You should carefully consider the following risks and uncertainties.
If any of the following occurs, our business, financial condition and/or operating results could be materially harmed. These factors
could cause the trading price of our common stock to decline, and you could lose all or a substantial part of your investment.
Risks Related to Development, Clinical Testing, Regulatory
Approval, and Commercialization of Our Product Candidates
We are heavily dependent on the success of our product
candidates and clinical product candidates and we cannot provide any assurance that any of our additional current or future product
candidates will be approved, commercialized, or successfully marketed in the future.
To date, we have invested a significant portion of our efforts
and financial resources in the acquisition and development of our clinical product candidates, which we plan to advance through
clinical development. Our future success depends heavily on our ability to successfully manufacture, develop, obtain regulatory
approval for, and commercialize these products and product candidates, which may never occur.
Before we generate any income from sales of our product candidates,
clinical product candidates or future product candidates in the United States or elsewhere, we must complete preclinical and clinical
development, conduct human subject research, submit clinical and manufacturing data to the U.S. Food and Drug Administration, or
FDA, or foreign equivalent, qualify a third-party contract manufacturing organization, or CMO, satisfy the FDA or foreign equivalent
that our CMO is capable of manufacturing the product in compliance with the FDA’s current good manufacturing practices (CGMPs),
submit a marketing application (e.g., Biologics License Application, or BLA, or foreign equivalent), or New Drug Application, or
NDA, or foreign equivalent, receive regulatory approval from the FDA or a foreign regulatory authority, build a commercial organization,
make substantial investments, and undertake significant marketing efforts ourselves or in partnership with others to ensure compliant
marketing and market acceptance of any products we commercialize. We are not permitted to engage in unrestricted marketing or promotion
of any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities,
and we may never receive such regulatory approval for our current or future product candidates.
We cannot be certain that any further BLAs, NDAs or MAAs will
be filed within a specified period of time, or that any BLA or NDA or similar foreign marketing application will allow us to obtain
or maintain marketing approval. In addition, any marketing approval we may obtain may be for indications and uses that are more
limited than we expect or include contraindications or risk measures that limit market acceptance of the product subject to the
marketing approval. We also cannot be certain that our product or product candidates will be successful in clinical trials or that
the clinical trials or data will support filing any further BLAs or NDAs in the U.S., or similar foreign marketing applications
elsewhere. We also cannot be certain that any of our product candidates will receive the appropriate regulatory approval required
to commence clinical trials. Further, the FDA, an independent review committee, or IRC, or an oncologic drugs advisory committee,
or ODAC, may not agree with the interpretation by our investigators or us of the clinical safety and efficacy of our product candidates,
and our product candidates may not receive regulatory approval.
We do not have the resources to conduct and directly oversee
our product development programs without assistance from third parties. In the execution of our product development programs, we
may have to rely on collaborations with clinical partners as well as clinical research organizations, or CROs, CMOs, vendors and
other service providers. Failure by these entities to satisfactorily conduct clinical research or to provide the services requested
by us may negatively impact our product development programs, including, but not limited to, program delays or preventing approval
of our product candidates. We plan to seek regulatory approval to commercialize our product candidates in the United States, the
European Union and additional foreign jurisdictions. While the scope of regulatory review and approval can be similar in other
countries, to obtain separate regulatory review and approval in many other countries, we must comply with the numerous and varying
regulatory requirements of such countries, including those regarding safety and efficacy, clinical trials, manufacturing, post-marketing
commitments, and commercial sales, pricing and distribution of our product candidates, and we cannot predict or guarantee success
in these jurisdictions.
If the incidence and/or prevalence of diseases, or disease areas,
we are targeting for development and/or commercialization, and future growth, are low, including lower than our estimates or estimates
of third-parties, this could significantly delay patient enrollment in our additional ongoing or future clinical trials and/or
could negatively impact commercial revenue. The true incidence and/or prevalence, as well as market potential, can be difficult
to determine, ahead of commercial launch, for certain rare diseases, such as blastic plasmacytoid dendritic cell neoplasm, or BPDCN,
where there had been limited epidemiologic and published data, and databases, and where we are the first company to receive approval
for this indication, with no prior product revenue data. Additionally, due to the unfamiliarity and/or rarity of certain diseases,
such as BPDCN, health care providers may not be aware of, and/or may misdiagnose or underdiagnose such diseases, leading to low
trial enrollment and/or product revenue. Our disease awareness campaign, intended to raise awareness of the disease and increase
patient identification, could fail to do so for many reasons. At this time, we have no way of assuring the accuracy of any incidence/prevalence
or revenue numbers, or the chances for successful development in related areas, thus if these are low, despite expectations to
the contrary, this will negatively impact our revenue and future prospects for the company.
Clinical drug development involves a lengthy and expensive
process with an uncertain outcome.
Clinical testing is expensive and can take a substantial amount
of time to complete. Its outcome is inherently uncertain. In addition, failure can occur at any time during clinical development,
including after significant resources have been invested. We cannot predict whether we will encounter challenges with any of our
clinical trials that will cause us, or regulatory authorities, to delay, suspend or terminate current or future trials.
Clinical trials can be delayed, suspended or terminated for
many reasons, including but not limited to:
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delays or failures in reaching an agreement on acceptable terms with prospective CMOs, CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly depending upon the circumstances;
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failure of our third-party contractors, including CROs and CMOs, or our investigators, to comply with regulatory requirements or otherwise meet contractual obligations in a timely manner;
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delays or failure in obtaining the necessary approvals from regulators, institutional review boards, or IRBs, or scientific review committees, or SRCs, in order to commence or continue a clinical trial;
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our inability to manufacture, or obtain from third-parties, adequate supply of drug substance, drug product or adjuvant therapies sufficient to complete our preclinical studies and clinical trials;
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risk of loss of drug product, adjuvants and/or other components of the product, due to third-party storage and distribution of such supplies;
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the FDA, or other regulatory authority, issuing a clinical hold or requiring alterations to any of our study designs, including extending a study or requiring new studies, to our overall strategy or to our manufacturing plans;
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delays in patient enrollment, variability in the number and types of patients available for clinical trials, poor accrual, or high drop-out rates of patients in our clinical trials;
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clinical trial sites deviating from trial protocols or dropping out of a trial and our inability to add new clinical trial sites;
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difficulty in maintaining contact with patients after treatment, resulting in incomplete data;
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poor effectiveness of our product candidates during clinical trials;
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safety issues, including serious adverse events associated with our product candidates and patient exposure to unacceptable health risks;
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reports of adverse events or other safety concerns involving ELZONRIS and our clinical drug candidates;
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receipt by a competitor of marketing approval for a product targeting an indication that one of our product candidates targets;
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governmental or regulatory delays and changes in regulatory leadership, requirements, policy and guidelines; or
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the FDA, or similar regulatory body, may not agree with the endpoints we select or the interpretation of the results related to the endpoints in the evaluation of our product candidates, thereby refusing to approve our product candidates for marketing approval, or withdrawing approval.
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We could also encounter delays if a clinical trial is suspended
or terminated by us, by the IRB where such trial is being conducted, by a Data Safety Monitoring Board, or DSMB, if one is utilized
for any such trial, or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due
to a number of factors, including, among other things, failure to conduct the clinical trial in accordance with regulatory requirements
or our clinical protocols, regulatory violations identified during an inspection of the clinical trial operations or trial site,
imposition of a clinical hold by the FDA or other regulatory authorities, study subject safety concerns, adverse events or severe
adverse events, including deaths, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative
actions, or lack of adequate funding to continue the clinical trial.
There are unknown risks for our clinical product candidates,
including with respect to dosing, administration, pharmacokinetics, bioavailability, safety and efficacy, that we expect we will
learn about during clinical development, which could halt or delay this development program and/or alter our current strategy for
the development of these product candidates.
We may not have the necessary expertise or capabilities, including
adequate staffing, to successfully manage the execution and completion of any of our clinical trials, prepare clinical study reports
and MAAs, and ultimately obtain marketing approval for our product candidates in a timely manner, or at all.
In any clinical trial of a product candidate, the results of
such trial may not be adequate to support submission of a marketing application or marketing approval. Because our product candidates
are intended for use in life-threatening diseases, in many cases we ultimately intend to seek marketing approval for each product
candidate based on the results of a single clinical trial, which may be open-label and single-group in nature. As a result, these
trials may receive enhanced scrutiny from the FDA. For any such trial, if the FDA disagrees with our choice or definition of primary
endpoint, or the results for the primary endpoint are not robust or significant or clinically beneficial enough, including relative
to a control or historical data, the FDA may refuse to approve a BLA or NDA based on such intended pivotal trial, despite meeting
a primary endpoint of the study. In addition, the results of any such intended pivotal trial may be subject to confounding factors,
or may not be adequately supported by other study endpoints, possibly including overall survival, or OS, overall response rate,
or ORR, rate of complete response, or CR, rate of clinical complete response, or cCR, rate of partial response, or PR, rate and
definition of bone marrow complete response with partial or incomplete hematologic recovery, rate and definition of other responses
including spleen response, including measurement modality and timing of events, rate and definition of total symptom score response,
and/or response duration including definition of response duration, in which case the FDA may refuse to approve a BLA or NDA based
on such intended pivotal trial, despite meeting a primary endpoint of the study. The FDA may not accept the design of or our future
Stage 3a results of ELZONRIS in CMML, or our conclusions related to our design of or future Stage 3a results, as a basis to design
and implement the pivotal Stage 3b portion of the program. The FDA may also require the completion of additional clinical trials
before or as a condition for approving our product candidates.
If we experience delays in the completion of, or a termination
of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, which will
have a negative impact on our ability to commence product sales and generate product income from any of our product candidates.
In addition, any delays in completing our clinical trials will increase our costs and slow down our product candidate development
and approval process, and may negatively impact our ability to raise additional capital to support these increased costs. Delays
in completing our clinical trials could also allow our competitors to obtain marketing approval before we do, or could shorten
the patent protection period during which we may have the exclusive right to commercialize our product candidates. Any of these
occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause,
or lead to, a delay in the commencement or completion of clinical trials, may also ultimately lead to the denial of regulatory
approval of our product candidates.
Results of earlier clinical trials may not be predictive
of the results of later-stage or subsequent clinical trials and results in the commercial setting may be different than clinical
trial experience.
The results of preclinical studies and clinical trials,
including early stage, late stage, and investigator-sponsored or corporate-sponsored clinical trials of any investigational
or approved products, may not be predictive of the results of subsequent and/or later stage clinical trials such as Stage 3a
or Stage 3b versus Stage 1 and 2 of the ELZONRIS Phase 1/2 trial in CMML or Stage 4 versus Stages 1, 2, and 3 of the ELZONRIS
Phase 1/2 trial in BPDCN. Investigational or approved products in later stage, including subsequent stages of a given trial,
or larger clinical trials may fail to show the same safety and efficacy results demonstrated in earlier studies, including
having differing patients populations and/or endpoints and methods and schedules to assess such endpoints, despite having
progressed through preclinical studies and earlier clinical trials. Many companies in the biopharmaceutical industry have
suffered significant setbacks in later stage clinical trials, including canceling clinical development programs, due to
adverse safety profiles or lack of efficacy observed in the commercial setting, notwithstanding promising results in earlier
studies. Similarly, our clinical trials results, including with inclusion of subsequent stages of any given trial or
experience with products in the commercial setting, may not be successful, including from a regulatory standpoint, for these
or other reasons.
This drug development risk is heightened by any change in ongoing
and future clinical trials compared to completed clinical trials. As product candidates are advanced through preclinical studies
to early and late stage clinical trials and towards approval and commercialization, it is customary that various aspects of the
development program, such as manufacturing and methods of administration and dosing, are altered along the way in an effort to
optimize processes and results. While these types of changes are common and are intended to optimize the product candidates for
later stage clinical trials, approval and commercialization, such changes do carry the risk that they will not achieve these intended
objectives. For example, the results of our ongoing and future clinical trials may be adversely affected by the following changes:
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As we optimize and scale-up production of our clinical product candidates, there may be manufacturing, formulation, fill-finish and other process and analytical changes that are part of the optimization and scale-up necessary for producing drug substance and drug product of a quality, quantity and stability sufficient for later stage clinical development and commercialization. Delays, including failures, in any of these steps, may delay initiation and completion of clinical trials, regulatory submissions, or commercial launch. We may also need to demonstrate comparability between newly manufactured drug substances and/or drug products relative to previously manufactured drug substances and/or drug products. Demonstrating comparability may cause us to incur additional costs or delay initiation or completion of our clinical trials, including the need or choice to initiate a dose escalation study, and, if unsuccessful, could require us to complete additional preclinical or clinical studies of our product candidates. Failure to demonstrate comparability could also result in delays in regulatory submissions or commercial launch. We are also developing a new lyophilized formulation of ELZONRIS. In the event that this formulation does not demonstrate comparability with the current liquid/frozen formulation, including from a pharmacokinetic, safety and/or efficacy perspective, the commercial success of ELZONRIS could be negatively impacted.
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We are, or may in the future be, treating patients with certain diseases or conditions that have not been previously treated with our product candidates. In these instances, we may choose to treat patients at several different doses and use multi-cycle dosing regimens to determine the optimal doses and schedules for both near-term and long-term safety and disease control in each indication. Use of our product candidates in new disease populations and at new dosing regimens could produce unforeseen adverse reactions and events that could impact the development and ability to obtain or maintain marketing approval for our product candidates.
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We may determine, based on safety and efficacy, that certain doses and regimens of our product candidates for particular indications are optimal for initial near-term therapy whereas the same, or other, doses and regimens are optimal for longer-term maintenance therapy.
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We are developing SL-701 as an injection administered under the skin, or subcutaneously, in our trials. Two previous investigator-sponsored trials of an earlier version of SL-701 used this method of delivery. Another previous investigator-sponsored trial of an earlier version of SL-701 used a different method of delivery, in which dendritic cells, which are a type of immune cell, were removed from the patient, exposed to immunogenic peptides, and then re-injected into or near a lymph node of the patient (intra/peri-nodally). Our plan continues with the subcutaneous injection method used in two of the previous studies and represents a change from one of the other previous studies.
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We manufactured and formulated SL-701 as a mixture of IL-13R2 mutant peptide, EphA2 peptide, a new survivin mutant peptide, and a tetanus toxoid peptide. An earlier version of this immunotherapy, which included IL-13R2 mutant and EphA2 peptides, was mixed with additional peptides in previous studies, including a different survivin peptide in some studies.
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In the initial stage of our SL-701 corporate-sponsored trial, we used granulocyte-macrophage-colony-stimulating factor, or GM-CSF, and imiquimod as the immunostimulants. In the second stage of our SL-701 trial, we used poly-ICLC as the immunostimulant, which was the immunostimulant used, along with an earlier version of SL-701, in the previous investigator-sponsored study but is not currently commercially available. If the poly-ICLC regimen is found to be superior, it would require successful approval and commercialization of poly-ICLC in addition to SL-701 to support product launch, which would entail a more complicated regulatory and commercialization strategy than required for a single product launch.
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In clinical trials, we have or are currently combining ELZONRIS with pomalidomide and dexamethasone in myeloma, ELZONRIS with a hypomethylating agent and potentially a Bcl-2 inhibitor and potentially certain chemotherapeutic agents in various indications including AML and BPDCN.
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In some of our current or future trials, we are, or may, combine our product candidates with each other or with other therapies such as chemotherapy, radiation, targeted therapy, or anti-angiogenic therapy which could result in unforeseen toxicities.
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Any of the aforementioned changes, or other changes could make
the timing, including initiation, patient accrual, or results of our clinical trials less predictable, and could cause our product
candidates to perform differently, including causing toxicities, which could delay or suspend completion of our clinical trials,
delay, or prevent approval of our product candidates, and/or jeopardize our ability to obtain regulatory approval, commence product
sales and generate income.
Adverse events or other safety concerns involving ELZONRIS
or our clinical drug candidates could delay clinical development, delay or prevent us from obtaining or maintaining regulatory
approvals, or negatively impact sales or the commercial prospects for our product candidates.
Adverse events or other safety concerns involving ELZONRIS or
our clinical drug candidates in the development or commercial setting could interrupt, delay or halt our clinical trials and/or
commercial sales of our products. For example, CLS is a known, sometimes fatal, and well-documented side effect of ELZONRIS. Reports
of CLS cases, or other adverse events or other safety concerns involving ELZONRIS or our product candidates, could result in clinical
trial delays including regulatory authorities placing trials on clinical hold or denying or withdrawing approval for trials of
any or all indications, or adversely affect our ability to maintain or increase commercial sales of our product or products. Further,
patients receiving ELZONRIS or our product candidates with co-morbid diseases and/or indications not previously well-studied, and/or
in combination with other agents, may experience new or different serious adverse events in the future. Likewise, reports of adverse
events or other safety concerns involving ELZONRIS or our product candidates could interrupt, delay or halt ongoing or planned
clinical trials of such product candidates, could require redesign of study protocols and conduct of additional trials, could result
in our inability to file for or obtain regulatory approvals for any of our product candidates, or could negatively impact commercial
prospects for our product or product candidates.
COVID-19 could impact our commercial efforts
for ELZONRIS and could impact our other product candidates.
Our ability to successfully commercialize, market and
sell ELZONRIS, may be impacted by the evolving COVID-19 pandemic, although we are currently unable to predict
or quantify any such potential impact with any degree of certainty. To date, the pandemic has led to the
implementation of various responses, including government-imposed quarantines, travel restrictions, changes in
healthcare practice approaches, other public health safety measures, and closure of our offices. As a result
of these responses, our marketing, sales, medical affairs, market access, and commercial efforts are happening
virtually and the progress of these preparations may be impacted by the increased reliance on work-from-home
arrangements for our employees, consultants, vendors, and potential customers. If the spread of COVID-19 and the
social distancing measures taken by various governments continue, the commercialization of ELZONRIS and our product
candidates, or efforts we may undertake for ELZONRIS and our product candidates, may be hindered by various factors,
including challenges in hiring the employees necessary to support commercialization; delays in demand due to
impacts on the healthcare system and overall economy; scarcity in inpatient capacity; delays in coverage decisions from
Medicare and third-party payors; restrictions on our personal interactions with physicians, hospitals, payors, and
other customers; interruptions or delays in our commercial supply chain; and increases in the number of uninsured
or underinsured patients.
If any product candidate is approved but does not achieve
an adequate level of acceptance by physicians, hospitals, healthcare payors and patients, we may not generate sufficient
revenue from these products and we may not become or remain profitable, which would have a material adverse effect on
our business.
If we experience delays in the enrollment of patients
in our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to continue clinical trials for our product
candidates if we are unable to enroll a sufficient number of eligible patients to participate in these trials, including as required
by the FDA or other regulatory authorities. Patient enrollment, a significant factor in the timing of clinical trials, is affected
by many factors including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility
criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions
as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that
may be approved or may commence competing clinical trials for the indications we are investigating.
Some of our product candidates are being developed in rare indications
with small available study populations. There are very limited independently reported data on annual incidences of these rare diseases.
If the prevalence of these diseases is very low, including lower than our estimates or estimates of our third-party contractors,
this could significantly delay patient enrollment in any one or more of our ongoing or future clinical trials.
Further, if we fail to enroll and maintain the number of patients
for which the clinical trial was designed, the statistical power of that clinical trial may be reduced, which would make it harder
to demonstrate that the product candidate being tested in such clinical trial is safe and effective. Additionally, enrollment delays
in our clinical trials may result in increased development costs for our product candidates, which would cause the value of our
common stock to decline and limit our ability to obtain additional financing. Our inability to enroll a sufficient number of patients
for any of our current or future clinical trials would result in significant delays to, or may require us to terminate or not initiate,
one or more clinical trials.
The regulatory review and approval processes of the FDA
and comparable foreign authorities are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to
obtain regulatory approval for our product candidates, our business will be substantially harmed.
The time required to obtain approval by the FDA and comparable
foreign authorities can be unpredictable and depends upon numerous factors, including the substantial discretionary review afforded
to the regulatory authorities, which could include the prerequisite of an advisory panel, e.g. ODAC review. In addition, regulations,
policies or guidance documents, or the type and amount of preclinical, CMC, clinical pharmacology, and clinical data necessary
to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions.
We may be required to undertake and complete certain additional preclinical, CMC, clinical pharmacology, bioanalytical, immunogenicity,
or clinical studies to generate additional data required to support the submission of an IND, a BLA, or an NDA to the FDA or equivalent
applications to comparable foreign authorities. An inadequacy in any of these areas, or a lack of personnel, financial resources
or performance, including by third parties, could result in a delayed or unsuccessful regulatory filing. The FDA, or other non-U.S.
regulatory authority, may provide feedback or make requests that are difficult to implement or not implementable at all, and/or
our understanding of regulatory feedback, including regulatory authority minutes, may be incorrect. Also, the FDA, or any other
non-U.S. regulatory authority, may require additional studies to support regulatory approval, including either full or accelerated
or conditional, which could result in a delay in our clinical programs and/or a delayed or unsuccessful regulatory filing, or no
filing at all.
To date, we have only obtained FDA regulatory approval for one
drug product, ELZONRIS, and it is possible that none of our other existing product candidates, additional indications for ELZONRIS
(including, but not limited to, CMML), or any product candidates we may seek to develop in the future will ever obtain regulatory
approval. Furthermore, approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions,
and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries
or by the FDA. Our MAA is currently under review by the European Medicines Agency, or EMA, under a standard timeline. In June 2019,
we received the Day 120 List of Questions which include matters relating to clinical, non-clinical, quality, and CMC, and all stages
of the clinical trials, including stage 4, which largely utilized a new lyophilized drug product. We continue to interact with
the EMA regarding the application and a SAG meeting was recently held during March 2020. While we remain confident in our
ability to successfully address these matters, we are in the process of evaluating our data and options and we acknowledge that
there is no guarantee we will be successful attaining full approval for previously-untreated and previously-treated BPDCN, full
approval for one or the other indications, conditional approval for both indications, conditional approval for one or the other
indications, or approval at all.
Our product candidates, alone or in combination with any adjuvant,
immunostimulant including GM-CSF or imiquimod or poly-ICLC, or other agents with which we may combine our drug candidates, could
fail to receive regulatory approval for many reasons, including, but not limited to:
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the FDA or comparable foreign regulatory authorities may disagree with the design, conduct or findings of our clinical trials;
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the FDA or comparable foreign regulatory authorities may identify protocol deviations or data quality or integrity concerns with our preclinical studies or clinical trials;
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we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;
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the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;
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we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
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the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from, or the study design or execution of, preclinical studies or clinical trials;
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the FDA or comparable foreign regulatory authorities may not accept our definition, or criteria, for the primary endpoints and/or other endpoints for evaluation of efficacy and clinical benefit to patients and may withhold marketing approval, despite meeting the primary endpoint of a trial;
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the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a BLA, an NDA, or other submission or to obtain regulatory approval in the United States or elsewhere;
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we may fail to secure an appropriate right of reference to the data from preclinical studies or clinical trials of our product candidates that we did not conduct or sponsor;
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the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we currently contract for clinical supplies and plan to contract for commercial supplies;
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the FDA or comparable foreign regulatory authorities may fail to approve any companion diagnostics we develop; and
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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.
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This lengthy and costly review process, as well as the unpredictability
of future clinical trial results, may result in our failing to obtain regulatory approval to market our product candidates that
we may advance into and through clinical trials, which would significantly harm our business.
In addition, even as part of obtaining approval, regulatory
authorities may approve any of our product candidates for fewer or more limited indications than we request or may grant approval
contingent on the performance of costly post-marketing commitments, including additional clinical trials, observational studies,
and/or pregnancy registries, which could impact market adoption and acceptance and exceed commercialization budgets. Regulatory
authorities may also approve a product candidate with a label that includes labeling claims that may be undesirable for the successful
commercialization of that product candidate, including product contraindications, warnings or precautions, the need for inpatient
versus outpatient administration, or limitations on the administration schedule, such as the number of infusions or cycles. In
addition, we may not be able to ultimately set the price we intend to charge for our product candidates or obtain satisfactory
reimbursement or coverage for our product candidates. Moreover, in many foreign countries, a product candidate must be approved
for reimbursement before it can be approved for sale in that country and the reimbursement may be suboptimal. Any of the foregoing
scenarios could materially harm the commercial prospects for our product candidates.
If we are not successful in discovering, developing and
commercializing additional product candidates, our ability to expand our business and achieve our strategic objectives may be impaired.
Although we expect to focus a substantial amount of our efforts
on the continued clinical testing and regulatory interactions for our clinical stage drug candidates, another key element of our
strategy is to identify and test additional compounds. A portion of the preclinical research that we are conducting involves new
and unproven drug discovery methods, as well as the preclinical testing of new compounds and potential new uses of existing compounds.
The drug discovery that we are conducting using our StemScreen® platform technology may not be successful in identifying compounds
that are useful in treating humans with cancer. Research programs designed to identify product candidates require substantial technical,
financial and human resources, whether or not any product candidates suitable for approval and commercial marketing are ultimately
identified. Even if our research programs may initially show promise in identifying potential product candidates, they may fail
to yield product candidates for clinical development or commercialization for many reasons, including the following:
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the research methodology used may not be successful in identifying potential product candidates;
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competitors may develop alternatives that render our product candidates obsolete;
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a product candidate is subject to the ongoing collection of safety and efficacy data and may, on further study, be shown to have harmful side effects, be prone to serious adverse events, fail to continue to exhibit that characteristics that support the initial findings of safety and efficacy or to otherwise fail to meet applicable regulatory criteria;
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a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
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a product candidate may not be accepted as safe and effective by regulatory authorities, patients, the medical community or third-party payors.
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If we are unable to identify additional compounds for preclinical
and clinical development, we may not have sufficient or any product income, which could result in significant harm to our financial
position and adversely impact our stock price.
If we obtain approval to market any products outside of
the U.S., a variety of risks associated with international operations and expansion could materially adversely affect our business.
If ELZONRIS is approved for marketing outside of the U.S., which
may not occur, we may enter into agreements with third parties to market ELZONRIS in certain jurisdictions. We have no prior experience
in these countries, and many biopharmaceutical companies have found the process of marketing their products in foreign countries
to be very challenging. We expect that we will be subject to additional risks related to international operations or entering into
international business relationships, including:
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different regulatory requirements for drug development and approvals and rules governing drug commercialization in foreign countries, including postmarket surveillance, monitoring and reporting;
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possible failure by us or our distributors to obtain appropriate licenses or regulatory approvals for the sale or use of our product candidates, if approved, in various countries;
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reduced or no protection over intellectual property rights;
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unexpected changes in tariffs, export and import restrictions, trade barriers, and regulatory requirements;
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economic weakness, including inflation, or political instability in particular foreign economies and markets;
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complexities associated with managing multiple payor-reimbursement regimes or self-pay systems;
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financial risks, such as longer payment cycles, difficulty enforcing contracts and collecting accounts receivable;
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compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
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foreign reimbursement, pricing, and insurance regimes;
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foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;
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workforce uncertainty in countries where labor unrest is more common than in the U.S.;
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difficulties in managing foreign operations;
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compliance with the U.S. Foreign Corrupt Practices Act, the United Kingdom Bribery Act 2010, or similar antibribery and anticorruption laws in other jurisdictions as well as various regulations pertaining to data privacy, such as the European Union General Data Privacy Regulation;
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods, and fires.
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We are subject to ongoing FDA regulatory requirements
related to ELZONRIS and our product candidates, both before and after regulatory approval, which require significant resources.
Additionally, our product and product candidates, if approved, could be subject to labeling and other restrictions and we may be
subject to regulatory and enforcement actions or penalties if we fail to comply with regulatory requirements or experience unanticipated
problems with our product.
Any additional regulatory approvals that we or our
potential strategic partners may receive for our product candidates may also be subject to limitations on the approved
indication for use for which the product may be marketed or to the conditions of approval, may contain product
contraindications, warnings, or precautions that limit the use of our product candidates or may contain requirements for
potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and
efficacy of our product candidates. In addition, with regard to ELZONRIS or any product candidates, should they become
approved by the FDA, the manufacturing processes, testing, packaging, labeling, storage, distribution, post-market reporting,
advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory compliance
requirements. These requirements include submissions of safety and other post-marketing information and reports, as well as
continued compliance with CGMPs for commercial manufacturing and good clinical practices, or GCPs, for any clinical trials
that we conduct post-approval. For example, we have several post-marketing commitments related to the FDA approval of
ELZONRIS. In addition, there are now and may be in the future manufacturing, formulation, fill-finish and other process and
analytical changes required by the FDA related to producing drug substance and drug product of a quality, quantity and
stability sufficient for commercial supply. Changes, delays or failures in any of these steps may negatively affect
disposition of manufactured batches of drug substance and/or drug product, and as a result, may require production of
additional batches of drug substance and/or drug product. Issues that may arise with a product, including adverse events of
unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply
with regulatory requirements, may result in, among other things:
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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or product recalls;
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warning letters, untitled letters, or holds on clinical trials;
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refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our strategic partners, or suspension or revocation of product license approvals;
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product seizure or detention, or refusal to permit the import and export of products;
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investigations or inspections by government entities, including, but not limited to, FDA or foreign health authorities; and
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injunctions, fines, consent decrees, corporate integrity agreements, or the imposition of other civil penalties or criminal penalties.
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We cannot predict the likelihood, nature or extent of government
regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow
or are unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able
to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain
profitability, which would adversely affect our business.
The COVID-19 pandemic could have a material adverse effect
on our clinical development program if the pandemic and associated government control measures continue.
The
ongoing COVID-19 pandemic has presented substantial public health challenges and is impacting the global healthcare
system, including the conduct of clinical trials in the U.S. and other parts of the world. As a result of the COVID-19
pandemic, we may encounter delays in our clinical trials. The majority of our clinical trials involve patients with
cancer or those receiving ongoing immunosuppressive therapy who may be at higher risk of infection and are thus more
likely to be subject to travel restrictions and self-quarantining. We have made efforts to allow patients currently enrolled
in our ongoing clinical trials to continue unimpeded and have continued to allow new patients to enroll in our
trials. We remain in close contact with clinical sites, CROs, and other third-party vendors, and have implemented measures
to protect the health and safety of patients involved with our trials, and to preserve the integrity of our clinical
data.
Further, we may not be able to complete our clinical trials that we initiated more recently and for which we have not
yet completed enrollment in the time frame that we had previously planned. In addition, the pandemic may adversely affect
our ability to conduct new trials. Some factors from the COVID-19 outbreak that may delay or otherwise adversely affect
our clinical trial programs, as well as adversely impact our business generally, include:
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delays or
difficulties in clinical site initiation, including difficulties in recruiting clinical sites, and delays enrolling patients
in our clinical trials or increased rates of patients withdrawing from our clinical trials following enrollment as a result
of contracting COVID-19, being forced to quarantine, or not otherwise being able to complete study assessments, particularly
for older patients with a higher risk of contracting COVID-19;
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missed study
visits or study procedures which could lead to an abundance of protocol deviations that have the potential to interfere with
the interpretability of trial results;
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diversion of
healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, including clinical trial investigators
and staff;
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limitations on
travel, including limitations on domestic and international travel, and government-imposed quarantines that could interrupt
key trial activities, such as clinical trial site initiations and monitoring;
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interruption of,
or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to staffing
shortages, or production slowdowns or stoppages; and
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disruptions and
delays caused by potential workplace, laboratory and office closures and an increased reliance on employees working from
home across the healthcare system.
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To the extent the COVID-19 pandemic results in missed study
visits or study procedures in our clinical trials, there could be an abundance of protocol deviations, which could impact
the interpretability of the trial results. A significant number of deviations may call into question whether the execution
of a clinical trial was consistent with the protocol.
We will continue to monitor the potential impact of COVID-19 on
our clinical trial program, however, the full extent to which the COVID-19 pandemic may directly or indirectly impact the
progress of our current and planned trials will depend on future developments that are highly uncertain and cannot
be accurately predicted.
Risks Related to Commercialization of ELZONRIS and the Development
and Commercialization of Our Product Candidates
If we are unable to fully establish or implement our own
sales, marketing, and distribution capabilities in a timely manner, or are unable to enter into licensing or collaboration agreements
for these purposes, we may not be successful in commercializing our product or product candidates.
We continue to develop our infrastructure to commercialize ELZONRIS,
and potentially our product candidates, if any are approved. We may potentially enter into contract research, contract sales, licensing
or collaboration agreements to assist in the future development and commercialization of such product candidates.
To develop internal sales, distribution and marketing capabilities
for our product candidates that might be approved, we would have to invest significant amounts of financial and management resources,
some of which would be committed prior to knowing that our clinical drug candidates were approved. For ELZONRIS, as well as for
our product candidates for which we decide to perform sales, marketing, and distribution functions ourselves, we face a number
of additional risks, including:
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our inability to recruit, train, and retain adequate numbers of effective sales and marketing personnel;
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the inability of sales personnel to obtain access to physicians or effectively promote our approved product to physicians and other providers;
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the lack of complementary drug product to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines;
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unforeseen costs and expenses associated with creating internal sales and marketing organizations;
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our inability to effectively build our manufacturing and commercial infrastructures to manufacture, market and sell our product candidates;
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our inability to build and staff, or enter into a partnership to support, an effective commercial distribution organization; and
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the addressable market for our product candidates may result in unsatisfactory income.
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Where and when appropriate, we may elect to utilize contract
sales forces or strategic partners to assist in the commercialization of our products and product candidates for which we might
receive marketing approval. If we enter into arrangements with third parties to perform sales, marketing and distribution services
for our product, the resulting revenues or the profitability from these revenues to us are likely to be lower than if we had sold,
marketed and distributed our product ourselves. In addition, we may not be successful in entering into arrangements with third
parties to sell, market and distribute our product candidates or may be unable to do so on terms that are favorable to us. We may
have limited control over such third-parties, and any of these third-parties may fail to devote the necessary resources and attention
to sell, market and distribute our products effectively and may engage in conduct that subjects us to significant regulatory enforcement
action, as well as civil and criminal liability. For ELZONRIS and our other product candidates that we commercialize on our own
and build our own sales and marketing organization, there is also a risk that our employees may engage in conduct that subjects
us to significant regulatory enforcement action, as well as civil and criminal liability. The sale of drug products is subject
to numerous regulatory and legal restrictions on promotional statements that may be made regarding a product’s benefits and
risks, in addition to certain restrictions and limitations on interactions with healthcare professionals. If we do not establish
sales, marketing and distribution capabilities successfully and in compliance with legal and regulatory requirements, either on
our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.
Our commercial success depends upon attaining significant
market acceptance of ELZONRIS and our clinical drug candidates, if approved, among physicians and other healthcare providers, patients,
third-party payors and, in the cancer market, acceptance by the operators of major cancer clinics.
Even if our clinical drug candidates, or any other product candidate
that we may develop or acquire in the future, obtain regulatory approval, the product may not gain market acceptance among physicians,
third-party payors, patients and the medical community. For example, current cancer treatments such as chemotherapy and radiation
therapy are well established in the medical community, and doctors may continue to rely on these treatments. The degree of market
acceptance of ELZONRIS and any other product candidates for which we receive approval for commercial sale depends on a number of
factors, including:
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the assurance of efficacy and safety of our products, as demonstrated in clinical trials, and the degree to which our products represent a clinically meaningful improvement in care as compared with other available therapies;
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the clinical indications for which our products are approved and any limiting contraindications, warnings, and precautions;
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acceptance by physicians, operators of major cancer clinics and patients of our products as safe and effective treatments;
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the willingness of the target patient populations to try new therapies, enroll in ongoing clinical trials, and of physicians to prescribe these therapies;
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the potential and perceived advantages of our products over alternative treatments;
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the number of vials and cycles used in the commercial setting relative to what was used in the clinical trial setting and may have been expected in the commercial setting
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the cost of treatment in relation to alternative treatments;
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the availability of adequate reimbursement and pricing by third parties and government authorities;
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the continued projected growth of oncology drug markets;
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relative convenience and ease of administration, including access to drug administration equipment such as syringe pumps;
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the requirement for in-patient versus out-patient administration;
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the prevalence and severity of adverse events and side effects; and
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the effectiveness of our sales and marketing efforts.
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In addition, we must be able to successfully identify patient
populations with sufficient numbers in order to successfully commercialize our products. There can be no guarantee that any of
our programs will be effective at identifying target patient populations, and the number of patients in the markets for which we
may receive marketing approval (e.g., in the United States, Europe and elsewhere) may turn out to be lower than expected, or patients
may not be otherwise amenable to treatment with our products, all of which would adversely affect the results of our operations
and our business.
If ELZONRIS, or any product candidates for which we were to
receive approval, failed to achieve market acceptance, we would not be able to generate significant income. In addition, there
are no guarantees that any approved product will be effective, or gain market acceptance, if we were to obtain approval for additional
indications.
Our product or product candidates may become subject to
unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which would harm our business.
The regulations that govern marketing approvals, pricing and
reimbursement for new drug products vary widely from country to country and are subject to changes in interpretation, application
and new legislative proposals at any time. Some countries require the approval of the sale price of a drug before it can be marketed.
In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets,
prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted.
As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations
that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the income we are able
to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment
in one or more product candidates, even if our product candidates obtain marketing approval.
Our ability to commercialize any products successfully also
will depend in part on the extent to which reimbursement for these products and related treatments will be available from government
health administration authorities, private health insurers and other organizations. Government authorities and third-party payors,
such as private health insurers and health maintenance organizations, decide which medications they will cover and how much they
will pay for them. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and
third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications.
Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and
are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any product
that we commercialize and, if reimbursement is available, the level of reimbursement.
Reimbursement may impact the demand for, or the price of, any
product candidate for which we obtain marketing approval. Obtaining reimbursement for our products may be particularly difficult
because of the higher prices often associated with drugs administered under the supervision of a physician. If reimbursement is
not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate for
which we obtain marketing approval.
There may be significant delays in obtaining reimbursement
for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or
similar regulatory authorities outside the United States. Moreover, eligibility for reimbursement does not imply that any
drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and
distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and
may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it
is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments
for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare
programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where
they may be sold at lower prices than in the United States. Third-party payors often follow Medicare coverage policy and
payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable
payment rates from both government-funded and private payors for any approved products that we develop could have a material
adverse effect on our operating results, our ability to raise the capital needed to commercialize products and our overall
financial condition.
Healthcare policy changes may have a material adverse
effect on us.
Our business may be affected by the efforts of government and
third-party payors to contain or reduce the cost of healthcare through various means. For example, the Patient Protection and Affordable
Care Act and the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the ACA), enacted in March 2010,
substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacted the
pharmaceutical industry. With regard to pharmaceutical products, among other things, the ACA expanded and increased industry rebates
for drugs covered under federal health care programs. Legislative proposals such as expanding the Medicaid drug rebate program
to the Medicare Part D program, providing authority for the government to negotiate drug prices under the Medicare Part D
program and lowering reimbursement for drugs covered under the Medicare Part B program have been raised in Congress but have
not been enacted so far. In the 116th U.S. Congress, there has been a renewed and bipartisan effort to address the cost of prescription
drugs, including legislation intended to increase competition by speeding the approval of generic drugs and their entry to the
marketplace, international reference pricing and direct government drug price negotiation, and increasing transparency on patents
and price increases. The administration can rely on its existing statutory authority to make policy changes that could have an
impact on the drug industry. For example, the Medicare program has in the past proposed to test alternative payment methodologies
for drugs covered under the Part B program and finalized a proposal to pay hospitals less for Part B-covered drugs purchased
through the 340B Drug Pricing Program effective January 1, 2018. At the end of 2019, the HHS released a draft rule related
to importation of prescription drugs. It is unclear how this might impact the pharmaceutical market, but signals a continued effort
by the administration to lower drug costs through regulatory action.
Modifications to or repeal of all or certain provisions of the
ACA have been attempted in Congress as a result of the outcome of the recent presidential and congressional elections, consistent
with statements made by the incoming administration and members of Congress during the presidential and congressional campaigns
and following the election. In January 2017, Congress voted to adopt a budget resolution for the fiscal year of 2017, or the
Budget Resolution, that authorizes the implementation of legislation that would repeal portions of the ACA.
The Budget Resolution is not a law. However, it is widely viewed
as the first step toward the passage of legislation that would repeal certain aspects of the ACA. Further, on January 20,
2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA
to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory
burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. In
March 2017, following the passage of the budget resolution for the fiscal year of 2017, the U.S. House of Representatives
passed legislation known as the American Health Care Act of 2017, which, if enacted, would amend or repeal significant portions
of the ACA. Attempts in the Senate in 2017 to pass similar ACA repeal legislation, including the Better Care Reconciliation Act
of 2017, were unsuccessful. However, in December 2017, the Tax Cuts and Jobs Act was enacted, which includes a provision that
effectively repeals the ACA’s individual mandate by reducing the tax penalty for failing to maintain minimum essential coverage
to zero. Following this legislation, Texas and 19 other states filed a lawsuit alleging that the ACA is unconstitutional as the
individual mandate was repealed, undermining the legal basis for the Supreme Court’s prior decision. On December 14,
Texas federal district court judge Reed O’Connor issued a ruling declaring that the ACA in its entirety is unconstitutional.
Upon appeal, the Fifth Circuit upheld the district court’s ruling that the individual mandate is unconstitutional. However,
the Fifth Circuit remanded the case back to the district court to conduct a more thorough assessment of the constitutionality of
the entire ACA despite the individual mandate being unconstitutional. While this decision has no immediate legal effect on the
ACA and its provisions, this lawsuit is ongoing. The Bipartisan Budget Act of 2018, or BBA, passed in February 2018, set government
spending levels for Fiscal Years 2018 and 2019 and revised certain provisions of the ACA. Specifically, beginning in 2019, the
BBA increased manufacturer point-of-sale discounts off negotiated prices of applicable brand drugs in the Medicare Part D
coverage gap from 50% to 70%, ultimately increasing the liability for brand drug manufacturers. This mandatory manufacturer discount
also applied to biosimilars beginning in 2019. Regardless of whether or not the ACA is changed or modified by Congress or the Supreme
Court, we expect both government and private health plans to continue to require healthcare providers, including healthcare providers
that may one day purchase our products, to contain costs and demonstrate the value of the therapies they provide.
Our product, or product candidates for which we intend
to seek approval as biological products, may face competition sooner than expected.
With the enactment of the Biologics Price Competition and
Innovation Act of 2009, or BPCIA, as part of the ACA, an abbreviated pathway for the approval of biosimilar and
interchangeable biological products was created. Under the BPCIA, an application for a biosimilar product cannot be submitted
to the FDA until four years after, and approval by the FDA cannot be made effective until 12 years after, the date of the
first licensure of the reference product. We believe that ELZONRIS, and or any of our product candidates that may receive
marketing approval by the FDA as a biological product under a BLA, should qualify for the 12-year period of exclusivity.
However, there is a risk that the U.S. Congress could amend the BPCIA to significantly shorten this exclusivity period,
potentially creating the opportunity for generic competition sooner than anticipated. Moreover, the extent to which a
biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional
generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory
factors that are still developing. In addition, a competitor could decide to forego the biosimilar route and submit a full
BLA after completing its own preclinical studies and clinical trials. In such cases, any exclusivity to which we may be
eligible under the BPCIA would not prevent the competitor from marketing its product as soon as it is approved.
Risks Related to Our Financial Position and Capital Requirements
We have incurred net operating losses since our inception
and anticipate that we will continue to incur substantial operating losses for the foreseeable future. We may never achieve or
sustain profitability, which would depress the market price of our common stock, and could cause you to lose all or a part of your
investment.
We have incurred net losses from operations from our inception
through March 31, 2020 of approximately $398.9 million. We do not know whether or when we will become profitable. Our losses
have resulted principally from costs incurred in development and discovery activities. We anticipate that our operating losses
will decrease over the next several years as we execute our strategy to commercialize ELZONRIS coupled with our plan to expand
our discovery, research and development activities. We believe that our existing cash, cash equivalents, and investments, including
the cash proceeds received from our follow-on public offering during the third quarter of 2019, will be sufficient to fund our
operations and our capital expenditures for at least the next two years. If our cash is insufficient to meet future operating requirements,
we will have to raise additional funds. If we are unable to obtain additional funds on terms favorable to us or at all, we may
be required to cease or reduce our operating activities or sell or license to third-parties some or all of our intellectual property.
If we raise additional funds by selling additional shares of our capital stock, the ownership interests of our stockholders will
be diluted. If we need to raise additional funds through the sale or license of our intellectual property, we may be unable to
do so on terms favorable to us, if at all. In addition, if we do not continue to meet our diligence obligations under our license
agreements for our clinical drug candidates that we have in-licensed, we will lose our rights to develop and commercialize those
clinical drug candidates.
If we do not successfully develop and obtain regulatory approval
for our existing and future product candidates and effectively manufacture, market and sell our product candidates that are approved,
we may never generate sales of those product candidates, and even if we do generate sales, we may never achieve or sustain profitability
on a quarterly or annual basis. Our failure to become and remain profitable would depress the market price of our common stock
and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations.
A decline in the market price of our common stock also could cause you to lose all or a part of your investment.
We will require additional financing to achieve our goals,
and a failure to obtain this capital when needed could force us to delay, limit, reduce or terminate our product development or
commercialization efforts.
Since our inception, most of our resources have been dedicated
to the discovery, acquisition, preclinical and clinical development of our product candidates. We have expended and believe that
we will continue to expend substantial resources for the development of our clinical product candidates and may expend additional
resources on other product candidates and drug acquisition or discovery efforts. These expenditures will include costs associated
with general administration, facilities, research and development, acquiring new technologies, manufacturing product and product
candidates, conducting preclinical experiments, conducting clinical trials, preparing for and having regulatory interactions including
applying for regulatory approvals, and commercializing ELZONRIS, as well as any product candidates that might receive approval
for sale, as well as costs associated with operating as a public company.
As the outcome of our ongoing and future clinical trials is
highly uncertain, our estimates of clinical trial costs necessary to successfully complete the development and commercialization
of our product candidates may differ significantly from our actual costs. In addition, other unanticipated costs may arise, which
could cause us to seek additional funds sooner than planned.
Our future capital requirements depend on many factors, including:
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the number of product candidates we pursue and the specific capital requirements to develop each product candidate;
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the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical studies and clinical trials;
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the ability of our product candidates (including ELZONRIS for use in other indications) to progress through clinical development successfully;
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the timing of, and the costs involved in, seeking regulatory approvals for our product candidates;
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the cost of commercialization activities for ELZONRIS, along with any of our other product candidates that may be approved for sale, including marketing, sales and distribution costs;
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the cost associated with securing and establishing commercialization and manufacturing capabilities for our product and product candidates for which we might receive regulatory approval;
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our ability to establish and maintain strategic partnerships, licensing or other arrangements and the economic and other terms of such agreements;
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the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
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the timing, receipt and amount of sales of, or royalties on, our future products, if any;
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our need and ability to hire additional management and scientific, medical, sales, and marketing personnel;
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the effect of competing technological and market developments; and
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our need to implement additional internal systems and infrastructure, including financial and reporting systems.
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Additional funds may not be available when we need them, on
terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to:
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delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for one or more of our product candidates;
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delay, limit, reduce or terminate manufacturing of our product candidates; or
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delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize any of our product candidates that received or might receive regulatory approval and ensure their acceptance by third-party payors and the market.
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We will need to raise additional funds to complete our clinical
trials and achieve positive cash flow.
Raising additional capital may cause dilution to our existing
stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
We will likely seek to raise additional capital through one
or a combination of efforts including equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests
of existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect stockholder
rights. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take
certain actions, such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through
strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to
our technologies or product candidates, or grant licenses on terms that are not favorable to us. If we are unable to raise additional
funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development
or commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop
and market ourselves.
Unstable market and economic conditions may have serious
adverse consequences on our business, financial condition and stock price.
There can be no assurance that deterioration in credit and financial
markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by an economic
downturn, a volatile business environment or an unpredictable and unstable market. If equity and credit markets deteriorate, it
may make any necessary equity, debt, or other financing more difficult to secure, more costly, more dilutive, and less favorable
to existing stockholders. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material
adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon our business
and clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and
other partners may not survive these difficult economic times, which could directly affect our ability to attain our operating
goals on schedule and on budget. There is a possibility that our stock price may decline, due in part to the volatility of the
stock market and the general economic downturn.
Although we received FDA approval for ELZONRIS, and even
if we receive regulatory approval for any of our product candidates, sales of our product depend on reimbursement by government
health administration authorities, private health insurers, and other organizations. If we are unable to obtain or maintain anticipated
levels, reimbursement for our product or coverage may be reduced, our pricing may be affected or our product sales, results of
operations or financial condition could be harmed.
We may not be able to sell our products on a profitable basis
or our profitability may be reduced if we are required to sell our products at lower than anticipated prices or reimbursement is
unavailable or limited in scope or amount. Our products may be priced significantly more expensive than traditional drug treatments
and almost all patients require some form of third-party coverage to afford their cost. We anticipate that we will depend, to a
significant extent, on governmental payers, such as Medicare and Medicaid in the U.S. or country specific governmental organizations
in foreign countries, and private third-party payers to defray the cost of our products to patients. These entities may refuse
to provide coverage and reimbursement, determine to provide a lower level of coverage and reimbursement than anticipated, or reduce
previously approved levels of coverage and reimbursement, including in the form of higher mandatory rebates or modified pricing
terms.
In certain countries where we sell or are seeking or may seek
to commercialize our products, pricing, coverage and level of reimbursement or funding of prescription drugs are subject to governmental
control. We may be unable to timely or successfully negotiate coverage, pricing, and reimbursement on terms that are favorable
to us, or such coverage, pricing, and reimbursement may differ in separate regions in the same country. In some foreign countries,
the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary
widely from country to country, which may include a combination of distinct potential payers, including private insurance and governmental
payers as well as health technology assessment of medicinal products for pricing and reimbursement methodologies. Therefore, we
may not successfully conclude the necessary processes and commercialize our products in every, or even most countries in which
we seek to sell our products.
A significant reduction in the amount of reimbursement or pricing
for our products in one or more countries may reduce our profitability and adversely affect our financial condition. Certain countries
establish pricing and reimbursement amounts by reference to the price of the same or similar products in other countries. Therefore,
if coverage or the level of reimbursement is limited in one or more countries, we may be unable to obtain or maintain anticipated
pricing or reimbursement in current or new territories. In the U.S., the European Union member states, and elsewhere, there have
been, and we expect there will continue to be, efforts to control and reduce healthcare costs. In the U.S. for example, the price
of drugs has come under intense scrutiny by the U.S. Congress. Third party payers decide which drugs they will pay for and establish
reimbursement and co-payment levels. Government and other third-party payers are increasingly challenging the prices charged for
healthcare products, examining the cost effectiveness of drugs in addition to their safety and efficacy, and limiting or attempting
to limit both coverage and the level of reimbursement for prescription drugs.
Health insurance programs may restrict coverage of some products
by using payer formularies under which only selected drugs are covered, variable co-payments that make drugs that are not preferred
by the payer more expensive for patients, and by using utilization management controls, such as requirements for prior authorization
or failure first on another type of treatment. Payers may especially impose these obstacles to coverage for higher-priced drugs,
and consequently our products may be subject to payer-driven restrictions. Additionally, U.S. payers are increasingly considering
new metrics as the basis for reimbursement rates.
In countries where patients have access to insurance,
their insurance co-payment amount or other benefit limits may represent a barrier to obtaining or continuing use of our
potential products. We anticipate providing support for non-profit organizations that assist patients in accessing treatment
for certain diseases. Such organizations assist patients whose insurance coverage imposes prohibitive co-payment amounts or
other expensive financial obligations. Such organizations’ ability to provide assistance to patients is dependent on
funding from external sources, and we cannot guarantee that such funding will be provided at adequate levels, if at all. We
also may provide our products without charge to patients who have no insurance coverage for drugs through related charitable
purposes. We are not able to predict the financial impact of the support we may provide for these and other charitable
purposes; however, substantial support could have a material adverse effect on our profitability in the future.
Our commercial success depends on obtaining and maintaining
reimbursement at anticipated levels for our products. It may be difficult to project the impact of evolving reimbursement mechanics
on the willingness of payers to cover our products. If we are unable to obtain or maintain coverage, or coverage is reduced in
one or more countries, our pricing may be affected or our product sales, results of operations or financial condition could be
harmed.
Risks Related to Our Business and Industry
We are a commercial-stage biopharmaceutical company with
one FDA approved product in a single indication, which makes it difficult to assess our future viability.
We are a commercial-stage biopharmaceutical company with a limited
operating history. We have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently
encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical area. For example, to execute
our business plan, we will need to successfully:
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execute and sustain successful product candidate development activities;
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obtain required regulatory approvals for the development and commercialization of our product candidates, and any new or expanded indications for these product candidates;
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maintain, defend, leverage and expand our intellectual property portfolio;
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build, deploy, and maintain sales, distribution and marketing capabilities, either on our own or in collaboration with strategic partners should our product candidates obtain market approval;
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gain market and third-party payor acceptance for ELZONRIS, our approved product, and our other product candidates, should they obtain market approval, or ELZONRIS should it obtain market approval in additional indications;
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develop and maintain CGMP compliant manufacturing and distribution capabilities sufficient to support the intended scope of our preclinical and clinical development plans and the commercial demand for our product;
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complete required process characterization and validation activities to support any planned regulatory submission, which historically has included the manufacture of at least three consecutive successful process validation batches for drug substance and at least three consecutive successful process validation batches for drug product;
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implement a successful post-market surveillance program to monitor the safety of any approved product that are being commercially marketed and sold;
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develop and maintain any strategic relationships we elect to enter into;
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satisfy our obligations under our licensing agreement and other agreements; and
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manage our spending as costs and expenses increase due to drug acquisition, discovery, preclinical development, clinical trials, regulatory interactions, agreements, and approvals, manufacturing, and commercialization.
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If we are unsuccessful in accomplishing these objectives, we
may not be able to adequately commercialize our product(s) or product candidates, generate meaningful revenue, develop our
product candidates, raise capital, expand our business, or continue our operations.
We face substantial competition, which may result in others
discovering, developing or commercializing products before, or more successfully, than we do.
Our future success depends on our ability to demonstrate and
maintain a competitive advantage with respect to the design, development, and commercialization of product candidates. Our competitors
may succeed in developing competing products before we do for the same indications we are pursuing, obtaining regulatory approval
or gaining acceptance for products or for the same markets that we plan to target. If we are not “first to market”
with our product candidates, our competitive position could be compromised because it may be more difficult for us to obtain marketing
approval for that product candidate and successfully market that product candidate as a competitor.
Even if we are “first to market” with one or
more of our product candidates, a competitor could develop an alternative therapy for our approved indication(s) that
demonstrates a superior efficacy and/or safety profile relative to our approved product.
We expect any product candidate that we are able to commercialize
will compete with products from other companies in the biotechnology and pharmaceutical industries. For example, there are a number
of biopharmaceutical companies focused on developing therapeutics with which we may potentially compete including AbbVie Inc.,
Agenus Inc., Agios Pharmaceuticals, Inc., Ambit Biosciences Corporation (now a Daiichi Sankyo company), Amgen Inc., Astellas
Pharma U.S., Inc., Astex Pharmaceuticals (now an Otsuka Pharmaceutical company), Bayer AG, Bionomics Limited, Blueprint Medicines
Corp., Boehringer Ingelheim GmbH, Bristol-Myers Squibb, Inc., Celator Pharmaceuticals (now a Jazz Pharmaceuticals company),
Celgene Corporation, Celldex Therapeutics, Inc. Cellectis, Cortice Biosciences, Inc., CTI BioPharma Corp., Cyclacel Pharmaceuticals, Inc.,
CytRx Corporation, Eli Lilly and Company, Eisai Co., Ltd., Genmab, Sanofi Genzyme Corporation, Geron Corp., GlaxoSmithKline
plc, Humanigen, Inc., Ignyta, Inc. (a Roche company), ImmunoCellular Therapeutics, Ltd., ImmunoGen, Inc., Impact
Biomedicines, Inc. (now a Celgene company), Incyte Corporation, Inspyr Therapeutics, Inc., Janssen Pharmaceutical
Companies of Johnson & Johnson, Karyopharm Therapeutics Inc., Kura Oncology, Inc., Macrogenics, Inc., Merck &
Co., Inc., Micromet, Inc. (an Amgen Inc. company), Mustang Bio, Inc., Northwest Biotherapeutics, Inc., Novartis
International AG, OncoMed Pharmaceuticals, Inc., Pfizer Inc., Roche Holding AG, Sanofi U.S. LLC, Seattle Genetics, Inc.,
Stemcentrx, Inc. (an AbbVie company), Sumitomo Dainippon Pharma Co., Ltd., Sunesis Pharmaceuticals, Inc., Verastem, Inc.,
Xencor, Inc. and others.
Many of our competitors have substantially greater commercial
infrastructures and financial, technical and personnel resources than we have. In addition, many are farther along in their clinical
development programs. We may not be able to compete unless we successfully:
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design and develop products that address an unmet medical need or demonstrate a superior benefit/risk profile to other products in the market;
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conduct successful preclinical studies and clinical trials;
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attract qualified scientific, medical, sales, marketing and commercial personnel;
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obtain patent and/or other intellectual property protections for our processes and product candidates;
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obtain required regulatory approvals; and
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collaborate with others in the design, development and commercialization of new products.
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Established competitors may invest heavily to quickly discover
and develop novel compounds that could make our product candidates obsolete. In addition, any new product that competes with an
approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome
price competition and to be commercially successful. If we are not able to compete effectively against our competitors, our business
will not grow and our financial condition and operations will suffer.
If we fail to attract and keep senior management and key
scientific and marketing personnel, we may be unable to successfully develop our product candidates, conduct our clinical trials,
and commercialize ELZONRIS or our product candidates.
Our success depends in part on our continued ability to attract,
retain and motivate highly qualified management, clinical and scientific personnel. We are highly dependent upon our senior management
as well as other employees, consultants and scientific and medical collaborators. As of March 16, 2020, we had 104 full-time
employees, which may make us more reliant on our individual employees than companies with a greater number of employees. The loss
of services of any of these individuals or one or more of our other members of senior management could delay or prevent the successful
development of our product pipeline, completion of our ongoing and future clinical trials or the commercialization and successful
marketing launch of our product candidates.
Although we have not historically experienced unique difficulties
attracting and retaining qualified employees, we could experience such problems in the future. For example, competition for qualified
personnel in the biotechnology and pharmaceuticals field is intense. We will need to hire additional personnel as we expand our
clinical development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms.
In addition, we rely on consultants and advisors, including
scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our
consultants and advisors may also be engaged with companies other than us and may have commitments under consulting or advisory
contracts with other entities that may limit their availability to us.
If our employees or third parties acting on our behalf
commit fraud or other misconduct, including noncompliance with regulatory standards and requirements, our business may experience
serious adverse consequences.
We are exposed to the risk of fraud or other misconduct by employees
and third parties acting on our behalf. Misconduct by employees or third parties could include intentional failures to comply with
FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply
with federal and state healthcare fraud and abuse laws and regulations, to report financial information or data accurately or to
disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are
subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These
laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission,
customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information
obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have
adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter employee and third-party misconduct,
and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks
or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance
with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves
or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant
fines, penalties, other sanctions, and exclusion from government-funded healthcare programs.
We expect to expand our development, regulatory, and sales
and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
In connection with our commercial launch of ELZONRIS and possible
international expansion, we expect to experience significant growth in the number of our employees and the scope of our operations,
particularly in the areas of drug development, regulatory affairs, quality, commercial compliance, medical affairs, and sales and
marketing. For example, we plan to hire additional personnel in connection with our commercial launch of ELZONRIS in the United
States and Europe and prepare for potential regulatory filings for ELZONRIS in other markets. To manage our anticipated future
growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and
continue to recruit and train additional qualified personnel. The hiring, training and integration of new employees may be more
difficult, costly and/or time-consuming for us because we have fewer resources than a larger organization. Our future financial
performance, our ability to successfully commercialize ELZONRIS and our product candidates, and our ability to compete effectively
will depend, in part, on our ability to manage any future growth effectively. Our management team has limited experience in managing
a company with this anticipated growth, and we may not be able to do so effectively. The physical expansion of our operations may
lead to significant costs and may divert our management and business development resources. We may not be able to effectively manage
the expansion of our operations, which could delay the execution of our business plans or disrupt our operations.
If product liability lawsuits are brought against us,
we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
We face an inherent risk of product liability as a result of
the clinical testing and commercial sale of our product candidates and products. For example, we may be sued if any product we
develop allegedly causes or contributes to an injury or is found to be otherwise defective during product testing, clinical study,
clinical use, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing,
defects in design, failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties.
Fraud-based claims, as well as claims made pursuant to state consumer protection acts, are also a possibility. If we cannot successfully
defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization
of our product candidates. Even a successful defense would require significant financial and management resources. Regardless of
the merits or eventual outcome, liability claims may result in:
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decreased demand for our product and product candidates that we may develop;
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injury to our reputation;
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withdrawal of clinical trial participants and inability to enroll future clinical trial participants;
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costs to defend the related litigation;
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a diversion of management’s time and our resources;
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substantial monetary awards to trial participants or patients;
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product recalls, withdrawals or labeling, marketing or promotional restrictions;
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the inability to commercialize our product candidates; and
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a decline in our stock price.
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Our inability to obtain and retain sufficient product liability
insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization
of products we develop. Although we maintain liability insurance, any claim that may be brought against us could result in a court
judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits
of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim
for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our
coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to
pay such amounts.
Our relationships with healthcare providers, physicians,
and third-party payors in the United States and in foreign jurisdictions are subject to applicable anti-kickback, fraud and abuse
and other healthcare laws and regulations, which could expose us to criminal, civil or administrative sanctions, contractual damages,
potential exclusion from government-funded healthcare programs, reputational harm, and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors in the
United States and in foreign jurisdictions play a primary role in the recommendation and prescription of any product candidates
for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to fraud and
abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through
which we market, sell and distribute our products for which we obtain marketing approval. Restrictions under applicable federal,
state and foreign healthcare laws and regulations include the following:
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the federal healthcare Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid;
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the federal False Claims Act imposes civil penalties, 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 and also includes provisions allowing for private, civil whistleblower or “qui tam” actions;
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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program. HIPAA and HITECH also regulate the use and disclosure of identifiable health information by healthcare providers, health plans and healthcare clearinghouses, and impose obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of identifiable health information as well as requiring notification of regulatory breaches. HIPAA and HITECH violations may prompt civil and criminal enforcement actions as well as enforcement by state attorney generals;
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the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;
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the federal transparency requirements under the ACA, commonly referred to as the Sunshine Act requires manufacturers of drugs, devices, biologics and medical supplies to report to the HHS information related to U.S.-licensed physician and teaching hospital payments and other transfers of value including research payments and ownership and investment interests;
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analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures;
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the U.S. Foreign Corrupt Practices Act, or FCPA, and other anti-corruption laws and regulations pertain to interactions with foreign government officials. The FCPA prohibits U.S. companies and their employees, officers, and representatives from paying, offering to pay, promising, or authorizing the payment of anything of value, directly or indirectly, to any foreign government official, which includes any officer, employee, political candidate or any person acting in an official capacity for or on behalf of any agency, instrumentality, department, subdivision, or other body of any national, state, or local government, for the purpose of influencing the foreign official in his or her official capacity, inducing the foreign official to do or omit to do an act in violation of his or her lawful duty, or to secure any improper advantage in order to obtain or retain business or to otherwise seek favorable treatment. In many countries in which we operate or sell our products, the healthcare professionals with whom we interact may be considered to be foreign government officials for purposes of the FCPA. The FCPA’s Accounting Provisions separately require that publicly traded companies make and keep books, records and accounts, which in reasonable detail, accurately and fairly reflect the transactions and dispositions of the company’s assets and devise and maintain a system of internal controls sufficient to assure management’s control, authority, and responsibility over the company’s assets;
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the European Union’s General Data Protection Regulation and implementing laws in its member states govern the collection and processing of residents’ personal data and, among other requirements, imposes certain consent and data access rights. Such laws may impact our ability to conduct clinical trials that involve personal data and engage in other activities that require the processing of personal data. Outside of the U.S. and the European Union, there are numerous other jurisdictions that have their own privacy and information security laws, and new laws and regulations are being considered and/or enacted globally, which may affect our ability to collect, process, and store their residents’ personal data; and
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analogous anti-kickback, fraud and abuse and healthcare laws and regulations in foreign countries.
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The ACA broadened the reach of fraud and abuse laws by, among
other things, amending the intent requirement of the federal Anti-Kickback Statute and the applicable criminal healthcare fraud
statutes contained within 42 U.S.C. Section 1320a-7b. Pursuant to the statutory amendment, a person or entity no longer needs
to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition,
the ACA 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 civil False Claims Act or the civil monetary
penalties statute. Many states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral
of patients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs.
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 involving
applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these
laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative
penalties, damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid, and the curtailment
or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business
are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including
exclusion from government-funded healthcare programs.
If we fail to comply with environmental, health and safety
laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on
the success of our business.
We and our suppliers are subject to numerous environmental,
health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment
and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including
chemicals and biological materials. Our operations also release hazardous waste. We generally contract with third parties for the
disposal of these materials and wastes. We cannot eliminate the risk of release, contamination or injury from these materials.
In the event of release, contamination or injury resulting from our use of hazardous materials, we could be held liable for any
resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or
criminal fines and penalties.
Although we maintain workers’ compensation insurance to
cover us for costs and expenses that we may incur due to injuries to our employees resulting from the use of hazardous materials,
this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental
liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous
or radioactive materials.
In addition, we and our suppliers may incur substantial costs
in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and
regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also
may result in substantial fines, penalties or other sanctions.
Our internal computer systems, or those of our third-party
CMOs, CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption
of our product candidates’ development programs.
Despite the implementation of security measures, our internal
computer systems and those of our third-party CMOs, CROs and other contractors and consultants are vulnerable to damage from computer
viruses, unauthorized access, theft, natural disasters, terrorism, war and telecommunication and electrical failures. While we
have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions
in our operations, it could result in a material disruption of our programs. For example, the loss of clinical trial data for our
product candidates could result in delays in our regulatory approval efforts and significantly increase our costs due to recovering
or reproducing the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications,
loss of or damage to other data or applications relating to our technology or product candidates, or inappropriate disclosure or
theft of confidential or proprietary information, we could incur liabilities and the further development of our product candidates
could be delayed.
Europe has enacted a new data privacy regulation, the
General Data Protection Regulation, a violation of which could subject us to significant fines.
In May 2018, a new privacy regime, the General Data Protection
Regulation, or GDPR, took effect across all member states of the European Economic Area. The new regime increases our obligations
with respect to clinical trials conducted in the member states by expanding the definition of personal data to include coded data,
and requiring changes to informed consent practices and more detailed notices for clinical trial subjects and investigators. In
addition, it increases the scrutiny that clinical trial sites located in the member states should apply to transfers of personal
data from such sites to countries that are considered to lack an adequate level of data protection, such as the United States.
The regime imposes substantial fines for breaches of data protection requirements, which can be up to four percent of global turnover
or 20 million Euros, whichever is greater, and it also confers a private right of action on data subjects for breaches of data
protection requirements. Compliance with these directives is a rigorous and time-intensive process that may increase our cost of
doing business, and the failure to comply with these laws could subject us to significant fines.
Risks Related to Our Dependence on Third Parties in the U.S.
and Abroad
Third parties have conducted clinical trials of our product
candidates in the past, and our ability to influence the design and conduct of such trials was limited. Our current and future
corporate-sponsored trials will also require us to rely on various third parties. Any failure by a third-party to meet its obligations
with respect to the clinical and regulatory development of our product candidates may delay or impair our ability to obtain regulatory
approval for our products.
We are currently advancing our clinical-stage product
candidates through multiple corporate-sponsored clinical trials under corporate-sponsored INDs and through investigator
sponsored trials. Prior to sponsoring our INDs for our product candidates, faculty members at academic institutions and other
companies may have conducted and sponsored the INDs and clinical trials relating to our drug candidates. As such, we did not
control the design or conduct of any trials conducted prior to the initiation of our corporate-sponsored INDs, and it is
possible that the FDA will not view these previous trials as providing adequate support for future clinical trials or
regulatory filings.
In addition, we have relied on contractual arrangements with
academic institutions and investigators that provide us certain information rights with respect to the completed investigator-sponsored
trials, including access to, and the ability to use and reference the data, including for our own regulatory filings, resulting
from the completed trials. If these obligations are breached by the investigators or institutions, or if the data prove to be inadequate,
then our ability to conduct our planned corporate-sponsored clinical trials may be adversely affected. Additionally, the FDA may
disagree with our interpretation of the adequacy of the preclinical, manufacturing, and/or clinical data from these studies. If
so, the FDA may require us to obtain and submit additional preclinical, manufacturing, and/or clinical data relating to our planned
trials and/or may not accept such additional data as adequate for our regulatory filings.
We rely on, and expect to continue to rely on, third parties
to monitor, support, conduct and/or oversee clinical trials of our product candidates and, in some cases, to maintain regulatory
files for our product candidates. If we are not able to maintain or secure agreements with such third-parties on acceptable terms
to monitor, support, conduct and/or oversee these clinical trials, if these third-parties do not perform their services as required,
or if these third-parties fail to timely transfer any regulatory information held by them to us, we may not be able to obtain regulatory
approval for, or commercialize, our product candidates.
To conduct our preclinical and clinical studies, we rely on
academic institutions, CROs, hospitals, clinics and other third-party collaborators who are outside our direct control, which limits
our control over the overall conduct of these studies and the ability to successfully complete them. In our corporate-sponsored
trials and investigator sponsored trials of ELZONRIS and our clinical drug candidates, we have continued to engage various third
parties. If we are unable to maintain or enter into agreements with these third parties on acceptable terms, or if any such engagement
is terminated, we may be unable to enroll patients on a timely basis or otherwise conduct our trials in the manner we anticipate.
In addition, there is no guarantee that these third parties will devote adequate time and resources to our studies or perform as
required by contract or in accordance with regulatory requirements. If these third-parties fail to meet expected deadlines, fail
to adhere to protocols or fail to act in accordance with regulatory requirements or our agreements with them, or if they otherwise
perform in a substandard manner or in a way that compromises the quality or accuracy of their activities or the data they obtain,
then trials of our product candidates may be extended, delayed, compromised or terminated, and as a result we may not be able to
commercialize our product candidates.
We may not be successful in establishing and maintaining
strategic partnerships, which could adversely affect our ability to develop and commercialize products.
We may seek to enter into strategic partnerships in the future,
including alliances with other biotechnology or pharmaceutical companies, to enhance and accelerate the development and commercialization
of our products in territories outside the United States. We face significant competition in seeking appropriate strategic partners
and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic
partnership or other alternative arrangements for any future product candidates and programs because our research and development
pipeline may be insufficient, our product candidates and programs may be deemed to be at too early a stage of development for collaborative
effort, and/or third-parties may not view our product candidates and programs as having the requisite potential to demonstrate
safety and efficacy. Even if we are successful in our efforts to establish strategic partnerships, the terms that we agree upon
may not be favorable to us, and we may not be able to maintain such strategic partnerships if, for example, development or approval
of a product candidate is delayed or sales of an approved product are disappointing.
If we ultimately determine that entering into strategic partnerships
is in our best interest but either fail to enter into, are delayed in entering into, or fail to maintain such strategic partnerships:
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the development of certain of our current or future product candidates may be terminated or delayed;
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our cash expenditures related to development of certain of our current or future product candidates would increase significantly and we may need to seek additional financing;
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we may be required to hire additional employees or otherwise develop expertise, such as sales and marketing expertise, for which we have not budgeted;
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we may bear all of the risk related to the development of any such product candidates;
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the competitiveness of any product candidate that is commercialized could be reduced; and
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with respect to our platform technology, StemScreen®, we may not realize its potential as a means of identifying and validating new cancer therapies.
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We rely on third-party manufacturers to produce and supply
our commercial products, as well as our clinical and preclinical product candidates. Any failure by a third-party manufacturer
to produce supplies for us may delay or impair our ability to initiate or complete our clinical trials, commercialize our products,
or continue to sell our approved products.
We do not currently own or operate any manufacturing facilities,
and we lack sufficient internal staff and infrastructure to produce commercial supplies, as well as clinical and preclinical product
candidate supplies, ourselves. As a result, we work with third-party CMOs to produce and test our products and clinical product
candidates in acceptable quality and quantity for our ongoing and future clinical trials, as well as for commercial supply. If
we are unable to maintain such third-party manufacturing sources, or fail to do so on commercially reasonable terms or on a timely
basis, we may not be able to successfully produce, develop, and market ELZONRIS or our clinical drug candidates or may be delayed
in doing so. We purchase and plan to purchase immunostimulants used with SL-701 from third parties. Whereas GM-CSF and Imiquimod
are commercially available products, poly-ICLC (Hiltonol®) is a development stage candidate and not commercially available.
We do not have a right to manufacture poly-ICLC directly or through our third-party CMOs, and are wholly dependent on a third-party
manufacturer of poly-ICLC for clinical supply. This third-party manufacturer currently has a limited supply and may be unable to
provide adequate poly-ICLC to us in the future.
We also expect to rely upon third parties to produce and test
drug substance and drug product required for the clinical trials and commercial supply of our product and product candidates. If
we are unable to arrange for third-party manufacturing sources, or to do so on commercially reasonable terms or on a timely basis,
we may not be able to complete the development of such other product candidates or market those that are approved. Reliance on
third-party manufacturers entails risks to which we would not be subject if we manufactured product candidates ourselves, including
reliance on the third-party for regulatory compliance and quality assurance, the possibility of breach of the manufacturing agreement
by the third-party because of factors beyond our control (including a failure to synthesize and manufacture our product candidates
in accordance with our product specifications), and the possibility of termination or nonrenewal of the agreement by the third-party,
based on its own business priorities, at a time that is costly or damaging to us. We will be dependent on the ability of these
third-party manufacturers to produce adequate supplies of drug product to support our clinical development programs, our supply
needs for ELZONRIS, and future commercialization of any product candidates for which we may receive regulatory approval. In addition,
the FDA and other regulatory authorities require that our products and product candidates be manufactured according to CGMPs, and
similar standards for products manufactured for markets outside the U.S. Any failure by our third-party manufacturers to comply
with CGMPs or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of product or
product candidates of acceptable quality in a timely manner, could lead to a delay in, or failure to obtain, regulatory approval
for trial initiation or marketing of any of our product candidates or commercial products. In addition, such failures could be
the basis for action by the FDA to withdraw product approvals previously granted to us and for other regulatory action, which could
result in or lead to recall, seizure, import alerts, fines, imposition of operating restrictions, total or partial suspension of
production, injunctions, consent decrees, or civil or criminal sanctions.
Any adverse developments affecting our manufacturing operations
or the operations of our third-party providers could result in a product shortage of clinical or commercial requirements, withdrawal
of our product candidates or any approved products, shipment delays, lot failures or recalls. We may also have to write-off inventory
and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek
more costly manufacturing alternatives. Each of these could have an adverse material impact on our business individually or in
the aggregate.
We rely on our third-party manufacturers to purchase from
third-party suppliers the materials necessary to produce our products, and product candidates for our clinical studies. There
are a small number of suppliers for certain capital equipment and materials that we use to manufacture and test our drugs.
Such suppliers may not sell these materials to our third-party manufacturers at the times we need them or on commercially
reasonable terms. We do not have control over the process or timing of the acquisition of these materials by our third-party
manufacturers. Moreover, we currently do not have any agreements for the commercial production of these materials. Although
we generally do not begin a clinical trial unless we believe we have a sufficient supply of a product candidate to complete
the clinical trial, any significant delay in the supply of a product candidate or the material components thereof for a
clinical trial, including an ongoing clinical trial, due to the need to replace a third-party manufacturer, could
considerably delay completion of our clinical studies, product testing and potential regulatory approval of our product
candidates. If our third-party manufacturers or we are unable to purchase these materials after regulatory approval has been
obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a
shortage in supply, which would impair our ability to generate revenues from the sale of our products or product
candidates.
We are working with our third-party manufacturers to optimize
the manufacturing processes for our products and product candidates, including related drug substances, so that these products
and product candidates may be routinely produced in adequate quantities of adequate quality, and at an acceptable cost, to support
our clinical trials and commercialization of products that might be approved. Our third-party manufacturers may not be able to
control batch-to-batch variability below an acceptable threshold, increasing the risk of batch failures, which could cause significant
delays and increased costs to our programs. Our third-party manufacturers may not be able to manufacture our products or product
candidates at a cost, or in quantities, or in a timely manner necessary, to develop and commercialize them. If we successfully
commercialize any of our product candidates, we may be required to establish or access large-scale commercial manufacturing capabilities,
and may require different technologies to manufacture these products. In addition, assuming that our drug development pipeline
increases and matures, we will have a greater need for clinical trial and commercial manufacturing capacity. To meet our projected
needs for commercial manufacturing, third parties with whom we currently work may need to increase their scale of production and/or
we may need to secure additional suppliers with appropriate technologies to support our new product candidates. If our projected
needs for commercial manufacturing are not accurate, or we do not obtain regulatory approval of new products or additional indications
for existing products or additional delivery systems, or are significantly delayed or limited in doing so, our revenue may be adversely
affected, we may experience surplus inventory and we may be required to write down certain assets.
The third parties upon whom we rely for the
manufacturing, and supply of our drug product, drug substance, starting materials and intermediates
for drug substances used to manufacture ELZONRIS and our product candidates are our sole source of
supply, and the loss or disruption of any of these suppliers, including as a result of the COVID-19 pandemic, could
significantly harm our business.
Our ability to successfully develop our drug candidates,
supply our drug candidates for clinical trials and to ultimately supply our commercial drugs, including ELZONRIS, in quantities sufficient
to meet the market demand, depends in part on our ability to obtain the appropriate substances for these drugs in accordance
with regulatory requirements and in sufficient quantities for clinical testing and commercialization. It is expected
that many of our manufacturing partners will be sole source suppliers for the foreseeable future. Various
raw materials, components, and testing services required for our products may also be single sourced. We are not certain
that our single-source suppliers will be able to supply sufficient quantities of their products or on the timelines necessary
to meet our needs, either because of our limited experience with
those suppliers, our relative importance as a customer to those suppliers, public health emergencies such as the COVID-19
pandemic or natural disasters that may cause those suppliers to stop work for a period of time. If any of our suppliers
ceases its operations for any reason or is unable or unwilling to supply the materials necessary for our drug product and
product candidates in sufficient quantities or on the timelines necessary to meet our needs, it could significantly and
adversely affect our business, the supply of our product candidates and our financial condition. In addition, if
our current or future supply of any of our product candidates should fail to meet specifications during its stability
program there could be a significant interruption of our supply of product, which would adversely affect the clinical development
and commercialization of the product.
Although COVID-19 has not had a material adverse
effect on our supply chain to date, no assurance can be given that it will not in the future if the situation
persists or worsens. Many states and countries continue to be, or may become, subject to government-imposed quarantines
and travel restrictions due to the COVID-19 pandemic. While all of our suppliers have been classified as "essential services", with no reduced operations at manufacturing and research
locations to date, there is no guarantee that this will remain the case in perpetuity, and despite essential services classification,
the rate of spread of COVID-19 could negatively impact staff availability and result in time-limited shutdowns. We are working closely with our contract
manufacturer to ensure availability of sufficient commercial supply.
Business or economic disruptions or global health concerns
could seriously harm our development efforts and increase our costs and expenses.
Broad-based business or economic disruptions could adversely
affect our ongoing or planned research and development, clinical, or commercial activities. For example, in December 2019
an outbreak of a novel strain of coronavirus originated in Wuhan, China, and has since spread to a number of other countries,
including the United States. To date, this outbreak has already resulted in extended shutdowns of certain businesses around the
world. The outbreak may result in additional or more extensive travel restrictions, closures, disruptions of businesses or facilities
in affected regions around the world or lead to social, economic, political or labor instability which may impact our suppliers’
or our customers’ operations.
Global epidemics, such as the coronavirus, could also negatively
affect the hospitals and clinical sites in which we conduct any of our clinical trials, which could have a material adverse effect
on our business and our results of operation and financial condition. We cannot presently predict the scope and severity of any
potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage, including the suppliers,
clinical trial sites, regulators and other third parties with whom we conduct business, were to experience shutdowns or other business
disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively
impacted.
We are currently sole sourced for supply of our drug substance
and drug product for each of our product and product candidates. Any problems experienced by our third-party manufacturers or their
vendors could result in a delay or interruption in the supply of our products or product candidates to us until the third-party
manufacturer or its vendor cures the problem or until we locate and qualify an alternative source of manufacturing and supply.
The third-party manufacturers of our product and product
candidates require specialized equipment and utilize complicated production processes that would be difficult, time-consuming
and costly to duplicate. Thus, we have multiple third-party manufacturers who supply our drug product candidates, one
third-party manufacturer for each of our product and product candidates. Because of this arrangement, there is a greater risk
that issues in execution or changes in business focus and/or product risk assessments at a third-party manufacturer could
cause delays in the clinical development or manufacture of a product or product candidate than if we used more than one
third-party manufacturer for each product and product candidate. For each of our product and product candidates, we currently
rely on third-party manufacturers to purchase from their third-party vendors the materials necessary to manufacture our
product and product candidates for commercial supply and our clinical studies. Any prolonged disruption in a third-party
manufacturer’s vendor’s ability to supply materials for our manufacturing could have a significant negative
impact on our third-party manufacturer’s ability to manufacture our product or product candidates. This would cause us
to seek additional third-party manufacturing contracts, thereby increasing, if applicable, our development costs and
timelines, and any commercialization costs. In addition, our third-party manufacturers may experience problems not related to
their vendors that could also have a significant negative impact on their ability to manufacture our product and product
candidates. This would cause us to seek additional third-party manufacturing contracts, thereby increasing, if applicable,
our development costs and timelines and any commercialization costs. Moreover, third-party manufacturers and third-party
laboratories performing analytical and other testing could receive inspection findings from regulatory authorities that
require investigation and remediation, and this could result in business interruptions affecting the production of our
product and product candidates. We may face losses related to the supply of drug substances, drug product, adjuvants and
other components of the product due to third-party distribution and storage of such product. We may suffer losses due to
third-party manufacturers’ shortages or supply shortages of their vendors. We may suffer losses as a result of business
interruptions that exceed coverage under our manufacturers’ insurance policies. Events beyond our control, such as
natural disasters, fire, sabotage or business accidents could have a significant negative impact on our operations by
disrupting our product candidate development and commercialization efforts until our third-party manufacturers can repair
their facilities or we can qualify alternate third-party contract manufacturers to assume this manufacturing role, which we
may not be able to do on reasonable terms, if at all. In addition, if we are required to change manufacturers for any reason,
we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality
standards and with all applicable regulations and guidelines and that they can successfully transfer our manufacturing
processes to produce product of equivalent quality and quantity. FDA or other local health authority approval of any new
manufacturer would also be required. The delays associated with the qualification of a new manufacturer or the
requalification of an existing manufacturer could negatively affect our ability to develop product candidates or produce
approved products in a timely manner. Any delay or interruption in our clinical studies or in the development, validation and
commercialization of our product or product candidates could negatively affect our business.
Because of our reliance on contract manufacturers, we may choose
to maintain a higher inventory of drug product and/or drug substance for any of our product candidates or approved products than
would be necessary if we had direct control of the manufacturing assets.
To the extent we elect to enter into licensing or collaboration
agreements to develop and commercialize our products or product candidates, our dependence on such relationships may adversely
affect our business.
Our global commercialization strategy for certain of our product
or product candidates may depend on our ability to enter into agreements with collaborators to obtain assistance and funding for
the development and commercialization of these product or product candidates. Supporting diligence activities conducted by potential
collaborators and negotiating the financial and other terms of a collaboration agreement are long and complex processes with uncertain
results. Even if we are successful in entering into one or more collaboration agreements, collaborations may involve greater uncertainty
for us, as we have less control over certain aspects of our collaborative programs than we do over our proprietary development
and commercialization programs. We may determine that continuing to collaborate under the terms provided is not in our best interest,
and we may terminate such collaboration. Our collaborators could delay or terminate their agreements, and our product or product
candidates subject to collaborative arrangements may never be successfully commercialized.
Further, our future collaborators may develop alternative products
or pursue alternative technologies either on their own or in collaboration with others, including our competitors, and the priorities
or focus of our collaborators may shift, so that our programs receive less attention or resources than we would like, or they may
be terminated altogether. Any such actions by our collaborators, may adversely affect our business prospects and ability to earn
income. In addition, we could have disputes with our future collaborators, on issues such as the interpretation of terms in our
agreements. Any such disagreements could lead to delays in the development or commercialization of any potential products or could
result in time-consuming and expensive litigation or arbitration, which might not be resolved in our favor.
Even with respect to certain other products that we intend to
commercialize ourselves, we may enter into agreements with collaborators to share in the burden of conducting clinical trials,
manufacturing, and marketing our product candidates or products. In addition, our ability to apply our proprietary technologies
to develop proprietary compounds will depend on our ability to establish and maintain licensing arrangements or other collaborative
arrangements with the holders of proprietary rights to such compounds. We may not be able to establish such arrangements on favorable
terms or at all, and our future collaborative arrangements might not be successful.
Risks Related to Our Intellectual Property Rights
We could be unsuccessful in obtaining adequate patent
protection for one or more of our products or product candidates.
Our commercial success will depend in part on obtaining
and maintaining patent protection and trade secret protection in the U.S. and other countries with respect to our product and
product candidates or any future product candidate that we may license or acquire and the methods we use to manufacture them,
as well as successfully defending these patents and trade secrets against third-party challenges. We seek to protect our
proprietary position by filing patent applications in the United States and abroad related to our novel technologies and
product or product candidates, and by the maintenance of our trade secrets through proper procedures. We will only be able to
protect our technologies from unauthorized use by third parties to the extent that valid and enforceable patents or trade
secrets cover them in the market they are being used or developed. We cannot be certain that patents will be issued, or that
issued or allowed patents will not later be found to be invalid and/or unenforceable. The patent prosecution process is
expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at
a reasonable cost or in a timely manner. An adverse determination in any such submission, patent office trial, proceeding or
litigation could reduce the scope of, render unenforceable, or invalidate, our patent rights, allow third parties to
commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to
manufacture or commercialize products without infringing third-party patent rights. It is also possible that we will fail to
identify any patentable aspects of our research and development output and methodology, and, even if we do, an opportunity to
obtain patent protection may have passed. Given the uncertain and time-consuming process of filing patent applications and
prosecuting them, it is possible that our product, product candidates or process(es) originally covered by the scope of the
patent application may have changed or been modified, leaving our product or product candidates process(es) without patent
protection.
The patent position of biotechnology and pharmaceutical companies
is generally highly uncertain, involves complex legal and factual questions, and has in recent years been the subject of much litigation.
In addition, no consistent policy regarding the breadth of claims allowed in pharmaceutical or biotechnology patents has emerged
to date in the U.S. The patent situation outside the U.S. is even more uncertain. The laws of foreign countries may not protect
our rights to the same extent as the laws of the U.S., and we may fail to seek or obtain patent protection in all major markets.
For example, European patent law restricts the patentability of methods of treatment of the human body more than U.S. law does.
Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the
U.S. and other jurisdictions are typically not published until 18 months after a first filing, or in some cases not at all. Therefore,
we cannot know with certainty whether we or our licensors were the first to make the inventions claimed in patents or pending patent
applications that we own or licensed, or that we or our licensors were the first to file for patent protection of such inventions.
In the event that a third party has also filed a U.S. patent application relating to our product candidates or a similar invention,
depending upon the priority dates claimed by the competing parties, we may (i) fail to obtain a patent based on anticipation
or obviousness over a competitor’s earlier filed application or (ii) have to participate in interference proceedings
declared by the United States Patent and Trademark Office, or USPTO, to determine priority of invention in the U.S. Moreover, we
may be subject to a third-party pre-issuance submission of prior art to the USPTO, or become involved in opposition, derivation,
reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights
of others. The costs of these proceedings could be substantial and it is possible that our efforts to establish we were the first-to-file
on our technology or products or that we had priority of invention would be unsuccessful, resulting in a material adverse effect
on our U.S. patent position. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights
are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology
or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products.
Changes in either the patent laws or interpretation of the patent laws in the U.S. and other countries may diminish the value of
our patents or narrow the scope of our patent protection. For example, the federal courts of the U.S. have taken an increasingly
dim view of the patent eligibility of certain subject matter, such as naturally occurring nucleic acid sequences, amino acid sequences
and certain methods of utilizing same, which include their detection in a biological sample and diagnostic conclusions arising
from their detection. Such subject matter, which had long been a staple of the biotechnology and biopharmaceutical industry to
protect their discoveries, is now considered, with few exceptions, ineligible in the first instance for protection under the patent
laws of the U.S. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in those
licensed from a third-party. In addition, if the breadth or strength of protection provided by our patents and patent applications
is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product
candidates.
Recent patent reform legislation could increase the uncertainties
and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. The Supreme
Court has issued several decisions in patent cases in recent years, which either narrow the scope of patent protection or weaken
the rights of patent owners in certain situations. In addition to increasing uncertainty in regards to our ability to obtain patents
in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending
on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in
unpredictable ways that could hinder our ability to obtain new patents or to enforce our existing patents and patents that we might
obtain in the future. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into
law. The Leahy-Smith Act includes a number of significant changes to the United States patent law. These include changes to transition
from a “first-to-invent” system to a “first-to-file” system and to the way issued patents are challenged.
The formation of the Patent Trial and Appeal Board (PTAB) now
provides a quicker and less expensive process for challenging issued patents. Our patents, even after they are issued by the USPTO,
may be challenged by competitors in the PTAB, in addition to challenges we could have faced previously in district court. The USPTO
recently developed new regulations and procedures to govern the administration of the Leahy-Smith Act, and many of the substantive
changes to patent law associated with the Leahy-Smith Act, and in particular, the first-inventor-to-file provisions, only became
effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation
of our business.
Even if our patent applications issue as patents, they
may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise
provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing
similar or alternative technologies or products in a non-infringing manner.
Our patents and patent applications may not be sufficient to
protect our product and product candidates from commercial competition. For example, we cannot obtain a composition of matter patent
and are limited in the types of claims that we can obtain for ELZONRIS due to earlier published prior art. We have however obtained
U.S. and foreign patents for certain methods of using ELZONRIS to treat AML, BPDCN, CMML, and myelodysplastic syndrome, or MDS.
In addition, we have filed additional U.S. and foreign patent applications for the method of using ELZONRIS to treat AML, MDS,
BPDCN, CMML, and other diseases although there can be no assurances that such patents will issue.
Failure to obtain patents directed to all approved uses of ELZONRIS
may enable a competitor to market ELZONRIS for such approved but unpatented indication(s), which could lead to price erosion for
sales of ELZONRIS. With respect to SL-701, although we have licensed an issued U.S. patent directed to the composition of matter
for the mutant immunogenic IL-13Rα2 peptide, as well as issued patents in Europe, Japan, Australia, and Mexico directed to
uses of the SL-701 composition, we currently do not have any composition of matter patent protection for SL-701. We have filed
U.S. and foreign patent applications directed to methods of use of a new survivin mutant peptide for use in SL-701. The U.S. patent
application directed to certain uses of a new survivin mutant peptide for use in SL-701 for treating brain cancer has been issued
by the USPTO as U.S. 10,485,858 and patents have been issued for certain uses of the SL-701 composition in Europe and Japan. While
we have a non-exclusive license to issued U.S. patents directed to methods of use for the EphA2 peptide, we currently do not have
any composition of matter patent protection, although we do have rights to foreign pending patent applications that seek to cover
certain uses of this peptide. With respect to SL-801 and SL-901, we have licensed composition of matter patents issued in the U.S.
and abroad directed to the SL-801 compound and SL-901. With respect to SL-1001, we have filed U.S. and foreign patent applications
directed to the SL-1001 composition, and these applications are pending Our inability to obtain adequate patent protection for
our product candidates or platform technology could adversely affect our business.
Issued patents covering one or more of our product or
product candidates could be found invalid or unenforceable if challenged in court.
If we were to initiate legal proceedings against a third-party
to enforce a patent covering one of our products or product candidates, the defendant could counterclaim that our patent is invalid
and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability
are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for
example, lack of patentable subject matter, novelty, obviousness, written description or non-enablement.
Grounds for an unenforceability assertion could be an allegation
that someone connected with the prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement,
during prosecution. The outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable.
Furthermore, any claims asserted against accused infringers could provoke those parties to petition the USPTO to institute inter
partes review against the asserted patents, which may lead to a finding that all or some of the claims of the patent are invalid.
With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and
the patent examiner and we were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or
unenforceability, we would lose at least part, and perhaps all, of the patent protection on one or more of our products or product
candidates or certain aspects of our platform technology, StemScreen®. Such a loss of patent protection could have a material
adverse impact on our business. Furthermore, adverse results on U.S. patents may affect related patents in our global portfolio.
Claims that our product or product candidates or other
technologies, or the sale or use of our products or technology infringe the patent rights of third parties could result in costly
litigation or could require substantial time and money to resolve, even if litigation is avoided.
We cannot guarantee that our product or product candidates,
the use of our product or product candidates, or our platform technology, StemScreen®, do not infringe third-party patents
or other intellectual property. Third parties might allege that we are infringing their patent rights or that we have misappropriated
their trade secrets. Such third parties might resort to litigation against us. The basis of such claims that our product candidates
or platform technology infringe the rights of third parties could also adversely affect our business. Regardless of the outcome
of any litigation, defending the litigation may be expensive, time-consuming and distracting to management. For example, we are
aware of third-party patents with certain claims that may be directed to some of our product candidates, including one of the peptides
used in SL-701 and structures which may be related to SL-1001. We may need to seek a license with respect to one or more of these
third-party patents in order to commercialize our products. No assurance can be given that any such licenses will be available,
or that they will be available on reasonable or commercially acceptable terms or at all. Failure to obtain any required licenses
could restrict our ability to commercialize our products in certain territories or subject us to patent infringement litigation,
could result in us having to cease commercialization of our products and/or subject us to money damages in such territories.
It is also possible that we have failed to identify relevant
patents or applications. Patent applications covering our product, product candidates, or platform technology could have been filed
by others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations,
be later amended in a manner that could cover our platform technologies, our product, product candidates or the use of our products.
In order to avoid or settle potential claims with respect to
any patent rights of third parties, we may choose or be required to seek a license from a third-party and be required to pay license
fees or royalties or both. These licenses may not be available on expected, reasonable, or acceptable terms, or at all. Even if
we or any future strategic partners were able to obtain a license, the rights may be non-exclusive, which could result in our competitors
gaining access to the same intellectual property.
Ultimately, we could be prevented from commercializing one or
more of our products or product candidates, or be forced to cease some aspect of our business operations, if, as a result of actual
or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms. Even if we were to ultimately
prevail, or to settle at an early stage, such litigation could burden us with substantial unanticipated costs. In addition, litigation
or threatened litigation could result in significant demands on the time and attention of our management team, distracting them
from the pursuit of other company business.
Unfavorable outcomes in intellectual property litigation
could limit our research and development activities and/or our ability to commercialize certain products.
If third parties successfully assert intellectual property rights
against us, we might be barred from using certain aspects of our platform technology or barred from developing and commercializing
certain products. Prohibitions against using certain technologies, or prohibitions against commercializing certain products, could
be imposed by a court or by a settlement agreement between a patent owner and us. In addition, if we are unsuccessful in defending
against allegations of patent infringement or misappropriation of trade secrets, we may be forced to pay substantial damage awards
to the plaintiff. There is inevitable uncertainty in any litigation, including intellectual property litigation. There can be no
assurance that we would prevail in any intellectual property litigation, even if the case against us is weak or flawed. If litigation
leads to an outcome unfavorable to us, we may be required to obtain a license from the patent owner, in order to continue our research
and development programs or to market our product. It is possible that the necessary licenses will not be available to us on commercially
acceptable terms, or at all. This could limit our research and development activities, our ability to commercialize certain products,
or both.
Most of our competitors are larger than we are and have substantially
greater resources. They are, therefore, likely to be able to sustain the costs of complex patent litigation longer than we could.
In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds
necessary to continue our clinical trials, continue our internal research programs, in-license needed technology, or enter into
strategic partnerships that would help us bring our product candidates to market. Such litigation or proceedings could substantially
increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution
activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately.
Intellectual property litigation may lead to unfavorable
publicity that harms our reputation and causes the market price of our common stock to decline.
During the course of any patent litigation, there could be public
announcements of the results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts
or investors regard these announcements as negative, the perceived value of our product candidates, platform technology, programs,
or intellectual property could be diminished. Accordingly, the market price of our common stock may decline.
ELZONRIS, our clinical drug candidates, as well as some
of our other product candidates and our platform technologies, are protected by intellectual property licensed from third parties,
including academic institutions. If the licensors terminate the licenses, or fail to prosecute, maintain, enforce, and/or defend
the licensed patents and patent applications, our competitive position, market share, and business prospects would be harmed.
We are a party to several license agreements relating to certain
patents and patent applications owned by third parties, upon which certain aspects of our business depend. In particular, we hold
an exclusive license from Scott and White Memorial Hospital, or Scott and White, for ELZONRIS and SL-501, and we hold three licenses,
including an exclusive license and two non-exclusive licenses, from the University of Pittsburgh relating to SL-701. Our license
agreement with Scott and White survives, unless earlier terminated, until the later of the expiration of the last to expire licensed
patent or the date on which we owe no further payments to Scott and White. Our exclusive and our non-exclusive patent license agreements
with the University of Pittsburgh survive, unless earlier terminated, until the expiration of the last to expire licensed patent,
and our non-exclusive license with the University of Pittsburgh to use and reference certain clinical trial data and information
survives for a term of twenty years unless earlier terminated. We hold an exclusive worldwide license from CanBas Co., Ltd.
for SL-801. The agreement with CanBas Co., Ltd. survives until the later of ten years following the first commercial sale
of each product in each country; the date upon which there are no more valid claims; or the expiration or termination of the last
regulatory exclusivity period, after which our license becomes fully paid, irrevocable, perpetual, non-exclusive and royalty-free.
In March 2019, we acquired an exclusive worldwide license to pending patents covering the SL-1001 component from CRT Pioneer
Fund. We also hold an exclusive worldwide license from UCB Biopharma SPRL for the patents covering SL-901. In addition, we hold
licenses from academic institutions relating to intellectual property underlying ELZONRIS and our product candidates. We also hold
an exclusive license from CRT Pioneer Fund LP for SL-1001, which survives until Stemline’s obligation to pay royalties ends,
which the agreement defines as the later of the date when the licensed product is no longer within the scope of a valid claim of
a licensed patent in the country of sale or manufacture or the expiry of any extended exclusivity period in the relevant country,
unless earlier terminated. We expect to enter into additional license agreements as part of the development of our business.
In some instances, we depend on our licensors to protect the
proprietary rights covering our technology and we have limited, if any, control over the amount or timing of resources that they
devote on our behalf, or the priority they place on, maintaining patent rights and prosecuting patent applications to our advantage.
Moreover, in some instances, we have limited, if any, control over the strategies and arguments employed in the maintenance of
patent rights and the prosecution of patent applications to our advantage. Our current or future licensors may not successfully
prosecute certain patent applications under which we are licensed and on which our business depends. Even if patents issue from
these applications, our licensors may fail to maintain these patents, may decide not to pursue litigation against third-party infringers,
may fail to prove infringement, or may fail to defend against counterclaims of patent invalidity or unenforceability. Moreover,
and possibly unbeknownst to us, our licensors may experience serious difficulties related to their overall business or financial
stability, and they may be unwilling or unable to continue to expend the financial resources required to maintain and prosecute
these patents and patent applications. While we intend to take actions reasonably necessary to enforce our patent rights, we depend,
in part, on our licensors to protect a substantial portion of our proprietary rights and to inform us of the status of those protections
and efforts thereto.
Our licensors may also be notified of alleged infringement and
be sued for infringement of third-party patents or other proprietary rights. We may have limited, if any, control or involvement
over the defense of these claims, and our licensors could be subject to injunctions and temporary or permanent exclusionary orders
in the U.S. or other countries. Our licensors are not obligated to defend or assist in our defense against third-party claims of
infringement.
In addition, in spite of our best efforts, our licensors might
conclude that we have materially breached our license agreements and might therefore seek to terminate the license agreements,
thereby removing our ability to obtain regulatory approval and to market products covered by these license agreements. Our licensors
may also seek to terminate the license agreements if we fail to satisfy our diligence obligations and/or meet specified milestones
or upon insolvency. From time to time, we have had to request extensions of our development obligations contained in some of our
license agreements, and we may need to seek further extensions in the future.
Although we have obtained such extensions in the past, there
can be no assurance that our licensors will continue to extend the development timelines or other milestones contained in our license
agreements. If these in-licenses are terminated, or if the underlying patents fail to provide the intended market exclusivity,
we could lose our rights to develop and commercialize ELZONRIS and the product candidates governed by the licenses, and competitors
would have the freedom to seek regulatory approval of, and to market, products identical to ours. This could have a material adverse
effect on our competitive business position and our business prospects.
Confidentiality agreements with employees and third parties
may not prevent unauthorized disclosure of trade secrets and other proprietary information.
In addition to patents, we rely on trade secrets, technical
know-how, and proprietary information concerning our business strategy in order to protect our competitive position in the field
of oncology. In the course of our research and development activities and our business activities, we often rely on confidentiality
agreements to protect our proprietary information. Such confidentiality agreements are used, for example, when we talk to vendors
of laboratory or clinical development services or potential strategic partners. In addition, each of our employees is required
to sign a confidentiality agreement upon joining our company. We take steps to protect our proprietary information, and our confidentiality
agreements are carefully drafted to protect our proprietary interests. Nevertheless, there can be no guarantee that an employee
or an outside party will not make an unauthorized disclosure of our proprietary confidential information. This might happen intentionally
or inadvertently, and we may not be able to obtain adequate remedies for such breaches. It is possible that a competitor will make
use of such information, and that our competitive position will be compromised, in spite of any legal action we might take against
persons making such unauthorized disclosures.
Trade secrets are difficult to protect. Courts outside the United
States sometimes are less willing than U.S. courts to protect trade secrets. Moreover, if any of our trade secrets were to be lawfully
obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate
it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently
developed by a competitor, our competitive position would be harmed.
Our research and development strategic partners may have rights
to publish data and other information to which we have rights. In addition, we sometimes engage individuals or entities to conduct
research relevant to our business. The ability of these individuals or entities to publish or otherwise publicly disclose data
and other information generated during the course of their research is subject to certain contractual limitations. These contractual
provisions may be insufficient or inadequate to protect our confidential information. If we do not apply for patent protection
prior to such publication, or if we cannot otherwise maintain the confidentiality of our proprietary technology and other confidential
information, then our ability to obtain patent protection or to protect our trade secret information may be jeopardized.
Intellectual property rights do not necessarily address
all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual
property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business,
or permit us to maintain our competitive advantage. The following examples are illustrative:
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others may be able to make compounds that are the same as or similar to our product or product candidates but that are not covered by the claims of the patents that we own or have exclusively licensed;
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we or our licensors or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed;
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we or our licensors or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;
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others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;
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it is possible that our pending patent applications will not lead to issued patents;
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it is possible that our applications for patent term extension for ELZONRIS pursuant to the Hatch Waxman Act will not result in added patent term, or may result in a shorter patent term extension than we applied for or that is available under the Hatch Waxman Act;
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the scope of our issued patents may not extend to competitive products developed or produced by others;
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issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;
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our competitors might conduct research and development activities in countries where we do not have patent rights or where the patent rights that we do not have are not comparable to those afforded in the United States, or where the applicable laws provide a safe harbor exemption from infringement liability for certain research purposes, and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;
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we may not develop additional proprietary technologies that are patentable; and
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the intellectual property rights of others may have an adverse effect on our business.
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Risks Related to Our Common Stock
The market price of our common stock may be highly volatile
and our stockholders could incur substantial losses.
The market price of our common stock may be highly volatile,
and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. Since our initial
public offering which occurred in January 2013, the price of our common stock has ranged from $3.21 per share to $47.25 per
share. The stock market in general and the market for biopharmaceutical companies in particular have experienced extreme volatility
that has often been unrelated to the operating performance of particular companies. The market price for our common stock may be
influenced by many factors, including:
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our ability to commercialize our approved product candidates;
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results from or delays of clinical trials of our product or product candidates, as well as results of regulatory reviews relating to the approval of our product candidates;
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our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;
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our dependence on third parties, including clinical research organizations and contract manufacturing organizations, trial sites, clinical trial sponsors and clinical investigators;
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the results of our efforts to discover, develop, acquire or in-license additional product candidates or products;
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new products, product candidates or new uses for existing products or technologies introduced or announced by our competitors and the timing of these introductions or announcements;
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regulatory or legal developments in the United States and other countries;
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our ability to maintain the license agreements for our product or product candidates;
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developments or disputes concerning patent applications, issued patents or other proprietary rights;
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the recruitment or departure of key scientific or management personnel;
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the level of expenses related to any of our product or product candidates or clinical development programs;
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actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
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variations in our financial results or those of companies that are perceived to be similar to us;
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sales of common stock by us or our stockholders in the future, as well as the overall trading volume of our common stock;
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changes in the structure of healthcare payment systems and product pricing restrictions;
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market conditions in the pharmaceutical and biotechnology sectors;
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general economic, industry and market conditions and other factors that may be unrelated to our operating performance or the operating performance of our competitors, including changes in market valuations of similar companies; and
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the other factors described in this “Risk Factors”
section.
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The possibility of the economy’s return to recessionary
conditions and the possibility of further turmoil or volatility in the financial markets would likely have an adverse effect on
our business, financial position, and results of operations.
The economy in the United States and globally has experienced
volatility in recent years and may continue to experience such volatility for the foreseeable future. There can be no assurance
that economic conditions will not worsen. Unfavorable or uncertain economic conditions can be caused by declines in economic growth,
business activity, or investor or business confidence, limitations on the availability or increases in the cost of credit and capital,
the timing and impact of changing governmental policies, natural disasters, epidemics / pandemics, such as coronavirus disease
2019 (“COVID-19”), terrorist attacks, acts of war, or a combination of these or other factors. A worsening of business
and economic conditions could have adverse effects on our business, including substantial fluctuations in the market price of our
common stock, which could decline below current levels.
Our executive officers, directors and principal stockholders
maintain the ability to exert substantial influence over all matters submitted to stockholders for approval.
Our executive officers, directors and principal stockholders
beneficially own shares representing approximately 43.4% of our outstanding capital stock. As a result, if these stockholders were
to choose to act together, they would be able to exert substantial influence over all matters submitted to our stockholders for
approval, as well as our management and affairs. For example, these persons, if they choose to act together, would exert substantial
influence over the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets.
This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire.
Provisions in our corporate charter documents and under
Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts
by our stockholders to replace or remove our current management.
Provisions in our corporate charter and our bylaws may discourage,
delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions
in which they might otherwise receive a premium for their shares. These provisions could also limit the price that investors might
be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. Among
other things, these provisions:
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establish a classified board of directors such that not all members of the board are elected at one time
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allow the authorized number of our directors to be changed only by resolution of our board of directors;
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limit the manner in which stockholders can remove directors from the board;
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establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;
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require that stockholder actions must be affected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;
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limit who may call special stockholder meetings and the matters transacted at such meetings;
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authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and
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require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or bylaws.
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Moreover, because we are incorporated in Delaware, we are governed
by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15%
of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction
in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in
a prescribed manner. Any provision in our corporate charter or our bylaws or Delaware law that has the effect of delaying or deterring
a change in 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.
If we fail to maintain an effective system of internal
control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result,
stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price
of our common stock.
Effective internal controls over financial reporting are necessary
for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent
fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause
us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the
Sarbanes-Oxley Act, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in
our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive
changes to our condensed consolidated financial statements or identify other areas for further attention or improvement. Inferior
internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative
effect on the trading price of our common stock.
We do not expect to pay dividends on our capital stock
in the foreseeable future.
We have never declared or paid cash dividends on our capital
stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business,
and we do not anticipate paying any cash dividends on our capital stock in the foreseeable future. In addition, the terms of any
future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will
be your sole source of gain for the foreseeable future.
Risks Related to our Proposed Merger with Berlin-Chemie
AG
If the proposed merger is not completed, our business
could be materially and adversely affected and our stock price could decline.
On
May 3, 2020, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Berlin-Chemie AG, a
company formed under the laws of Germany (“Berlin-Chemie”), and Mercury Merger Sub, Inc., a Delaware corporation
and a wholly owned subsidiary of Berlin-Chemie (“Purchaser”). A. Menarini - Industrie Farmaceutiche Riunite S.r.l,
a company formed under the laws of Italy, is the ultimate parent of Berlin-Chemie and Purchaser (together, the “Menarini
Group”). Purchaser will merge with and into Stemline and Stemline will continue as the surviving entity and become
a private, wholly-owned subsidiary of Berlin-Chemie AG (the “Merger Transaction”).
Purchaser will commence a tender offer (the “Offer”)
no later than May 15, 2020 to acquire all of the outstanding shares of common stock of Stemline, $0.0001 par value per share
(the “Shares”), at an offer price of (i) $11.50 per Share, plus (ii) one contingent value right per Share
(a “CVR”). Each CVR represents the right to receive (i) the $1.00 in cash or (ii) for each Share subject to a stock option with an
exercise price above $11.50 but below $12.50, the amount in cash equal to the excess of $12.50 over the per Share exercise
price of such stock option (the “Milestone Payment”), which shall be payable upon the first sale by or on behalf
of Stemline for use or consumption by the general public of ELZONRIS for the treatment of adult patients with BDPCN in the
United Kingdom, France, Spain, Germany, or Italy after approval by the European Commission of a marketing authorization application
in the European Union through the centralized procedure (the “Milestone”). If the Milestone is not achieved on
or before December 31, 2021, the Milestone Payment will not be payable.
Consummation of the Merger Transaction is conditioned upon
Purchaser purchasing Shares tendered in the Offer which is subject to the satisfaction or waiver of a number of conditions
set forth in Annex I to the Merger Agreement, including (i) Stemline shall have validly tendered Shares representing one
more Share than 50% of the total number of Shares outstanding at the time of the expiration of the Offer; and (ii) the
expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the “HSR Act”). Therefore, the Merger Transaction may not be completed or may not be completed as quickly as
expected. If the Merger Agreement is terminated, the market price of our ordinary shares will likely decline, as we believe
that our market price reflects an assumption that the Merger Transaction will be completed. In addition, our share price may be adversely
affected as a result of the fact that we have incurred and will continue to incur significant expenses related to the Merger
Transaction that will not be recovered if the Merger Transaction is not completed. If the Merger Agreement is terminated
under certain circumstances, we may be obligated to pay Purchaser a termination fee of $25.4 million. As a consequence of the
failure of the Merger Transaction to be completed, as well as of some or all of these potential effects of the termination of the Merger
Agreement, our business could be materially and adversely affected.
The fact that there is a merger pending could have an
adverse effect on our business and results of operations.
While the Merger Transaction is pending, it creates uncertainty about our
future. We are subject to a number of risks that may adversely affect our business and results of operations, including:
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the diversion of management and employee attention may detract from our ability to obtain regulatory approval for and, if approved,
to successfully commercialize ELZONRIS in the European Union;
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continuing to incur significant expenses related to the Merger Transaction;
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the Merger Agreement restricting us from engaging in advantageous business activities outside of our ordinary course of
business without Purchaser’s consent; and
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being unable to respond effectively to competitive pressures, industry developments and future opportunities.
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If the Merger Transaction occurs, our shareholders will not be able
to participate in any upside to our business other than through the CVRs; if the required approval and commercialization milestone
under the CVRs is not achieved, shareholders may not realize any value from the CVRs.
If the Merger Transaction occurs, our stockholders will
receive one CVR per Share, which will represent the right to receive the Milestone Payment upon the first sale of ELZONRIS by or on
behalf of Stemline for use or consumption by the general public for the treatment of adult patients with BPDCN in the United
Kingdom, France, Spain, Germany, or Italy after approval by the European Commission of a marketing authorization application
in the European Union through the centralized procedure. However, if such Milestone is not achieved on or on prior to December
31, 2021, the Milestone Payment will not be payable to stockholders and they will not receive any consideration for the CVRs
they hold. Even if our business following the merger performs well, our current shareholders will not receive any additional consideration
or be able to share in the increased value of our business by virtue of being equity owners.
In addition, following the Merger Transaction, our stockholders will no longer hold Shares in Stemline and they will not receive
any equity of Purchaser or any entity within the Menarini Group. Consequently, our current stockholders will not be able to
realize any increase in value of our business by virtue of being equity owners.