salary we paid to Mr. Ringo for his service as interim Chief Executive Officer from September 19, 2019 through February 29, 2020 and 60% of the aggregate base salary we paid to Mr. Ringo for his service as interim Chief Executive Officer from March 1, 2020 until the end of his service as our interim Chief Executive Officer.
In addition, promptly after entering into Mr. Ringo’s offer letter, our compensation committee granted to Mr. Ringo an option to purchase 34,451 shares of our common stock. This option vested in its entirety on October 19, 2019. Thereafter, during the term of his service as our interim Chief Executive Officer and in accordance with the terms of Mr. Ringo’s offer letter, on or promptly after the 19th day of each calendar month during his service as interim Chief Executive Officer, our compensation committee granted to Mr. Ringo an option to purchase a number of shares of common stock having a fair value of $120,000. We determined the number of shares of common stock underlying each such option grant using a Black-Scholes factor of 61.7% and the average closing price of a share of our common stock for the 20 trading days preceding the 19th day of the calendar month in which such grant was approved (i.e., $120,000 ÷ (61.7% × such average closing price)). Each such option vested in its entirety on the 19th day of the calendar month following the calendar month in which such option was granted.
Pursuant to Mr. Ringo’s offer letter, during the term of his service as our interim Chief Executive Officer, we paid $13,500 monthly for the cost of Mr. Ringo’s short-term housing and paid Mr. Ringo a semi-monthly payment of $1,000 for the estimated cost of transportation between his short-term housing and our offices. In addition, on December 20, 2019, we entered into a second amendment to Mr. Ringo’s offer letter, pursuant to which we agreed to reimburse Mr. Ringo for or pay the expenses of (i) up to one commercial roundtrip flight per month between San Francisco International Airport, or SFO, and Indianapolis International Airport, or IND, for each of Mr. Ringo and his spouse during the term of Mr. Ringo’s employment as our interim Chief Executive Officer; and (ii) ground transportation to and from Mr. Ringo’s short-term residence in San Francisco, California and SFO and to and from his residence in the Indianapolis, Indiana area and IND in connection with each such monthly flight. In addition, we agreed to reimburse Mr. Ringo for or pay all such costs already incurred by Mr. Ringo since the beginning of his service as our interim Chief Executive Officer. To the extent any amounts described in this paragraph were deemed income to Mr. Ringo, we paid to Mr. Ringo a gross-up amount to cover the amount of withholding taxes that would be due on such deemed income.
In connection with Mr. Civik’s appointment as President and Chief Executive Officer effective April 13, 2020, Mr. Ringo resigned from his position as interim Chief Executive Officer and continued to serve as a non-executive employee through May 31, 2020. On April 16, 2020, we entered into a third amendment to Mr. Ringo’s offer letter, pursuant to which we agreed to reduce his annualized base salary rate to $315,500 in recognition of his reduced time commitment during the transition period. Pursuant to this amendment, we agreed to revise the determination of Mr. Ringo’s target bonus to be the sum of (i) 50% of the aggregate base salary we paid to Mr. Ringo through February 29, 2020 for his service as interim Chief Executive Officer and (ii) 60% of the aggregate base salary we paid to Mr. Ringo from March 1, 2020 through May 31, 2020 as interim Chief Executive Officer and a non-executive employee. Our compensation committee determined Mr. Ringo’s bonus amount to be $103,919 and $151,881 for his service during 2019 and 2020, respectively, for a total bonus amount of $255,800, based on his performance as interim Chief Executive Officer and as a non-executive employee and paid this bonus within 30 days following the last day of Mr. Ringo’s employment. We agreed to continue to pay through April 30, 2020 the $13,500 monthly cost of Mr. Ringo’s short-term housing and semi-monthly payment of $1,000 for the estimated cost of transportation between his short-term housing and our offices, and that such payments would not continue during the month of May 2020. Additionally, we agreed that Mr. Ringo’s option to purchase shares of common stock to be granted on or promptly after May 19, 2020 would be for a number of option shares having a fair value of $60,000. We determined the number of shares of common stock underlying such option grant using a Black-Scholes factor of 61.7% and the average closing price of a share of our common stock for the 20 trading days preceding May 19, 2020 (i.e., $60,000 ÷ (61.7% × such average closing price)). This option vested in its entirety on June 19, 2020.
For additional information regarding the amounts paid to Mr. Ringo for his service as our interim Chief Executive Officer and as a non-executive employee of the company, see our Summary Compensation Table.
Outstanding Equity Awards at Fiscal Year-End
The following table provides information regarding equity awards held by our named executive officers that were outstanding as of December 31, 2020.
Option Awards
Stock Awards
Name
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)(1)
Option
Exercise
Price
($/Sh)
Option
Expiration
Date
Number of
Shares or
Units of
Stock that
Have Not
Vested
(#)(1)
Market
Value of
Shares or
Units of
Stock that
Have Not
Vested
($)(2)
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)(1)
Equity
Incentive
Plan Awards:
Market or
Payout
Value of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested ($)(2)
Thomas Civik
-
480,000
(3)
2.72
4/12/2030
75,000
(4)
1,275,750
Helen Collins, M.D.
60,000
-
37.89
6/26/2026
-
-
-
-
8,625
(5)
45.38
2/6/2027
-
-
-
-
21,093
1,407
(6)
39.21
3/19/2027
-
-
-
-
35,416
14,584
(7)
18.69
2/25/2028
-
-
-
-
26,583
31,417
(8)
11.97
2/24/2029
-
-
-
-
6,666
13,334
(9)
5.78
8/19/2029
-
-
-
-
18,750
71,250
(10)
5.25
2/23/2030
-
90,000
(11)
5.25
2/23/2030
-
-
-
-
2,334
(12)
39,701
-
-
-
-
-
-
6,667
(13)
113,406
-
-
-
-
-
-
-
-
66,000
(14)
1,122,660
-
-
-
-
3,334
(15)
56,711
-
-
-
-
-
-
15,000
(16)
255,150
-
-
-
-
-
-
-
-
15,000
(16)
255,150
Francis W. Sarena
4,747
-
8.49
1/1/2022
-
-
-
-
9,142
-
5.54
7/15/2022
-
-
-
-
12,063
-
7.26
7/18/2023
-
-
-
-
3,209
-
10.77
11/4/2023
-
-
-
-
25,521
-
11.14
8/21/2024
-
-
-
-
75,000
-
19.25
8/16/2025
-
-
-
-
60,000
-
43.71
8/24/2026
-
-
-
-
35,000
-
49.54
9/7/2026
-
-
-
-
43,125
1,875
(5)
45.38
2/6/2027
-
-
-
-
31,875
13,125
(7)
18.69
2/25/2028
-
-
-
-
26,583
31,417
(8)
11.97
2/24/2029
-
-
-
-
18,750
71,250
(10)
5.25
2/23/2030
-
90,000
(11)
5.25
2/23/2030
-
-
-
-
2,334
(12)
39,701
-
-
-
-
-
-
6,667
(13)
113,406
-
-
-
-
-
-
-
-
66,000
(14)
1,122,660
-
-
-
-
15,000
(16)
255,150
-
-
-
-
-
-
-
-
15,000
(16)
255,150
William R. Ringo(17)
16,600
-
11.65
9/30/2024
-
-
-
-
12,500
-
22.15
6/11/2025
-
-
-
-
10,000
-
42.25
5/18/2026
-
-
-
-
10,000
-
29.80
5/9/2027
-
-
-
-
10,000
-
17.27
5/9/2028
-
-
-
-
15,000
-
6.09
6/9/2029
-
-
-
-
34,451
-
3.79
10/4/2029
-
-
-
-
46,939
-
3.99
10/18/2029
-
-
-
-
50,367
-
3.23
11/18/2029
-
-
-
-
49,552
-
3.94
12/18/2029
-
-
-
-
40,868
-
5.31
1/18/2030
-
-
-
-
37,998
-
5.23
2/18/2030
-
-
-
-
52,408
-
2.80
4/18/2030
-
-
-
-
27,769
-
4.47
5/18/2030
-
-
-
-
(1)
For information on vesting acceleration of the equity awards described in this table upon a named executive officer’s termination of employment, see the section of this Annual Report titled “Executive Compensation - Narrative Disclosure to Summary Compensation Table - Severance and Change in Control Benefits.”
(2)
The market value of stock awards is based on the closing market price of our common stock of $17.01 per share on December 31, 2020.
(3)
25% of the shares underlying this option will vest on April 13, 2021, and the remainder vests over three years thereafter in equal monthly installments.
(4)
One-third of the shares subject to this grant will vest on each of April 13, 2021, 2022 and 2023.
(5)
The shares underlying this option vest over four years in equal monthly installments following the grant date of February 7, 2017.
(6)
The shares underlying this option vest over four years in equal monthly installments following the grant date of March 20, 2017.
(7)
The shares underlying this option vest over four years in equal monthly installments following the grant date of February 26, 2018.
(8)
The shares underlying this option vest over four years in equal monthly installments following the grant date of February 25, 2019.
(9)
The shares underlying this option vest over four years in equal monthly installments following the grant date of August 20, 2019.
(10)
The shares underlying this option vest over four years in equal monthly installments following the grant date of February 24, 2020.
(11)
25% of the shares underlying this option vested on February 24, 2021, and the remainder vests over three years thereafter in equal monthly installments.
(12)
One-third of the shares subject to this grant vested on each of February 26, 2019, 2020 and 2021.
(13)
One-third of the shares subject to this grant vested on each of February 25, 2020 and 2021, and the remainder will vest on February 25, 2022.
(14)
The shares subject to this grant are subject to performance conditions that have not yet been achieved. As such, the dates upon which these shares will vest are uncertain.
(15)
One-third of the shares subject to this grant vested on August 20, 2020, and the remainder will vest in equal installments on each of August 20, 2021 and 2022.
(16)
One-third of the shares subject to this grant vested on February 24, 2021, and the remainder will vest in equal installments on each of February 24, 2022 and 2023.
(17)
Mr. Ringo was appointed as our interim Chief Executive Officer on September 19, 2019 and resigned from such position effective April 13, 2020 in connection with Mr. Civik’s appointment as President and Chief Executive Officer. This table reflects outstanding equity awards granted to Mr. Ringo in connection with his service as a director prior to his appointment as interim Chief Executive Officer, as well as equity awards granted to Mr. Ringo in connection with his service as our interim Chief Executive Officer and as a non-executive employee through May 31, 2020.
Equity Benefit Plans
2013 Omnibus Incentive Plan and Prior Equity Plans
General. In June 2013, our Board adopted and in September 2013, our stockholders approved the 2013 Omnibus Incentive Plan, or the 2013 Plan, for the purpose of attracting and retaining non-employee directors, executive officers and other employees and service providers, including officers, employees and service providers of our affiliates, and to stimulate their efforts toward our continued success, long-term growth and profitability. The 2013 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, unrestricted stock, stock units, dividend equivalent rights, other equity-based awards and cash bonus awards. We also maintain the 2010 Equity Incentive Plan, or the 2010 Plan, which has been terminated and under which no future awards will be granted, but under which outstanding options have been granted. These options will continue to be governed by the terms of the 2010 Plan.
Change in Control. If we experience a change in control in which equity-based awards under the 2013 Plan that are not exercised prior to the change in control will not be assumed or continued by the surviving entity, unless otherwise provided in an award agreement: (i) all restricted shares will vest, and all stock units and dividend equivalents will vest and the underlying shares will be delivered immediately before the change in control, and (ii) at our Board’s discretion, either all options and stock appreciation rights will become exercisable 15 days before the change in control and terminate upon the consummation of the change in control, or all options, stock appreciation rights, restricted shares and stock units may be cancelled before the change in control in exchange for payment of any amount in cash or securities having a value (as determined by our Board), in the case of restricted shares or stock units, equal to the formula or fixed price per share paid to our stockholders and, in the case of options and stock appreciation rights, equal to the product of the number of shares subject to the option or stock appreciation right multiplied by the amount by which the formula or fixed price paid to our stockholders exceeds the exercise price of the option or the stock appreciation right. In the case of performance shares and performance units, however, if more than half of the performance period has lapsed, we will convert the performance shares based on actual performance to date. If less than half of the performance period has lapsed, or if we cannot determine actual performance, we will convert the performance shares and performance units assuming target performance has been achieved.
2013 Employee Stock Purchase Plan
In August 2013, our Board adopted and in September 2013, our stockholders approved our 2013 Employee Stock Purchase Plan, or the ESPP. The purpose of the ESPP is to enable our eligible employees, through payroll deductions or cash contributions, to purchase shares of our common stock, to increase our employees’ interest in our growth and success and encourage employees to remain in our employment. Any of our employees may participate in the ESPP, except: (i) an employee whose customary employment is less than 20 hours per week; and (ii) an employee who, after exercising his or her rights to purchase common stock under the ESPP, would own shares of common stock (including shares that may be acquired under any outstanding options) representing 5% or more of the total combined voting power of all classes of our capital stock. An employee must be employed on the last trading day of the purchase period to acquire common stock under the ESPP, unless the employee has retired, died or become disabled, been laid off or discharged without cause.
Indemnification
We entered into indemnification agreements with each of our directors and executive officers. These indemnification agreements and our certificate of incorporation and bylaws provide for indemnification of each of our directors and executive officers to the fullest extent permitted by Delaware law.
Director Compensation
Cash and Equity Compensation
We maintain a non-employee director compensation policy, pursuant to which we generally target our overall director compensation at the 50th percentile of our peer group. We target our annual base cash retainer at the 50th percentile of our peer group and our annual cash retainer for each board committee and long-term incentive compensation at the 75th percentile of our peer group.
Pursuant to our director compensation policy, in 2020, each non-employee director received an annual base cash retainer of $45,000. In addition, our non-employee directors received the following cash compensation for Board services, as applicable:
•
the Chairman of the Board received an additional annual retainer of $35,000;
•
the Lead Independent Director received an additional annual retainer of $15,000;
•
the chairman of each of our audit and compensation committees receive an additional annual retainer of $20,000;
•
each member of our audit and compensation committees, other than the chairman, receives an additional annual retainer of $10,000;
•
the chairman of each of our nominating and corporate governance and research and development committees receives an additional annual retainer of $15,000; and
•
each member of our nominating and corporate governance and research and development committees, other than the chairman, receives an additional annual retainer of $7,500.
In addition, newly appointed non-employee directors received a one-time initial award of options to purchase 40,000 shares of our common stock, which would vest in equal annual installments over a three-year period, subject to the director’s continued service on our Board through each applicable vest date. Each non-employee director received an annual award of options to purchase 20,000 shares of our common stock, which would vest in its entirety on the earlier to occur of (i) the one-year anniversary of the grant date and (ii) the day before the subsequent annual meeting of stockholders, subject to each such director’s continued service on our Board through such vest date.
We pay all amounts in quarterly installments. We also reimburse each director for his or her travel expenses incurred in connection with attendance at Board and committee meetings.
Our compensation committee periodically reviews our director compensation policy, taking into account various factors, including the director compensation practices of our peer group, to determine whether any updates to this policy are appropriate.
Director Compensation
The following table sets forth information concerning compensation accrued or paid to our non-employee directors during the year ended December 31, 2020 for their service on our Board. Mr. Civik, our President and Chief Executive Officer and member of our Board, was also an employee in 2020 and received no additional compensation for his service on our Board. Accordingly, Mr. Civik’s 2020 compensation is set forth in the Summary Compensation Table above and is not set forth in the table below. In addition, Mr. Ringo, our former interim Chief Executive Officer, was an employee of the company for a portion of 2020. As such, Mr. Ringo’s compensation for 2020, including the compensation that Mr. Ringo received for his service on our Board in 2020, is set forth in the Summary Compensation Table above and is not set forth in the table below. Mr. Ringo did not receive any compensation for his service on our Board for the period from September 19, 2019 through May 31, 2020 during which he served as our interim Chief Executive Officer and as a non-executive employee.
Name
Fees Earned or
Paid in Cash
($)
Option
Awards(1)(2)(3)
($)
Total
($)
Franklin M. Berger, CFA
$
53,750
$
49,968
$
103,718
Kapil Dhingra, M.B.B.S.
$
63,750
$
49,968
$
113,718
Peder K. Jensen, M.D.
$
80,000
$
49,968
$
129,968
Lori Lyons-Williams
$
55,000
$
49,968
$
104,968
Garry Nicholson
$
73,750
$
49,968
$
123,718
Carol Schafer
$
62,500
$
49,968
$
112,468
(1)
Amounts reflect the grant date fair value of equity awards determined in accordance with ASC 718. For information regarding assumptions underlying the value of equity awards, see Note 2 to our financial statements and the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Use of Estimates - Stock-Based Compensation” included in this Annual Report. These amounts do not correspond to the actual value that the directors will recognize.
(2)
On May 14, 2020, our Board granted an option to purchase 20,000 shares of our common stock to each of our non-employee directors. The shares underlying these options will vest in their entirety on May 14, 2021, subject in each case to the applicable director’s continued service to the company through such date.
(3)
The following table provides the total number of option shares outstanding for each director, except Mr. Civik and Mr. Ringo, as of December 31, 2020. For information regarding Mr. Civik’s and Mr. Ringo’s stock awards and option shares outstanding as of December 31, 2020, see the table above titled “Outstanding Equity Awards at Fiscal Year-End.”
Options
Outstanding
Name
(#)
Franklin M. Berger, CFA
77,500
Kapil Dhingra, M.B.B.S.
90,000
Peder K. Jensen, M.D.
90,000
Lori Lyons-Williams
45,000
Garry Nicholson
60,000
Carol Schafer
46,250

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth the aggregate information of our equity compensation plans in effect as of December 31, 2020.
Plan Category
Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
($)(1)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(a)
(b)
(c)
Equity compensation plans approved by
stockholders:
2010 Equity Incentive Plan(2)
134,772
7.07
-
2013 Omnibus Incentive Plan
4,833,844
(3)
13.51
2,657,782
2013 Employee Stock Purchase Plan
-
-
1,227,894
Equity compensation plans not approved by
stockholders
-
-
-
Total
4,968,616
13.30
3,885,676
(1)
Shares of restricted common stock are not included for the purpose of determining the weighted-average exercise price set forth in this column (b) because no cash consideration is required to receive these shares upon vesting.
(2)
The 2010 Equity Incentive Plan was terminated in 2013, and any shares remaining available for future grants and option forfeitures under such plan has been allocated to the 2013 Omnibus Incentive Plan.
(3)
This value consists of 4,064,555 shares of common stock subject to outstanding options and 769,289 shares of restricted common stock.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial ownership of shares of our common stock as of March 8, 2021 by (i) each named executive officer, (ii) each director, (iii) all directors and executive officers as a group and (iv) each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of our outstanding common stock. Other than as set forth in this table, we are not aware of any person or group that holds greater than 5% of our outstanding common stock.
Information with respect to beneficial ownership is based on information furnished to us by each director, executive officer and stockholder who holds more than 5% of our outstanding common stock, and Schedules 13G or 13D filed with the SEC. Beneficial ownership of securities is determined according to the rules of the SEC and generally means, with respect to a security, that a person or entity possesses sole or shared voting or investment power of such security, including options and warrants that are currently exercisable or will be exercisable within 60 days of March 8, 2021. Options to purchase shares of our common stock that are exercisable within 60 days of March 8, 2021 are deemed to be beneficially owned by the person holding these options for the purpose of computing percentage ownership of that person, but they are not treated as outstanding for the purpose of computing any other person’s ownership percentage. Except as indicated in the footnotes below, each of the beneficial owners named in the table below has, to our knowledge, sole voting and investment power with respect to all shares of common stock listed as beneficially owned by such beneficial owner, except for shares owned jointly with that person’s spouse.
We have based our calculations of beneficial ownership on 46,572,904 shares of our common stock outstanding as of March 8, 2021.
Unless otherwise indicated, the address for each of the stockholders in the table below is c/o Five Prime Therapeutics, Inc., 111 Oyster Point Boulevard, South San Francisco, California 94080.
Name and Address of Beneficial Owner
Amount & Nature of
Beneficial Ownership
Percent of Class
(Common Stock)
5% Stockholders:
Entities and persons affiliated with Biotechnology Value Fund, L.P.(1)
6,338,678
13.6
%
Entities and persons affiliated with RA Capital Management, L.P.(2)
4,285,161
9.2
%
Entities affiliated with Rock Springs Capital Management LP(3)
3,041,559
6.5
%
Entities affiliated with BlackRock, Inc.(4)
2,959,031
6.4
%
Entities and persons affiliated with RTW Investments, LP(5)
2,515,788
5.4
%
Entities and persons affiliated with Magnetar Financial LLC(6)
2,443,768
5.2
%
Named Executive Officers and Directors:
Thomas Civik(7)
198,859
*
Helen Collins, M.D.(8)
300,964
*
Francis W. Sarena(9)
512,656
1.1
%
William R. Ringo(10)
424,452
*
Franklin M. Berger, CFA(11)
62,500
*
Kapil Dhingra, M.B.B.S.(12)
70,000
*
Peder K. Jensen, M.D.(12)
70,000
*
Lori Lyons-Williams(12)
8,333
*
Garry Nicholson(12)
40,000
*
Carol Schafer(12)
9,583
*
All executive officers and directors as a group (11 persons)
1,934,564
4.0
%
*
Represents beneficial ownership of less than 1% of our outstanding common stock.
(1)
Consists of (i) 3,372,098 shares of common stock beneficially owned by Biotechnology Value Fund, L.P., or BVF1; (ii) 2,484,643 shares of common stock beneficially owned by Biotechnology Value Fund II, L.P., or BVF2; and (ii) 405,344 shares of common stock beneficially owned by Biotechnology Value Trading Fund OS LP, or Trading Fund. BVF I GP LLC, or BVF1 GP, as the general partner of BVF1, may be deemed to beneficially own the 3,372,098 shares beneficially owned by BVF1. BVF II GP LLC, or BVF2 GP, as the general partner of BVF2, may be deemed to beneficially own the 2,484,643 shares beneficially owned by BVF2. BVF Partners OS Ltd., or Partners OS, as the general partner of Trading Fund, may be deemed to beneficially own the 405,344 shares beneficially owned by Trading Fund. BVF GP Holdings LLC, or BVF GPH, as the sole member of each of BVF1 GP and BVF2 GP, may be deemed to beneficially own the 5,856,741 shares beneficially owned in the aggregate by BVF1 and BVF2. BVF Partners L.P., or Partners, as the investment manager of BVF1, BVF2 and Trading Fund, and the sole member of Partners OS, may be deemed to beneficially own the 6,338,678 shares beneficially owned in the aggregate by BVF1, BVF2, Trading Fund and a certain Partners managed account, or the Partners Managed Account, including 76,593 shares held in the Partners Managed Account. BVF Inc., as the general partner of Partners, may be deemed to beneficially own the 6,338,678 shares beneficially owned by Partners. Mr. Lampert, as a director and officer of BVF Inc., may be deemed to beneficially own the 6,338,678 shares beneficially owned by BVF Inc. The address of each of BVF1, BVF1 GP, BVF2, BVF2 GP, BVF GPH, Partners, BVF Inc. and Mr. Lampert is 44 Montgomery Street, 40th Floor, San Francisco, California 94104, and the address of each of Trading Fund and Partners OS is P.O. Box 309 Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The foregoing information is based on our review of Amendment No. 1 to Schedule 13G filed with the SEC on March 8, 2021 regarding their beneficial ownership of our common stock as of March 8, 2021.
(2)
Consists of (i) 4,285,161 shares of common stock beneficially owned by each of RA Capital Management, L.P., or RA Capital, Peter Kolchinsky, and Rajeev Shah, and (ii) 3,951,413 shares of common stock beneficially owned by RA Capital Healthcare Fund, L.P., or the Fund. A separately managed account, or the Account, holds 333,748 shares of common stock. RA Capital Healthcare Fund GP, LLC is the general partner of the Fund. The address of each of RA Capital, the Fund, Dr. Kolchinsky and Mr. Shah is c/o RA Capital Management, L.P., 200 Berkeley Street, 18th Floor, Boston, Massachusetts 02116. The foregoing information is based on our review of Schedule 13G filed with the SEC on February 16, 2021 regarding their beneficial ownership of our common stock as of December 31, 2020.
(3)
Consists of (i) 3,041,559 shares of common stock beneficially owned by each of Rock Springs Capital Management LP, or RSCM, and Rock Springs Capital LLC, or RSC, and (ii) 2,930,000 shares of common stock beneficially owned by Rock Springs Capital Master Fund LP, or Master Fund. The foregoing consists of 2,930,000 shares directly held by Master Fund and 111,559 shares Four Pines Master Fund LP, or Four Pines, and 3,041,559 shares indirectly held by each of RSCM and RSC. The address of RSCM and RSC is 650 South Exeter, Suite 1070, Baltimore, Maryland 21202, and the address of Master Fund is c/o Walkers Corporate Limited, Cayman Corporate Centre, 27 Hospital Road, George Town, Grand Cayman, KY1-9008, Cayman Islands. The foregoing information is based on our review of Schedule 13G filed with the SEC on March 1, 2021 regarding their beneficial ownership of our common stock as of February 18, 2021.
(4)
Consists of 2,959,031 shares of common stock held by clients of one or more of the following investment advisors directly or indirectly owned by BlackRock, Inc.: BlackRock Advisors, LLC; BlackRock Asset Management Canada Limited; BlackRock Fund Advisors; BlackRock Asset Management Ireland Limited; BlackRock Institutional Trust Company, National Association; BlackRock Financial Management, Inc.; and BlackRock Investment Management, LLC, or collectively, the BlackRock Entities. BlackRock, Inc. has sole voting power over 2,927,247 shares of common stock and sole dispositive power over 2,959,031 shares of common stock. The address for BlackRock, Inc. is 55 East 52nd Street, New York, New York 10055. The foregoing information is based on our review of Schedule 13G filed with the SEC on February 2, 2021 regarding beneficial ownership of our common stock as of December 31, 2020.
(5)
Consists of 2,515,788 shares of common stock beneficially owned by each of RTW Investments, LP, or RTW, and Roderick Wong. The shares of common stock beneficially owned by RTW and Mr. Wong are held by one or more private funds, or the Funds, managed by RTW. RTW, in its capacity as the investment manager of the Funds, has the power to vote and the power to direct the disposition of all such shares held by the Funds. Mr. Wong is the Managing Partner of RTW. The address of each of RTW and Mr. Wong is c/o RTW Investments, LP, 40 10th Avenue, Floor 7, New York, New York 10014. The foregoing information is based on our review of Schedule 13G filed with the SEC on February 16, 2021 regarding their beneficial ownership of our common stock as of December 31, 2020.
(6)
Consists of 2,443,768 shares of common stock beneficially owned by each of Magnetar Financial LLC, or Magnetar Financial, Magnetar Capital Partners LP, or Magnetar Capital, Supernova Management LLC, or Supernova, and Alec N. Litowitz. These shares are held for a number of funds to which Magnetar Financial serves as the investment adviser. As such, Magnetar Financial exercises voting and investment power over the shares held for the accounts of each of the funds. Magnetar Capital serves as the sole member and parent holding company of Magnetar Financial. Supernova is the general partner of Magnetar Capital. The manager of Supernova is Mr. Litowitz. The address of each of Magnetar Financial, Magnetar Capital, Supernova and Mr. Litowitz is 1603 Orrington Avenue, 13th Floor, Evanston, Illinois 60201. The foregoing information is based on our review of Schedule 13D filed with the SEC on March 15, 2021 regarding their beneficial ownership of our common stock as of March 12, 2021.
(7)
Consists of (a) 78,859 shares of common stock and (b) 120,000 shares of common stock issuable upon the exercise of stock options within 60 days of March 8, 2021.
(8)
Consists of (a) 77,632 shares of common stock and (b) 223,332 shares of common stock issuable upon the exercise of stock options within 60 days of March 8, 2021.
(9)
Consists of (a) 123,433 shares of common stock and (b) 389,223 shares of common stock issuable upon the exercise of stock options within 60 days of March 8, 2021.
(10)
Consists of (a) 10,000 shares of common stock and (b) 414,452 shares of common stock issuable upon the exercise of stock options within 60 days of March 8, 2021.
(11)
Consists of (a) 5,000 shares of common stock and (b) 57,500 shares of common stock issuable upon the exercise of stock options within 60 days of March 8, 2021.
(12)
Consists solely of shares of common stock issuable upon the exercise of stock options within 60 days of March 8, 2021.
Changes in Control
On March 4, 2021, we entered into an Agreement and Plan of Merger, or the merger agreement, with Amgen Inc., or Amgen, and Franklin Acquisition Sub, Inc., or the purchaser, pursuant to which, and upon the terms and subject to the conditions thereof, Amgen agreed to cause the purchaser to commence a cash tender offer to purchase all outstanding shares of our common stock, par value $0.001 per share at a price of $38.00 per share in cash, minus any applicable withholding taxes and without interest. Following the completion of the tender offer, the purchaser will merge with us, with us continuing as the surviving corporation and a wholly owned subsidiary of Amgen. At the effective time of the merger, each share (other than shares validly tendered and irrevocably accepted for purchase pursuant to the offer, excluded shares and dissenting shares (each as defined in the merger agreement)) will be converted into the right to receive an amount in cash equal to the offer price, without interest, minus any required withholding of taxes. The transaction is expected to close by the end of the second quarter and is subject to customary closing conditions, including the tender of at least a majority of the outstanding shares of our common stock and the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. For additional information regarding the merger agreement, please see Note 15, Subsequent Event, to the financial statements in this Annual Report.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Transactions with Related Persons
Policies and Procedures Regarding Transactions with Related Persons
We have adopted a policy in which either (i) our audit committee (or any other committee of our Board consisting of independent directors) or (ii) the full Board reviews and approves all proposed related-person transactions. This review covers any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which (x) we were or are to be a participant; (y) the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end of the last two completed fiscal years; and (z) a related person had or will have a direct or indirect material interest, including purchases of goods or services by or from a related person or entities in which the related person has a material interest, and indebtedness, guarantees of indebtedness and employment by us of a related person. A “related person” is any person who is or was one of our executive officers, directors or director nominees or is a holder of more than 5% of our common stock, or an immediate family member of or any entity owned or controlled by any of the foregoing persons.
Certain Related-Person Transactions
Since January 1, 2019, other than as described below, there have been no transactions or series of similar transactions to which we were a party or will be a party, and which qualified as a related person transaction. All of the transactions described below were reviewed and approved by either our audit committee or our Board.
Consulting Agreement with Lewis T. Williams
On March 15, 2019, we entered into a consulting agreement, effective April 1, 2019, with Lewis T. Williams, Ph.D., who was then a member of our Board, pursuant to which Dr. Williams provides consulting services to us from time to time, for a term ending on May 31, 2022. Pursuant to the consulting agreement, in consideration of Dr. Williams’s provision of such services, we agreed to pay Dr. Williams (i) a monthly retainer of $10,000 for up to 20 hours of services he provides each month and (ii) at a rate of $500 per hour for each additional hour of services he provides each month. We have paid to Dr. Williams an aggregate of $90,000, $120,000 and $20,000 in fees for services performed in 2019, 2020 and 2021, respectively, pursuant to our consulting agreement with Dr. Williams.
In addition, Dr. Williams elected to continue under COBRA health and dental insurance coverage provided through the company in connection with his former employment with the company, and pursuant to the consulting agreement, we agreed to pay for the monthly cost of such coverage until September 30, 2020, or such earlier date as Dr. Williams became eligible for group health insurance coverage through a new employer. We paid an aggregate of $15,371 for such coverage during 2019. We did not pay any amounts for such coverage during 2020.
Dr. Williams resigned as an employee of the company effective March 15, 2019, and resigned from our Board effective December 31, 2019.
Agreements with Walking Fish Therapeutics, Inc.
On June 24, 2019, we entered into a Transfer and Payment Agreement and Assignment and Novation Agreement with Walking Fish Therapeutics, Inc., or WFT, pursuant to which we transferred and assigned certain agreements to WFT in exchange for certain consideration from WFT. At the time we entered into these agreements, Dr. Williams served as a member of our Board and served as Chairman and Chief Executive Officer of WFT.
Pursuant to the Transfer and Payment Agreement, WFT agreed, upon the closing of a certain financing transaction or series of transactions, to issue to us a number of shares of preferred stock of WFT equal to the quotient of (x) $205,000 divided by (y) the price per share of preferred stock of WFT, such quotient rounded to the nearest whole share. WFT also agreed to pay to us royalties of 1% on net sales of products covered by certain patents related to the agreements assigned to WFT pursuant to the Assignment and Novation Agreement.
Other Transactions
We entered into various employment-related agreements and compensatory arrangements with our directors and executive officers that, among other things, provide for compensatory and certain severance and change in control benefits. For additional information, see the discussion of these agreements and arrangements in Item 10. Executive Compensation above.
We entered into indemnification agreements with each of our directors and executive officers. These indemnification agreements and our certificate of incorporation and bylaws provide for indemnification of each of our directors and executive officers to the fullest extent permitted by Delaware law.
Board of Directors Independence
Our Board undertook a review of the composition of our Board and its committees and the independence of each director that has served on our Board since 2020. In reviewing the independence of our directors, our Board considered the relationships that each non-employee director has with our company and all other facts and circumstances our Board deemed relevant in determining independence, including the beneficial ownership of our capital stock by each non-employee director. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family and other relationships, including those relationships described under the section of this Annual Report titled “Transactions with Related Persons,” our Board affirmatively determined that all of our current directors, with the exception of Mr. Civik, satisfy general independence requirements under the Nasdaq Listing Rules. Our Board determined that Mr. Ringo satisfied the general independence requirements under the Nasdaq Listing Rules during 2019 until his appointment as interim Chief Executive Officer on September 19, 2019, and again after Mr. Ringo completed his service as our interim Chief Executive Officer and a non-executive employee of the company on May 31, 2020. In making these determinations, our Board found that none of our current directors, other than Mr. Civik, had a material or other disqualifying relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, and that each director, other than Mr. Civik, is “independent” as that term is defined under Rule 5605(a)(2) of the Nasdaq Listing Rules. Our Board determined that Mr. Civik, our President and Chief Executive Officer, is not an independent director by virtue of his employment with the company. Our Board also determined that Mr. Ringo was not an independent director during the period in which he served as our interim Chief Executive Officer and as a non-executive employee by virtue of his employment by the company during that period. However, our Board determined that Mr. Ringo resumed his status as an independent director following completion of such service because he served in such roles on an interim basis for less than one year, and his former employment and compensation received would not interfere with his exercise of independent judgment in carrying out his responsibilities as a member of our Board. Our Board also determined that each current and former member of our audit, compensation and nominating and corporate governance committees satisfied the independence standards for such committees established by the SEC and the Nasdaq Listing Rules, as applicable, during the periods in which they served on such committees.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services.
Pre-Approval Policies and Procedures
Our audit committee pre-approves the fees and other compensation we pay to Ernst & Young LLP for audit services and non-audit services, which may include audit-related services, tax services and other services.
Our audit committee may delegate to one or more designated members of our audit committee the authority to grant required pre-approvals. The decisions of any member to whom authority is delegated to pre-approve services of Ernst & Young LLP shall be presented to our full audit committee at its next scheduled meeting.
Independent Registered Public Accounting Firm Fees and Services
During the fiscal years ended December 31, 2020 and 2019, we retained Ernst & Young LLP to provide audit and other services. The following table represents aggregate fees billed or to be billed to us by Ernst & Young LLP for services performed for the fiscal years ended December 31, 2020 and 2019. All fees billed to us by Ernst & Young LLP for services performed for the fiscal years ended December 31, 2020 and 2019 were approved by our audit committee or a designated member of our audit committee in accordance with the pre-approval policies and procedures described above and applicable SEC rules and regulations.
Fees
Audit Fees(1)
$
1,731,650
$
1,292,900
Audit-Related Fees
-
-
Tax Fees(2)
-
-
All Other Fees(3)
$
1,395
$
2,000
Total
$
1,733,045
$
1,294,900
(1)
This category consisted of fees for professional services rendered for the audit of our annual financial statements, audit of the effectiveness of our internal control over financial reporting, review of interim financial statements, assistance with registration statements filed with the SEC and other services that are normally provided by an independent registered public accounting firm in connection with statutory and regulatory filings or engagements, including accounting consultations and research related to Ernst & Young LLP’s integrated audit.
(2)
This category would consist of fees for the preparation and filing our tax returns and related general tax advice.
(3)
This category consisted of fees related to accessing Ernst & Young LLP’s online research database.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules.
The financial statements schedules and exhibits filed as part of this Annual Report are as follows:
(a)(1) Financial Statements
Reference is made to the financial statements included in Item 8 of Part II hereof.
(a)(2) Financial Statement Schedules
All other schedules are omitted because they are not required or the required information is included in the financial statements or notes thereto.
(a)(3) Exhibits
The exhibits required to be filed as part of this Annual Report are listed in the Exhibit List attached hereto and are incorporated herein by reference.
Exhibit
No.
Description
3.1
Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the company’s Current Report on Form 8-K (File No. 001-36070), filed with the SEC on September 23, 2013).
3.2
Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.4 to the company’s Registration Statement on Form S-1 (File No. 333-190194), filed with the SEC on July 26, 2013).
4.1
Specimen common stock certificate (incorporated herein by reference to Exhibit 4.1 to the company’s Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-190194), filed with the SEC on September 4, 2013).
4.2
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated herein by reference to Exhibit 4.2 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on February 27, 2020).
10.1+
2010 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.4 to the company’s Registration Statement on Form S-1 (File No. 333-190194), filed with the SEC on July 26, 2013).
10.2+
Form of Option Agreement under 2010 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.5 to the company’s Registration Statement on Form S-1 (File No. 333-190194), filed with the SEC on July 26, 2013).
10.3+
2013 Omnibus Incentive Plan (incorporated herein by reference to Exhibit 4.8 to the company’s Registration Statement on Form S-8 (File No. 333-191700), filed with the SEC on October 11, 2013).
10.4+
Amendment No. 1 to the 2013 Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.4 to the company’s Quarterly Report on Form 10-Q (File No. 001-36070), filed with the SEC on November 6, 2017).
10.5+
Form of Incentive Stock Option Agreement under 2013 Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.7 to the company’s Registration Statement on Form S-1 (File No. 333-190194), filed with the SEC on July 26, 2013).
10.6+
Form of Non-Qualified Option Agreement under 2013 Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.8 to the company’s Registration Statement on Form S-1 (File No. 333-190194), filed with the SEC on July 26, 2013).
10.7+
Form of Restricted Stock Agreement under 2013 Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.9 to the company’s Registration Statement on Form S-1 (File No. 333-193491), filed with the SEC on January 22, 2014).
Exhibit
No.
Description
10.8+
2013 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 4.11 to the company’s Registration Statement on Form S-8 (File No. 333-191700), filed with the SEC on October 11, 2013).
10.9+
Offer Letter Agreement by and between the company and Francis Sarena, dated as of December 2, 2010 (incorporated herein by reference to Exhibit 10.10 to the company’s Registration Statement on Form S-1 (File No. 333-190194), filed with the SEC on July 26, 2013).
10.10+
Offer Letter Agreement by and between the company and David V. Smith, dated as of October 24, 2018 (incorporated herein by reference to Exhibit 10.15 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on February 26, 2019).
10.11+
Offer Letter Agreement by and between the company and Helen Collins, dated as of May 12, 2016 (incorporated herein by reference to Exhibit 10.18 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on February 27, 2018).
10.12+
Offer Letter Agreement by and between the company and Thomas Civik, dated as of April 6, 2020 (incorporated herein by reference to Exhibit 10.1 to the company’s Quarterly Report on Form 10-Q (File No. 001-36070), filed with the SEC on August 6, 2020).
10.13+
Offer Letter Agreement by and between the company and William R. Ringo, dated as of October 4, 2019 (incorporated herein by reference to Exhibit 10.4 to the company’s Quarterly Report on Form 10-Q (File No. 001-36070), filed with the SEC on November 6, 2019).
10.14+
Amendment to Offer Letter Agreement by and between the company and William R. Ringo, dated as of October 8, 2019 (incorporated herein by reference to Exhibit 10.5 to the company’s Quarterly Report on Form 10-Q (File No. 001-36070), filed with the SEC on November 6, 2019).
10.15+
Amendment to Offer Letter Agreement by and between the company and William R. Ringo, dated as of December 20, 2019 (incorporated herein by reference to Exhibit 10.17 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on February 27, 2020).
10.16+
Letter Agreement by and between the company and William R. Ringo, dated as of March 6, 2020 (incorporated herein by reference to Exhibit 10.1 to the company’s Quarterly Report on Form 10-Q (File No. 001-36070), filed with the SEC on May 7, 2020).
10.17+
Amendment to Offer Letter Agreement by and between the company and William R. Ringo, dated as of April 16, 2020 (incorporated herein by reference to Exhibit 10.2 to the company’s Quarterly Report on Form 10-Q (File No. 001-36070), filed with the SEC on August 6, 2020).
10.18+
Executive Severance Benefits Agreement by and between the company and Francis Sarena, dated as of February 18, 2011 (incorporated herein by reference to Exhibit 10.14 to the company’s Registration Statement on Form S-1 (File No. 333-190194), filed with the SEC on July 26, 2013).
10.19+
Amendment No. 1 to the Executive Severance Benefits Agreement by and between the company and Francis Sarena, effective May 8, 2013 (incorporated herein by reference to Exhibit 10.15 to the company’s Registration Statement on Form S-1 (File No. 333-190194), filed with the SEC on July 26, 2013).
10.20+
Letter Agreement by and between the company and Francis Sarena, dated as of December 12, 2019 (incorporated herein by reference to Exhibit 10.21 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on February 27, 2020).
10.21+
Executive Severance Benefits Agreement by and between the company and David V. Smith, dated as of November 26, 2018 (incorporated herein by reference to Exhibit 10.27 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on February 26, 2019).
10.22+
Letter Agreement by and between the company and David V. Smith, dated as of December 12, 2019 (incorporated herein by reference to Exhibit 10.23 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on February 27, 2020).
Exhibit
No.
Description
10.23+
Executive Severance Benefits Agreement by and between the company and Helen Collins, dated as of March 20, 2017 (incorporated herein by reference to Exhibit 10.30 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on February 27, 2018).
10.24+
Letter Agreement by and between the company and Helen Collins, dated as of December 12, 2019 (incorporated herein by reference to Exhibit 10.28 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on February 27, 2020).
10.25+
Form of Retention Award Agreement (incorporated herein by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K (File No. 001-36070), filed with the SEC on May 4, 2015).
10.26+
Form of Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.27 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on February 24, 2017).
10.27+
Annual Bonus Plan, effective January 1, 2018 (incorporated herein by reference to Exhibit 10.34 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on February 27, 2018).
10.28+
Executive Severance Benefit Plan and Summary Plan Description, effective November 20, 2019 (incorporated herein by reference to Exhibit 10.33 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on February 27, 2020).
10.29+
Non-Employee Director Compensation Policy, effective November 21, 2019 (incorporated herein by reference to Exhibit 10.34 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on February 27, 2020).
10.30+
Form of Indemnification Agreement by and between the company and each of its directors and officers (incorporated herein by reference to Exhibit 10.16 to the company’s Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-190194), filed with the SEC on August 16, 2013).
10.31
Lease by and between the company and HCP Oyster Point III LLC, dated as of December 12, 2016 (incorporated herein by reference to Exhibit 10.34 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on February 24, 2017).
10.32
Sublease by and between the company and Sutro Biopharma, Inc., dated as of September 3, 2020 (incorporated herein by reference to Exhibit 10.1 to the company’s Quarterly Report on Form 10-Q (File No. 001-36070), filed with the SEC on November 3, 2020).
10.33†
Exclusive License Agreement by and between the company and Galaxy Biotech, LLC, dated as of December 22, 2011 (incorporated herein by reference to Exhibit 10.23 to the company’s Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-190194), filed with the SEC on August 16, 2013).
10.34†
Amendment to the Exclusive License Agreement by and between the company and Galaxy Biotech, LLC, dated as of May 16, 2016 (incorporated herein by reference to Exhibit 10.1 to the company’s quarterly report on Form 10-Q (File No. 001-36070), filed with the SEC on August 5, 2016).
10.35†
Amendment No. 2 to Exclusive License Agreement by and between the company and Galaxy Biotech, LLC, dated as of May 30, 2017 (incorporated herein by reference to Exhibit 10.39 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on February 27, 2018).
10.36†
Non-Exclusive License Agreement by and among the company, BioWa, Inc. and Lonza Sales AG, dated as of February 6, 2012 (incorporated herein by reference to Exhibit 10.30 to the company’s Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-190194), filed with the SEC on August 16, 2013).
Exhibit
No.
Description
10.37†
Amendment No. 1 to the Non-Exclusive License Agreement by and among the company, BioWa, Inc. and Lonza Sales AG, dated as of June 6, 2013 (incorporated herein by reference to Exhibit 10.42 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on February 26, 2019).
10.38†
Amendment No. 2 to the Non-Exclusive License Agreement by and among the company, BioWa, Inc. and Lonza Sales AG, dated as of April 27, 2018 (incorporated herein by reference to Exhibit 10.43 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on February 26, 2019).
10.39††
Amendment No. 3 to the Non-Exclusive License Agreement by and among the company, BioWa, Inc. and Lonza Sales AG, dated as of July 17, 2019 (incorporated herein by reference to Exhibit 10.1 to the company’s Quarterly Report on Form 10-Q (File No. 001-36070), filed with the SEC on November 6, 2019).
10.40††
Amendment No. 4 to the Non-Exclusive License Agreement by and among the company, BioWa, Inc. and Lonza Sales AG, dated as of August 22, 2019 (incorporated herein by reference to Exhibit 10.2 to the company’s Quarterly Report on Form 10-Q (File No. 001-36070), filed with the SEC on November 6, 2019).
10.41†
Research Collaboration and License Agreement by and between the company and Bristol-Myers Squibb Company, dated as of March 14, 2014 (incorporated herein by reference to Exhibit 10.1 to Amendment No. 1 the company’s Quarterly Report on Form 10-Q (File No. 001-36070), filed with the SEC on August 26, 2014).
10.42†
Amendment No. 1 to the Research Collaboration and License Agreement by and between the company and Bristol-Myers Squibb Company, dated as of January 21, 2016 (incorporated herein by reference to Exhibit 10.47 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on March 11, 2016).
10.43†
License and Collaboration Agreement by and between the company and Zai Lab (Shanghai) Co., Ltd., dated as of December 19, 2017 (incorporated herein by reference to Exhibit 10.44 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on February 27, 2018).
10.44†
Amendment No. 1 to the License and Collaboration Agreement by and between the company and Zai Lab (Shanghai) Co., Ltd., dated as of December 21, 2018 (incorporated herein by reference to Exhibit 10.48 to the company’s Annual Report on Form 10-K (File No. 001-36070), filed with the SEC on February 26, 2019).
21.1
Subsidiaries of the company (incorporated herein by reference to Exhibit 21.1 to the company’s Registration Statement on Form S-1 (File No. 333-190194), filed with the SEC on July 26, 2013).
23.1*
Consent of Independent Registered Public Accounting Firm.
24.1
Power of Attorney (included on the signature page to this Annual Report on Form 10-K).
31.1*
Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
31.2*
Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32.1*
Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit
No.
Description
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document.
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibit 101).
*
Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.
+
Indicates a management contract or compensatory plan.
†
Confidential treatment has been granted for certain portions of this exhibit. These portions have been omitted and filed separately with the SEC.
††
Portions of this exhibit (indicated by asterisks) have been omitted.