424B3
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Filed pursuant to Rule 424(b)(3)
Registration No. 333-248487

 

LOGO    LOGO

PROPOSED BUSINESS COMBINATION

YOUR VOTE IS VERY IMPORTANT

To the Stockholders of Spring Bank Pharmaceuticals, Inc.:

Spring Bank Pharmaceuticals, Inc. (“Spring Bank”), F-star Therapeutics Limited (“F-star”) and certain holders of issued and outstanding capital shares and convertible loan notes of F-star (each a “Seller”; collectively with holders of F-star securities who subsequently become parties to the Exchange Agreement, the “Sellers”) have entered into a share exchange agreement (the “Exchange Agreement”), pursuant to which Spring Bank will acquire the entire issued and outstanding share capital of F-star (the “Exchange”). The combined company, operating under the name F-star Therapeutics, Inc., will seek to advance F-star’s immuno-oncology pipeline of multiple tetravalent bispecific antibody programs, as well as Spring Bank’s STING (STimulator of INterferon Gene) agonist, SB 11285, currently in a Phase 1a/1b clinical trial.

At the closing of the Exchange (the “Closing”), each ordinary share of F-star will be sold to Spring Bank in exchange for a number of shares of Spring Bank common stock based on the exchange ratio formula in the Exchange Agreement (the “Exchange Ratio”), rounded down to the nearest whole share of Spring Bank common stock after aggregating all fractional shares issuable to each Seller. The Exchange Agreement provides that the Exchange Ratio will be adjusted (i) to the extent that Spring Bank’s expected net cash as of Closing is less than $15.0 million or greater than $17.0 million, (ii) to the extent that F-star does not raise at least $25.0 million in the Pre-Closing Financing (as defined below) at a pre-money valuation, or the valuation of F-star prior to receiving any proceeds from the Pre-Closing Financing, of at least $35.0 million, and (iii) to account for the actual proceeds raised in the Pre-Closing Financing. Because the Closing will occur after September 30, 2020, the $15.0 million and $17.0 million thresholds will each be reduced by $250,000 on October 30, 2020 and on the last day of each 30-day period thereafter until the Closing occurs. The parties currently expect the Closing to occur on or about November 20, 2020. F-star currently expects to raise $15.0 million in the Pre-Closing Financing, and Spring Bank currently expects to have net cash of approximately $13.0 million at Closing. The assumed valuations and Exchange Ratio may change, resulting in adjustments to the Exchange Ratio that are described further in the enclosed proxy statement/prospectus.

Immediately following the Closing and assuming an Exchange Ratio of 0.4277 (which assumes both that Spring Bank will have net cash of $13.0 million at Closing, the $15.0 million and $17.0 million thresholds will each be reduced by $250,000 on October 30, 2020, and that F-star raises $15.0 million in the Pre-Closing Financing), the Spring Bank securityholders and the holders of F-star’s share capital (including all F-star shares issued in connection with the F-star Note Conversion, the F-star Share Conversion (each as defined below) and Pre-Closing Financing) are expected to own approximately 47.5% and 52.5%, respectively, of the outstanding capital stock of the combined company.

Concurrently with the execution of the Exchange Agreement, certain existing investors of F-star, pursuant to binding equity commitment letters by and between each investor and F-star, agreed to purchase ordinary shares of F-star in a private placement to occur immediately prior to the Closing (the “Pre-Closing Financing”). F-star may continue to seek additional commitments in the Pre-Closing Financing until 11:59 p.m., Eastern time on the 10th day prior to the Special Meeting (as defined below).

F-star’s issued share capital currently consists of ordinary shares, Seed Preference Shares and Series A Preference Shares. Immediately prior to the Closing, the Seed Preference Shares and Series A Preference Shares will be converted into F-star ordinary shares (the “F-star Share Conversion”). Additionally, pursuant to the terms of the Exchange Agreement and immediately prior to the Closing, all issued and outstanding F-star convertible loan notes will convert into F-star ordinary shares (the “F-star Note Conversion”).

All unvested issued and outstanding Spring Bank options and restricted stock units will be accelerated and vested in full immediately prior to the Closing and, following this acceleration, each option that has not


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previously been exercised will expire on the date of the Closing. All issued and outstanding F-star share options granted under F-star’s legacy equity incentive plans will become exercisable in full immediately prior to the Closing. Upon the Closing, all holders of share options and restricted stock units granted by F-star under the F-star Therapeutics Limited 2019 Equity Incentive Plan will have those awards replaced by options and awards, on the same terms (including vesting), for Spring Bank common stock, based on the Exchange Ratio.

Shares of Spring Bank common stock are currently listed on the Nasdaq Capital Market under the symbol “SBPH”. Spring Bank intends to file an initial listing application with the Nasdaq Capital Market pursuant to Nasdaq’s rules for companies conducting a business combination that results in a change of control. Upon completion of the Exchange, Spring Bank will be renamed “F-star Therapeutics, Inc.” and expects its common stock to trade on the Nasdaq Capital Market under the symbol “FSTX.” On October 19, 2020, the date of this proxy statement/prospectus, the closing sale price of Spring Bank common stock was $1.40 per share. This closing sale price is not necessarily indicative of the price at which the common stock of the combined company will trade after the Closing.

Spring Bank is holding a special meeting of stockholders (the “Special Meeting”) via live audio webcast to seek the stockholder approvals necessary to complete the Exchange and related matters. You will be able to attend the virtual Special Meeting, vote and submit your questions during the Special Meeting by visiting www.virtualshareholdermeeting.com/SBPH2020SM. You will not be able to attend the virtual Special Meeting in person. At the Special Meeting, which will be held at 9:00 a.m., Eastern time, on Thursday, November 19, 2020, unless postponed or adjourned to a later date, Spring Bank will ask its stockholders to:

 

  1.

approve the issuance of Spring Bank common stock to the holders of F-star share capital in the Exchange, including holders who purchase ordinary shares of F-star in the Pre-Closing Financing, in accordance with the terms of Exchange Agreement, a copy of which is attached to this proxy statement/prospectus as Annex A, in an amount representing more than 20% of the shares of Spring Bank common stock outstanding immediately prior to the Exchange, which will also constitute stockholder approval of a change of control of Spring Bank, pursuant to Nasdaq Listing Rules 5635(a) and 5635(b), respectively;

 

  2.

approve an amendment to Spring Bank’s amended and restated certificate of incorporation effecting a reverse stock split of Spring Bank common stock at a ratio mutually agreed to between Spring Bank and F-star in the range of one new share for every three (3) shares to one new share for every seven (7) shares outstanding (or any number in between);

 

  3.

approve an amendment to Spring Bank’s amended and restated certificate of incorporation changing Spring Bank’s corporate name from “Spring Bank Pharmaceuticals, Inc.” to “F-star Therapeutics, Inc.” effective upon the Closing;

 

  4.

approve a postponement or adjournment of the Special Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2 or 3; and

 

  5.

consider such other business as may properly come before the stockholders at the Special Meeting or any adjournment or postponement thereof.

As described in the accompanying proxy statement/prospectus, each of the officers and directors and certain stockholders of Spring Bank, holding, in the aggregate, approximately 7.8% of the outstanding Spring Bank common stock as of September 30, 2020, have entered into voting agreements with F-star, whereby such stockholders have agreed to vote in favor of the proposals described above.

After careful consideration, the board of directors of Spring Bank has (i) determined that the Exchange is fair to, advisable and in the best interests of Spring Bank and its stockholders, and (ii) approved and declared advisable the Exchange Agreement and the transactions contemplated thereby. Spring Bank’s Board of Directors unanimously recommends that its stockholders vote “FOR” Proposal Nos. 1, 2, 3 and 4 described in this proxy statement/prospectus.

More information about Spring Bank, F-star and the Exchange is contained in this proxy statement/prospectus. We urge you to read this proxy statement/prospectus carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER THE SECTION TITLED “RISK FACTORS” IN THIS PROXY STATEMENT/PROSPECTUS.


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We hope you will be able to attend the virtual Special Meeting. Even if you plan to attend the virtual Special Meeting, Spring Bank requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the Special Meeting if you are unable to attend. You may also vote over the internet as well as by telephone or by mail.

We are excited about the opportunities the Exchange brings to both Spring Bank’s and F-star’s respective stockholders, and thank you for your consideration and continued support.

 

Martin Driscoll

   Eliot Forster

President and Chief Executive Officer

   Chief Executive Officer

Spring Bank Pharmaceuticals, Inc.

   F-star Therapeutics Limited

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus is dated October 19, 2020, and is first being mailed to Spring Bank’s stockholders on or about October 21, 2020.


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SPRING BANK PHARMACEUTICALS, INC.

35 Parkwood Drive, Suite 210

Hopkinton, MA

(508) 473-5993

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON THURSDAY, NOVEMBER 19, 2020

Dear Stockholders of Spring Bank Pharmaceuticals, Inc.:

On behalf of the board of directors (the “Spring Bank Board”) of Spring Bank Pharmaceuticals, Inc., a Delaware corporation (“Spring Bank”), we are pleased to deliver this proxy statement/prospectus for the proposed business combination between Spring Bank and F-star Therapeutics Limited, a private company registered in England and Wales (“F-star”), pursuant to which Spring Bank will acquire the entire issued and outstanding share capital of F-star (the “Exchange”). The Special Meeting of stockholders of Spring Bank (the “Special Meeting”) will be held via live audio webcast on the internet at www.virtualshareholdermeeting.com/SBPH2020SM on Thursday, November 19, 2020, at 9:00 a.m., Eastern time, for the following purposes:

 

  1.

To approve the issuance of Spring Bank common stock to the holders of F-star share capital in the Exchange, including holders who purchase ordinary shares of F-star in the Pre-Closing Financing (as defined in this proxy statement/prospectus) in accordance with the terms of a Share Exchange Agreement (the “Exchange Agreement”), a copy of which is attached to this proxy statement/prospectus as Annex A, in an amount representing more than 20% of the shares of Spring Bank common stock outstanding immediately prior to the Exchange, which shall also constitute stockholder approval of a change of control of Spring Bank, pursuant to Nasdaq Listing Rules 5635(a) and 5635(b), respectively.

 

  2.

To approve an amendment to Spring Bank’s amended and restated certificate of incorporation to effect a reverse split of all outstanding shares of the Spring Bank common stock at a reverse stock split ratio as mutually agreed to by Spring Bank and F-star in the range of one new share for every three (3) shares to one new share for every seven (7) shares outstanding (or any number in between), in the form attached as Annex C to this proxy statement/prospectus.

 

  3.

To approve an amendment to Spring Bank’s amended and restated certificate of incorporation to change the corporate name of Spring Bank from “Spring Bank Pharmaceuticals, Inc.” to “F-star Therapeutics, Inc.” effective upon the closing of the Exchange in the form attached as Annex D to this proxy statement/prospectus.

 

  4.

To approve a postponement or adjournment of the Special Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2 or 3.

 

  5.

To transact such other business as may properly come before the stockholders at the Special Meeting or any adjournment or postponement thereof.

The Spring Bank Board has fixed October 7, 2020, as the record date (the “Record Date”) for the determination of stockholders entitled to notice of, and to vote at, the Special Meeting and any postponement or adjournment thereof. Only holders of record of shares of Spring Bank’s common stock at the close of business on the Record Date are entitled to notice of, and to vote at, the Special Meeting. At the close of business on the Record Date, there were 17,267,202 shares of Spring Bank’s common stock outstanding and entitled to vote.

Your vote is important. The affirmative vote of a majority of the voting power of the votes cast at the Special Meeting and voting affirmatively or negatively on the matter is required for approval of Proposal Nos. 1 and 4. The affirmative vote of the holders of a majority of shares of Spring Bank’s common stock having voting power outstanding on the Record Date for the Special Meeting is required for approval of Proposal Nos. 2 and 3. The approval of Proposal Nos. 1, 2 and 3 is a condition of the Exchange Agreement. Therefore, the Exchange cannot be consummated without the approval of Proposal Nos. 1, 2 and 3. Proposal No. 3 is conditioned upon the consummation of the Exchange Agreement. If the Exchange is not completed, Proposal No. 3 will not be implemented, and Spring Bank’s name will not be changed. Even if you plan to attend the virtual Special Meeting, Spring Bank requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the Special Meeting if you are unable to attend. You may also vote over the internet as well as by telephone or by mail.


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By Order of Spring Bank’s Board of Directors,

Martin Driscoll

Spring Bank Pharmaceuticals, Inc.

Hopkinton, Massachusetts

October 19, 2020

THE SPRING BANK BOARD HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, SPRING BANK AND ITS STOCKHOLDERS AND HAS APPROVED EACH SUCH PROPOSAL. THE SPRING BANK BOARD UNANIMOUSLY RECOMMENDS THAT SPRING BANK STOCKHOLDERS VOTE “FOR” EACH SUCH PROPOSAL.


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REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important business and financial information about Spring Bank that is not included in or delivered with this document. You may obtain this information without charge through the Securities and Exchange Commission (“SEC”) website (www.sec.gov) or upon your written or oral request by contacting Spring Bank’s Corporate Secretary at Spring Bank Pharmaceuticals, Inc., 35 Parkwood Drive, Suite 210, Hopkinton, MA 01748 or by calling (508) 473-5993.

You may also request additional copies from Spring Bank’s proxy solicitor using the following contact information:

The Proxy Advisory Group, LLC

18 East 41st Street, Suite 2000

New York, New York 10017

1-212-616-2181

To ensure timely delivery of these documents, any request should be made no later than November 5, 2020, to receive them before the Special Meeting of Spring Bank stockholders.

For additional details about where you can find information about Spring Bank, see the section titled “Where You Can Find More Information” in this proxy statement/prospectus.


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TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS ABOUT THE EXCHANGE

     1  

PROSPECTUS SUMMARY

     10  

SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

     22  

MARKET PRICE AND DIVIDEND INFORMATION

     29  

RISK FACTORS

     30  

FORWARD-LOOKING STATEMENTS

     111  

THE SPECIAL MEETING OF SPRING BANK STOCKHOLDERS

     113  

THE EXCHANGE

     117  

THE EXCHANGE AGREEMENT

     162  

AGREEMENTS RELATED TO THE EXCHANGE

     179  

MATTERS BEING SUBMITTED TO A VOTE OF SPRING BANK STOCKHOLDERS

     184  

SPRING BANK BUSINESS

     192  

F-STAR BUSINESS

     213  

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

     261  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT THE MARKET RISK OF SPRING BANK

     273  

F-STAR MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     274  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT THE MARKET RISK OF F-STAR

     319  

MANAGEMENT FOLLOWING THE EXCHANGE

     320  

RELATED PARTY TRANSACTIONS OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED COMPANY

     336  

DESCRIPTION OF SPRING BANK CAPITAL STOCK

     343  

COMPARISON OF RIGHTS OF HOLDERS OF SPRING BANK STOCK AND F-STAR SHARE CAPITAL

     346  

PRINCIPAL STOCKHOLDERS OF SPRING BANK

     356  

PRINCIPAL SHAREHOLDERS OF F-STAR

     358  

PRINCIPAL STOCKHOLDERS OF THE COMBINED COMPANY

     362  

LEGAL MATTERS

     365  

EXPERTS

     365  

WHERE YOU CAN FIND MORE INFORMATION

     365  

OTHER MATTERS

     367  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     369  

FINANCIAL STATEMENTS

     F-1  

ANNEX A – EXCHANGE AGREEMENT

     A-1  

ANNEX B – OPINION OF LADENBURG THALMANN & CO., INC.

     B-1  

ANNEX C – CERTIFICATE OF AMENDMENT FOR THE REVERSE STOCK SPLIT

     C-1  

ANNEX D – CERTIFICATE OF AMENDMENT FOR SPRING BANK NAME CHANGE

     D-1  

 

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QUESTIONS AND ANSWERS ABOUT THE EXCHANGE

Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus does not give effect to the proposed reverse stock split described in Proposal No. 2 of this proxy statement/prospectus.

The following section provides answers to frequently asked questions about the Exchange (as defined below). This section, however, provides only summary information. For a more complete response to these questions and for additional information, please refer to the cross-referenced sections.

 

Q:

What is the Exchange?

 

A:

On July 29, 2020, Spring Bank Pharmaceuticals, Inc. (“Spring Bank”), F-star Therapeutics Limited (“F-star”) and certain holders of issued and outstanding capital shares and convertible loan notes of F-star (each a “Seller”; collectively with holders of F-star securities who subsequently become parties thereto, the “Sellers”) entered into a share exchange agreement (the “Exchange Agreement”). The Exchange Agreement contains the terms and conditions of the proposed business combination of Spring Bank and F-star. Under the Exchange Agreement, Spring Bank will acquire the entire issued and outstanding share capital of F-star (including all shares issuable in connection with the F-star Note Conversion, Pre-Closing Financing and F-star Share Conversion (in each case, as defined below)) (the “Exchange”).

F-star’s issued share capital currently consists of ordinary shares, Seed Preference Shares and Series A Preference Shares. Immediately prior to the closing of the Exchange (the “Closing”), the Seed Preference Shares and Series A Preference Shares will be converted into F-star ordinary shares (the “F-star Share Conversion”). Additionally, pursuant to the terms of the Exchange Agreement and immediately prior to the Closing, all issued and outstanding F-star convertible loan notes will convert into F-star ordinary shares (the “F-star Note Conversion”).

The Exchange Agreement provides that the Exchange Ratio will be adjusted, and the respective ownership percentages for F-star and Spring Bank stockholders will change, (i) to the extent that Spring Bank’s expected net cash as of Closing is less than $15.0 million or greater than $17.0 million, (ii) to the extent that F-star does not raise at least $25.0 million in the Pre-Closing Financing at a pre-money valuation (or the valuation of F-star prior to receiving any proceeds from the Pre-Closing Financing) of at least $35.0 million, and (iii) to account for the actual proceeds raised in the Pre-Closing Financing. The Exchange Agreement further provides that if the Closing occurs after September 30, 2020, the $15.0 million and $17.0 million thresholds noted above will each be reduced by $250,000 on October 30, 2020 and on the last day of each 30-day period thereafter until the Closing occurs. The parties currently expect the Closing to occur on or about November 20, 2020. F-star currently expects to raise $15.0 million in the Pre-Closing Financing, and Spring Bank currently expects to have net cash of approximately $13.0 million at Closing.

Immediately following the Closing and assuming an Exchange Ratio of 0.4277 (which assumes that Spring Bank will have net cash of $13.0 million at Closing, the $15.0 million and $17.0 million net cash thresholds will each be reduced by $250,000 on October 30, 2020, and that F-star raises $15.0 million in the Pre-Closing Financing), the Spring Bank securityholders and holders of F-star’s share capital (including all F-star shares issued in connection with the F-star Note Conversion, the F-star Share Conversion and Pre-Closing Financing) are expected to own approximately 47.5% and 52.5%, respectively, of the outstanding capital stock of the combined company. The assumed valuations and Exchange Ratio may change, resulting in adjustments to the Exchange Ratio that are described further in this proxy statement/prospectus.

Effective as of the Closing, and assuming Spring Bank’s Stockholders approve Proposal No. 3, Spring Bank will change its corporate name to “F-star Therapeutics, Inc.” as required by the Exchange Agreement.

 

Q:

What will happen to Spring Bank if, for any reason, the Exchange does not close?

 

A:

If, for any reason, the Exchange does not close, the board of directors of Spring Bank (the “Spring Bank Board”) may elect to, among other things, continue to operate the business of Spring Bank, attempt to complete another strategic transaction like the Exchange, sell or otherwise dispose of the various assets of Spring Bank or dissolve or liquidate the company. If the Spring Bank Board decides to dissolve and


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  liquidate Spring Bank’s assets, Spring Bank would be required to wind down its clinical trials, pay all of its debts and contractual obligations, and to set aside certain reserves for potential future claims. This would be a lengthy and uncertain process, and there can be no assurances as to the amount or timing of available cash, if any, that would be left to distribute to Spring Bank stockholders after paying the debts and other obligations of Spring Bank and setting aside funds for reserves.

 

Q:

Why are the two companies proposing to combine?

 

A:

F-star and Spring Bank believe that the Exchange will result in a publicly listed company seeking to advance F-star’s clinical and preclinical immuno-oncology pipeline of multiple tetravalent bispecific antibody programs, as well as Spring Bank’s STING (STimulator of INterferon Gene) agonist, SB 11285, currently in a Phase 1a/1b clinical trial. For a discussion of Spring Bank’s and F-star’s reasons for the Exchange, see the section titled “The Exchange—Spring Bank Reasons for the Exchange” and “The Exchange—F-star Reasons for the Exchange” in this proxy statement/prospectus.

 

Q:

Why am I receiving this proxy statement/prospectus?

 

A:

You are receiving this proxy statement/prospectus because you have been identified as a Spring Bank stockholder as of the Record Date (as defined below), and you are entitled to vote at the Special Meeting to approve the transactions contemplated by the Exchange Agreement, including the issuance of shares of Spring Bank common stock pursuant to the Exchange Agreement. This document serves as:

 

   

a proxy statement of Spring Bank used to solicit proxies for the Special Meeting; and

 

   

a prospectus of Spring Bank used to offer shares of Spring Bank common stock in exchange for F-star share capital in the Exchange to F-star securityholders.

 

Q:

What is required to consummate the Exchange?

 

A:

To consummate the Exchange, Spring Bank stockholders must approve the issuance of shares of Spring Bank common stock pursuant to the Exchange Agreement (Proposal No. 1), approve and adopt the amendment to the amended and restated certificate of incorporation of Spring Bank effecting a reverse stock split at a ratio as mutually agreed to by Spring Bank and F-star in the range of one new share for every three (3) shares to one new share for every seven (7) shares outstanding (the “Reverse Stock Split”) (Proposal No. 2) and approve and adopt an amendment to the amended and restated certificate of incorporation of Spring Bank to change the corporate name of Spring Bank from “Spring Bank Pharmaceuticals, Inc.” to “F-star Therapeutics, Inc.” effective as of the Closing (the “Spring Bank Name Change”) (Proposal No. 3).

The approval of the issuance of Spring Bank common stock pursuant to the Exchange Agreement (Proposal No. 1) by the Spring Bank stockholders requires the affirmative vote of a majority of the voting power of the votes cast at the Special Meeting and voting affirmatively or negatively on the matter. The approval of the amendments to the amended and restated certificate of incorporation of Spring Bank to effect the Reverse Stock Split (Proposal No. 2) and the Spring Bank Name Change (Proposal No. 3) require the affirmative vote of the holders of a majority of shares of Spring Bank common stock having voting power outstanding on October 7, 2020 (the “Record Date”). The approval of the Reverse Stock Split (Proposal No. 2) and Spring Bank Name Change (Proposal No. 3) is a condition to closing under the Exchange Agreement. Consequently, if the requisite Spring Bank stockholders approve the Exchange and the issuance of Spring Bank common stock pursuant to the Exchange Agreement but do not approve the Reverse Stock Split or the Spring Bank Name Change, the Exchange will not be consummated.

The Spring Bank Name Change (Proposal No. 3) is a condition to Closing under the Exchange Agreement. If the Exchange is not completed, Proposal No. 3 will not be implemented, and Spring Bank’s name will not be changed. The Reverse Stock Split (Proposal No. 2) is not conditioned upon the consummation of the Exchange, and the Reverse Stock Split may be implemented by the Spring Bank Board even if the Exchange does not take place.

The presence at the Special Meeting of the holders of a majority in voting power of all outstanding shares of Spring Bank common stock entitled to vote at the Special Meeting is necessary to constitute a quorum at the

 

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meeting. Votes of stockholders of record who are represented at the Special Meeting abstentions, and broker non-votes are counted for purposes of determining whether a quorum exists.

Votes will be counted by the inspector of election appointed for the Special Meeting, who will separately count “FOR” and “AGAINST” votes, abstentions and broker non-votes. Abstentions and broker non-votes will not be considered votes cast by the holders of all the shares of Spring Bank common stock represented at the Special Meeting and voting affirmatively or negatively, and will therefore not have any effect with respect to Proposal No. 1. Abstentions will have the same effect as a vote “AGAINST” Proposal Nos. 2 and 3. Abstentions will not have any effect with respect to Proposal No. 4.

As of September 30, 2020, certain Spring Bank stockholders who in the aggregate own approximately 7.8% of the outstanding shares of Spring Bank common stock, have entered into Voting Agreements (as defined below) with Spring Bank and F-star, whereby such stockholders have agreed to vote their shares in favor of the Proposals described above.

For a more complete description of the closing conditions under the Exchange Agreement, Spring Bank urges you to read the section titled “The Exchange Agreement—Conditions to the Completion of the Exchange” in this proxy statement/prospectus.

 

Q:

What will F-star Securityholders receive in the Exchange?

 

A:

Immediately after the consummation of the Exchange, the holders of F-star share capital (including all F-star shares issued in connection with the F-star Note Conversion, the F-star Share Conversion and Pre-Closing Financing) will receive shares of Spring Bank common stock equal to the Exchange Ratio for each F-star ordinary share held immediately prior to the Closing. Immediately following the Closing and assuming an Exchange Ratio of 0.4277 (which assumes that Spring Bank will have net cash of $13.0 million at Closing, that F-star raises $15.0 million in the Pre-Closing Financing and that the Closing occurs on or about November 20, 2020), the F-star securityholders are expected to own approximately 52.5% of the outstanding capital stock of the combined company, which is subject to adjustment as described in the section titled “The Exchange Agreement — Transaction Consideration and Adjustment.”

All issued and outstanding F-star share options granted under its three legacy equity incentive plans are currently exercisable, and prior to the Closing, the holders of F-star Legacy Options will be notified by the F-star Board of Directors that they may exercise their F-star Legacy Options conditional upon and effective at the Closing. All holders of share options and restricted stock units granted by F-star under the F-star 2019 Equity Incentive Plan will have those awards replaced by options and awards on the same terms (including vesting) for Spring Bank common stock, based on the Exchange Ratio.

For a more complete description of what holders of F-star share capital will receive in the Exchange, see the section titled “The Exchange Agreement—Exchange Consideration” in this proxy statement/prospectus.

 

Q:

What will Spring Bank stockholders receive in the Exchange?

 

A:

At the Closing, Spring Bank stockholders will continue to own and hold their existing shares of Spring Bank common stock. Immediately following the Closing and assuming an Exchange Ratio of 0.4277 (which assumes that Spring Bank will have net cash of $13.0 million at Closing, that F-star raises $15.0 million in the Pre-Closing Financing and that the Closing occurs on or about November 20, 2020), the Spring Bank securityholders are expected to own approximately 47.5% of the outstanding capital stock of the combined company, which is subject to adjustment as described in the section titled “The Exchange Agreement—Transaction Consideration and Adjustment.”

All unvested issued and outstanding Spring Bank options and restricted stock units will be accelerated and vested in full immediately prior to the Closing and, following this acceleration, each option that has not previously been exercised will expire on the date of the Closing.

In addition, Spring Bank stockholders will receive two separate and distinct contingent value rights (“CVRs”) for each share of Spring Bank common stock held of record as of immediately prior to the Closing. The CVRs will represent the rights to receive cash payments in connection with (i) certain

 

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transactions involving Spring Bank’s proprietary STING agonist compound (the “STING Agonist CVR Agreement”) and (ii) certain other transactions involving Spring Bank’s proprietary STING antagonist compound (the “STING Antagonist CVR Agreement”).

Pursuant to the Exchange Agreement and the STING Agonist CVR Agreement, each share of Spring Bank common stock held by Spring Bank stockholders as of a record date immediately prior to the Closing will receive a dividend of one CVR entitling such holders to receive, in connection with certain transactions involving Spring Bank’s proprietary STimulator of INterferon Genes (STING) agonist compound occurring on or prior to an agreed-upon expiration date, an aggregate amount equal to the greater of (i) 25% of the Net Proceeds received from all STING Agonist CVR Transactions (each as defined in the STING Agonist CVR Agreement) and (ii) up to an aggregate amount of $18.0 million, the product of $1.00 (as adjusted for the Reverse Stock Split, to the extent applicable) and the total number of shares of Spring Bank common stock outstanding as of such record date.

Pursuant to the Exchange Agreement and the STING Antagonist CVR Agreement, each share of Spring Bank common stock held by Spring Bank stockholders as of a record date immediately prior to the Closing will receive a dividend of one CVR entitling such holders to receive, in connection with the execution of a potential development agreement (the “Approved Development Agreement”) and certain other transactions involving Spring Bank’s proprietary STING antagonist compound occurring during the seven-year period after the Closing, an amount equal to 80% of all Net Proceeds (each as defined in the STING Antagonist CVR Agreement) received by Spring Bank after the Closing pursuant to (i) the Approved Development Agreement, if any, and (ii) all STING Antagonist CVR Transactions (as defined in the STING Antagonist CVR Agreement) entered into during the seven-year period after the Closing. While Spring Bank continues to engage with third parties about a potential sale or licensing transaction involving Spring Bank’s preclinical STING antagonist program, as of the date of this proxy statement/prospectus, Spring Bank no longer anticipates that it will enter into the Approved Development Agreement referred to in the Exchange Agreement and the STING Antagonist CVR Agreement.

See the section titled “Agreements Related to the Exchange—Contingent Value Rights Agreements” in this proxy statement/prospectus.

 

Q:

Who will be the directors of the combined company following the Exchange?

 

A:

Following the Closing, the board of directors of the combined company will include a total of eight directors, three of whom will be current directors of Spring Bank and five of whom will be designated by F-star. It is anticipated that, following the Closing, the board of directors of the combined company will be constituted as follows:

 

Name

  

Current Principal Affiliation

Eliot Forster, Ph.D.    Director and Chief Executive Officer, F-star
Nessan Bermingham, Ph.D.    Director, F-star
Edward Benz, Jr., M.D.    Director, F-star
Geoffrey Race    Director, F-star
Patrick Krol    Director, F-star
David Arkowitz    Director, Spring Bank
Todd Brady, M.D., Ph.D.    Director, Spring Bank
Pamela Klein, M.D.    Director, Spring Bank

 

Q:

Who will be the executive officers of the combined company immediately following the Exchange?

 

A:

Immediately following the Closing, the executive management team of the combined company is expected to be as follows:

 

Name

  

Title

Eliot Forster, Ph.D.    President, Chief Executive Officer and Director
Darlene Deptula-Hicks    Chief Financial Officer and Treasurer
Neil Brewis, Ph.D.    Chief Scientific Officer
Louis Kayitalire, M.D.    Chief Medical Officer

 

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Q:

What are the material U.S. federal income tax consequences of the Exchange to U.S. Holders?

 

A:

Spring Bank and F-star intend to treat the Exchange as constituting a reorganization within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (a “B-Reorganization”). As further described in the section titled “The Exchange—Material U.S. Federal Income Tax Consequences of the Exchange to U.S. Holders” in this proxy statement/prospectus, whether the Exchange constitutes a B-Reorganization is uncertain. Assuming the Exchange constitutes a B-Reorganization, subject to the limitations and qualifications further described in the above referenced section of this proxy statement/prospectus, U.S. Holders (as defined in the above referenced section of this proxy statement/prospectus) of F-star shares generally should not recognize gain or loss for U.S. federal income tax purposes in connection with the Exchange.

If the Exchange is not treated as a B-Reorganization, then, subject to the limitations and qualifications described in the above referenced section of this proxy statement/prospectus, each U.S. Holder of F-star share capital will generally recognize capital gain or loss, for U.S. federal income tax purposes, on the receipt of shares of Spring Bank common stock issued to such U.S. Holder in the Exchange. The U.S. federal income tax consequences to each U.S. Holder of F-star share capital will depend on that stockholder’s particular circumstances. Each U.S. Holder of F-star share capital should consult with his, her or its tax advisor for a full understanding of the tax consequences of the Exchange to that stockholder.

There are no material U.S. federal income tax consequences of the Exchange to U.S. Holders of Spring Bank common stock.

 

Q:

What are the material U.S. federal income tax consequences of the receipt of two CVRs and the Reverse Stock Split to U.S. Holders?

 

A:

Spring Bank intends to take the position that the fair market value of the CVRs cannot be reasonably ascertained on the date of the issuance of the CVRs and, accordingly, the issuance of the CVRs constitutes an “open transaction.” Accordingly, absent a change in law requiring otherwise, Spring Bank will not report the issuance of the CVRs as a current distribution of property with respect to its stock and will instead report each future cash payment (if any) on the CVRs as a distribution by Spring Bank for U.S. federal income tax purposes, with each such payment being reported as a dividend to the extent of Spring Bank’s current or accumulated earnings and profits in the year in which such payment is made. However, as further described in the in the section titled “Agreements Related to the Share Exchange—Material U.S. Federal Income Tax Consequences of the Receipt of CVRs to U.S. Holders” in this proxy statement/prospectus, there is substantial uncertainty as to the U.S. federal income tax treatment of the issuance of CVRs. Specifically, there is no authority directly addressing whether the issuance of contingent value rights with characteristics similar to the CVRs should be treated as a distribution of property with respect to the Spring Bank’s common stock, a distribution of equity, a “debt instrument” or an “open transaction” for U.S. federal income tax purposes. Applicable U.S. Treasury regulations provide that “open transaction” treatment is only available in those “rare and extraordinary cases” involving contingent payment obligations in which the “fair market value of the obligation cannot reasonably be ascertained.” If the issuance of the CVRs is treated as an “open transaction,” a U.S. Holder (as defined in the above referenced section of this proxy statement/prospectus) would not generally recognize income in respect of the CVRs at the time such CVRs are issued and would take no tax basis in the CVRs. Future cash payments (if any) on the CVRs would be treated as a distribution and constitute a dividend to the extent of the U.S. Holder’s pro rata share of Spring Bank current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) in the taxable year of such payment, then as a non-taxable return of capital to the extent of the U.S. Holder’s basis in its Spring Bank common stock, and finally as capital gain from the sale or exchange of Spring Bank common stock with respect to any remaining payment. Dividends received by individual U.S. Holders are currently eligible for reduced rates of taxation applicable to long-term capital gains, provided certain holding period requirements are met.

Spring Bank intends to treat the Reverse Stock Split and the issuance of CVRs as separate transactions for U.S. federal income tax purposes. However, as provided in more detail in the section titled “Matters Being Submitted to a Vote of Spring Bank Stockholders—Proposal No. 2: Approval of an amendment to the

 

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Amended and Restated Certificate of Incorporation of Spring Bank Effecting the Reverse Stock Split—Material U.S. Federal Income Tax Consequences of the Reverse Stock Split to U.S. Holders” whether the Reverse Stock Split and the issuance of CVRs should be treated as separate transactions or as a single transactions is uncertain. Consistent with Spring Bank’s intent to treat the Reverse Stock Split and the issuance of CVRs as separate transactions for U.S. federal income tax purposes, a U.S. Holder of Spring Bank common stock generally should not recognize gain or loss upon the Reverse Stock Split, except to the extent a U.S. Holder receives cash in lieu of a fractional share of Spring Bank common stock. Please review the information in the above referenced section of this proxy statement/prospectus for a more complete description of the material U.S. federal income tax consequences of the Reverse Stock Split to U.S. Holders of Spring Bank common stock.

The tax consequences to you of the receipt of CVRs and the Reverse Stock Split are subject to substantial uncertainty and may also depend on your particular facts and circumstances. Please consult your tax advisors as to the specific tax consequences to you.

 

Q:

What is the Pre-Closing Financing?

 

A:

Concurrently with entering into the Exchange Agreement, certain existing investors of F-star agreed, pursuant to binding equity commitment letters by and between each investor and F-star, to purchase ordinary shares of F-star in a private placement to occur immediately prior to the Closing. This is referred to as the “Pre-Closing Financing”. As of October 16, 2020, F-star had received commitments from investors to purchase $15 million of ordinary shares of F-star in the Pre-Closing Financing. F-star may continue to seek additional commitments in the Pre-Closing Financing until 11:59 p.m., Eastern time on the 10th day prior to the Special Meeting. The Pre-Closing Financing is expected to be completed pursuant to Regulation D under the Securities Act of 1933, as amended. F-star ordinary shares that are issued in the Pre-Closing Financing will be converted into shares of Spring Bank common stock in the Exchange. Accordingly, by approving Proposal No. 1 relating to the issuance of shares in the Exchange, Spring Bank stockholders will also be approving the issuance of shares of Spring Bank common stock to be issued in exchange for all F-star ordinary shares that are sold in the Pre-Closing Financing.

 

Q:

Do persons involved in the Exchange have interests that may conflict with mine as a Spring Bank stockholder?

 

A:

Yes. When considering the recommendation of the Spring Bank Board, you should be aware that certain Spring Bank directors and executive officers have interests in the Exchange that are different from, or are in addition to, yours. The Spring Bank Board was aware of these interests and considered them, among other matters, in its decision to approve the Exchange. Upon completion of the Exchange, if the employment of Martin Driscoll, R. P. “Kris” Iyer, Ph.D., Lori Firmani and Garrett Winslow, is terminated by Spring Bank without cause, these executive officers will be entitled to certain payments and employment benefits following their respective terminations. In addition, all unvested issued and outstanding Spring Bank options and restricted stock units will be accelerated and vested in full immediately prior to the Closing and, following this acceleration, each option that has not previously been exercised will expire on the date of the Closing. As of September 30, 2020, the aggregate value of these severance payments, benefits and accelerated vesting is $2,254,698 (collectively, not individually), as described in the section titled “The Exchange—Interests of the Spring Bank Directors and Executive Officers in the Exchange—Exchange-Related Compensation of Executive Officers” in this proxy statement/prospectus. Additionally, David Arkowitz, Todd Brady, M.D., Ph.D. and Pamela Klein, M.D., current members of the Spring Bank Board, will continue to serve as members of the combined company’s board of directors after the Exchange.

 

Q:

As a Spring Bank stockholder, how does the Spring Bank Board recommend that I vote?

 

A:

After careful consideration, the Spring Bank Board unanimously recommends that Spring Bank stockholders vote “FOR” each of the proposals.

 

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Q:

What risks should I consider in deciding whether to vote in favor of the Exchange?

 

A:

You should carefully review the section of this proxy statement/prospectus titled “Risk Factors,” which sets forth certain risks and uncertainties related to the Exchange, risks and uncertainties to which the combined company’s business will be subject, and risks and uncertainties to which each of Spring Bank and F-star, as independent companies, are subject.

 

Q:

Who can vote at the Special Meeting?

 

A:

Only Spring Bank stockholders of record at the close of business on the Record Date, October 7, 2020, will be entitled to vote at the Special Meeting. As of October 7, 2020, there were 17,267,202 shares of Spring Bank common stock outstanding and entitled to vote.

Stockholder of Record: Shares Registered in Your Name

If, at the close of business on the Record Date, your shares of Spring Bank common stock were registered directly in your name with Spring Bank’s transfer agent, Computershare Trust Company, N.A., then you are a Spring Bank stockholder of record. As a Spring Bank stockholder of record, you may vote at the Special Meeting or vote by proxy. Whether or not you plan to attend the Special Meeting, please vote as soon as possible by completing and returning the enclosed proxy card or vote by proxy over the telephone or on the internet as instructed below to ensure your vote is counted.

Beneficial Owner: Shares Registered in the Name of a Broker or Bank

If, at the close of business on the Record Date, your shares of Spring Bank common stock were not held in your name, but rather in an account at a brokerage firm, bank, dealer or other similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered to be the stockholder of record for purposes of voting at the Special Meeting. As a beneficial owner, you have the right to direct your broker or other agent how to vote the shares in your account. You are also invited to attend the Special Meeting and may vote at the Special Meeting or vote by proxy. If your shares are not registered in your own name and you plan to vote your shares in person at the virtual Special Meeting, you will need the 16-digit control number included with your proxy materials or provided by the brokerage firm, bank, dealer or other similar organization that holds your shares.

 

Q:

As a holder of Spring Bank common stock, how many votes do I have?

 

A:

On each matter to be voted upon, you have one vote for each share of Spring Bank common stock you own as of the Record Date.

 

Q:

What is the quorum requirement for the Special Meeting?

 

A:

The presence, of the holders of a majority of the voting power of all outstanding shares of Spring Bank common stock entitled to vote at the Special Meeting is necessary to constitute a quorum at the Special Meeting. Votes of stockholders of record who are represented at the Special Meeting abstentions, and broker non-votes are counted for purposes of determining whether a quorum exists.

On October 7, 2020, there were 17,267,202 shares of Spring Bank common stock outstanding and entitled to vote. Accordingly, Spring Bank expects that the holders of at least 8,633,602 shares of Spring Bank common stock must be present at the Special Meeting for a quorum to exist.

 

Q:

What are “broker non-votes”?

 

A:

If you hold shares beneficially in street name and do not provide your broker or other agent with voting instructions, your shares may constitute “broker non-votes.” Broker non-votes occur on a matter when banks, brokers and other nominees are not permitted to vote on certain non-discretionary matters without instructions from the beneficial owner and instructions are not given. These matters are referred to as “non-routine” matters. Proposal No. 1 is anticipated to be a non-routine matter, and Proposal Nos. 2, 3 and 4

 

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  are anticipated to be routine matters on which Spring Bank expects brokers, banks or other nominees to have authority and, therefore, broker non-votes are not expected with respect to these proposals. Broker non-votes will have no effect on the outcome of Proposal No. 1.

 

Q:

When do you expect the Exchange to be consummated?

 

A:

Spring Bank and F-star anticipate that the closing of the Exchange will occur on or about November 20, 2020, following the Special Meeting to be held on Thursday, November 19, 2020, but the companies cannot predict the exact timing. For more information, see the section titled “The Exchange Agreement—Conditions to the Completion of the Exchange” in this proxy statement/prospectus.

 

Q:

What do I need to do now?

 

A:

Spring Bank and F-star urge you to read this proxy statement/prospectus carefully, including its annexes, and to consider how the Exchange affects you.

If you are a Spring Bank stockholder of record, you may provide your proxy instructions in one of two different ways. First, you can mail your signed proxy card in the enclosed return envelope. You may also provide your proxy instructions via telephone or via the internet by following the instructions on your proxy card or voting instruction form. Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and as soon as possible so that your shares can be voted at the Special Meeting.

 

Q:

What happens if I do not return a proxy card or otherwise provide proxy instructions, as applicable?

 

A:

If you are a Spring Bank stockholder, the failure to return your proxy card or otherwise provide proxy instructions will reduce the aggregate number of votes required to approve Proposal Nos. 1 and 4 and will have the same effect as a vote “AGAINST” Proposal Nos. 2 and 3.

 

Q:

When and where is the Special Meeting of Spring Bank stockholders?

 

A:

The Special Meeting will be held virtually via live audio webcast on the internet at www.virtualshareholdermeeting.com/SBPH2020SM at 9:00 a.m., Eastern time, on Thursday, November 19, 2020.

 

Q:

If my Spring Bank shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A:

Unless your broker has discretionary authority to vote on certain matters, your broker will not be able to vote your shares of Spring Bank common stock without instructions from you. Brokers are not expected to have discretionary authority to vote for Proposal No. 1. To make sure that your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker.

 

Q:

May I change my vote after I have submitted a proxy or provided proxy instructions?

 

A:

Spring Bank stockholders of record, other than those Spring Bank stockholders who are parties to the Voting Agreements, may change their vote at any time before their proxy is voted at the Special Meeting in one of four ways. First, a Spring Bank stockholder of record can send a written notice to the Secretary of Spring Bank stating that it would like to revoke its proxy. Second, a Spring Bank stockholder of record can submit new proxy instructions either on a new proxy card, via telephone or via the internet. Third, a Spring Bank stockholder of record can attend the Special Meeting and vote. Attendance alone will not revoke a proxy. If a Spring Bank stockholder who owns shares of Spring Bank common stock in “street name” has instructed a broker to vote its shares of Spring Bank common stock, the stockholder must follow directions received from its broker to change those instructions. The Spring Bank stockholder’s most current vote, whether by telephone, internet or proxy card, is the one that will be counted.

 

Q:

Who is paying for this proxy solicitation?

 

A:

Spring Bank and F-star will share equally, up to $50,000 in the case of F-star, the cost of soliciting, printing and filing this proxy statement/prospectus and the proxy card. Arrangements will also be made with

 

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  brokerage firms and other custodians, nominees and fiduciaries who are record holders of Spring Bank common stock for the forwarding of solicitation materials to the beneficial owners of Spring Bank common stock. Spring Bank will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials.

Spring Bank has engaged The Proxy Advisory Group, LLC to assist in the solicitation of proxies and provide related advice and informational support, for a services fee and the reimbursement of customary disbursements that are not expected to exceed $25,000 in total.

 

Q:

Who can help answer my questions?

 

A:

If you are a Spring Bank stockholder and would like additional copies, without charge, of this proxy statement/prospectus or if you have questions about the Exchange, including the procedures for voting your shares, you should contact:

Spring Bank Pharmaceuticals, Inc.

35 Parkwood Drive, Suite 210

Hopkinton, MA

(508) 473-5993

Attn: General Counsel and Corporate Secretary

You may also request information from The Proxy Advisory Group, LLC, Spring Bank’s proxy solicitor, at the following address and telephone number:

The Proxy Advisory Group, LLC

18 East 41st Street, Suite 2000

New York, New York 10017

1-212-616-2181

If you are a holder of F-star share capital, and would like additional copies, without charge, of this proxy statement/prospectus or if you have questions about the Exchange, you should contact:

F-star Therapeutics Limited

Eddeva B920

Babraham Research Campus

Cambridge, CB22 3AT

United Kingdom

+44-1223 497400

Attn: General Counsel

 

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PROSPECTUS SUMMARY

This summary highlights selected information from this proxy statement/prospectus and may not contain all of the information that is important to you. To better understand the Exchange and the proposals being considered at the Special Meeting, you should read this entire proxy statement/prospectus carefully, including the Exchange Agreement attached as Annex A, the opinion of Ladenburg Thalmann & Co. Inc. (“Ladenburg”) attached as Annex B and the other annexes to which you are referred herein. For more information, see the section titled “Where You Can Find More Information” in this proxy statement/prospectus.

The Companies

Spring Bank Pharmaceuticals, Inc.

Spring Bank Pharmaceuticals, Inc.

35 Parkwood Drive, Suite 210

Hopkinton, MA 01748

(508) 473-5993

Spring Bank is a clinical-stage biopharmaceutical company engaged in the discovery and development of novel therapeutics for the treatment of a range of cancers and inflammatory diseases using its proprietary small molecule nucleotide platform. Spring Bank designs its compounds to selectively target and modulate the activity of specific proteins implicated in various disease states. Its internally developed programs are primarily designed to stimulate and/or dampen immune responses. Spring Bank is devoting its resources to advancing multiple programs in its STING product portfolio, including its STING agonist clinical program for intravenously-administered SB 11285 in oncology, its STING antagonist compounds for inflammatory diseases, and its STING agonist antibody drug conjugate program for oncology. On July 29, 2020, Spring Bank announced that it had entered into a definitive agreement with F-star and certain holders of issued and outstanding capital shares and convertible loan notes of F-star, under which Spring Bank will acquire the entire issued and outstanding share capital of F-star.

F-star Therapeutics Limited

F-star Therapeutics Limited

Eddeva B920

Babraham Research Campus

Cambridge, CB22 3AT

United Kingdom

+44-1223 497400

F-star is a clinical-stage immuno-oncology company focused on transforming the lives of patients with cancer through the development of F-star’s innovative tetravalent mAb2 bispecific antibodies. With four distinct binding sites in a natural human antibody format, F-star believes its proprietary technology will overcome many of the challenges facing current immuno-oncology therapies, because of the strong pharmacology enabled by tetravalent bispecific binding. F-star’s vision is to transform the treatment of cancer through the development of differentiated and well-tolerated mAb2 bispecific antibodies, which are designed to address multiple immune evasion pathways that limit the effect of current immuno-oncology therapies.

F-star’s most advanced product candidate, FS118, simultaneously targets two immune checkpoint receptors, LAG-3 and PD-L1, to directly address known tumor evasion pathways, and is currently being evaluated in a Phase 1 trial in heavily pretreated patients with advanced cancer, having received a median of six lines of such treatments. F-star expects to report data from this Phase 1 trial in the fourth quarter of 2020, and to initiate a proof of concept trial in PD-1/PD-L1 resistant patients in selected indications in the first half of 2021. For another of its mAb2 product candidates, FS120, which targets CD137 and OX40, F-star has an open Investigational New Drug application (“IND”), from the U.S. Food and Drug Administration (“FDA”), and plans



 

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to initiate a Phase 1 trial in patients with advanced cancers in the fourth quarter of 2020. F-star intends to submit a Clinical Trial Application (“CTA”), to the European Medicines Agency (“EMA”) for an additional mAb2 product candidate, FS222, which targets PD-L1 and CD137, in the second half of 2020 and to initiate a Phase 1 trial in patients with advanced cancers in the first quarter of 2021.

The Exchange (see page 117)

Spring Bank will acquire the entire issued and outstanding share capital of F-star (including all shares issuable in connection with the F-star Note Conversion, the F-star Share Conversion and the Pre-Closing Financing, each as defined below). The combined company, operating under the name F-star Therapeutics, Inc., will seek to advance F-star’s immuno-oncology pipeline of multiple tetravalent bispecific antibody programs, as well as Spring Bank’s STING agonist, SB 11285, currently in a Phase 1a/1b clinical trial.

At the Closing, each ordinary share of F-star will be acquired by Spring Bank in exchange for a number of shares of Spring Bank common stock, $0.0001 par value per share, based on the Exchange Ratio (defined below), rounded to the nearest whole share of Spring Bank common stock after aggregating all fractional shares issuable to each Seller. The Exchange Agreement provides that the Exchange Ratio will be adjusted (i) to the extent that Spring Bank’s expected net cash as of Closing is less than $15.0 million or greater than $17.0 million, (ii) to the extent that F-star does not raise at least $25.0 million in the Pre-Closing Financing (as defined below) at a pre-money valuation, or the valuation of F-star prior to receiving any proceeds from the Pre-Closing Financing, of at least $35.0 million, and (iii) to account for the actual proceeds raised in the Pre-Closing Financing. Because the Closing will occur after September 30, 2020, the $15.0 million and $17.0 million thresholds will each be reduced by $250,000 on October 30, 2020 and on the last day of each 30-day period thereafter until the Closing occurs. The parties currently expect the Closing to occur on or about November 20, 2020. F-star currently expects to raise $15.0 million in the Pre-Closing Financing, and Spring Bank currently expects to have net cash of approximately $13.0 million at Closing. The assumed valuations and Exchange Ratio may change, resulting in adjustments to the Exchange Ratio that are described further in this proxy statement/prospectus.

Immediately following the Closing and assuming an Exchange Ratio of 0.4277 (which assumes both that Spring Bank will have net cash of $13.0 million at Closing, the $15.0 million and $17.0 million thresholds will each be reduced by $250,000 on October 30, 2020, and that F-star raises $15.0 million in the Pre-Closing Financing), the Spring Bank securityholders and the holders of F-star’s share capital (including all F-star shares issued in connection with the F-star Note Conversion, the F-star Share Conversion (each as defined below) and Pre-Closing Financing) are expected to own approximately 47.5% and 52.5%, respectively, of the outstanding capital stock of the combined company. Following the Closing, control of the combined company will be vested in the former holders of F-star and the board of directors of the combined company will include a total of eight directors, three of whom will be current directors of Spring Bank and five of whom will be designated by F-star.

The Pre-Closing Financing

Concurrently with the execution of the Exchange Agreement, certain existing investors of F-star, pursuant to binding equity commitment letters by and between each investor and F-star, agreed to subscribe for ordinary shares of F-star in a private placement to occur immediately prior to the Closing. As of October 16, 2020, F-star had received commitments from investors to purchase $15 million of ordinary shares of F-star in the Pre-Closing Financing. F-star may continue to seek additional commitments in the Pre-Closing Financing until 11:59 p.m., Eastern time on the 10th day prior to the Special Meeting. Ordinary shares of F-star sold in the Pre-Closing Financing will be exchanged for shares of Spring Bank common stock in the Exchange.

The F-star Share Conversion and F-star Note Conversion

F-star’s issued share capital currently consists of ordinary shares, Seed Preference Shares and Series A Preference Shares. Immediately prior to the Closing, the Seed Preference Shares and Series A Preference Shares will be converted into F-star ordinary shares (the “F-star Share Conversion”). Additionally, pursuant to the terms



 

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of the Exchange Agreement and immediately prior to the Closing, all issued and outstanding F-star convertible loan notes will convert into F-star ordinary shares (the “F-star Note Conversion”).

Equity Plans

All unvested issued and outstanding Spring Bank options and restricted stock units will be accelerated and vested in full immediately prior to the Closing and, following this acceleration, each option that has not previously been exercised will expire on the date of the Closing. All issued and outstanding F-star share options granted under its three legacy equity incentive plans are currently exercisable, and prior to the Closing, the holders of F-star Legacy Options will be notified by the F-star Board of Directors that they may exercise their F-star Legacy Options conditional upon and effective at the Closing. Upon the Closing, all holders of share options and restricted stock unit awards granted by F-star under the F-star 2019 Equity Incentive Plan will have those awards replaced by options and awards, on the same terms (including vesting), for Spring Bank common stock, based on the Exchange Ratio.

Closing

The Closing will occur no later than two business days after the last of the conditions as set forth in the Exchange Agreement has been satisfied or waived (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of each such condition), or at such other time as Spring Bank and F-star agree. Spring Bank and F-star anticipate that the Closing will occur on or about November 20, 2020. However, because the Exchange is subject to a number of conditions, neither Spring Bank nor F-star can predict exactly when the Closing will occur or if it will occur at all. Upon completion of the Exchange, Spring Bank will be renamed “F-star Therapeutics, Inc.”

Reasons for the Exchange (see page 129)

Spring Bank and F-star believe that the combined company will have the following potential advantages:

 

   

F-star’s Promising Clinical-Stage Assets. F-star is a clinical-stage immuno-oncology company with multiple promising and innovative clinical-stage therapeutic programs, near-term milestones, and an accomplished oncology development leadership team. F-star believes that its product candidates will overcome many of the challenges facing current immuno-oncology therapies. F-star’s vision is to transform the treatment of cancer through the development of differentiated and well-tolerated mAb2 bispecific antibodies, which are designed to simultaneously address multiple immune evasion pathways that limit the effect of current immuno-oncology therapies.

 

   

Management Team. The combined company will be led by a senior management from F-star experienced in immuno-oncology clinical drug development under the supervision of an experienced, well-qualified board of directors with representation from each of the current boards of directors of Spring Bank and F-star.

 

   

Cash Resources. The combined company is expected to have sufficient cash from the Pre-Closing Financing and cash on hand to enable it to implement its near-term business plans, and the combined company will have greater access to the public market to raise additional funds in the future.

Each of the boards of directors of Spring Bank and F-star also considered other reasons for the Exchange, as described herein. For example, the Spring Bank Board of Directors (the “Spring Bank Board”) considered, among other things:

 

   

the Spring Bank Board’s belief that maintaining Spring Bank as an independent stand-alone company involved significant risk and the potential for significant dilution to the Spring Bank stockholders, taking into account Spring Bank’s business, operational and financial status and prospects, including its cash position, the substantially diminished price of the Spring Bank common stock following the termination of Spring Bank’s lead clinical development program, uncertainty regarding the successful clinical development of Spring Bank’s remaining clinical program, given its early stage of



 

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development, and the need to raise significant additional financing for the future development of Spring Bank’s remaining clinical product candidate in a volatile market;

 

   

the Spring Bank Board’s belief, based in part on the judgment, advice and analysis of Spring Bank senior management with respect to the potential strategic, financial and operational benefits of the Exchange, that F-star’s multiple promising clinical-stage therapeutic programs in the area of immuno-oncology, and the potential for near-term milestones, would result in a greater probability of providing value to Spring Bank’s stockholders than Spring Bank continuing as an independent stand-alone company;

 

   

that the Spring Bank stockholders could potentially receive significant future payments pursuant to the CVRs in the event of certain business development transactions involving Spring Bank’s STING agonist compound and its STING antagonist program during specified future periods;

 

   

the Spring Bank Board’s belief that if Spring Bank were to raise sufficient capital to develop Spring Bank’s SB 11285 clinical program and conduct the necessary IND-enabling activities for the lead STING antagonist development candidate as a stand-alone company, the resulting dilution to existing Spring Bank stockholders would have been greater than the dilution resulting from the Exchange;

 

   

the Spring Bank Board’s consideration of the valuation and business prospects of the other strategic combination candidates involved in its thorough strategic review process, and its collective view that F-star was the most attractive candidate for Spring Bank due to, among other things, F-star’s belief that its tetravalent mAb2 bispecific antibodies may overcome many of the challenges facing current immuno-oncology therapies, and that F-star’s potential to achieve key milestones over the next two years could enable the combined company to access the public markets for additional financial resources; and

 

   

the significant risks and delays associated with, and uncertain value and costs to Spring Bank stockholders of, a potential liquidation of Spring Bank.

In addition, the F-star Board of Directors approved the Exchange based on a number of factors, including the following:

 

   

historical and current information concerning F-star’s business, including its financial performance and condition, operations, management and competitive position;

 

   

current industry and economic conditions and F-star’s prospects if it were to remain an independent company, including its need to obtain additional financing and the terms on which it would be able to obtain such financing, if at all;

 

   

the cash resources of the combined company expected to be available at the Closing and the anticipated burn rate of the combined company;

 

   

the potential for increased access to sources of capital and a broader range of investors to support the development of F-star’s product candidates than it could otherwise obtain if it continued to operate as a privately held company;

 

   

the potential to provide its current shareholders with greater liquidity by owning stock in a public company; and

 

   

the expectation that the Exchange with Spring Bank would be a more time- and cost-effective means to access capital than other options considered.

Opinion of the Spring Bank Financial Advisor (see page 133)

Pursuant to an engagement letter dated March 20, 2020, Spring Bank retained Ladenburg to act as a financial advisor in connection with the Exchange and to render an opinion to the Spring Bank Board (the “Opinion”) as to the fairness, from a financial point of view of the Acquisition Consideration (as defined in the Opinion) to the Spring Bank stockholders. On July 27, 2020, at the request of the Spring Bank Board, Ladenburg



 

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rendered the oral opinion, subsequently confirmed by delivery of the written opinion dated July 27, 2020, to the Spring Bank Board, that the Acquisition Consideration was fair, from a financial point of view, to the Spring Bank stockholders as of the date of the Opinion and based upon the various assumptions, qualifications and limitations set forth in the Opinion.

The full text of the Opinion is attached as Annex B to this proxy statement/prospectus and is incorporated by reference. Spring Bank encourages its stockholders to read the Opinion in its entirety for the assumptions made, procedures followed, other matters considered and limits of the review by Ladenburg. The summary of the Opinion set forth herein is qualified by reference to the full text of the Opinion. Ladenburg provided its Opinion for the sole benefit and use by the Spring Bank Board in its consideration of the Exchange. The Opinion is not a recommendation to the Spring Bank Board or to any stockholder as to how to vote with respect to the proposed Exchange or to take any other action in connection with the Exchange or otherwise.

Overview of the Exchange Agreement

Exchange Consideration and Adjustment (see page 152)

Immediately prior to the Closing, in the F-star Share Conversion, all of the issued and Seed Preference Shares and Series A Preference Shares of F-star will convert into ordinary shares of F-star, and all outstanding F-star convertible loan notes will convert into ordinary shares of F-star. At the Closing, each F-star ordinary share will be converted into the number of shares of Spring Bank common stock determined by the exchange ratio formula set forth in the Exchange Agreement (the “Exchange Ratio”) subject to certain adjustments and to account for the anticipated Reverse Stock Split.

Immediately following the Closing, based on an assumed Exchange Ratio of 0.4277, the owners of F-star securities are expected to own approximately 52.5% of the combined company, and the owners of Spring Bank’s securities, whose shares of Spring Bank common stock and other securities will remain outstanding after the Exchange, will own approximately 47.5% of the combined company.

The ownership percentages for each party are subject to adjustment of the Exchange Ratio. As of the date of the Exchange Agreement, Spring Bank’s valuation was determined to be $38 million, which amount is subject to adjustment in the event that Spring Bank’s net cash as of immediately prior to the Closing is less than $15.0 million or greater than $17.0 million, in which case, Spring Bank’s valuation will be decreased or increased, respectively, on a dollar-for-dollar basis by the amount that Spring Bank’s actual net cash is less than $15.0 million or greater than $17.0 million, respectively. As of the date of this proxy statement/prospectus, Spring Bank anticipates that it will have net cash of approximately $13.0 million at the Closing, and the parties currently expect the Closing to occur on or about November 20, 2020. Since the Closing will occur after September 30, 2020, the $15.0 million and $17.0 million net cash thresholds noted above will each be reduced by $250,000 on October 30, 2020 and on the last day of each 30-day period thereafter until the Closing occurs. F-star’s valuation at the Closing will be the sum of the lesser of the pre-money valuation attributed to F-star for purposes of the Pre-Closing Financing and $35.0 million, minus the amount, if any, by which $25.0 million exceeds the aggregate subscription amount for which F-star has received executed equity commitment letters as of the 10th day preceding the Special Meeting, plus the proceeds actually received by F-star in the Pre-Closing Financing. Assuming that F-star raises $15.0 million in the Pre-Closing Financing, F-star’s post-financing valuation would be $40.0 million (which is the pre-money valuation of $35.0 million minus a valuation adjustment of $10.0 million, which is the amount by which $25.0 million exceeds the subscription amounts as of the measurement time, plus the $15.0 million anticipated proceeds from the Pre-Closing Financing).

The Exchange Ratio is calculated based on the respective allocation percentages for Spring Bank and F-star. Spring Bank’s allocation percentage is the quotient of Spring Bank’s valuation, as adjusted as described above, divided by the sum of the Spring Bank valuation and the F-star post-financing valuation, referred to herein as the “Aggregate Valuation.” F-star’s allocation percentage is the quotient of F-star’s valuation, as adjusted as described above, divided by the Aggregate Valuation.



 

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The Exchange Agreement does not include a price-based termination right, and there will be no adjustment to the total number of shares of Spring Bank common stock that F-star shareholders will be entitled to receive for changes in the market price of Spring Bank common stock. Accordingly, the market value of the shares of Spring Bank common stock issued pursuant to the Exchange will depend on the market value of the shares of Spring Bank common stock at the time the Exchange closes and could vary significantly from the market value on the date of this proxy statement/prospectus.

Treatment of F-star Options and F-star Restricted Stock Units (see page 163)

Prior to (and conditional upon and effective as of) the Closing, the Spring Bank Board will cause Spring Bank to assume the F-star Therapeutics Limited 2019 Equity Incentive Plan (the “F-Star EIP”, also referred to as the “Assumed Plan”). Thereafter, the Spring Bank Board will, conditional upon and effective immediately the Closing, offer to grant each holder of outstanding options granted under the F-star EIP (“the Original EIP Options”), in exchange for each of the holder’s Original EIP Options, a replacement option under the Assumed Plan (a “Replacement EIP Option”), which will be an option to subscribe for or purchase shares of Spring Bank common stock. The vesting schedule and vesting dates applicable to each Replacement EIP Option will be the same as the vesting schedule applicable to the Original EIP Option that it replaces. The aggregate number of shares of Spring Bank common stock issuable on exercise in full of each Replacement EIP Option will be calculated by applying the Exchange Ratio to the number of F-star ordinary shares issuable on exercise in full of the Original EIP Option that it replaces, and rounding the resulting number down to the nearest whole number of shares of Spring Bank common stock. The aggregate exercise price payable to exercise in full each Replacement EIP Option will be the same as the aggregate exercise price payable to exercise in full the Original EIP Option that it replaces; provided, however, that the exercise price with respect to a Replacement EIP Option may be adjusted, as required by the Exchange Agreement, with respect to any option granted to a United States participant under the F-star EIP.

Each holder of outstanding restricted stock units granted under the F-star EIP (the “Original EIP RSUs”) will, immediately after the Closing and in exchange for the holder’s Original EIP RSUs, be granted replacement restricted share units (“Replacement EIP RSUs”). The Replacement EIP RSUs will be granted under the Assumed Plan and will be a right to acquire shares of Spring Bank common stock. The number of shares of Spring Bank common stock issuable on vesting in full of each Replacement EIP RSU will be calculated by applying the Exchange Ratio to the number of F-star ordinary shares issuable on vesting in full of the Original EIP RSU that it replaces, and rounding the resulting number down to the nearest whole number of shares of Spring Bank common stock.

The Replacement EIP RSUs and the Replacement EIP Options with respect to Original EIP Options granted to U.S. participants will be subject to the same terms and conditions as the Original EIP RSUs and Original EIP Options, respectively (except to the extent such terms are rendered inoperative as a result of the transactions contemplated by the Exchange Agreement), and will not provide holders of the Replacement EIP Options or Replacement EIP RSUs with any additional benefits that the holders did not have under their Original EIP Options or Original EIP RSUs. Similarly, the grant of Replacement EIP Options in exchange for the release of Original EIP Options shall be effected in such manner as shall meet the requirements of Part 6 of Schedule 5 to the Income Tax (Earnings and Pensions) Act 2003 (an act of the UK Parliament) (“ITEPA 2003”) so as to ensure that each Replacement EIP Option shall qualify as “Replacement Options” under the said Part 6 of Schedule 5 to ITEPA 2003.

Prior to the Closing, each holder of options granted under the: (i) F-star Alpha Limited Share Option Scheme (each, an “F-star Alpha Legacy Option”); (ii) F-star Beta Limited Share Option Scheme (each, an “F-star Beta Legacy Option”); and (iii) F-star Gmbh Limited Share Option Scheme (each, an “F-star Gmbh Legacy Option”, and together with the F-star Alpha Legacy Options and the F-star Beta Legacy Options, the “F-star Legacy Options”) will be notified by the F-star Board of Directors that they may exercise their F-star Legacy Options conditional upon and effective at the Closing. Spring Bank will not assume any of the F-star Legacy



 

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Options or the F-star Alpha Limited Share Option Scheme, the F-star Beta Limited Share Option Scheme or the F-star Gmbh Limited Share Option Scheme and shall not make an offer of replacement options in respect of the F-star Legacy Options.

Conditions to the Completion of the Exchange (see page 164)

To consummate the Exchange, Spring Bank stockholders must approve the issuance of shares of Spring Bank common stock pursuant to the Exchange Agreement and approve and adopt the amendments to the amended and restated certificate of incorporation of Spring Bank effecting the proposed Reverse Stock Split and the Spring Bank Name Change. In addition to obtaining such stockholder approvals and appropriate regulatory approvals, each of the other closing conditions set forth in the Exchange Agreement must be satisfied or waived.

No Solicitation (see page 168)

Each of Spring Bank and F-star agreed that, subject to limited exceptions, Spring Bank and F-star will not, nor will either party authorize or permit any of its subsidiaries or authorize the officers, directors, employees, partners, attorneys, advisors, accountants, agents or representatives of it or any of its subsidiaries to, directly or indirectly:

 

   

solicit or initiate, or knowingly encourage, induce or facilitate the making, submission or announcement of, any Acquisition Proposal, in the case of Spring Bank, or an F-star Acquisition Proposal, in the case of F-star, each as defined in “The Exchange Agreement – Spring Bank Acquisition Proposal and Acquisition Transaction” and “The Exchange Agreement – F-star Acquisition Proposal,” respectively, or take any action that would reasonably be expected to lead to an Acquisition Proposal or F-star Acquisition Proposal, as the case may be;

 

   

furnish any non-public information with respect to it or any of its subsidiaries to any person in connection with or in response to an Acquisition Proposal or F-star Acquisition Proposal, as the case may be, or an inquiry or indication of interest that would reasonably be expected to lead to an Acquisition Proposal or F-star Acquisition Proposal, as the case may be;

 

   

engage in discussions or negotiations with any person with respect to any Acquisition Proposal or F-star Acquisition Proposal, as the case may be;

 

   

approve, endorse or recommend an Acquisition Proposal or an F-star Acquisition Proposal, as the case may be; or

 

   

enter into any letter of intent or similar document or any agreement providing for or otherwise relating to, with respect to Spring Bank, an Acquisition Transaction, as defined in “The Exchange Agreement – Spring Bank Acquisition Proposal and Acquisition Transaction” or with respect to F-star, a transaction contemplated by an F-star Acquisition Proposal.

Termination (see page 175)

Either Spring Bank or F-star can terminate the Exchange Agreement under certain circumstances, which would prevent the Exchange from being consummated.

Termination Fee; Expenses (see page 177)

The Exchange Agreement contains certain termination rights for both Spring Bank and F-star, and further provides that, upon termination of the Exchange Agreement under specified circumstances, either party may be required to pay the other party a termination fee of $2.0 million, or, in the case of Spring Bank in some circumstances, reimburse F-star’s expenses up to a maximum amount of $750,000.

Voting Agreements (see page 179)

Each of the officers and directors and certain stockholders of Spring Bank have entered into voting agreements with F-star (the “Voting Agreements”) pursuant to which they agreed to vote in favor of approval of



 

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(i) issuance of Spring Bank common stock to the holders of F-star share capital pursuant to the Exchange and the change of control of Spring Bank resulting from the Exchange pursuant to The Nasdaq Stock Market LLC (Nasdaq Listing Rules 5635(a) and 5635(b), respectively), (ii) an amendment to Spring Bank’s amended and restated certificate of incorporation effecting the Reverse Stock Split, (iii) an amendment to Spring Bank’s amended and restated certificate of incorporation effecting the Spring Bank Name Change upon Closing, (iv) any proposal to postpone or adjourn the Special Meeting to a later date, if there are not sufficient votes for the approval of the Exchange and other matters to be approved on date of the Special Meeting, and (v) any other proposal included in this proxy statement/prospectus in connection with, or related to, the consummation of the Exchange for which the Spring Bank Board has unanimously recommended that the stockholders of Spring Bank vote in favor.

The Spring Bank stockholders that are party to the Voting Agreements owned approximately 7.8% of the outstanding shares of Spring Bank common stock as of September 30, 2020.

Lock-up Agreements (see page 179)

As a condition to the Closing, certain Spring Bank stockholders and F-star shareholders have entered into lock-up agreements, pursuant to which they agreed not to, except in limited circumstances, sell or transfer, or engage in swap or similar transactions with respect to, shares of Spring Bank common stock, including, as applicable, shares received in the Exchange and issuable upon exercise of certain options, during the 180-day period following the Closing.

As of September 30, 2020, Spring Bank stockholders who have executed lock-up agreements owned in the aggregate approximately 7.8% of the outstanding shares of Spring Bank common stock.

F-star shareholders who have executed lock-up agreements as of September 30, 2020 owned in the aggregate approximately 92.2% of the outstanding shares of F-star share capital on an as converted into common stock basis.

Contingent Value Rights Agreements (see page 179)

Spring Bank stockholders will receive two separate and distinct CVRs for each share of Spring Bank common stock held of record as of immediately prior to the Closing. The CVRs will represent the rights to receive cash payments in connection with (i) certain transactions involving Spring Bank’s proprietary STING agonist compound and (ii) certain other transactions involving Spring Bank’s proprietary STING antagonist compound.

Pursuant to the STING Agonist Contingent Value Rights Agreement, each share of Spring Bank common stock held by Spring Bank stockholders as of a record date immediately prior to the Closing will be entitled to receive, in connection with certain transactions involving Spring Bank’s proprietary STING agonist compound occurring on or prior to an agreed-upon expiration date, an aggregate amount equal to the greater of (i) 25% of the Net Proceeds received from all STING Agonist CVR Transactions (each as defined in the STING Agonist Contingent Value Rights Agreement) and (ii) up to an aggregate amount of $18.0 million, the product of $1.00 (as adjusted for the Reverse Stock Split, to the extent applicable) and the total number of shares of Spring Bank common stock outstanding as of a record date immediately prior to the Closing. Pursuant to the STING Antagonist Contingent Value Rights Agreement, each share of Spring Bank common stock held by Spring Bank stockholders as of a record date immediately prior to the Closing will be entitled to receive, in connection with the execution of an Approved Development Agreement and certain other transactions involving Spring Bank’s proprietary STING antagonist compound occurring during the 7-year period after the Closing, an aggregate amount equal to 80% of all Net Proceeds (as defined in the STING Antagonist Contingent Value Rights Agreement) received by Spring Bank after the Closing pursuant to (i) the Approved Development Agreement, if any, and (ii) all STING Antagonist CVR Transactions (as defined in the STING Antagonist Contingent Value Rights Agreement) entered into during the seven-year period after the Closing. While Spring Bank continues to



 

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engage with third parties about a potential sale or licensing transaction involving Spring Bank’s preclinical STING antagonist program, as of the date of this proxy statement/prospectus, Spring Bank no longer anticipates that it will enter into the Approved Development Agreement referred to in the Exchange Agreement and the STING Antagonist CVR Agreement.

Management Following the Exchange (see page 320)

Effective as of the Closing, the officers of the combined company are expected to include:

 

Name

  

Title

Eliot Forster, Ph.D.

   President, Chief Executive Officer and Director

Darlene Deptula-Hicks

  

Chief Financial Officer and Treasurer

Neil Brewis, Ph.D.

  

Chief Scientific Officer

Louis Kayitalire, M.D.

  

Chief Medical Officer

Interests of Directors, Officers and Affiliates of Spring Bank and F-star (see pages 142 and 146)

When considering the recommendations of the Spring Bank Board, Spring Bank stockholders should be aware that certain Spring Bank directors and executive officers have interests in the Exchange that are different from, or are in addition to, theirs. Upon completion of the Exchange, if the employment of Martin Driscoll, R. P. “Kris” Iyer, Ph.D., Lori Firmani and Garrett Winslow, is terminated by Spring Bank without cause, these executive officers will be entitled to certain severance and retention payments and employment benefits following their respective terminations. All unvested issued and outstanding Spring Bank options and restricted stock units will be accelerated and vested in full immediately prior to the Closing and, following this acceleration, each option that has not previously been exercised will expire on the date of the Closing. As of September 30, 2020, the aggregate value of these severance and retention payments, benefits and vesting acceleration is $2,254,698 (collectively, not individually). Additionally, David Arkowitz, Todd Brady, M.D., Ph.D. and Pamela Klein, M.D., current members of the Spring Bank Board, will continue to serve as members of the combined company’s board of directors after the Exchange.

F-star shareholders should be aware that certain members of the F-star Board of Directors and certain executive officers of F-star have interests in the Exchange that may be different from, or in addition to, interests they have as F-star shareholders. For example, F-star’s executive officers have options, subject to vesting, to purchase F-star ordinary shares, which will convert into options to purchase a number of shares of Spring Bank common stock determined by the Exchange Ratio, rounding any resulting fractional shares down to the nearest whole share, certain of F-star’s directors and executive officers are expected to become directors and executive officers of the combined company upon the Closing and all of F-star’s directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Exchange Agreement.

Material U.S. Federal Income Tax Consequences of the Exchange (see page 156)

Spring Bank and F-star intend to treat the Exchange as constituting a reorganization within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (a “B-Reorganization”). As further described in the above referenced section of this proxy statement/prospectus, whether the Exchange constitutes a B-Reorganization is uncertain. In general, and subject to the qualifications and limitations set forth in the above referenced section of this proxy statement/prospectus, if the Exchange qualifies as a B-Reorganization, the material tax consequences to a U.S. Holder of F-star capital stock should be as follows:

 

   

such F-star shareholder will not recognize gain or loss upon the exchange of F-star capital stock for Spring Bank common stock pursuant to the Exchange;

 

   

such F-star shareholder’s aggregate tax basis for the shares of Spring Bank common stock received in the Exchange will equal the stockholder’s aggregate tax basis in the shares of F-star capital stock surrendered in the Exchange; and



 

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the holding period of the shares of Spring Bank common stock received by such F-star shareholder in the Exchange will include the holding period of the shares of F-star capital stock surrendered in exchange therefor.

If the Exchange is not treated as a B-Reorganization, then each U.S. Holder generally will be treated as exchanging its shares of F-star capital stock in a fully-taxable transaction in exchange for shares of Spring Bank common stock. F-star shareholders will generally recognize gain or loss in such exchange equal to the amount that such F-star shareholder’s adjusted tax basis in the shares of F-star capital stock surrendered is less or more than the fair market value of the shares of Spring Bank common stock received in exchange therefor. Determining the actual tax consequences of the Exchange to you may be complex and will depend on the facts of your own situation. You should consult your tax advisors to fully understand the tax consequences to you of the Exchange, including estate, gift, state, local or non-U.S. tax consequences of the Exchange.

Material U.K. Income Tax Consequences of the Exchange (see page 159)

The summary set out below is based on current United Kingdom (“UK”) tax law and HM Revenue and Customs (“HMRC”) practice (which may not be binding on HMRC) as of the date of this proxy statement/prospectus, both of which are subject to change, possibly with retrospective effect.

Spring Bank and F-star intend the Exchange to qualify as a UK tax free reorganization. Subject to certain conditions, the Capital Gains Tax (“CGT”) legislation in Section 135 TCGA 1992 provides that F-star shares exchanged for Spring Bank Shares may be treated for UK tax residents as a reorganization of the original holding such that the Spring Bank Shares may be treated as if they were the original F-star stockholding and there should be no disposal for CGT purposes as a result of such reorganization.

The conditions of Section 135 TCGA 1992 are:

 

   

Spring Bank will hold more than 25% of the original share capital of F-star; and

 

   

The exchange of securities takes place for bona fide commercial reasons and does not form part of a scheme or arrangements, of which the main purpose, or one of the main purposes is the avoidance of liability to CGT (Section 137 TCGA 1992).

Advance clearance from HMRC under Section 138 TCGA 1992 that the bona fide commercial reasons test applies has been received. It should be noted that this test should only be relevant in the case of stockholders who (together with persons connected with them) currently hold more than 5% of F-star shares.

Advance clearance has also been obtained from HMRC under Section 701 ITA 2007 and Section 748 CTA 2010 that the main purpose, or one of the main purposes, of the Exchange is not to obtain an income tax or corporation tax advantage for UK individual or corporate stockholders, so that the transactions in securities rules should not apply to recharacterize the Exchange into a taxable event from the perspective of such individuals or corporates.

In the event that the conditions of Section 135 TCGA 1992 are not met, the Exchange is a chargeable event under the provisions of the CGT legislation. Each UK stockholder of F-star share capital will generally recognize a chargeable gain or loss on the receipt of shares of Spring Bank common stock issued to such holder of F-star share capital.

Risk Factors (see page 30)

Both Spring Bank and F-star are subject to various risks associated with their businesses and their industries. In addition, the Exchange poses a number of risks to each company and its respective stockholders, including the possibility that the Exchange may not be completed and the following risks:

 

   

The issuance of Spring Bank common stock to holders of F-star share capital pursuant to the Exchange Agreement and the resulting change in control from the Exchange must be approved by Spring Bank



 

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stockholders. Failure to obtain these approvals or meet other conditions set forth in the Exchange Agreement would prevent the Closing of the Exchange.

 

   

The Exchange Ratio may be adjusted depending on Spring Bank’s net cash at Closing, the timing of Closing and the amount of gross proceeds received in the Pre-Closing Financing such that the Spring Bank securityholders and F-star securityholders may own more or less of the combined company that presented in this proxy statement/prospectus.

 

   

The Exchange Ratio set forth in the Exchange Agreement is not adjustable based on the market price of Spring Bank common stock, so the Exchange consideration at the Closing may have a greater or lesser value than at the time the Exchange Agreement was signed.

 

   

Failure to complete the Exchange may result in either Spring Bank or F-star paying a termination fee to the other party and could significantly harm the market price of Spring Bank common stock and negatively affect the future business and operations of each company.

 

   

The Exchange may be completed even though certain events occur prior to the Closing that materially and adversely affect Spring Bank or F-star.

 

   

Some Spring Bank and F-star officers and directors have interests in the Exchange that are different from the respective stockholders of Spring Bank and F-star and that may influence them to support or approve the Exchange without regard to the interests of the respective Spring Bank stockholders or holders of F-star share capital.

 

   

The market price of Spring Bank common stock following the Exchange may decline as a result of the Exchange.

 

   

Spring Bank stockholders may not receive any payment on the CVRs and the CVRs may otherwise expire valueless.

 

   

The Spring Bank stockholders and holders of F-star share capital may not realize a benefit from the Exchange commensurate with the ownership dilution they will experience in connection with the Exchange.

 

   

During the pendency of the Exchange, Spring Bank and F-star may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Exchange Agreement, which could adversely affect their respective businesses.

 

   

Certain provisions of the Exchange Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Exchange Agreement.

These risks and other risks are discussed in greater detail under the section titled “Risk Factors” in this proxy statement/prospectus. Spring Bank and F-star both encourage you to read and consider all of these risks carefully.

Regulatory Approvals (see page 156)

In the United States, Spring Bank must comply with applicable federal and state securities laws and the rules and regulations of Nasdaq in connection with the issuance of shares of Spring Bank common stock and the filing of this proxy statement/prospectus with the SEC.

Nasdaq Capital Market Listing (see page 160)

Spring Bank intends to file an initial listing application with the Nasdaq Capital Market pursuant to Nasdaq’s rules for companies conducting a business combination that results in a change of control. If this application is accepted, Spring Bank anticipates that shares of Spring Bank common stock will be listed on the Nasdaq Capital Market following the Closing under Spring Bank’s new name, “F-star Therapeutics, Inc.,” with the trading symbol “FSTX”.



 

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Anticipated Accounting Treatment (see page 160)

The Exchange will be recorded as a business combination using the acquisition method of accounting in accordance with Accounting Standards Codification Topic 805, “Business Combinations.” Accounting principles generally accepted in the United States (“U.S. GAAP”) require that one of the two companies in a business combination be designated as the acquirer for accounting purposes based on evidence available. F-star will be treated as the acquiring entity for accounting purposes. In identifying F-star as the acquiring entity for accounting purposes, F-star and Spring Bank took into account factors including, but not limited to, the anticipated voting rights of all equity instruments following the Exchange, the intended corporate governance structure of the combined company, composition of senior management, and the relative size of each of the companies. No single factor was the sole determinant in the overall conclusion that F-star has been designated as the acquirer for accounting purposes; rather, all factors were considered in arriving at this conclusion.

Management of F-star and Spring Bank have determined a preliminary estimate of the purchase price calculated as described in Note 2 to the unaudited pro forma condensed combined financial statements included in this proxy statement/prospectus. The net tangible assets acquired and liabilities assumed of Spring Bank in connection with the Exchange are recorded at their estimated acquisition date fair values. The acquisition method of accounting is dependent upon certain valuations and any other studies and calculations deemed necessary that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. A final determination of these estimated fair values, which cannot be made prior to the completion of the transaction, will be based on the actual net tangible assets of Spring Bank that exist as of the date of completion of the Exchange.

Appraisal Rights and Dissenters Rights (see page 161)

Under the Delaware General Corporation Law (“DGCL”), the stockholders of Spring Bank do not have appraisal rights in connection with the issuance of shares of Spring Bank common stock pursuant to the Exchange Agreement and the resulting change of control of Spring Bank. F-star shareholders generally do not have appraisal rights under English law.

Comparison of Rights of Holders (see page 346)

Spring Bank is incorporated under the laws of the State of Delaware, and the rights of stockholders of Spring Bank are currently, and will continue to be, governed by the DGCL. The internal affairs of Spring Bank are currently, and will continue to be, governed by Spring Bank’s amended and restated certificate of incorporation and bylaws. F-star is registered in England and Wales, and the rights of F-star shareholders are currently governed by the Companies Act 2006. The internal affairs of F-star are currently governed by F-star’s articles of association and the shareholders’ agreement between F-star and its shareholders.

After the Closing, F-star shareholders will become stockholders of Spring Bank. Due to the differences between the governing laws and documents of F-star and Spring Bank, the Exchange will result in F-star shareholders having different rights once they become Spring Bank stockholders.



 

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SELECTED HISTORICAL AND UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL DATA

The following tables present summary historical financial data for Spring Bank and F-star, summary unaudited pro forma condensed financial data for Spring Bank and F-star, and comparative historical and unaudited pro forma per share data for Spring Bank and F-star.

Selected Historical Financial Data of Spring Bank

Not required for smaller reporting companies.

Selected Historical Financial Data of F-star

F-star Therapeutics Limited (“F-star”) acquired F-star Delta Limited (“F-star Delta”), F-star Beta Limited (“F-star Beta”), f-star Biotechnologische Forschungs-und Entwicklungsges, m.b.H. (“F-star GmbH”), and F-star Alpha Limited (“F-star Alpha”), (collectively, the “F-star Group Entities”) on May 7, 2019. F-star Beta and F-star GmbH, are deemed to be predecessor entities (the “Predecessor Group” or together with F-Star, the “Entities”), as described in the F-star Management’s Discussion and Analysis of Financial Condition and Results of Operations section included elsewhere in this proxy statement/ prospectus. Accordingly, the selected historical financial data as of and for the years ended December 31, 2019, 2018 and 2017 for F-star and for the period ended May 6, 2019, and the years ended December 31, 2018 and 2017 for F-star GmbH and F-star Beta are set forth below. Historical financial statements of F-star reflect the results of operations and historical financial position and financial performance of F-star Delta only, as the accounting acquirer, for the years ended December 31, 2018 and 2017. F-star, the legal acquirer of the F-star Group Entities, is an entity with no historical operations and was created solely for the purpose of effecting the corporate reorganization. For accounting purposes, F-star is not deemed substantive and not deemed the accounting acquirer.

F-star Delta’s financial information is included for the full year ended December 31, 2019 within the consolidated F-star financial statements and hence no separate financial information is presented for F-star Delta in the period to May 6, 2019. The selected historical financial data as of and for the period ended May 6, 2019 and the years ended December 31, 2019, 2018 and 2017 has been derived from the audited historical financial statements of the Entities, which are included elsewhere in this proxy statement/prospectus (see table below). F-star prepares its financial statements in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.

The historical financial data for the years ended December 31, 2018 and 2017 has been restated for F-star (F-star Delta, the accounting acquirer). See Note 4.9 of the F-star audited consolidated financial statements for the year ended December 31, 2019. Following a management review of the presentation of the statement of (loss)/income for the current reporting period, it was determined that a “by function” presentation would provide more reliable and relevant information to the users of F-star and F-star Beta financial statements. See Note 2.1 to audited financial statements of F-star and Note 2.1 to the audited financial statements of F-star Beta.

The historical results of the Entities are not necessarily indicative of future performance. You should read the information in this section in conjunction with “Unaudited Pro Forma Condensed Combined Financial Statements,” and F-star Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the historical financial statements of the Entities that are included elsewhere in this proxy statement/ prospectus. F-star’s IFRS historical financial statements and information are not comparable to Spring Bank’s U.S. GAAP historical financial statements and information included in this proxy statement/ prospectus. Furthermore, because the financial statements of F-star and F-star Beta are presented in pounds sterling and the financial statements of F-star GmbH are presented in euro and not in U.S. dollars, they are not directly comparable to Spring Bank’s financial statements and financial information included in this proxy statement/ prospectus.

 

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Entities Included in the F-star Consolidated Financial Statements

 

     Six Months Ended June 30,   

Years Ended December 31,

Entities

   2020   

2019

  

2019

   2018    2017
F-star Delta    Full 6
months
   Full 6 months    Full Year    Full Year    Full Year
F-star    Full 6
months
   May 7, 2019 to June 30, 2019    May 7, 2019 to December 31, 2019      
F-star GmbH    Full 6
months
   May 7, 2019 to June 30, 2019    May 7, 2019 to December 31, 2019      
F-star Beta    Full 6
months
   May 7, 2019 to June 30, 2019    May 7, 2019 to December 31, 2019      
F-star Alpha    Full 6
months
   May 7, 2019 to June 30, 2019    May 7, 2019 to December 31, 2019      

The financial results of F-star Alpha, F-star Beta and F-star GmbH are consolidated from and as a result of the reorganization on May 7, 2019, with F-star Delta as the accounting acquirer.

 

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F-star Therapeutics Limited (“F-star”)

(all amounts are presented in GBP)

Unaudited Condensed Consolidated Statement of Comprehensive Loss

 

     6 months ended June 30,  
     2020      2019      Change  
     (in thousands)  

Revenue

   £ 1,537      £ 20,154        (£18,616)  

Costs related to collaborative arrangements

     (333      (17,437      17,104  

Research and development costs

     (7,423      (9,575      2,152  

General and administrative expenses

     (4,960      (3,764      (1,196

Other income

     371        —          371  

Other expenses

     (1,282      (243      (1,040
  

 

 

    

 

 

    

 

 

 

Loss from operations

     (12,090      (10,865      (1,225

Fair value losses on financial liabilities at fair value through profit or loss (FVTPL)

     (1,509      —          (1,509

Finance income

     8        1        7  

Finance costs

     (438      —          (438
  

 

 

    

 

 

    

 

 

 

Loss before tax from continuing operations

     (14,028      (10,864      (3,164

Income tax credit

     2,692        756        1,936  
  

 

 

    

 

 

    

 

 

 

Loss for the year attributable to equity holders of the parent

     (£11,336      (£10,108      (£1,228

Basic and diluted loss per share

     (£0.64      (£0.86    £ 0.22  

 

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Table of Contents

Consolidated Statements of Comprehensive Income

 

     Year ended December 31,  
     (in thousands, except per share data)  
           (Restated)     (Restated)  
     2019     2018     2017  

Revenue

   £ 21,882     £ 29,997     £ 11,027  

Costs related to collaborative arrangements

     (17,960     (13,892     (6,346

Research & development expense

     (32,673     —         —    

General & administrative expense

     (12,295     (399     (616

Other income

     113       —         —    

Other gains

     310       195       71  
  

 

 

   

 

 

   

 

 

 

(Loss)/ profit from operations

     (40,622     15,900       4,136  

Fair value losses on financial liabilities at fair value through profit or loss (FVTPL)

     (1,106     —         —    

Finance income

     8       4       —    

Finance costs

     (256     —         —    
  

 

 

   

 

 

   

 

 

 

(Loss)/ profit before tax from continuing operations

     (41,976     15,905       4,136  
  

 

 

   

 

 

   

 

 

 

Income tax credit/(charge)

     7,016       (2,636     (657
  

 

 

   

 

 

   

 

 

 

(Loss)/ profit for the year attributable to equity holders of the parent

     (34,959     13,269       3,479  
  

 

 

   

 

 

   

 

 

 

Items that may be reclassified to profit or loss in subsequent periods:

      

Foreign exchange arising on consolidation

     77       —         —    
  

 

 

   

 

 

   

 

 

 

Other comprehensive income for the period

     77       —         —    
  

 

 

   

 

 

   

 

 

 

Total comprehensive (loss)/ income attributable to owners of the parent

     (£34,882   £ 13,269     £ 3,479  

(Loss)/earnings per share for profit attributable to the shareholders of the parent:

      

(Loss)/earnings per share

     (£ 2.37   £ 1.47     £ 0.38  

(Loss)/earnings per share, after dilution

     (£ 2.37   £ 1.47     £ 0.38  

The historical financial statements of F-star reflect the results of operations and historical financial position and financial performance of F-star Delta only, as the accounting acquirer, for the years ended December 31, 2018 and 2017.

Selected Statements of Financial Position Data

 

     As of December 31,  
     (in thousands)  
           (Restated)      (Restated)  
     2019     2018      2017  

Cash and cash equivalents

   £ 3,736     £ 6,458      £ 3,780  

Total assets

     53,102       24,979        13,964  

Total liabilities

     24,570       9,118        10,485  

Issued capital

     178               

(Accumulated losses)/ retained earnings

     (16,908     15,861        3,479  

Total equity

   £ 28,532     £ 15,861      £ 3,479  

Selected Statement of Cash Flows Data

 

     As of December 31,  
     (in thousands)  
     2019     2018     2017  

Net cash (used in)/ generated from operating activities

     (£16,557   £ 12,298     £ 13,627  

Net cash generated from/ (used in) investing activities

     4,105       (9,620     (9,846

Net cash generated from financing activities

   £ 9,733       £—       £—  

 

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f-star Biotechnologische Forschungs-und Entwicklungsges, M.B.H. (“F-star GmbH”) (Predecessor)

(All amounts presented in EUR)

Consolidated Statements of Comprehensive Income

 

     Period Ended
May 6,
    Year Ended
December 31,
 
     (in thousands, except per share data)  
     2019     2018     2017  

Revenue

   9,058     21,088     15,749  

Other income

     591       505       232  

Raw materials and consumables used

     (1,339     (3,960     (2,958

Depreciation, amortization and loss on disposal

     (454     (835     (559

Employee expenses

     (3,369     (7,995     (6,853

Other expenses

     (3,087     (7,429     (5,613
  

 

 

   

 

 

   

 

 

 

Operating profit/ (loss)

     1,399       1,375       (3

Finance income

     125       164       116  

Finance costs

     (109     (223     (201
  

 

 

   

 

 

   

 

 

 

Net finance income/ (costs)

     16       (60     (85
  

 

 

   

 

 

   

 

 

 

Profit/(loss) before tax on ordinary activities

     1,415       1,315       (88

Income tax (charge)/ credit

     (49     195       225  
  

 

 

   

 

 

   

 

 

 

Profit for the period

     1,366       1,510       137  
  

 

 

   

 

 

   

 

 

 

Earnings per share

     €2.26       €2.50       €0.23  

Earnings per share, after dilution

     €2.15       €2.50       €0.23  

Selected Consolidated Statements of Financial Position Data

 

     As of
May 6,
    As of December 31,  
     (in thousands)  
     2019     2018     2017  

Cash and cash equivalents

   849     2,053     3,133  

Total assets

     19,949       18,543       13,598  

Total liabilities

     20,518       20,019       9,696  

Share capital—ordinary

     605       605       605  

Accumulated losses

     (32,533     (33,836     (28,328

Total shareholders’ (deficit)/ equity

     (€569     (€1,477     €3,902  

Selected Consolidated Statements of Cash Flows Data

 

     Period Ended
May 6,
    Year Ended
December 31,
 
     (in thousands)  
     2019     2018     2017  

Net cash flows (used in) / generated from operating activities

     (€2,253   6,680       (€273

Net cash flows generated from/ (used in) investing activities

     127       (7,518     (4,217

Net cash flows generated from/ (used in) financing activities

     €845       (€217     €2,079  

 

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F-star Beta Limited (“F-star Beta”) (Predecessor)

(All amounts presented in GBP)

Statements of Comprehensive Income

 

     Period Ended
May 6,
    Year Ended
December 31,
 
     (in thousands, except per share data)  
     2019     2018     2017  

Revenue

   £ 7,903     £ 17,394     £ 14,993  

Costs related to collaborative arrangements

     (1,864     (6,719     (3,289

Research and development costs

     (5,106     (12,049     (11,933

General and administrative expenses

     (909     (345     (352

Other gains

     —         1       165  

Other expenses

     (58     (20     —    
  

 

 

   

 

 

   

 

 

 

Loss on operations

     (34     (1,738     (414

Finance costs

     (103     (145     (102
  

 

 

   

 

 

   

 

 

 

Loss before tax on continuing operation

     (137     (1,883     (516

Corporation tax benefit

     639       2,416       705  
  

 

 

   

 

 

   

 

 

 

Profit for the year and total comprehensive income attributable to the equity holders of the parent

     £502       £533       £189  
  

 

 

   

 

 

   

 

 

 

Earnings per share

     £0.05       £0.06       £0.02  

Earnings per share, after dilution

     £0.05       £0.06       £0.02  

Selected Statements of Financial Position Data

 

     As of
May 6,
    As of December 31,  
     (in thousands)  
     2019     2018     2017  

Cash and cash equivalents

   £ 915     £ 5,709     £ 1,910  

Total assets

     5,727       9,408       5,030  

Total liabilities

     13,704       18,575       5,421  

Issued capital

     —         —         —    

Accumulated losses

     (7,977     (9,167     (391

Total equity

     (£7,977     (£9,167     (£391

Selected Statement of Cash Flows Data

 

     Period Ended
May 6,
    Year Ended
December 31,
 
     (in thousands)  
     2019     2018     2017  

Net cash (used in)/ generated from operating activities

     (£4,621     £242       (£2,959

Net cash used in investing activities

     (50     (2,424     —    

Net cash (used in)/ generated from financing activities

     (£123   £ 5,981     £ 2,667  

 

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Table of Contents

Comparative Historical and Unaudited Pro Forma Per Share Data

The following information does not give effect to the proposed reverse stock split described in Proposal No. 2 of this proxy statement/prospectus.

The information below reflects the historical net loss and book value per share of Spring Bank common stock and the historical net loss and book value per share of F-star common and preferred shares in comparison with the unaudited pro forma net loss and book value per share after giving effect to the Exchange on a pro forma basis. The pro forma amounts are presented for illustrative purposes only and are not necessarily indicative of what the financial position, results of operations or per share information of the company would have been if Spring Bank and F-star had effected the Exchange as of or for the periods presented.

You should read the information below in conjunction with the audited and unaudited consolidated financial statements of each of Spring Bank and F-star included in this proxy statement/prospectus and the related notes and the unaudited pro forma condensed combined financial information and notes related to such financial statements included elsewhere in this proxy statement/prospectus.

 

     Six Months
Ended
June 30,
2020
    Year Ended
December 31,
2019
 

Spring Bank Historical Per Common Share Data:

    

Basic and diluted net loss per share

   $ (0.88   $ (1.46

Book value per share

   $ 1.35     $ 2.15  

F-star Historical Per Common Share Data:

    

Basic and diluted net loss per share

   £ (0.64   £ (2.37

Book value per share

   £ 1.15     £ 2.08  

F-star and Spring Bank Combined Unaudited Pro Forma Data:

    

Basic and diluted net loss per share

   $ (0.77   $ (1.62

Book value per share

   $ 1.31    

 

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MARKET PRICE AND DIVIDEND INFORMATION

Spring Bank common stock is listed on the Nasdaq Capital Market under the symbol “SBPH”. F-star is a private company and shares of F-star common stock and F-star preferred stock are not publicly traded. The closing price of Spring Bank common stock on July 29, 2020, the last trading day prior to the public announcement of the Exchange, was $2.08 per share, and the closing price of Spring Bank common stock was $1.40 on October 19, 2020, each as reported on the Nasdaq Capital Market. These closing sale prices are not necessarily indicative of the price at which the common stock of the combined company will trade after the Closing. Because the market price of Spring Bank common stock is subject to fluctuation, the market value of the shares of Spring Bank common stock that F-star shareholders will be entitled to receive in the Exchange may increase or decrease.

Assuming approval of Proposal Nos. 1, 2, and 3 and successful application for initial listing on the Nasdaq Capital Market, following the consummation of the Exchange, the Spring Bank common stock will be listed on the Nasdaq Capital Market and will trade under the symbol “FSTX”.

As of October 7, 2020, the Record Date for the Special Meeting, there were approximately 70 holders of record of Spring Bank common stock. As of October 7, 2020, F-star had 20 holders of record of F-star common stock and 8 holders of record of F-star preferred stock. For detailed information regarding the beneficial ownership of certain Spring Bank stockholders upon consummation of the Exchange, see the section titled “Principal Stockholders of the Combined Company” in this proxy statement/prospectus.

Dividends

Spring Bank has never declared or paid any cash dividends on the Spring Bank common stock and does not anticipate paying cash dividends on the Spring Bank common stock for the foreseeable future.

Notwithstanding the foregoing, any determination to pay cash dividends subsequent to the Exchange will be at the discretion of the combined company’s then-current board of directors and will depend upon a number of factors, including the combined company’s results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors the then-current board of directors deems relevant.

 

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RISK FACTORS

The combined company will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement/prospectus, you should carefully consider the material risks described below and those described in the section of this proxy statement/prospectus titled “Forward-Looking Statements” before deciding how to vote your shares of stock. In addition, you should read and consider the risks associated with the business of Spring Bank because these risks may also affect the combined company—these risks can be found in Spring Bank’s Annual Report on Form 10-K, as updated by subsequent Quarterly Reports on Form 10-Q, all of which are filed with the SEC and incorporated by reference into this proxy statement/prospectus. You should also read and consider the other information in this proxy statement/prospectus and the other documents incorporated by reference into this proxy statement/prospectus. See the section titled “Where You Can Find More Information” in this proxy statement/prospectus.

Risks Related to the Exchange

The Exchange Ratio set forth in the Exchange Agreement is not adjustable based on the market price of Spring Bank common stock, so the Exchange consideration at the Closing may have a greater or lesser value than at the time the Exchange Agreement was signed. As described in the Exchange Agreement, the Exchange Ratio may be adjusted depending on Spring Bank’s net cash at Closing, the timing of Closing, the amount of gross proceeds received in the Pre-Closing Financing and the pre-money valuation attributed to F-star in the Pre-Closing Financing such that the Spring Bank security holders and F-star securityholders may own more or less of the combined company that presented in this proxy statement/prospectus.

At the Closing, each ordinary share of F-star will be sold to Spring Bank in exchange for a number of shares of Spring Bank common stock based on the Exchange Ratio, rounded down to the nearest whole share of Spring Bank common stock after aggregating all fractional shares issuable to each Seller. The Exchange Agreement provides that the Exchange Ratio will be adjusted (i) to the extent that Spring Bank’s expected net cash as of Closing is less than $15.0 million or greater than $17.0 million, (ii) to the extent that F-star does not raise at least $25.0 million in the Pre-Closing Financing (as defined below) at a pre-money valuation, or the valuation of F-star prior to receiving any proceeds from the Pre-Closing Financing, of at least $35.0 million, and (iii) to account for the actual proceeds raised in the Pre-Closing Financing. Because the Closing will occur after September 30, 2020, the $15.0 million and $17.0 million thresholds will each be reduced by $250,000 on October 30, 2020 and on the last day of each 30-day period thereafter until the Closing occurs. The parties currently expect the Closing to occur on or about November 20, 2020. F-star currently expects to raise $15.0 million in the Pre-Closing Financing, and Spring Bank currently expects to have net cash of approximately $13.0 million at Closing. The assumed valuations and Exchange Ratio may change, resulting in adjustments to the Exchange Ratio that are described further in this proxy statement/prospectus under the section titled “The Exchange Agreement – Transaction Consideration and Adjustment” and in the Exchange Agreement.

Immediately following the Closing and assuming an Exchange Ratio of 0.4277 (which assumes both that Spring Bank will have net cash of $13.0 million at Closing, the $15.0 million and $17.0 million net cash thresholds will each be reduced by $250,000 on October 30, 2020, and that F-star raises $15.0 million in the Pre-Closing Financing), the Spring Bank securityholders and the holders of F-star’s share capital (including all F-star shares issued in connection with the F-star Note Conversion, the F-star Share Conversion (each as defined below) and Pre-Closing Financing) are expected to own approximately 47.5% and 52.5%, respectively, of the outstanding capital stock of the combined company. The final Exchange Ratio may vary from the estimated Exchange Ratio presented in this proxy statement/information such that the holders of F-star share capital and Spring Bank securityholders may own more or less of the combined company than estimated in this proxy statement/information statement.

For purposes of the Exchange Agreement, Spring Bank’s net cash at closing is subject to certain reductions, including, without limitation, accounts payable, accrued expenses, current liabilities payable in cash, unpaid expenses related to the Exchange and certain other unpaid obligations, including outstanding lease obligations. In the event the amount of Spring Bank’s cash is smaller or such reductions are greater than anticipated, Spring Bank’s securityholders could hold a significantly smaller portion of the combined company.

 

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Any changes in the market price of Spring Bank common stock before the completion of the Exchange will not affect the number of shares of Spring Bank common stock issuable to the F-star securityholders pursuant to the Exchange Agreement. Therefore, if before the completion of the Exchange, the market price of Spring Bank common stock declines from the market price on the date of the Exchange Agreement, then the F-star securityholders could receive Exchange consideration with substantially lower value than the value of the Exchange consideration on the date of the Exchange Agreement. Similarly, if before the completion of the Exchange, the market price of Spring Bank common stock increases from the market price of Spring Bank common stock on the date of the Exchange Agreement, then F-star’s securityholders could receive Exchange consideration with substantially greater value than the value of the Exchange consideration on the date of the Exchange Agreement. Because the Exchange Ratio does not adjust as a result of changes in the market price of Spring Bank common stock, for each one percentage point change in the market price of Spring Bank common stock, there is a corresponding one percentage point rise or decline, respectively, in the value of the total Exchange consideration payable to the F-star securityholders pursuant to the Exchange Agreement.

F-star may not obtain sufficient funding in the Pre-Closing Financing and may require additional financing.

Immediately following the Closing and assuming an Exchange Ratio of 0.4277, the Spring Bank securityholders and holders of F-star’s share capital (including all F-star shares issued in connection with the F-star Note Conversion, the F-star Share Conversion and Pre-Closing Financing) are expected to own approximately 47.5% and 52.5%, respectively, of the outstanding capital stock of the combined company. This percentage of ownership assumes that Spring Bank will have approximately $13.0 million in net cash at Closing and that F-star raises $15.0 million in the Pre-Closing Financing. In the event that F-star raises more or less than $15.0 million in the Pre-Closing Financing, the anticipated percentage of ownership of the combined company by holders of share capital of F-star will be more or less than presently estimated. If Spring Bank holds less cash at the time of the Closing than the parties currently expect, or F-star raises less in the Pre-Closing Financing than anticipated, the combined company will need to raise additional capital sooner than currently expected to fund its planned operations.

Spring Bank stockholders may not receive any payment on the CVRs and the CVRs may otherwise expire valueless.

Pursuant to the Exchange Agreement and the CVR Agreements, each share of Spring Bank common stock held by Spring Bank stockholders as of a record date immediately prior to the Closing will receive a dividend of (i) one contingent value right entitling these holders to receive payments in connection with certain transactions involving Spring Bank’s proprietary STING agonist compound (the “STING Agonist CVR”), and (ii) one contingent value right entitling these holders to receive payments in connection with certain transactions involving Spring Bank’s proprietary STING antagonist compound (the “STING Antagonist CVR” and, together with the STING Agonist CVR, the “CVRs”).

The right of Spring Bank stockholders to receive any future payment on or to derive any value from the CVRs will be contingent solely upon the achievement of the events specified in the CVR Agreements within the time periods specified in the CVR Agreements and the consideration received being greater than any amounts permitted to be retained or deducted by Spring Bank under the CVR Agreements. The combined company may not be able to successfully achieve the development of Spring Bank’s Agonist or Antagonist compounds in a manner or within a time period that would generate payment pursuant to the CVR Agreements. If these payment triggering events are not achieved for any reason within the time periods specified in the CVR Agreements or the consideration received for these events is not greater than the amounts permitted to be retained or deducted by Spring Bank, no payments will be made under the CVRs, and the CVRs will expire valueless.

Furthermore, the CVRs will be unsecured obligations of the combined company and all payments under the CVRs, all other obligations under the CVR Agreement and the CVRs and any rights or other related claims will be subordinated in right of payment to the prior payment in full of all current or future senior obligations of the combined company. Finally, the U.S. federal income tax treatment of the CVRs is unclear. There is no legal authority directly addressing the U.S. federal income tax treatment of the receipt of, and payments on, the CVRs,

 

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and there can be no assurance that the Internal Revenue Service would not assert, or that a court would not sustain, a position that could result in adverse U.S. federal income tax consequences to holders of the CVRs. Please review the information in the section titled “Agreements Related to the Share Exchange—Material U.S. Federal Income Tax Consequences of the Receipt of CVRs to U.S. Holders” for a more complete description of the material U.S. federal income tax consequences of the receipt of, and payments on, the CVRs.

The U.S. federal income tax treatment of the CVRs is unclear.

The U.S. federal income tax treatment of the CVRs is subject to substantial uncertainty. There is no legal authority directly addressing the U.S. federal income tax treatment of the receipt of, and payments under, the CVRs, and there can be no assurance that the IRS would not assert, or that a court would not sustain, a position that could potentially result in adverse U.S. federal income tax consequences to holders of the CVRs.

In particular, as discussed in the section titled “Agreements Related to the Exchange—Contingent Value Rights Agreements—Material U.S. Federal Income Tax Consequences of the CVRs to U.S. Holders,” absent a change in law requiring otherwise, Spring Bank intends to take the position that the fair market value of the CVRs cannot be reasonably ascertained on the date of the issuance of the CVRs and, accordingly, the issuance of the CVRs constitutes an “open transaction”. Therefore, absent a change in law requiring otherwise, for U.S. federal income tax purposes, Spring Bank will not report the issuance of the CVRs as a current distribution of property with respect to its common stock and will instead report each future cash payment (if any) on the CVRs as a distribution with respect to Spring Bank’s common stock in the year in which such payment is made. It is possible that the IRS could assert that the issuance of the CVRs is not an “open transaction” and that the Spring Bank stockholders are treated as having received a distribution of property equal to the fair market value of the CVRs on the date the CVRs are distributed, which could be taxable to Spring Bank stockholders without the corresponding receipt of cash. In addition, it is possible that the IRS or a court could determine that the issuance of the CVRs (and/or any payments thereon) and the reverse stock split constitute a single “recapitalization” for U.S. federal income tax purposes with the CVRs constituting taxable “boot” received in such recapitalization exchange. In such case, the tax consequences of the CVRs and the Reverse Stock Split would differ from those described in this proxy statement/prospectus, including with respect to the timing and character of income.

Failure to complete the Exchange may result in either Spring Bank or F-star paying a termination fee to the other party and could significantly harm the market price of Spring Bank common stock and negatively affect the future business and operations of each company.

If the Exchange is not completed and the Exchange Agreement is terminated under certain circumstances, the terminating party may be required to pay the other party a termination fee of $2.0 million. In addition, under certain conditions, Spring Bank may be required to reimburse F-star for up to $750,000 of F-star’s out-of-pocket expenses. Even if a termination fee or expenses of the other party are not payable in connection with a termination of the Exchange Agreement, each of Spring Bank and F-star have incurred significant fees and expenses, which must be paid whether or not the Exchange is completed. Further, if the Exchange is not completed, it could significantly harm the market price of Spring Bank common stock.

In addition, if the Exchange Agreement is terminated and the Spring Bank Board of Directors (the “Spring Bank Board”) or the F-star Board of Directors determines to seek another business combination or strategic transaction, there can be no assurance that either Spring Bank or F-star will be able to find a partner and close an alternative transaction on terms that are as favorable or more favorable than the terms set forth in the Exchange Agreement.

The issuance of Spring Bank common stock in the Exchange pursuant to the Exchange Agreement, the resulting change in control from the Exchange, the Reverse Stock Split and the Spring Bank Name Change must be approved by Spring Bank stockholders. Failure to obtain these approvals and failure of any other closing conditions to the Exchange Agreement would prevent the Closing and Exchange.

Before the Exchange can be completed, the Spring Bank stockholders must approve the issuance of Spring Bank common stock in the Exchange. Failure to obtain the required stockholder approval may result in a material delay in, or the abandonment of, the Exchange. Even if these matters are approved by the Spring Bank stockholders, certain other specified conditions set forth in the Exchange Agreement must be satisfied or waived

 

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to complete the Exchange. Spring Bank and F-star cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Exchange will not occur or will be delayed, and Spring Bank or F-star each may lose some or all of the intended benefits of the Exchange. Any delay in completing the Exchange may materially adversely affect the timing and benefits that are expected to be achieved from the Exchange.

The Exchange may be completed even though certain events occur prior to the Closing that materially and adversely affect Spring Bank or F-star.

The Exchange Agreement provides that either Spring Bank or F-star can refuse to complete the Exchange if there is a material adverse change affecting the other party between the date of the Exchange Agreement and the Closing. However, certain types of changes do not permit either party to refuse to complete the Exchange, even if this change could have a material adverse effect on Spring Bank or F-star, including:

 

   

general business or economic conditions affecting the industries in which Spring Bank or F-star, as applicable, operates and general conditions in financial markets to the extent these general conditions do not disproportionately affect Spring Bank and F-star, respectively;

 

   

with respect to Spring Bank, any change in its stock price or trading volume excluding any underlying effect that may have caused such change, unless this effect is otherwise exempt from causing a material adverse effect under the Exchange Agreement;

 

   

failure to meet internal or analysts’ expectations or projections for results of operations;

 

   

failure to meet expectations regarding, or changes in expectations regarding, clinical trial program or study progress and, subject to certain exceptions, the occurrence of adverse events or serious adverse events in a clinical trial program;

 

   

any effect resulting from the performance of obligations under the Exchange Agreement or the announcement of the Exchange or any related transactions;

 

   

natural disasters, acts of terrorism, sabotage, military action or war or any escalation or worsening of military actions or wars, or any viruses, pandemics, epidemic or other outbreaks of illness or public health events, or any spread or worsening of these events (including worsening of the COVID-19 (as defined below) pandemic), or any other circumstance that may be considered a force majeure event;

 

   

certain changes in, or any compliance with or action taken for the purpose of complying with, applicable laws or generally accepted accounting principles in the United States (“U.S. GAAP”), International Financial Reporting Standards or related interpretations provided these matters do not disproportionately affect Spring Bank or F-star, respectively;

 

   

actions taken by Spring Bank as reasonably necessary to comply with the Exchange Agreement or as otherwise permitted by the Exchange Agreement;

 

   

a government authority’s rejection or non-acceptance of intellectual property filings and applications;

 

   

regulatory action or the announcement of regulatory action regarding potentially competitive products or product candidates; and

 

   

stockholder litigation arising from or relating to the Exchange Agreement or the Exchange.

If adverse changes occur and Spring Bank and F-star still complete the Exchange, the market price of the combined company’s common stock may suffer. This in turn may reduce the value of the Exchange to the stockholders of Spring Bank, F-star or both.

Some Spring Bank and F-star officers and directors have interests in the Exchange that are different from the respective stockholders of Spring Bank and F-star and that may influence them to support or approve the Exchange without regard to the interests of the respective stockholders of Spring Bank or F-star.

Certain officers and directors of Spring Bank and F-star participate in arrangements that provide them with interests in the Exchange that are different from the interests of the respective stockholders of Spring Bank and F-star. For example, certain members of the Spring Bank Board and executive officers of Spring Bank have

 

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interests in the Exchange that may be different from, or in addition to, the interests of the Spring Bank stockholders. These interests relate to or arise from, among other things, (i) severance payments to which certain of Spring Bank’s executive officers will be entitled following completion of the Exchange as a result of termination of employment under certain circumstances, (ii) the accelerated vesting of certain of the equity awards held by Spring Bank’s executive officers and directors in connection with the completion of the Exchange, and (iii) the fact that certain current directors of Spring Bank, will continue as directors of the combined company after the Closing, each of which could influence them to support the Exchange.

Spring Bank and F-star securityholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company following the Closing as compared to their current ownership and voting interest in the respective companies.

If the proposed Exchange is completed, the current securityholders of Spring Bank and F-star will own a smaller percentage of the combined company than their ownership in their respective companies prior to the Exchange. The issuance of shares of Spring Bank common stock to securityholders of F-star in the Exchange will reduce significantly the relative voting power of each share of Spring Bank common stock held by its current stockholders and will reduce the relative voting power of each share of F-star share capital held by current F-star securityholders. Consequently, Spring Bank stockholders as a group and the F-star securityholders as a group will have less influence over the management and policies of the combined company after the Exchange than prior to the Exchange.

In addition, the eight member board of directors of the combined company will initially include three individuals designated by Spring Bank and five individual designated by F-star. Consequently, securityholders of Spring Bank and F-star will be able to exercise less influence over the management and policies of the combined company following the Closing than they currently exercise over the management and policies of their respective companies.

Spring Bank stockholders and F-star securityholders may not realize a benefit from the Exchange commensurate with the ownership dilution they will experience in connection with the Exchange.

If the combined company is unable to realize the strategic and financial benefits currently anticipated from the Exchange, Spring Bank stockholders and F-star securityholders will have experienced substantial dilution of their ownership interests in their respective companies without receiving the expected commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the expected strategic and financial benefits currently anticipated from the Exchange.

During the pendency of the Exchange, Spring Bank and F-star may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Exchange Agreement, which could adversely affect their respective businesses.

Subject to certain limited exceptions, covenants in the Exchange Agreement impede the ability of Spring Bank and F-star to make acquisitions or to complete other transactions that are not in the ordinary course of business pending completion of the Exchange. As a result, if the Exchange is not completed, the parties may be at a disadvantage to their competitors during this period. In addition, while the Exchange Agreement is in effect, each party is generally prohibited from soliciting, initiating, encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets, or other business combination outside the ordinary course of business with any third party, subject to certain exceptions relating to fiduciary duties. These transactions could be favorable to Spring Bank’s or F-star’s securityholders.

The pendency of the Exchange could have an adverse effect on the trading price of Spring Bank common stock and its business, financial condition and prospects.

The pendency of the Exchange could disrupt Spring Bank’s business in many ways, including:

 

   

the attention of its management and employees may be directed toward the completion of the Exchange and related matters and may be diverted from Spring Bank’s day-to-day business operations; and

 

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third parties may seek to terminate or renegotiate their relationships with Spring Bank as a result of the Exchange, whether pursuant to the terms of their existing agreements with Spring Bank or otherwise.

Should they occur, any of these matters could adversely affect the trading price of Spring Bank common stock or harm Spring Bank’s business, financial condition and prospects.

The lack of a public market for F- star shares makes it difficult to evaluate the value of F-star share capital. The F-star securityholders may receive shares of Spring Bank common stock in the Exchange that have a value that is less than, or greater than, the fair market value of the F-star share capital.

The outstanding share capital of F-star is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of F-star. Because the percentage of Spring Bank common stock to be issued to F-star securityholders was determined based on negotiations between the parties, it is possible that the value of Spring Bank common stock to be received by F-star securityholders will be less than the fair market value of F-star, or Spring Bank may pay more than the aggregate fair market value for F-star.

Spring Bank is substantially dependent on its employees to facilitate the consummation of the Exchange.

Spring Bank’s ability to successfully complete the Exchange depends in large part on its ability to retain certain personnel. Despite Spring Bank’s efforts to retain these employees, one or more may terminate their employment with Spring Bank on short notice. The loss of the services of certain employees could potentially harm Spring Bank’s ability to consummate the Exchange, to run its day-to-day business operations, as well as to fulfill its reporting obligations as a public company.

Litigation relating to the Exchange could require Spring Bank or F-star to incur significant costs and suffer management distraction, and could delay or enjoin the Exchange.

As described in the section “Spring Bank Business—Legal Proceedings,” certain Spring Bank stockholders have filed complaints against Spring Bank, members of the Spring Bank Board and/or F-star relating to the Exchange and the registration statement filed in connection therewith. Spring Bank and F-star could be subject to additional demands or litigation related to the Exchange, whether or not the Exchange is consummated. While each of the defendants intends to vigorously defend themselves against these actions and believe these actions are without merit, there can be no assurance that any defendant, including Spring Bank and F-star, will be successful. The currently filed actions and any future actions may create uncertainty relating to the Exchange, or delay or enjoin the Exchange, result in substantial costs to Spring Bank or F-star and divert management time and resources.

Risks Related to the Proposed Reverse Stock Split

The proposed Reverse Stock Split may not increase the combined company’s stock price over the long-term.

One of the purposes of the proposed Reverse Stock Split is to increase the per-share market price of the Spring Bank common stock. It cannot be assured, however, that the proposed Reverse Stock Split will accomplish this objective for any meaningful period of time. While it is expected that the reduction in the number of outstanding shares of Spring Bank common stock will proportionally increase the market price of Spring Bank common stock, it cannot be assured that the proposed Reverse Stock Split will increase the market price of Spring Bank common stock by a multiple of the proposed Reverse Stock Split ratio, or result in any permanent or sustained increase in the market price of Spring Bank common stock, which is dependent upon many factors, including the combined company’s business and financial performance, general market conditions and prospects for future success. Thus, while the stock price of the combined company might meet the listing requirements for the Nasdaq Capital Market initially, it cannot be assured that it will continue to do so.

The proposed Reverse Stock Split may decrease the liquidity of the combined company’s common stock.

The liquidity of the combined company’s common stock could be adversely affected by the reduced number of shares outstanding after the proposed Reverse Stock Split. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for Spring Bank common stock.

 

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The proposed Reverse Stock Split may lead to a decrease in the combined company’s overall market capitalization.

Should the market price of the combined company’s common stock decline after the proposed Reverse Stock Split, the percentage decline may be greater, due to the lesser number of shares outstanding, than it would have been prior to the proposed Reverse Stock Split. A reverse stock split may be viewed negatively by the market and, consequently, can lead to a decrease in the combined company’s overall market capitalization. If the per share market price does not increase in proportion to the proposed Reverse Stock Split ratio, then the value of the combined company, as measured by its stock capitalization, will be reduced. In some cases, the per-share stock price of companies that have effected reverse stock splits subsequently declined back to pre-reverse split levels, and accordingly, it cannot be assured that the total market value of Spring Bank common stock will remain the same after the proposed Reverse Stock Split is effected, or that the proposed Reverse Stock Split will not have an adverse effect on the stock price of Spring Bank common stock due to the reduced number of shares outstanding after the proposed Reverse Stock Split.

Risks Related to the Combined Company

The market price of the combined company’s common stock following the Exchange may decline as a result of the Exchange.

The market price of the combined company’s common stock may decline as a result of the Exchange for a number of reasons, including if:

 

   

investors react negatively to the Exchange, Spring Bank’s reasons for the Exchange or the prospects of the combined company’s product candidates, business and financial condition following the Exchange;

 

   

the effect of the Exchange on the combined company’s business and prospects is not consistent with the expectations of financial or industry analysts; or

 

   

the combined company does not achieve the perceived benefits of the Exchange as rapidly or to the extent anticipated by financial or industry analysts.

The combined company’s stock price is expected to be volatile, and the market price of its common stock may drop following the Exchange.

The market price of the combined company’s common stock following the Exchange could be subject to significant fluctuations following the Exchange. Market prices for securities of early-stage pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of the combined company’s common stock to fluctuate include:

 

   

any delay in the commencement, enrollment and ultimate completion of clinical trials;

 

   

results of clinical trials of existing and future product candidates, or those of the combined company’s competitors;

 

   

variations in the combined company’s financial results or those of companies that are perceived to be similar to the combined company;

 

   

regulatory or legal developments in the United States or other countries;

 

   

inability to obtain adequate product supply for any approved drug, or the inability to do so at acceptable prices;

 

   

the success of competitive therapies;

 

   

market conditions in the pharmaceutical and biotechnology sectors, and the issuance of new or changed securities analysts’ reports or recommendations;

 

   

announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by the combined company or the combined company’s competitors;

 

   

significant lawsuits, including patent or stockholder litigation;

 

   

additions or departures of key scientific or management personnel;

 

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general economic, industry and market conditions; and

 

   

failure to maintain compliance with the continued listing requirements of The Nasdaq Capital Market.

Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of the combined company’s common stock. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm the combined company’s profitability and reputation.

The combined company will need to raise additional capital by issuing securities or debt or through licensing or other strategic arrangements, which may cause dilution to the combined company’s stockholders or restrict the combined company’s operations or impact its proprietary rights.

If either or both of Spring Bank or F-star hold less cash at the time of the Closing than the parties currently expect, the combined company will need to raise additional capital sooner than expected. The combined company will also generally need to raise substantial additional capital to support its planned operations. Additional financing may not be available to the combined company when it needs it or may not be available on favorable terms. In addition, the combined company’s ability to obtain future funding when needed may be particularly challenging in light of the uncertainties and circumstances regarding the COVID-19 pandemic. To the extent that the combined company raises additional capital by issuing equity securities, this issuance may cause significant dilution to the combined company’s stockholders’ ownership. The terms of any new equity securities may have preferences over the combined company’s common stock. Any debt financing the combined company enters into may involve covenants that restrict its operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of the combined company’s assets, as well as prohibitions on its ability to create liens, pay dividends, redeem its stock or make investments. In addition, if the combined company raises additional funds through licensing, partnering or other strategic arrangements, it may be necessary to relinquish rights to some of the combined company’s technologies or product candidates and proprietary rights, or grant licenses on terms that are not favorable to the combined company.

Following the Exchange, the combined company may be unable to integrate successfully the businesses of Spring Bank and F-star and realize the anticipated benefits of the Exchange.

The Exchange involves the combination of two companies which currently operate as independent companies. Following the Exchange, the combined company will be required to devote management attention and resources to integrating its business practices and operations. The combined company may fail to realize some or all of the anticipated benefits of the Exchange if the integration process takes longer than expected or is more costly than expected. Potential difficulties the combined company may encounter in the integration process include the following:

 

   

complexities associated with managing the combined businesses;

 

   

integrating personnel from the two companies;

 

   

creation of uniform standards, controls, procedures, policies and information systems;

 

   

potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Exchange; and

 

   

performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by completing the Exchange and integrating the companies’ operations.

In addition, Spring Bank and F-star have operated and, until the completion of the Exchange, will continue to operate, independently. It is possible that the integration process also could result in the diversion of the combined company’s management’s attention, the disruption or interruption of, or the loss of momentum in, each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies, any of which could adversely affect the combined company’s ability to maintain relationships with customers, suppliers and employees or the ability to achieve the anticipated benefits of the Exchange, or could otherwise adversely affect the business and financial results of the combined company.

 

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If the assets subject to the CVR Agreements are not disposed of in a timely manner, the combined company may have to incur time and resources to wind down or dispose of such assets.

In connection with the Exchange, Spring Bank stockholders will receive two separate CVRs for each outstanding share of Spring Bank common stock held by such stockholder immediately prior to the Closing, each representing the non-transferable contractual right to receive certain contingent payments from the combined company upon the occurrence of certain events within agreed time periods relating to the disposition by the combined company of certain STING pathway assets of Spring Bank. See the section titled “Agreements Related to the Exchange—Contingent Value Rights Agreements” included in this proxy statement/prospectus. Pursuant to the terms of the CVR Agreements, the holders of Spring Bank common stock prior to the closing, rather than the holders of the combined company’s common stock, are the primary recipients of any net proceeds of the disposition of the assets subject to the CVR Agreements. Absent such CVR Agreements, the combined company could have allocated such funds, time and resources to its core programs and the foregoing could be a distraction to the combined company’s management and employees. As a result, the combined company’s operations and financial condition may be adversely affected.

The combined company will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies.

The combined company will incur significant legal, accounting and other expenses that F-star did not incur as a private company, including costs associated with public company reporting requirements. The combined company will also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as rules implemented by the SEC and Nasdaq. These rules and regulations are expected to increase the combined company’s legal and financial compliance costs and to make some activities more time consuming and costly. For example, the combined company’s management team will consist of certain executive officers of F-star prior to the Exchange. These executive officers and other personnel will need to devote substantial time regarding operations as a public company and compliance with applicable laws and regulations. These rules and regulations may also make it difficult and expensive for the combined company to obtain directors’ and officers’ liability insurance. As a result, it may be more difficult for the combined company to attract and retain qualified individuals to serve on the combined company’s board of directors or as executive officers of the combined company, which may adversely affect investor confidence in the combined company and could cause the combined company’s business or stock price to suffer.

If securities or industry analysts do not publish research or reports about the combined company’s business, or if they issue an adverse or misleading opinion regarding the combined company’s stock, the combined company’s stock price and trading volume could decline.

The trading market for the combined company’s common stock may be influenced by the research and reports that industry or securities analysts publish about the combined company’s business. If any of the analysts who cover the combined company issue an adverse or misleading opinion regarding the combined company, the combined company’s business model, intellectual property or stock performance, or if the combined company’s preclinical studies or clinical trials and operating results fail to meet the expectations of analysts, the combined company’s stock price would likely decline. If one or more of these analysts cease coverage of the combined company or fail to publish reports on the combined company regularly, the combined company could lose visibility in the financial markets, which in turn could cause the combined company’s stock price or trading volume to decline.

Spring Bank and F-star do not anticipate that the combined company will pay any cash dividends in the foreseeable future.

The current expectation is that the combined company will retain its future earnings to fund the development and growth of the combined company’s business. As a result, capital appreciation, if any, of the common stock of the combined organization will be your sole source of gain, if any, for the foreseeable future.

 

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The pro forma financial statements included in this proxy statement/prospectus are presented for illustrative purposes only and may not be an indication of the combined organization’s financial condition or results of operations following the completion of the Exchange.

The pro forma financial statements contained in this proxy statement/prospectus are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the Exchange for several reasons. The pro forma financial statements have been derived from the historical financial statements of Spring Bank and F-star and certain adjustments and assumptions have been made regarding the combined company after giving effect to the Exchange. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments and assumptions are difficult to make with accuracy. Moreover, the pro forma financial statements do not reflect all costs that are expected to be incurred by the combined company in connection with the Exchange. The actual financial condition of the combined company following the Exchange may not be consistent with, or evident from, these pro forma financial statements. The assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect the combined organization’s financial condition following the Exchange. For more information, see the section titled “Unaudited Pro Forma Condensed Combined Financial Statements” in this proxy statement/prospectus.

Because the Exchange will likely result in an ownership change under Section 382 of the Code for Spring Bank, Spring Bank’s pre-Exchange net operating loss (“NOL”) carryforwards and certain other tax attributes will potentially be subject to limitations.

As of December 31, 2019, Spring Bank had U.S. federal NOL carryforwards and state NOL carryforwards of $115.6 million and $116.5 million, respectively. If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Code (“Section 382”), the corporation’s NOL carryforwards and certain other tax attributes arising before the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds fifty percentage points over a rolling three-year period. Similar rules may apply under state tax laws. The Exchange will likely result in an ownership change for Spring Bank and, accordingly, Spring Bank’s NOL carryforwards and certain other tax attributes will potentially be subject to limitations (or disallowance) on their use after the Exchange. Additional ownership changes in the future could potentially result in additional limitations on Spring Bank’s and the combined company’s NOL carryforwards. Consequently, even if the combined company achieves profitability, it may not be able to utilize a material portion of the combined company’s NOL carryforwards and other tax attributes, which could have a material adverse effect on cash flow and results of operations. For more information on limitations on NOL carryforwards and certain other tax attributes, see ”Risk Factors—Risks Related to Spring Bank’s Common Stock—Spring Bank’s ability to use Spring Bank’s net operating loss and credit carryforwards to offset future taxable income may be subject to certain limitations,” below.

Risks Related to Spring Bank’s Financial Position and Capital Needs

If the Exchange is not completed, Spring Bank may not be able to otherwise source adequate liquidity to fund its operations, meet its obligations, and continue as a going concern.

While Spring Bank has entered into the Exchange Agreement with F-star, the Closing may be delayed or may not occur at all and there can be no assurance that the Exchange will deliver the anticipated benefits Spring Bank expects or enhance stockholder value. If the Exchange is not completed and the Exchange Agreement is terminated under certain circumstances, Spring Bank may be required to pay F-star a termination fee of $2.0 million. Even if a termination fee is not payable in connection with a termination of the Exchange Agreement, Spring Bank will have incurred significant fees and expenses, which must be paid whether or not the Exchange is completed.

Spring Bank does not expect to raise any additional funds prior to the completion of the Exchange. However, if for any reason the Exchange does not close, Spring Bank’s existing cash, cash equivalents and marketable securities as of June 30, 2020 would enable it to fund Spring Bank’s operating expenses and capital

 

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expenditure requirements for at least the next twelve months, excluding transaction costs associated with the Exchange (which Spring Bank expects to pay upon the Closing). If for any reason the Exchange does not close, Spring Bank will be required to obtain additional funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources in order to fund its operations. In addition, pursuant to the instructions to Form S-3, if Spring Bank files a new S-3 shelf registration statement, it would only have the ability to sell shares under such registration statement during any 12-month period in an amount less than or equal to one-third of the aggregate market value of its common stock held by non-affiliates, which is commonly referred to as Spring Bank’s “public float.” Adequate additional funding may not be available to it on acceptable terms or at all for a variety of reasons, including as a result of continuing uncertainty and volatility in the global capital markets as a result of the ongoing COVID-19 pandemic. Spring Bank’s failure to raise capital as and when needed would have a negative impact on Spring Bank’s financial condition and Spring Bank’s ability to pursue its business strategy, and Spring Bank may be forced to delay, reduce or eliminate Spring Bank’s research and development programs or any future commercialization efforts. Spring Bank does not have any committed external source of funds.

Spring Bank has based its expenditure estimates on assumptions that may prove to be wrong, and Spring Bank could deploy its available capital resources sooner than Spring Bank currently expects. Further, changing circumstances, some of which may be beyond Spring Bank’s control, could cause it to consume capital significantly faster than Spring Bank currently anticipates, and Spring Bank may need to seek additional funds sooner than planned. Spring Bank’s future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

 

   

initiation, progress, timing, costs and results of clinical trials of SB 11285;

 

   

initiation, progress, timing, costs and results of preclinical studies and clinical trials of Spring Bank’s STING antagonist candidates and any other product candidates Spring Bank may develop;

 

   

the number and characteristics of product candidates that Spring Bank discovers or in-license and develops;

 

   

the outcome, timing and cost of seeking regulatory review by the FDA and comparable foreign regulatory authorities, including the potential for the FDA or comparable foreign regulatory authorities to require that Spring Bank performs more studies than those Spring Bank currently expects;

 

   

the costs of filing, prosecuting, defending and enforcing any patent claims and maintaining and enforcing other intellectual property rights;

 

   

subject to receipt of marketing approval, revenue, if any, received from commercial sales of SB 11285 and any other products;

 

   

the costs and timing of the implementation of commercial-scale manufacturing activities;

 

   

the costs and timing of establishing sales, marketing and distribution capabilities for any product candidates for which Spring Bank may receive regulatory approval; and

 

   

the costs of operating as a public company.

Even if Spring Bank is able to secure additional capital to provide it with necessary financial resources to pursue other options, it may continue to operate its business or attempt to pursue another strategic transaction like the Exchange, sell or otherwise dispose of its assets, or dissolve or liquidate the company. Some of these alternatives would be costly and time-consuming and would likely require that Spring Bank obtain additional funding. Spring Bank can make no assurances that it would be able to obtain additional financing or find a partner and close an alternative transaction on terms that are as favorable, or more favorable, than the terms set forth in the Exchange Agreement or that any such alternative transaction would be possible or successful, if pursued. Even if Spring Bank is able to pursue these alternatives, the failure to complete the Exchange may result in negative publicity and/or a negative impression of Spring Bank in the investment community, could significantly harm the market price of Spring Bank common stock and may affect Spring Bank’s relationship with employees and other partners in the business community.

If the Spring Bank Board were to decide to dissolve and liquidate Spring Bank’s assets, Spring Bank would be required to wind down its clinical trials, pay all of its debts and contractual obligations, and to set aside certain

 

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reserves for potential future claims, and there can be no assurances as to the amount or timing of available cash left, if any, to distribute to stockholders after paying its debts and other obligations and setting aside funds for reserves. In addition, Spring Bank may be subject to litigation or other claims related to a dissolution and liquidation. If a dissolution and liquidation were pursued, the Spring Bank Board, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of Spring Bank common stock would likely lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding up of Spring Bank.

Spring Bank has incurred significant losses since Spring Bank’s inception and anticipates that Spring Bank will incur significant and increasing losses in the future.

Spring Bank does not have any products approved by regulatory authorities for marketing and has not generated any revenue from product sales, and Spring Bank continues to incur significant research, development and other expenses related to Spring Bank’s ongoing operations. As a result, Spring Bank is not profitable and has incurred losses in every reporting period since Spring Bank’s inception. For the years ended December 31, 2019 and 2018, Spring Bank reported a net loss of $24.1 million and $22.8 million, respectively. Spring Bank’s net loss for the six months ended June 30, 2020 was $14.7 million, and Spring Bank had an accumulated deficit of $140.9 million at June 30, 2020.

Spring Bank expects to continue to incur significant and increasing losses for the foreseeable future. Spring Bank anticipates these losses to increase as its expenses increase, and, if Spring Bank does not complete the Exchange, Spring Bank expects that Spring Bank’s expenses will increase if and as Spring Bank:

 

   

continues clinical development of SB 11285, Spring Bank’s lead STING agonist product candidate;

 

   

initiates and continues research and preclinical and clinical development efforts for Spring Bank’s other product candidates, including candidates from Spring Bank’s STING antagonist program;

 

   

seeks to identify and develop additional product candidates;

 

   

seeks regulatory and marketing approvals for Spring Bank’s product candidates that successfully complete clinical trials, if any;

 

   

establishes sales, marketing, distribution and other commercial infrastructure in the future to commercialize various products for which Spring Bank may obtain marketing approval, if any;

 

   

requires the manufacture and supply of larger quantities of product candidates for clinical development and potentially commercialization;

 

   

maintains, expands and protects Spring Bank’s intellectual property portfolio; and

 

   

adds operational, financial and management information systems and personnel, including personnel to support Spring Bank’s product development and help comply with Spring Bank’s obligations as a public company.

Spring Bank intends to expend a significant amount of Spring Bank’s limited resources on the development of Spring Bank’s sole clinical stage product candidate, SB 11285, for treatment of selected cancers, and may fail to capitalize on other technologies, product candidates or other indications that may be more profitable or for which there is a greater likelihood of success.

Spring Bank is focusing a significant amount of Spring Bank’s resources on the development of SB 11285, which concentrates the risk of product failure on one product candidate. SB 11285 may prove to be unsafe or ineffective. Because of this concentration of resources, Spring Bank may forego or delay development of other technologies, product candidates or other indications that later prove to have greater commercial potential.

Until recently, Spring Bank’s sole clinical stage product candidate was inarigivir soproxil, an investigational orally-administered RIG-I agonist compound, as a potential treatment for chronic hepatitis B virus (“HBV”). However, in January 2020, Spring Bank announced the discontinuation of the development of inarigivir in the interest of patient safety based on the occurrence of unexpected serious adverse events in Spring Bank’s Phase 2b chronic HBV CATALYST 2 trial. As a result, Spring Bank has refocused Spring Bank’s clinical development

 

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efforts on SB 11285, which is at a much earlier stage of development than inarigivir was when Spring Bank’s development program for that product candidate was discontinued.

Spring Bank’s resource allocation decisions may cause it to fail to capitalize on viable commercial products or profitable market opportunities. Spring Bank’s spending on current and future research and development programs and product candidates may not yield any commercially viable products. If Spring Bank does not accurately evaluate the commercial potential or target market for a particular product candidate, Spring Bank may relinquish valuable rights to the candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for it to retain sole development and commercialization rights to the product candidate.

Risks Related to the Discovery, Development and Commercialization of Spring Bank’s Product Candidates

Spring Bank’s future success is substantially dependent on the successful clinical development, regulatory approval and commercialization of SB 11285 and will require significant capital resources and years of additional clinical development effort. If Spring Bank is unable to develop, obtain regulatory approval for or successfully commercialize SB 11285 or experience significant delays in doing so, Spring Bank’s business could be materially harmed.

Spring Bank does not have any products that have gained regulatory approval. As a result, Spring Bank’s business is dependent on Spring Bank’s ability to successfully complete clinical development of, obtain regulatory approval for, and, if approved, to successfully commercialize SB 11285 in a timely manner. The success of SB 11285 will depend on several factors, including the following:

 

   

successful completion of Spring Bank’s Phase 1a/1b clinical trial for SB 11285;

 

   

successful completion of additional studies to support additional clinical trials;

 

   

initiation and successful enrollment and completion of additional clinical trials;

 

   

safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority for marketing approval;

 

   

timely receipt of marketing approvals from applicable regulatory authorities;

 

   

the performance of Spring Bank’s collaborators;

 

   

establishment of supply arrangements with third-party raw materials suppliers and manufacturers;

 

   

establishment of arrangements with third-party manufacturers to obtain finished drug products that are appropriately packaged for sale;

 

   

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

 

   

protection of Spring Bank’s rights in Spring Bank’s intellectual property portfolio;

 

   

successful launch of commercial sales following any marketing approval;

 

   

a continued acceptable safety profile following any marketing approval; and

 

   

commercial acceptance by patients, the medical community and third-party payors following any marketing approval.

Many of these factors are beyond Spring Bank’s control, including potential delays in its clinical trials as a result of the ongoing COVID-19 pandemic, the regulatory submission process, potential threats to Spring Bank’s intellectual property rights and the manufacturing, marketing and sales efforts of any collaborators. If Spring Bank is unable to develop, receive marketing approval for and successfully commercialize SB 11285 or experience delays because of any of these factors or otherwise, Spring Bank’s business could be substantially harmed.

 

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Business interruptions resulting from the COVID-19 pandemic or similar public health crises could cause a disruption of the development of Spring Bank’s product candidates and adversely impact Spring Bank’s business.

Public health crises such as pandemics or similar outbreaks could adversely impact Spring Bank’s business. In December 2019, the coronavirus, which causes COVID-19, surfaced in Wuhan, China and has become a global pandemic affecting most regions and countries, including Massachusetts where Spring Bank’s primary office and laboratory space is located. The COVID-19 pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, shelter-in-place orders, travel restrictions and other public health safety measures, as well as reported adverse impacts on healthcare resources, facilities and providers, in Massachusetts, across the United States and in other countries. The COVID-19 pandemic has disrupted global supply chains, created global economic uncertainty and disrupted financial markets. The extent to which COVID-19 impacts Spring Bank’s operations or those of Spring Bank’s third-party partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, additional or modified government actions, new information that will emerge concerning the severity and impact of COVID-19 and the actions to contain COVID-19 or address its impact in the short and long term, among others.

Additionally, timely initiation and completion of preclinical activities and clinical trials is dependent upon the availability of, for example, preclinical and clinical trial sites, researchers and investigators, regulatory agency personnel, and materials, which may be adversely affected by global health matters, such as pandemics. Spring Bank plans to conduct preclinical activities and clinical trials for Spring Bank’s investigational drug product candidates in geographies which are currently being affected by COVID-19.

Further, in response to the pandemic and in accordance with direction from state and local government authorities, Spring Bank has restricted access to Spring Bank’s facilities mostly to personnel and third parties who must perform critical activities that must be completed on-site, limited the number of such personnel that can be present at Spring Bank’s facilities at any one time, and requested that most of Spring Bank’s personnel work remotely. In the event that governmental authorities were to further modify current restrictions, Spring Bank’s employees conducting research and development activities may not be able to access Spring Bank’s laboratory space, and Spring Bank’s core activities may be significantly limited or curtailed, possibly for an extended period of time.

Some factors from the COVID-19 pandemic that could delay or otherwise adversely affect the completion of Spring Bank’s preclinical activities and the planned initiation of Spring Bank’s clinical trials for Spring Bank’s investigational drug product candidates, including STING, as well as Spring Bank’s business generally, include:

 

   

the potential diversion of healthcare resources away from the conduct of preclinical activities and clinical trials to focus on pandemic concerns, including the availability of necessary materials and the attention of physicians serving as Spring Bank’s clinical trial investigators, hospitals serving as Spring Bank’s clinical trial sites and hospital staff supporting the conduct of Spring Bank’s prospective clinical trials;

 

   

limitations on travel that could interrupt key preclinical activities and trial activities, such as clinical trial site initiations and monitoring, domestic and international travel by employees, contractors or patients to clinical trial sites, including any government-imposed travel restrictions or quarantines that will impact the ability or willingness of patients, employees or contractors to travel to Spring Bank’s research, manufacturing and clinical trial sites or secure visas or entry permissions, any of which could delay or adversely impact the conduct or progress of Spring Bank’s prospective clinical trials;

 

   

interruption or delays in the operations of the U.S. FDA and comparable foreign regulatory agencies, which may impact review, inspection, clearance and approval timelines;

 

   

interruption in global shipping affecting the transport of clinical trial materials, such as patient samples, investigational drug product candidates and conditioning drugs and other supplies used in Spring Bank’s prospective clinical trials;

 

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interruption of, or delays in receiving, supplies of Spring Bank’s investigational drug product from Spring Bank’s contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery system;

 

   

limitations on Spring Bank’s business operations by local, state, or the federal government that could impact Spring Bank’s ability to conduct Spring Bank’s preclinical or clinical activities, including completing any IND-enabling studies or Spring Bank’s ability to select future development candidates; and

 

   

business disruptions caused by potential workplace, laboratory and office closures and an increased reliance on employees working from home, disruptions to or delays in ongoing laboratory experiments and operations, staffing shortages, travel limitations, cyber security and data accessibility, or communication or mass transit disruptions, any of which could adversely impact Spring Bank’s business operations or delay necessary interactions with local regulators, ethics committees, manufacturing sites, research or clinical trial sites and other important agencies and contractors.

These and other factors arising from COVID-19 could worsen in countries that are already afflicted with the coronavirus or could continue to spread to additional countries, each of which could further adversely impact Spring Bank’s ability to conduct clinical trials and Spring Bank’s business generally, and could have a material adverse impact on Spring Bank’s operations and financial condition and results.

In addition, the trading prices for Spring Bank’s common stock and other biopharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic. As a result, Spring Bank may face difficulties raising capital through sales of Spring Bank’s common stock or such sales may be on unfavorable terms. The COVID-19 outbreak continues to rapidly evolve. The extent to which the outbreak may impact Spring Bank’s business, preclinical studies and planned clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and other actions to contain the outbreak or address its impact, such as social distancing and quarantines or lock-downs in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and address the disease.

The results of preclinical studies and clinical trials that Spring Bank has conducted to date may not be predictive of results in future clinical trials.

The outcome of preclinical studies and clinical trials that Spring Bank has conducted to date may not be predictive of the results of later clinical trials. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical trials, even after seeing promising results in earlier preclinical studies and clinical trials. The results from Spring Bank’s in vitro and in vivo preclinical studies may not translate into human efficacy.

In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. If Spring Bank fails to receive positive results in clinical trials of SB 11285 or any of Spring Bank’s other product candidates, the development timeline and regulatory approval and commercialization prospects for such product candidate, and, correspondingly, Spring Bank’s business and financial prospects, would be negatively impacted.

Interim, “top-line,” and preliminary data from Spring Bank’s clinical trials that Spring Bank announces or publishes from time to time may change as more patient data become available or as additional analyses are conducted, and the data are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, Spring Bank may publicly disclose interim or “top-line” from Spring Bank’s clinical studies, which are based on a preliminary analysis of then-available efficacy, tolerability, pharmacokinetic and

 

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safety data. The results and related findings and conclusions Spring Bank may draw from this top-line data are subject to change following a more comprehensive review of the data related to the particular study or trial. Interim data from clinical trials that Spring Bank may complete is subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or “top-line” data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data Spring Bank previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Material adverse changes between preliminary, “top-line,” or interim data and final data could significantly harm Spring Bank’s business prospects.

The therapeutic efficacy of SB 11285 has not been definitively shown in humans, and Spring Bank may not be able to successfully develop and commercialize SB 11285 or any of Spring Bank’s other product candidates.

SB 11285 and Spring Bank’s other product candidates are novel compounds and their potential benefit as immunotherapies or immunomodulators, as applicable, has not been definitively shown in humans. SB 11285 and Spring Bank’s other product candidates may not prove to be effective against the indications for which they are being designed to act and may not demonstrate in future clinical trials any or all of the pharmacological effects that have been observed in preclinical studies or clinical trials to date.

SB 11285 and Spring Bank’s other product candidates may interact with human biological systems in unforeseen, ineffective or harmful ways. If any of Spring Bank’s product candidates is associated with undesirable side effects or have characteristics that are unexpected, Spring Bank may need to abandon the development of such product candidate or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Because of these and other risks described herein that are inherent in the development of novel therapeutic agents, Spring Bank may never successfully develop or commercialize SB 11285 or any of Spring Bank’s other product candidates, in which case Spring Bank’s business will be harmed.

Clinical development of product candidates involves a lengthy and expensive process. Additionally, there are substantial risks inherent in attempting to commercialize new drugs, and, as a result, Spring Bank may not be able to successfully develop products for commercial use.

Spring Bank may experience delays in Spring Bank’s ongoing or future preclinical or clinical trials and Spring Bank does not know whether planned clinical trials will begin or enroll subjects on a timely basis, need to be redesigned or be completed on schedule, if at all. Failure can occur at any time during the clinical trial process, including failure to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence of adverse events that are severe or medically or commercially unacceptable, failure to comply with protocols or applicable regulatory requirements and determination by the FDA or any comparable foreign regulatory authority, such as the EMA, that a product candidate may not continue development or is not approvable. Additionally, because Spring Bank’s product candidates are based on new technologies and costs to treat patients with relapsed/refractory cancer may be significant, Spring Bank’s clinical trial costs are likely to be significantly higher than for more conventional therapeutic technologies or drug products.

There can be no assurance that the FDA or other foreign regulatory authorities will not put clinical trials of SB 11285 or any of Spring Bank’s other product candidates on clinical hold now or in the future. Clinical trials may be delayed, suspended or prematurely terminated or may take longer than anticipated for a variety of reasons, such as:

 

   

delay or failure in reaching agreement with the FDA or a comparable foreign regulatory authority on a trial design that Spring Bank is able to execute;

 

   

delay or failure in obtaining authorization to commence a trial or inability to comply with conditions imposed by a regulatory authority regarding the scope or design of a clinical trial;

 

   

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

 

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delay or failure in obtaining Investigational Review Board (“IRB”), approval or the approval of other reviewing entities, including comparable foreign regulatory authorities, to conduct a clinical trial at a site;

 

   

withdrawal of clinical trial sites from Spring Bank’s clinical trials as a result of changing standards of care or the ineligibility of a site to participate in Spring Bank’s clinical trials;

 

   

delay or failure in recruiting and enrolling suitable study subjects to participate in a trial;

 

   

delay or failure in study subjects completing a trial or returning for post-treatment follow-up or otherwise complying with the trial protocol;

 

   

clinical sites and investigators deviating from the trial protocol, failing to conduct the trial in accordance with regulatory requirements or dropping out of a trial;

 

   

inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including some that may be for competing product candidates with the same indication;

 

   

failure of Spring Bank’s third-party service providers to satisfy their contractual duties or meet expected deadlines;

 

   

delay or failure in adding new clinical trial sites;

 

   

feedback from the FDA, the IRBs, data safety monitoring boards, or comparable foreign regulatory authorities, or results from earlier stage or concurrent preclinical studies and clinical trials, that might require modification of the protocol for the trial;

 

   

decision by the FDA, the IRBs, comparable foreign regulatory authorities, or Spring Bank, or recommendation by a data safety monitoring board or comparable foreign regulatory authority, to suspend or terminate clinical trials at any time for safety issues or for any other reason;

 

   

unacceptable risk-benefit profile, unforeseen safety issues or adverse side effects or adverse events;

 

   

failure of a product candidate to demonstrate any benefit;

 

   

difficulties in manufacturing or obtaining from third parties sufficient quantities of a product candidate for use in clinical trials;

 

   

lack of adequate funding to continue the clinical trial, including the incurrence of unforeseen costs due to enrollment delays, requirements to conduct additional clinical studies or increased expenses associated with the services of Spring Bank’s CROs and other third parties; or

 

   

changes in governmental regulations or administrative actions.

If Spring Bank experiences delays in any preclinical or clinical trial of Spring Bank’s product candidates, including as a result of the ongoing COVID-19 pandemic, the product candidate development and approval process could be slowed down, and as a result the costs of the development and approval process may increase, the commercial prospects of Spring Bank’s product candidates may be harmed, and Spring Bank’s ability to generate product revenues from these product candidates may be delayed. Significant preclinical or clinical trial delays also could shorten any periods during which Spring Bank may have the exclusive right to commercialize Spring Bank’s product candidates or allow Spring Bank’s competitors to bring products to market before Spring Bank does and impairs Spring Bank’s ability to commercialize Spring Bank’s product candidates successfully and may harm Spring Bank’s business and results of operations. In addition, many of the factors that lead to clinical trial delays may ultimately lead to the denial of marketing approval of any of Spring Bank’s product candidates.

If Spring Bank or Spring Bank’s collaborators experiences delays or difficulties in the enrollment of patients in clinical trials, Spring Bank’s receipt of necessary regulatory approvals could be delayed or prevented.

Spring Bank or Spring Bank’s collaborators may not be able to initiate or continue clinical trials for any of Spring Bank’s product candidates if Spring Bank or Spring Bank’s collaborators, as applicable, is unable to locate and enroll a sufficient number of eligible patients to participate in clinical trials as required by the FDA or

 

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comparable foreign regulatory authorities. Patient enrollment is a significant factor in the timing of clinical trials, and is affected by many factors, including the following events:

 

   

the size and nature of the patient population;

 

   

the severity of the disease under investigation;

 

   

the proximity of patients to clinical sites;

 

   

the eligibility criteria for the trial;

 

   

the design of the clinical trial;

 

   

efforts to facilitate timely enrollment;

 

   

competing clinical trials; and

 

   

clinicians’ and patients’ perceptions as to the potential advantages and risks of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications Spring Bank is investigating.

Spring Bank’s inability to enroll a sufficient number of patients for Spring Bank’s clinical trials could result in significant delays or may require Spring Bank to abandon one or more clinical trials altogether. Enrollment delays in Spring Bank’s clinical trials may result in increased development costs for Spring Bank’s product candidates, delay or halt the development of and approval processes for Spring Bank’s product candidates and jeopardize Spring Bank’s ability to commence sales of and generate revenues from Spring Bank’s product candidates, which could cause the value of Spring Bank to decline.

SB 11285 or any other product candidate that Spring Bank develops may cause undesirable side effects or have other properties that could delay or prevent its regulatory approval or limit the commercial profile of an approved label.

Undesirable side effects caused by SB 11285 or any other product candidate could cause Spring Bank or regulatory authorities to interrupt, delay or halt clinical trials and could result in a restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authorities.

Results of Spring Bank’s trials could reveal an unacceptably high severity and prevalence of side effects. In such an event, Spring Bank’s trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order Spring Bank to cease further development of or deny approval of Spring Bank’s product candidates for any or all targeted indications. Study drug-related side effects could affect study subject recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims. If SB 11285 or any of Spring Bank’s other product candidates is associated with adverse events or undesirable side effects or has properties that are unexpected, Spring Bank may need to abandon development or limit development of that product candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. For instance, in January 2020, Spring Bank announced the discontinuation of the development of inarigivir in the interest of patient safety based on the occurrence of unexpected serious adverse events in Spring Bank’s Phase 2b CATALYST 2 trial. Many compounds that initially showed promise in clinical or earlier stage testing have later been found to cause undesirable or unexpected side effects that prevented further development of the compound. Spring Bank cannot provide any assurances that there will not be further treatment-related severe adverse events or deaths with other product candidates or that patient recruitment for trials with Spring Bank’s other product candidates will not be adversely impacted by the events with inarigivir, each of which could materially and adversely affect Spring Bank’s business and prospects.

Product liability lawsuits against Spring Bank could cause Spring Bank to incur substantial liabilities and to limit commercialization of SB 11285 or any other product candidates.

Spring Bank faces an inherent risk of product liability exposure related to the testing of Spring Bank’s current and former product candidates by Spring Bank or Spring Bank’s investigators in human clinical trials, including, but not limited to, Spring Bank determining to discontinue the development of inarigivir, an

 

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investigational RIG-I agonist compound, in the interest of patient safety based on the occurrence of unexpected serious adverse events in Spring Bank’s Phase 2b CATALYST 2 trial. Product liability claims may be brought against Spring Bank by study subjects enrolled in Spring Bank’s clinical trials, patients, healthcare providers or others using, administering or selling Spring Bank’s product candidates. If Spring Bank cannot successfully defend itself against claims that Spring Bank’s product candidates caused injuries, Spring Bank could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in, for example:

 

   

decreased demand for SB 11285 or any of Spring Bank’s other product candidates;

 

   

the inability to commercialize SB 11285 or any of Spring Bank’s other product candidates;

 

   

termination of clinical trial sites or entire trial programs;

 

   

injury to Spring Bank’s reputation and significant negative media attention;

 

   

withdrawal of clinical trial subjects;

 

   

significant costs to defend the related litigation;

 

   

substantial monetary awards to clinical trial subjects or patients;

 

   

loss of revenue;

 

   

diversion of management and scientific resources from Spring Bank’s business operations; and

 

   

increased scrutiny and potential investigation by, among others, the FDA, the United States Department of Justice (“DOJ”), the Office of Inspector General of the Office of Health and Human Services (“HHS”), state attorneys general, members of Congress and the public.

Spring Bank’s inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products Spring Bank develops, alone or with collaborators. Although Spring Bank currently carries clinical trial insurance, the amount of such insurance coverage may not be adequate, Spring Bank may be unable to maintain such insurance, or Spring Bank may not be able to obtain additional or replacement insurance at a reasonable cost, if at all. Spring Bank’s insurance policies may also have various exclusions, and Spring Bank may be subject to a product liability claim for which Spring Bank has no coverage. Spring Bank may have to pay any amounts awarded by a court or negotiated in a settlement that exceed Spring Bank’s coverage limitations or that are not covered by Spring Bank’s insurance, and Spring Bank may not have, or be able to obtain, sufficient capital to pay such amounts. Even if Spring Bank’s agreements with any future corporate collaborators entitle Spring Bank to indemnification against losses, such indemnification may not be available or adequate should any claim arise.

Risks Related to Spring Bank’s Dependence on Third Parties

Spring Bank relies on third parties to conduct Spring Bank’s preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines or their relationship with Spring Bank is terminated, Spring Bank’s business may be harmed and Spring Bank’s drug development efforts could be delayed.

Spring Bank relies on third-party research vendors, academic research institutions, CROs, and other third parties to conduct and provide Spring Bank with significant data and other information related to Spring Bank’s projects, preclinical studies and clinical trials. Spring Bank relies on these parties for execution of Spring Bank’s preclinical studies and clinical trials, and Spring Bank controls only some aspects of their activities. If these third parties provide inaccurate, misleading, or incomplete data, Spring Bank’s business, prospects, and results of operations could be materially adversely affected. Nevertheless, Spring Bank is responsible for ensuring that each of Spring Bank’s preclinical studies and clinical trials is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and Spring Bank’s reliance on the CROs does not relieve Spring Bank of Spring Bank’s regulatory responsibilities. Spring Bank also relies on third parties to assist in conducting Spring Bank’s preclinical studies in accordance with good laboratory practice (“GLP”), and the Animal Welfare Act requirements. Spring Bank and Spring Bank’s service providers are required to comply with federal regulations and good clinical practice (“GCP”), which are international standards meant to protect the rights and health of subjects that are enforced by the FDA, the Competent Authorities of the Member States of

 

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the European Economic Area and comparable foreign regulatory authorities. Regulatory authorities enforce GCP through periodic inspections of trial sponsors, principal investigators and trial sites. If Spring Bank or any of Spring Bank’s service providers fails to comply with applicable GCP, the clinical data generated in Spring Bank’s clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require Spring Bank to perform additional clinical trials before approving Spring Bank’s marketing applications. Spring Bank cannot guarantee that upon inspection by a given regulatory authority, such regulatory authority will determine that any of Spring Bank’s clinical trials comply with GCP requirements. In addition, Spring Bank’s clinical trials must be conducted with product produced under current Good Manufacturing Practices (“cGMPs”). Failure to comply with these regulations may require Spring Bank to repeat preclinical studies and clinical trials, which would delay the regulatory approval process.

Spring Bank’s service providers are not Spring Bank’s employees, and except for remedies available to Spring Bank under Spring Bank’s agreements with such service providers, Spring Bank cannot control whether or not they devote sufficient time and resources to Spring Bank’s ongoing clinical, nonclinical and preclinical programs. If service providers do not successfully carry out their contractual duties or obligations or meet expected deadlines (including as a result of the COVID-19 pandemic) or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to Spring Bank’s protocols, regulatory requirements or for other reasons, Spring Bank’s preclinical studies and clinical trials may be extended, delayed or terminated and Spring Bank may not be able to obtain regulatory approval for or successfully commercialize SB 11285 or any of Spring Bank’s other product candidates. As a result, Spring Bank’s results of operations and the commercial prospects for Spring Bank’s product candidates would be harmed, Spring Bank’s costs could increase and Spring Bank’s ability to generate revenues could be delayed.

Because Spring Bank has relied and continue to rely on third parties, Spring Bank’s internal capacity to perform these functions is limited. Outsourcing these functions involves risk that third parties may not perform to Spring Bank’s standards, may not produce results in a timely manner or may fail to perform at all. In addition, the use of third-party service providers requires Spring Bank to disclose Spring Bank’s proprietary information to these parties, which could increase the risk that this information will be misappropriated. Spring Bank currently has a small number of employees, which limits the internal resources Spring Bank has available to identify and monitor Spring Bank’s third-party providers. To the extent Spring Bank is unable to identify and successfully manage the performance of third-party service providers in the future, Spring Bank’s business may be adversely affected. Though Spring Bank carefully manages Spring Bank’s relationships with Spring Bank’s service providers, there can be no assurance that Spring Bank will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on Spring Bank’s business, financial condition and prospects.

Spring Bank’s third-party vendors and service providers generally have the right to terminate their agreements with Spring Bank under certain circumstances. Identifying, qualifying and managing performance of third-party service providers can be difficult, time consuming and cause delays in Spring Bank’s development programs. In addition, there is a natural transition period when a new third-party vendor or service provider commences work, and the new third-party vendor or service provider may not provide the same type or level of services as the original provider. If any of Spring Bank’s relationships with Spring Bank’s third-party vendors or service providers terminate, Spring Bank may not be able to enter into arrangements with alternative third-party vendors or service providers or to do so on commercially reasonable terms.

Spring Bank has no experience manufacturing any product candidate on a commercial scale and have no manufacturing facility. Spring Bank is dependent on contract manufacturers for the manufacture of SB 11285 as well as on third parties for Spring Bank’s supply chain and expects to rely on contract manufacturers for any other product candidates. If Spring Bank experiences problems with any of these contract manufacturers, the manufacturing of SB 11285 or any other product candidate could be delayed.

Spring Bank currently has no manufacturing facilities and limited personnel with manufacturing experience. Spring Bank relies on contract manufacturers to produce both drug substance and drug product required for Spring Bank’s clinical trials. Spring Bank plans to continue to rely upon contract manufacturers to manufacture

 

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commercial quantities of Spring Bank’s products, if approved. Reliance on these third-party contractors entails risks, including:

 

   

delays by Spring Bank’s third-party contract manufacturers to produce and deliver sufficient supply of clinical trial materials, including but not limited to delays or disruptions as a result of the ongoing COVID-19 pandemic and third-party contractors giving greater priority to the supply of other products over Spring Bank’s product candidates or otherwise not satisfactorily performing according to the terms of the agreements between Spring Bank and them;

 

   

the possible termination or nonrenewal of agreements by Spring Bank’s third-party contractors at a time that is costly or inconvenient for Spring Bank;

 

   

the possible breach by the third-party contractors of Spring Bank’s agreements with them;

 

   

the failure of third-party contractors to comply with applicable regulatory requirements;

 

   

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

 

   

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

 

   

the possible misappropriation of Spring Bank’s proprietary information, including Spring Bank’s trade secrets and know-how.

Spring Bank currently relies, and expects to continue to rely, on a small number of third-party contract manufacturers to supply the majority of Spring Bank’s active pharmaceutical ingredient (“API”), and required finished product for Spring Bank’s preclinical studies and clinical trials. These contract manufacturers are typically single source suppliers to Spring Bank. Spring Bank does not have long-term agreements with any of these third parties. If any of Spring Bank’s existing manufacturers become unavailable to Spring Bank for any reason, Spring Bank may experience a delay in identifying or qualifying replacements.

If Spring Bank’s current supply of drug substance turns out to be insufficient to complete Spring Bank’s clinical trial for SB 11285 or Spring Bank is unable to obtain alternative sources of supply on favorable terms, on a timely basis or at all, Spring Bank’s business may be adversely affected.

Each of Spring Bank’s API and drug product manufacturers must comply with cGMPs and other stringent regulatory requirements enforced by the FDA and foreign regulatory authorities in other jurisdictions. These requirements include, among other things, quality control, quality assurance and the maintenance of records and documentation, which occur in addition to Spring Bank’s own quality assurance releases. Manufacturers of Spring Bank’s products may be unable to comply with these GMP requirements and with other regulatory requirements. Spring Bank has little control over Spring Bank’s manufacturers’ or partners’ compliance with these regulations and standards.

Any manufacturing problem or the loss of a contract manufacturer could be disruptive to Spring Bank’s operations, delay Spring Bank’s clinical trials and, if any of Spring Bank’s products are approved for sale, result in lost sales. Spring Bank’s manufacturers may experience problems with their respective manufacturing and distribution operations and processes, including for example, quality issues, such as product specification and stability failures, procedural deviations, improper equipment installation or operation, utility failures, contamination and natural disasters. In addition, the raw materials necessary to make API for Spring Bank’s products are acquired from a limited number of sources. Any delay or disruption in the availability of these raw materials or a change in raw material suppliers could result in production disruptions, delays or higher costs with consequent adverse effects on Spring Bank. Any reliance on suppliers may involve additional risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules, reliability and quality. Any unanticipated disruption to future contract manufacture caused by problems at suppliers could delay shipment of Spring Bank’s product candidates, increase Spring Bank’s cost of goods sold or, if any of Spring Bank’s products are approved for sale, result in lost sales.

 

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If any of Spring Bank’s product candidates are approved by any regulatory agency, Spring Bank plans to enter into agreements with third-party contract manufacturers for the commercial production and distribution of those products. It may be difficult for Spring Bank to reach agreement with a contract manufacturer on satisfactory terms or in a timely manner. In addition, Spring Bank may face competition for access to manufacturing facilities, as there are a limited number of contract manufacturers operating under cGMPs that are capable of manufacturing Spring Bank’s product candidates. Consequently, Spring Bank may not be able to reach agreement with third-party manufacturers on satisfactory terms, which could delay Spring Bank’s commercialization efforts.

Third-party manufacturers are required to comply with cGMPs and similar regulatory requirements outside the United States. Facilities used by Spring Bank’s third-party manufacturers must be approved by the FDA after Spring Bank submits an NDA and before potential approval of the product candidate. Similar regulations apply to manufacturers of Spring Bank’s product candidates for use or sale in foreign countries. Spring Bank does not control the manufacturing process and is completely dependent on Spring Bank’s third-party manufacturers for compliance with the applicable regulatory requirements for the manufacture of Spring Bank’s product candidates. If Spring Bank’s manufacturers cannot successfully manufacture material that conforms to Spring Bank’s specifications or the strict regulatory requirements of the FDA and any applicable foreign regulatory authority, they will not be able to secure the applicable approval for their manufacturing facilities. If these facilities are not approved for commercial manufacture, Spring Bank may need to find alternative manufacturing facilities, which could result in delays in obtaining approval for the applicable product candidate.

In addition, Spring Bank’s manufacturers are subject to ongoing periodic inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and similar regulatory requirements both prior to and following the receipt of marketing approval for any of Spring Bank’s product candidates. Some of these inspections may be unannounced. Failure by any of Spring Bank’s manufacturers to comply with applicable cGMPs or other regulatory requirements could result in sanctions being imposed on Spring Bank, including fines, injunctions, civil penalties, delays, suspensions or withdrawals of approvals, operating restrictions, interruptions in supply and criminal prosecutions, any of which could adversely affect supplies of Spring Bank’s product candidates and significantly harm Spring Bank’s business, financial condition and results of operations.

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

Spring Bank is subject to healthcare laws and regulations, which could expose Spring Bank to criminal sanctions, civil penalties, contractual damages, reputational harm, fines, disgorgement, exclusion from participation in government healthcare programs, curtailment or restricting of Spring Bank’s operations, and diminished profits and future earnings.

Healthcare providers, physicians and others will play a primary role in the recommendation and prescription of any products for which Spring Bank obtains marketing approval. Spring Bank’s future arrangements with healthcare providers, patients and third-party payors will expose Spring Bank to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which Spring Bank markets, sells and distributes any products for which Spring Bank obtains marketing approval. Restrictions under applicable U.S. federal and state healthcare laws and regulations include the following:

Anti-Kickback Statute. The federal healthcare Anti-Kickback Statute (the “Anti-Kickback Statute”) prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under federal healthcare programs, such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the Anti-Kickback Statute or specific intent to violate it in order to have committed a violation;

 

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False Claims Laws. Federal civil and criminal false claims laws and civil monetary penalties laws, including the federal False Claims Act, impose criminal and civil penalties, including through civil whistleblower or qui tam actions, 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. In addition, the government may assert that a claim including items and services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;

HIPAA. The federal Health Insurance Portability and Accountability Act of 1996, (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”), imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or for making any false statements relating to healthcare matters. Similar to the Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate the statute in order to have committed a violation. Additionally, HIPAA, as amended by HITECH and its implementing regulations, imposes obligations on certain covered entities as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms with respect to safeguarding the privacy, security and transmission of individually identifiable health information, and require notification to affected individuals and regulatory authorities of certain breaches of security of individually identifiable health information;

Privacy Regulations and the GDPR. Privacy and data security have become significant issues in the United States, Europe and in many other jurisdictions where Spring Bank may in the future conduct Spring Bank’s operations. Regulators globally are imposing greater monetary fines for privacy violations. For example, in 2016, the EU adopted the GDPR, which became effective on May 25, 2018. The GDPR applies to any company established in the EU as well as to those outside the EU if they collect and use personal data in connection with the offering goods or services to individuals in the EU or the monitoring of their behavior. The GDPR enhances data protection obligations for processors and controllers of personal data, including, for example, expanded disclosures about how personal information is to be used, limitations on retention of information, mandatory data breach notification requirements and onerous new obligations on services providers. Non-compliance with the GDPR may result in monetary penalties of up to €20 million or 4% of worldwide revenue, whichever is higher. The GDPR and other changes in laws or regulations associated with the enhanced protection of certain types of personal data, such as healthcare data or other sensitive information, could greatly increase Spring Bank’s cost of providing Spring Bank’s products and services or even prevent Spring Bank from offering certain services in jurisdictions in which Spring Bank may.

Transparency Requirements. The federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to report annually to the Department of Health and Human Services information related to certain payments and other transfers of value, to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by the physicians described above and their immediate family members;

FDCA. The U.S. Federal Food, Drug and Cosmetic Act (the “FDCA”), which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices; and

Analogous State and Foreign Laws. Analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, and transparency 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. In addition, 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. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

 

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Efforts to ensure that Spring Bank’s business arrangements with third parties, and Spring Bank’s business generally, will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that Spring Bank’s business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If Spring Bank’s operations are found to be in violation of any of these laws or any other governmental laws and regulations that may apply to Spring Bank, it may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of products from government funded healthcare programs, such as Medicare and Medicaid, contractual damages, reputational harm, disgorgement, curtailment or restricting of Spring Bank’s operations, any of which could substantially disrupt Spring Bank’s operations and diminish Spring Bank’s profits and future earnings. If any of the physicians or other providers or entities with whom Spring Bank expects to do business is found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. The risk of Spring Bank’s being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some of Spring Bank’s business activities, including Spring Bank’s relationships with physicians and other healthcare providers, some of whom will recommend, purchase and/or prescribe Spring Bank’s products, could be subject to challenge under one or more of such laws.

If Spring Bank fails to comply with environmental, health and safety laws and regulations, Spring Bank could become subject to fines or penalties or incur costs that could harm Spring Bank’s business.

Spring Bank is subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, Spring Bank’s operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if Spring Bank contracts with third parties for the disposal of these materials and waste products, Spring Bank cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting from the use or disposal of Spring Bank’s hazardous materials, Spring Bank could be held liable for any resulting damages, and any liability could exceed Spring Bank’s resources. Spring Bank also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.

Spring Bank maintains workers’ compensation insurance to cover Spring Bank for costs and expenses Spring Bank may incur due to injuries to Spring Bank’s employees resulting from the use of hazardous materials, but this insurance may not provide adequate coverage against potential liabilities. Spring Bank does not maintain insurance for any environmental liability or toxic tort claims that may be asserted against Spring Bank.

In addition, Spring Bank may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current or future environmental laws and regulations may impair Spring Bank’s research, development or production efforts. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties or other sanctions.

Risks Related to Spring Bank’s Intellectual Property

If Spring Bank is unable to protect Spring Bank’s intellectual property rights or if Spring Bank’s intellectual property rights are inadequate for Spring Bank’s technology and product candidates, Spring Bank’s competitive position could be harmed.

Spring Bank’s success will depend in large part on Spring Bank’s ability to obtain and maintain patent and other intellectual property protection in the United States and other countries with respect to Spring Bank’s proprietary technology and product candidates. Spring Bank relies on trade secret, patent, copyright and trademark laws, and confidentiality, licensing and other agreements with employees and third parties. Spring Bank seeks to protect Spring Bank’s proprietary position by filing and prosecuting patent applications in the

 

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United States and abroad related to Spring Bank’s novel technologies and product candidates that are important to Spring Bank’s business.

The patent prosecution process is expensive and time-consuming, and Spring Bank may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that Spring Bank will fail to identify patentable aspects of Spring Bank’s research and development before it is too late to obtain patent protection. Although Spring Bank enters into non-disclosure and confidentiality agreements with parties who have access to patentable aspects of Spring Bank’s research and development, such as Spring Bank’s employees, strategic partners, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose Spring Bank’s confidential information before a patent application is filed, thereby jeopardizing Spring Bank’s ability to seek patent protection.

Spring Bank may license patent rights that are valuable to Spring Bank’s business from third parties, in which event Spring Bank may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology or medicines underlying such licenses. Spring Bank cannot be certain that these patents and applications will be prosecuted and enforced in a manner consistent with the best interests of Spring Bank’s business. If any such licensor fails to maintain such patents, or lose rights to those patents, the rights Spring Bank has licensed may be reduced or eliminated and Spring Bank’s right to develop and commercialize any of Spring Bank’s product candidates that are the subject of such licensed rights could be adversely affected. In addition to the foregoing, the risks associated with patent rights that Spring Bank licenses from third parties also apply to patent rights Spring Bank owns.

The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of Spring Bank’s patents, including those patent rights licensed to Spring Bank by third parties, are highly uncertain. The steps Spring Bank or Spring Bank’s licensors have taken to protect Spring Bank’s proprietary rights may not be adequate to preclude misappropriation of Spring Bank’s proprietary information or infringement of Spring Bank’s intellectual property rights, both inside and outside the United States. Further, the examination process may require Spring Bank or Spring Bank’s licensors to narrow the claims for Spring Bank’s pending patent applications, which may limit the scope of patent protection that may be obtained if these applications issue as patents. The rights already granted under any of Spring Bank’s currently issued patents or those licensed to Spring Bank and those that may be granted under future issued patents may not provide Spring Bank with the proprietary protection or competitive advantages Spring Bank is seeking. Changes in the patent laws, implementing regulations or interpretation of the patent laws in the United States and other countries may also diminish the value of Spring Bank’s patents or narrow the scope of Spring Bank’s patent protection. If Spring Bank or Spring Bank’s licensors are unable to obtain and maintain patent protection for Spring Bank’s technology and product candidates, or if the scope of the patent protection obtained is not sufficient, Spring Bank’s competitors could develop and commercialize technology and products similar or superior to Spring Bank, and Spring Bank’s ability to successfully commercialize Spring Bank’s technology and product candidates may be adversely affected.

With respect to patent rights, Spring Bank does not know whether any of the pending patent applications for any of Spring Bank’s compounds will result in the issuance of patents that protect Spring Bank’s technology or products, or if any of Spring Bank’s or Spring Bank’s licensors’ issued patents will effectively prevent others from commercializing competitive technologies and products. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or in some cases not at all, until they are issued as a patent. Therefore, Spring Bank cannot be certain that Spring Bank or Spring Bank’s licensors were the first to make the inventions claimed in Spring Bank’s owned or licensed patents or pending patent applications, or that Spring Bank or Spring Bank’s licensors were the first to file for patent protection of such inventions.

Spring Bank’s pending applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Because the issuance of a

 

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patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents that Spring Bank own or have licensed from third parties may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in the loss of patent protection, the narrowing of claims in such patents or the invalidity or unenforceability of such patents, which could limit Spring Bank’s ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection for Spring Bank’s technology and products. Protecting against the unauthorized use of Spring Bank’s or Spring Bank’s licensors’ patented technology, trademarks and other intellectual property rights is expensive, difficult and in some cases may not be possible. In some cases, it may be difficult or impossible to detect third-party infringement or misappropriation of Spring Bank’s intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult.

If third parties initiate legal proceedings against Spring Bank alleging that Spring Bank is infringing their intellectual property rights, such litigation could be costly and time consuming and could prevent or delay Spring Bank from developing or commercializing Spring Bank’s product candidates.

Spring Bank’s commercial success depends upon Spring Bank’s ability to develop, manufacture, market and sell SB 11285, and any other product candidates and to use Spring Bank’s related proprietary technologies, without infringing the intellectual property and other proprietary rights of third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, and interferences, post-grant review, inter partes review, and reexamination proceedings before the United States Patent and Trademark Office (“USPTO”), and corresponding foreign patent offices. As a result, Spring Bank may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to SB 11285 or any other product candidates, including interference or derivation proceedings before the USPTO. Third parties may assert infringement claims against Spring Bank based on existing patents or patents that may be granted in the future. The pharmaceutical and biotechnology industries have produced a significant number of patents, and it may not always be clear to industry participants, including Spring Bank, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform.

Third parties may assert that Spring Bank is employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods of treatment related to the use or manufacture of Spring Bank’s product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications, which may later result in issued patents that Spring Bank’s product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of Spring Bank’s technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of Spring Bank’s product candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block Spring Bank’s ability to commercialize such product unless Spring Bank obtained a license under the applicable patents, or until such patents expire. Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of Spring Bank’s formulations, processes for manufacture or methods of use, the holders of any such patents may be able to block Spring Bank’s ability to develop and commercialize the applicable product candidate.

If Spring Bank were sued for patent infringement, Spring Bank would need to demonstrate that Spring Bank’s product candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and Spring Bank may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. If Spring Bank is found to infringe a third party’s intellectual property rights, Spring Bank could be required to obtain a license from such third party. However, Spring Bank may not be able to obtain any required license on commercially reasonable terms or at all. Under certain circumstances, Spring Bank could be forced, including by court order, to cease commercializing the applicable product candidate. In addition, in any such proceeding or litigation, Spring Bank

 

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could be found liable for monetary damages. A finding of infringement could prevent Spring Bank from commercializing the applicable product candidate or force Spring Bank to cease some of Spring Bank’s business operations, which could materially harm Spring Bank’s business.

Defense of claims of infringement, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from Spring Bank’s business. In the event of a successful claim of infringement against Spring Bank, it may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign Spring Bank’s infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure. Parties making claims against Spring Bank may also obtain injunctive or other equitable relief, which could effectively block Spring Bank’s ability to develop and commercialize one or more of Spring Bank’s product candidates, which could materially harm Spring Bank’s business.

Most of Spring Bank’s competitors are larger than Spring Bank is and have substantially greater resources and may be able to sustain the costs of complex patent litigation longer than Spring Bank could. The uncertainties associated with litigation could have a material adverse effect on Spring Bank’s ability to raise the funds necessary to continue Spring Bank’s research and development, in-license needed technology, or enter into strategic partnerships.

Any claims by third parties that Spring Bank has misappropriated their confidential information or trade secrets could have a similar negative impact on Spring Bank’s business. Even if Spring Bank is successful in these proceedings, Spring Bank may incur substantial costs and the time and attention of Spring Bank’s management and scientific personnel could be diverted in pursuing these proceedings, which could significantly harm Spring Bank’s business and operating results. In addition, Spring Bank may not have sufficient resources to bring these actions to a successful conclusion.

While SB 11285 and any other product candidates that Spring Bank may develop will be observed in preclinical studies and/or clinical trials, Spring Bank believes that the use of Spring Bank’s product candidates in these preclinical studies and/or clinical trials falls or will fall within the scope of the exemptions provided by 35 U.S.C. Section 271(e) in the United States, which exempts from patent infringement liability activities reasonably related to the development and submission of information to the FDA. If these product candidates progress toward commercialization, the possibility of a patent infringement claim against Spring Bank increases. Spring Bank attempts to ensure that the methods Spring Bank employs to manufacture SB 11285, as well as the methods for their use that Spring Bank intends to promote, do not infringe other parties’ patents and other proprietary rights. There can be no assurance they do not, however, and competitors or other parties may assert that Spring Bank infringes their proprietary rights in any event.

In addition, Spring Bank plans to evaluate SB 11285 in combination with other product candidates and approved products that are covered by patents held by other companies or institutions. In the event that a labeling instruction is required in product packaging recommending that combination, Spring Bank could be accused of, or held liable for, infringement of the third-party patents covering the product candidate or product recommended for administration with SB 11285. In such a case, Spring Bank could be required to obtain a license from the other company or institution to use the required or desired package labeling, which may not be available on commercially reasonable terms, or at all.

The terms of Spring Bank’s patents may be inadequate to protect Spring Bank’s competitive position on Spring Bank’s products for an adequate amount of time.

Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. Spring Bank expects to seek extensions of patent terms in the United States and, if available, in other countries where Spring Bank is prosecuting patents. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration of the patent, which is limited to the approved indication (or any additional indications approved during the period of extension). However, the applicable authorities, including the FDA and the USPTO in the

 

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United States, and any equivalent regulatory authority in other countries, may not agree with Spring Bank’s assessment of whether such extensions are available, and may refuse to grant extensions to Spring Bank’s patents, or may grant more limited extensions than Spring Bank requests. If this occurs, Spring Bank’s competitors may be able to take advantage of Spring Bank’s investment in development and clinical trials by referencing Spring Bank’s clinical and preclinical data and launch their product earlier than might otherwise be the case.

Risks Related to Spring Bank’s Common Stock

The trading market in Spring Bank’s common stock has been limited and substantially less liquid than the average trading market for a stock quoted on The Nasdaq Capital Market.

Since Spring Bank’s initial listing on The Nasdaq Capital Market on May 6, 2016, the trading market in Spring Bank’s common stock has been extremely limited and substantially less liquid than the average trading market for companies quoted on The Nasdaq Capital Market. The quotation of Spring Bank’s common stock on The Nasdaq Capital Market does not assure that a meaningful, consistent and liquid trading market currently exists. Spring Bank cannot predict whether a more active market for Spring Bank’s common stock will develop in the future. An absence of an active trading market could adversely affect your ability to sell Spring Bank’s common stock at current market prices in short time periods, or possibly at all. Additionally, sales of a substantial number of shares of Spring Bank’s common stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of Spring Bank’s common stock even if Spring Bank’s business is doing well. Ultimately, market visibility for Spring Bank’s common stock may be limited and such lack of visibility may have a depressive effect on the market price for Spring Bank’s common stock.

The price of Spring Bank’s common stock may be volatile and fluctuate substantially, which could result in substantial losses for Spring Bank’s stockholders.

Spring Bank’s stock price is likely to be volatile. 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. Because of this volatility, you may not be able to sell your common stock at or above the price at which you purchased your shares. The market price for Spring Bank’s common stock may be influenced by many factors, including:

 

   

results of clinical trials of Spring Bank’s product candidates or those of Spring Bank’s competitors;

 

   

the success of competitive products or technologies;

 

   

developments related to any future collaborations;

 

   

regulatory or legal developments in the United States and other countries;

 

   

development of new product candidates that may address Spring Bank’s markets and may make Spring Bank’s product candidates less attractive;

 

   

changes in physician, hospital or healthcare provider practices that may make Spring Bank’s product candidates less useful;

 

   

announcements by Spring Bank, Spring Bank’s partners or Spring Bank’s competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments; developments or disputes concerning patent applications, issued patents or other proprietary rights;

 

   

the recruitment or departure of key personnel;

 

   

the level of expenses related to any of Spring Bank’s product candidates or clinical development programs;

 

   

failure to meet or exceed financial estimates and projections of the investment community or that Spring Bank provides to the public;

 

   

the results of Spring Bank’s efforts to discover, develop, acquire or in-license additional product candidates or products;

 

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actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

 

   

variations in Spring Bank’s financial results or those of companies that are perceived to be similar to Spring Bank;

 

   

changes in the structure of healthcare payment systems;

 

   

market conditions in the pharmaceutical and biotechnology sectors;

 

   

general economic, industry and market conditions; and

 

   

the other factors described in this “Risk Factors” section.

Spring Bank is an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make Spring Bank’s common stock less attractive to investors.

Spring Bank is an emerging growth company, as defined in the JOBS Act, and may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the closing of Spring Bank’s initial public offering, which is December 31, 2021. However, if certain events occur prior to the end of such five-year period, including if Spring Bank becomes a “large accelerated filer,” Spring Bank’s annual gross revenues exceed $1.07 billion or Spring Bank issues more than $1.0 billion of non-convertible debt in any three-year period, Spring Bank will cease to be an emerging growth company prior to the end of such five-year period. For so long as Spring Bank remains an emerging growth company, Spring Bank is permitted and intends to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

 

   

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

 

   

not being required to comply with the auditor attestation requirements in the assessment of Spring Bank’s internal control over financial reporting;

 

   

not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

   

reduced disclosure obligations regarding executive compensation; and

 

   

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

Spring Bank has taken advantage of these reduced reporting burdens. In particular, in connection with Spring Bank’s recent offerings, Spring Bank has provided only two years of audited financial statements and Spring Bank has not included all of the executive compensation related information that would be required if Spring Bank was not an emerging growth company. Spring Bank expects to continue to take advantage of some or all of the reporting exemptions available to emerging growth companies. Spring Bank cannot predict whether investors will find Spring Bank’s common stock less attractive if Spring Bank relies on these exemptions. If some investors find Spring Bank’s common stock less attractive as a result, there may be a less active trading market for Spring Bank’s common stock and Spring Bank’s stock price may be reduced or more volatile. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies. Spring Bank has irrevocably elected not to avail itself of this exemption from new or revised accounting standards and, therefore, Spring Bank will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 

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Spring Bank incurs increased costs as a result of operating as a public company and Spring Bank’s management is required to devote substantial time to compliance initiatives and corporate governance practices.

As a public company, and particularly after Spring Bank is no longer an emerging growth company, Spring Bank will incur significant legal, accounting and other expenses that Spring Bank did not incur as a private company. The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the exchange or market upon which Spring Bank trades and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Spring Bank’s management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased Spring Bank’s legal and financial compliance costs and will make some activities more time-consuming and costly. For example, Spring Bank expects that these rules and regulations may make it more difficult and more expensive for Spring Bank to maintain Spring Bank’s director and officer liability insurance policies at a reasonable cost, which in turn could make it more difficult for Spring Bank to attract and retain qualified members of Spring Bank’s Board of Directors.

Spring Bank cannot predict or estimate the amount of additional costs Spring Bank may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as regulatory and governing bodies provide new guidance. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

While Spring Bank remains an emerging growth company, Spring Bank is not required to include an attestation report on internal control over financial reporting issued by Spring Bank’s independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, Spring Bank is engaged in a process to document and evaluate Spring Bank’s internal control over financial reporting, which is both costly and challenging. In this regard, Spring Bank continues to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting.

If Spring Bank fails to maintain an effective system of disclosure controls and internal control over financial reporting, Spring Bank’s ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

As a public company, Spring Bank is subject to the reporting requirements of the Securities and Exchange Commission, the Sarbanes-Oxley Act and the listing standards of the Nasdaq Capital Market, the exchange on which Spring Bank’s common stock is listed. Spring Bank expects that the requirements of these rules and regulations will continue to increase Spring Bank’s legal, accounting and financial compliance costs, make some activities more difficult, time consuming and costly and place significant strain on Spring Bank’s personnel, systems and resources.

The Sarbanes-Oxley Act requires, among other things, that Spring Bank maintain effective disclosure controls and procedures and internal control over financial reporting. Spring Bank is continuing to refine Spring Bank’s disclosure controls and other procedures that are designed to ensure that the information that Spring Bank is required to disclose in the reports that Spring Bank will file with the SEC is properly recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Spring Bank is also continuing to improve its internal control over financial reporting. Spring Bank has expended, and anticipates that it will continue to expend, significant resources in order to maintain and improve the effectiveness of its disclosure controls and procedures and internal control over financial reporting.

Spring Bank’s current controls and any new controls that Spring Bank develops in the future may become inadequate because of changes in conditions in Spring Bank’s business. Further, weaknesses in Spring Bank’s

 

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disclosure controls or Spring Bank’s internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm Spring Bank’s operating results or cause Spring Bank to fail to meet Spring Bank’s reporting obligations and may result in a restatement of Spring Bank’s financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results of management reports and independent registered public accounting firm audits of Spring Bank’s internal control over financial reporting that Spring Bank will be required to include in Spring Bank’s periodic reports that will be filed with the SEC. If Spring Bank were to have ineffective disclosure controls and procedures or internal control over financial reporting, its investors could lose confidence in its reported financial and other information, which would likely have a negative effect on the market price of Spring Bank common stock.

Provisions in Spring Bank’s restated certificate of incorporation and amended and restated bylaws and under Delaware law could make an acquisition of Spring Bank, which may be beneficial to Spring Bank’s stockholders, more difficult and may prevent attempts by Spring Bank’s stockholders to replace or remove Spring Bank’s current management.

Provisions in Spring Bank’s restated certificate of incorporation and Spring Bank’s amended and restated bylaws may discourage, delay or prevent a merger, acquisition or other change in control of Spring Bank that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of Spring Bank’s common stock, thereby depressing the market price of Spring Bank’s common stock. In addition, because Spring Bank Board is responsible for appointing the members of Spring Bank’s management team, these provisions may frustrate or prevent any attempts by Spring Bank’s stockholders to replace or remove Spring Bank’s current management by making it more difficult for stockholders to replace members of Spring Bank Board. Among other things, these provisions include those establishing:

 

   

a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of Spring Bank Board;

 

   

no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

   

the exclusive right of Spring Bank Board to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from filling vacancies on Spring Bank Board;

 

   

the ability of Spring Bank Board to authorize the issuance of shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

 

   

the ability of Spring Bank Board to alter Spring Bank’s bylaws without obtaining stockholder approval;

 

   

the required approval of the holders of at least a majority of the shares entitled to vote at an election of directors to adopt, amend or repeal Spring Bank’s bylaws or repeal the provisions of Spring Bank’s restated certificate of incorporation regarding the election and removal of directors;

 

   

a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of Spring Bank’s stockholders;

 

   

the requirement that a special meeting of stockholders may be called only by the board of directors, the chairman of the board of directors, the chief executive officer or stockholders holding a majority of Spring Bank’s issued and outstanding common stock, which may delay the ability of Spring Bank’s stockholders to force consideration of a proposal or to take action, including the removal of directors; and

 

   

advance notice procedures that stockholders must comply with in order to nominate candidates to Spring Bank Board or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of Spring Bank.

 

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Moreover, because Spring Bank is incorporated in Delaware, Spring Bank is governed by the provisions of Section 203 of the DGCL, which prohibits a person who owns in excess of 15% of Spring Bank’s outstanding voting stock from merging or combining with Spring Bank for a period of three years after the date of the transaction in which the person acquired in excess of 15% of Spring Bank’s outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

Furthermore, Spring Bank’s restated certificate of incorporation specifies that, unless Spring Bank consents in writing to the selection of an alternative forum, and to the fullest extent permitted by law, as described below, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on Spring Bank’s behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against Spring Bank arising pursuant to the DGCL, Spring Bank’s amended and restated certificate of incorporation, or Spring Bank’s amended and restated bylaws; or any action asserting a claim against Spring Bank that is governed by the internal affairs doctrine. This exclusive forum provision does not apply to suits brought to enforce a duty or liability created by the Exchange Act. Further, Spring Bank’s amended and restated bylaws provide that, unless Spring Bank consents in writing to an alternative forum, the U.S. federal district courts will have exclusive jurisdiction for any complaint asserting a cause of action under the Securities Act. However, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. There is uncertainty as to whether a court would enforce this provision with respect to claims under the Securities Act, and Spring Bank’s stockholders cannot waive Spring Bank’s compliance with the federal securities laws and the rules and regulations thereunder.

Spring Bank believes these provisions provide increased consistency in the application of Delaware law by chancellors particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, these provisions may have the effect of discouraging lawsuits against Spring Bank’s directors and officers. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against Spring Bank, a court could find the choice of forum provisions contained in Spring Bank’s restated certificate of incorporation or amended and restated bylaws to be inapplicable or unenforceable in such action.

Spring Bank’s ability to use Spring Bank’s net operating loss and credit carryforwards to offset future taxable income may be subject to certain limitations.

As of December 31, 2019, Spring Bank had a balance of federal and state net operating loss (“NOL”) carryforwards of approximately $115.6 million and $116.5 million, respectively. The federal NOL carryforwards of $61.5 million expire between 2029 and 2037 and $54.1 million carryforward indefinitely. The state NOL carryforwards expire between 2030 and 2039. Spring Bank’s ability to utilize Spring Bank’s NOL and credit carryforwards is dependent upon Spring Bank’s ability to generate taxable income in future periods and may be limited due to restrictions imposed on utilization of NOL and credit carryforwards under federal and state laws upon a change in ownership, as described in more detail below.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change,” is subject to limitations on its ability to use its pre-change NOL carryforwards, and other pre-change tax attributes (such as research tax credits) to offset its post-change taxable income. For these purposes, an ownership change generally occurs where the equity ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a three-year period (calculated on a rolling basis). Spring Bank has made a preliminary determination that an ownership change likely occurred in each of April 2012 and December 2013. However, Spring Bank anticipates that the annual limitation attributable to such ownership change will not limit its ability to use its NOLs to offset future taxable income. Spring Bank may have experienced other ownership changes in the past. The Exchange is expected to result in an additional ownership change and Spring Bank may experience ownership changes in the future, some of which are outside

 

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the company’s control. These ownership changes may limit the ability of Spring Bank’s to utilize its NOLs or credits under Sections 382 and 383 of the Code. Accordingly, Spring Bank may not be able to utilize a material portion of Spring Bank’s NOLs or credits. Limitations on Spring Bank’s ability to utilize Spring Bank’s NOLs to offset U.S. federal taxable income could potentially result in increased future tax liability to Spring Bank. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

Because U.S. federal NOLs arising in taxable years beginning before January 1, 2018, generally may be carried forward up to 20 years, the annual limitation under Sections 382 and 383 of the Code may effectively provide a cap on the cumulative amount of pre-ownership change losses. In addition, if an ownership change were to occur, it is possible that the limitations imposed on Spring Bank’s ability to use pre-ownership change losses and certain recognized built-in losses could cause a net increase in Spring Bank’s U.S. federal income tax liability and require U.S. federal income taxes to be paid earlier than otherwise would be paid if such limitations were not in effect. Further, if for financial reporting purposes the amount or value of these deferred tax assets is reduced, such reduction could have a negative impact on the book value of Spring Bank’s common stock.

In addition to the limitations discussed above under Sections 382 and 383 of the Code, the utilization of NOLs incurred in taxable years beginning after December 31, 2017, are subject to limitations adopted by the TCJA, as modified by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Under the TCJA, in general, NOLs generated in taxable years beginning after December 31, 2017 may offset no more than 80 percent of such year’s taxable income and there is no ability for such NOLs to be carried back to a prior taxable year. The CARES Act modifies the TCJA with respect to the TCJA’s limitation on the deduction of NOLs and provides that NOLs arising in taxable years beginning after December 31, 2017 and before January 1, 2021, may be carried back to each of the five taxable years preceding the tax year of such loss, but NOLs arising in taxable years beginning after December 31, 2020 may not be carried back. In addition, the CARES Act eliminates the limitation on the deduction of NOLs to 80 percent of current year taxable income for taxable years beginning before January 1, 2021. As a result of such limitation, Spring Bank may be required to pay federal income tax in some future year notwithstanding that Spring Bank has a net loss for all years in the aggregate.

Because Spring Bank does not anticipate declaring or paying any cash dividends on Spring Bank’s common stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.

Spring Bank has never declared or paid cash dividends on Spring Bank’s common stock. Spring Bank currently intends to retain all of Spring Bank’s future earnings, if any, to finance the growth and development of Spring Bank’s business. As a result, capital appreciation, if any, of Spring Bank’s common stock will be your sole source of gain for the foreseeable future.

Spring Bank could be subject to securities class action litigation.

When the market price of a stock is volatile, holders of that stock have often initiated securities class action litigation against the company that issued the stock. This risk is especially relevant for Spring Bank because pharmaceutical companies have experienced significant stock price volatility in recent years. If Spring Bank faces such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm Spring Bank’s business. Spring Bank may not be successful in defending itself or asserting Spring Bank’s rights in future lawsuits, investigations, or claims that may be brought against Spring Bank and, as a result, Spring Bank’s business could be materially harmed. These lawsuits, arbitrations, investigations or claims may result in large judgments or settlements against Spring Bank, any of which could have a negative effect on Spring Bank’s financial performance and business. Additionally, lawsuits, arbitrations and investigations can be expensive to defend, whether or not the lawsuit, arbitration or investigation has merit, and the defense of these actions may divert the attention of Spring Bank’s management and other resources that would otherwise be engaged in running Spring Bank’s business.

 

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Risks Related to F-star’s Financial Position and Need for Additional Capital

F-star is a clinical-stage immuno-oncology company and have incurred significant losses since F-star’s inception. F-star expects to incur losses for the foreseeable future and may never achieve or maintain profitability.

F-star is a clinical-stage immuno-oncology company with a limited operating history. F-star incurred net losses of £35.0 million for the year ended December 31, 2019 and £10.2 million and £9.8 million for the six months ended June 30, 2020 and 2019, respectively, and net profits of £12.9 million and £3.8 million for the years ended December 31, 2018 and 2017, respectively. As of June 30, 2020, F-star had an accumulated loss of £25.7 million. F-star’s losses have resulted principally from expenses incurred in research and development, preclinical testing and clinical development of its mAb2 product candidates as well as expenses incurred for research programs and from general and administrative costs associated with its operations. F-star expects to continue to incur significant and increasing operating losses for the foreseeable future as it continues its clinical trial plans, research and development efforts and seeks to obtain regulatory approval and commercialization of its tetravalent bispecific antibody (“mAb2”) product candidates, and F-star does not know whether or when it will become profitable. F-star’s losses, among other things, will continue to cause its working capital and shareholders’ equity to decrease. F-star anticipates that its expenses will increase substantially if and as it:

 

   

continues to develop and conduct clinical trials for its lead product candidate, FS118;

 

   

continues the research and development of its other mAb2 product candidates, including completing preclinical studies and commencing clinical trials for FS120 and FS222;

 

   

discovers and develops additional mAb2 product candidates and makes further investments in its modular antibody technology platform;

 

   

seeks regulatory approvals for any mAb2 product candidates that successfully complete clinical trials;

 

   

experiences any delays or encounter any issues with any of the above, including but not limited to failed studies, complex results, safety issues or other regulatory challenges;

 

   

establishes a sales, marketing and distribution infrastructure and scale-up manufacturing capabilities, whether alone or with third parties, to commercialize any mAb2 product candidates for which it may obtain regulatory approval, if any;

 

   

maintains, expands and protects its intellectual property portfolio, including litigation costs associated with defending against alleged patent infringement claims;

 

   

adds clinical, scientific, operational, financial and management information systems and personnel, including personnel to support its product development and potential future commercialization efforts;

 

   

expands its operations in the United States, Europe and other geographies; and

 

   

incurs additional legal, accounting and other expenses associated with operating as a public company.

To date, F-star has funded its operations through private placements of equity securities and upfront and milestone payments and expense reimbursement payments received from its collaborators. F-star has invested substantially all of its financial resources and efforts to developing its mAb2 product candidates in immuno-oncology, building its intellectual property portfolio, developing its supply chain, conducting business planning, licensing F-star’s technology to its collaborators, raising capital and providing general and administrative support for these operations. F-star does not currently have any approved products and has never generated any revenue from product sales.

To become and remain profitable, F-star must succeed in developing and eventually commercializing products that generate significant revenue. This will require F-star to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of its mAb2 product candidates supportive of product approval, discovering and developing additional mAb2 product candidates, obtaining regulatory approval for any mAb2 product candidates that successfully complete clinical trials, establishing manufacturing and marketing capabilities and ultimately selling any products for which it may obtain regulatory approval. F-star is only in the preliminary stages of most of these activities. F-star may never succeed in these activities and, even if it does, may never generate revenue that is significant enough to achieve or maintain profitability. Even if one or

 

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more of the mAb2 product candidates that F-star develops is approved for commercial sale, F-star anticipates incurring significant costs associated with commercializing any approved product candidate. F-star’s expenses could increase beyond current expectations if F-star is required by the FDA, the EMA or other comparable foreign regulatory agencies to perform clinical trials or studies in addition to those that F-star currently anticipates. Even if F-star is able to generate revenue from the sale of any approved products, it may not become profitable and may need to obtain additional funding to continue operations.

Even if F-star achieves profitability, it may not be able to sustain or increase profitability on a quarterly or annual basis. F-star’s failure to become and remain profitable could impair its ability to raise capital, expand its business, maintain its research and development efforts or continue its operations and you could lose some or all of your investment.

F-star’s limited operating history may make it difficult to evaluate the success of its business to date and to assess F-star’s future viability.

Since inception, F-star has invested most of its resources in developing its modular antibody technology platform, its mAb2 technology and mAb2 product candidates, building its intellectual property portfolio, conducting business planning, licensing its technology to its collaborators, raising capital and providing general and administrative support for these operations. F-star’s most advanced mAb2 product candidate, FS118, is in a Phase 1 clinical trial in heavily pretreated patients with advanced cancer who have relapsed on programmed cell death ligand-1 (“PD-L1”), or programmed cell death protein-1, (“PD-1”), checkpoint inhibitor therapies. F-star has not yet demonstrated its ability to successfully complete any Phase 1 clinical trials, Phase 2 clinical trials or any Phase 3 or other pivotal clinical trials, obtain regulatory approvals, manufacture a commercial-scale product or arrange for a third party to do so on its behalf or conduct sales and marketing activities necessary for successful product commercialization. In addition, given its limited operating history, F-star may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors in achieving its business objectives. Additionally, F-star expects its financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond F-star’s control. Consequently, any predictions you make about the F-star’s future success or viability may not be as accurate as they could be if F-star had a longer operating history or more experience developing mAb2 product candidates.

F-star will need substantial additional funding in order to complete the development and commence commercialization of its mAb2 product candidates. Failure to obtain this necessary capital at acceptable terms and when needed may force it to delay, reduce or eliminate its product development programs or commercialization efforts.

F-star expects its expenses to increase in connection with its ongoing activities, particularly as F-star completes the Phase 1 clinical trial of FS118 and initiates later-stage clinical development, and continues to research, develop and initiate clinical trials of FS120, FS222 and any other mAb2 product candidates. In addition, if F-star obtains regulatory approval for any of its mAb2 product candidates, it expects to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.

Furthermore, upon the Closing, F-star expects to incur additional costs associated with operating as a public company. Accordingly, F-star will need to obtain substantial additional funding in connection with its continuing operations. If F-star is unable to raise capital when needed or on attractive terms, it could be forced to delay, reduce or eliminate its product development programs or any future commercialization efforts.

F-star expects that its available cash and cash equivalents immediately prior to the completion of the Exchange, together with net cash held by Spring Bank upon consummation of the Exchange, the anticipated proceeds of approximately $25.0 million from the Pre-Closing Financing, the projected receipt of contingent milestones and research and development payments under its current collaborations with Merck and Denali and annual UK research and development tax refunds will enable it to fund its operating expenses, preclinical and clinical trial costs, including capped costs per the CVR Agreement towards continuing the ongoing Phase 1a/1b clinical trial of Spring Bank’s SB 11285 program and capital expenditure requirements through at least the next

 

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24 months. However, F-star has based this estimate on assumptions that may prove to be wrong, including raising at least $25.0 million in the Pre-Closing Financing and the timing of contingent milestones and research and development payments from the current collaborations with Merck and Denali, and it could use its capital resources sooner than it currently expects. The combined company will need to raise additional capital to complete the development and commercialization of FS118, FS120, FS222, if approved, and may also need to raise additional funds to pursue other development activities related to additional product candidates.

F-star’s future capital requirements will depend on many factors, including:

 

   

the cost, progress, results of the Phase 1 clinical trial of FS118 and any later-stage clinical trials for this product candidate;

 

   

the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for its other mAb2 product candidates, including FS120, FS222 and any future product candidate;

 

   

the number of potential new mAb2 product candidates F-star identifies and decides to develop;

 

   

the cost of manufacturing drug supply for the clinical trials of its mAb2 product candidates;

 

   

the time and costs involved in obtaining regulatory approval for its mAb2 product candidates and any delays F-star may encounter as a result of evolving regulatory requirements or adverse clinical trial results with respect to any of its mAb2 product candidates;

 

   

the costs involved in growing F-star’s organization to the size and expertise needed to allow for the research, development and potential commercialization of F-star’s current or any future mAb2 product candidates;

 

   

fulfilling obligations under F-star’s existing collaboration agreements and the entry into new collaboration agreements;

 

   

the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing its intellectual property rights and defending any intellectual property-related claims, including any claims by third parties that F-star is infringing upon their intellectual property rights;

 

   

the cost of commercialization activities and costs involved in the creation of an effective sales, marketing and healthcare compliance organization for any mAb2 product candidates F-star develops, if approved;

 

   

the potential additional expenses attributable to adjusting F-star’s development plans (including any supply related matters) to the COVID-19 pandemic;

 

   

the revenue, if any, received from commercial sales of its mAb2 product candidates for which F-star receive marketing approval; and

 

   

the costs of operating as a public company.

Until F-star can generate sufficient product revenue to finance its cash requirements, which it may never do, F-star expects to finance its future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements. Disruptions in the financial markets in general and more recently due to the COVID-19 pandemic have made equity and debt financing more difficult to obtain, and may have a material adverse effect on F-star’s ability to meet its fundraising needs.

F-star’s ability to raise additional funds will depend on financial, economic and market conditions and other factors, over which it may have no or limited control. If adequate funds are not available on commercially acceptable terms when needed, F-star may be forced to delay, reduce or terminate the development or commercialization of all or part of its research programs or mAb2 product candidates or it may be unable to take advantage of future business opportunities.

Raising additional capital may cause dilution to holders of existing shareholders of F-star, restrict F-star’s operations or require F-star to relinquish rights to its technologies or mAb2 product candidates.

Until such time, if ever, as F-star can generate substantial product revenues, F-star expects to finance its operations with its existing cash and cash equivalents, including the Pre-Closing Financing and revenue from its

 

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collaborations. In order to further advance development of its mAb2 product candidates, discover additional mAb2 product candidates and pursue its other business objectives, however, F-star will need to seek additional funds.

F-star cannot guarantee that future financing will be available in sufficient amounts or on commercially reasonable terms, if at all. To the extent that F-star raises additional capital by issuing equity securities, F-star’s existing shareholders’ ownership may experience substantial dilution, and the terms of these securities may include liquidation or other preferences that adversely affect F-star’s rights as a shareholder. Equity and debt financing, if available, may involve agreements that include covenants limiting or restricting F-star’s ability to take specific actions, such as redeeming F-star’s shares, making investments, incurring additional debt, making capital expenditures or declaring dividends.

The incurrence of indebtedness could result in increased fixed payment obligations and F-star may be required to agree to certain restrictive covenants therein, such as limitations on F-star’s ability to incur additional debt, limitations on F-star’s ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely affect F-star’s ability to conduct its business.

If F-star is unable to obtain funding on a timely basis, F-star may be required to significantly curtail, delay or discontinue one or more of its research or development programs or the commercialization of any of its mAb2 product candidates, if approved, or be unable to expand its operations or otherwise capitalize on its business opportunities, as desired, which could materially affect its business, financial condition and results of operations.

F-star will need to hire additional qualified accounting personnel in order to remediate material weaknesses in its internal control over financial reporting, and F-star will need to expend any additional resources and efforts that may be necessary to establish and to maintain the effectiveness of its internal control over financial reporting and its disclosure controls and procedures.

Although F-star is not yet subject to the certification or attestation requirements of Section 404 of the Sarbanes-Oxley Act, in connection with the preparation and audit of its financial statements for the year ended December 31, 2019, its management identified two material weaknesses related to its financial reporting process. PCAOB guidance regarding management’s report on internal control over financial reporting defines a material weakness as a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of its annual or interim financial statements will not be prevented or detected and corrected on a timely basis. As a result, the financial statements for the years ended December 31, 2017 and 2018 required restatements related to income taxes. Additionally, these material weaknesses could result in further misstatements of account balances or disclosures that could result in further material misstatements to the F-star annual or interim consolidated financial statements that would not be prevented or detected.

These material weaknesses relate to (i) the lack of formal policies and procedures and sufficient complement of personnel to implement effective segregation of duties and (ii) the company did not have sufficient formality and evidence of controls over key reports and spreadsheets.

F-star has commenced measures to remediate these material weaknesses and it intends to hire additional finance and accounting personnel with appropriate expertise to perform specific functions and allow for proper segregation of duties, design key controls and implement improved processes and internal controls, build its financial management and reporting infrastructure, and further develop and document its accounting policies and financial reporting procedures, including ongoing senior management review and audit committee oversight.

There can be no assurance that F-star will be successful in pursuing these measures or that these measures will significantly improve or remediate the material weaknesses described above. There is also no assurance that F-star has identified all of its material weaknesses or that F-star will not in the future have additional material weaknesses. If F-star fails to remediate the material weaknesses or to meet the demands that will be placed upon it as a public company, including the requirements of the Sarbanes-Oxley Act, F-star may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in F-star’s financial reporting, and F-star’s

 

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share price may decline as a result. F-star also could become subject to investigations by Nasdaq, the SEC or other regulatory authorities.

F-star believes its current cash and cash equivalents will be sufficient to fund its business only for a limited amount of time, and if it is not able to raise additional funds, it may be unable to continue as a going concern.

As of August 28, 2020, the date of approval of the consolidated financial statements for the year ended December 31, 2019 and not taking into account any proceeds raised in the Pre-Closing Financing, F-star does not expect its cash deposits will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next 12 months. This raises substantial doubt over F-star’s ability to continue as a going concern.

Concurrently with the execution of the Exchange Agreement on July 29, 2020, certain existing investors of F-star, pursuant to binding equity commitment letters by and between each investor and F-star, agreed to subscribe for ordinary shares of F-star in a private placement as of immediately prior to the Closing (the “Pre-Closing Financing”). As of October 16, 2020, F-star has received commitments from investors to purchase $15 million of ordinary shares of F-star in the Pre-Closing Financing, and F-star may continue to seek additional commitments in the Pre-Closing Financing until 11:59 p.m., Eastern time on the 10th day prior to the Special Meeting. The closing of the Exchange Agreement would provide access to the existing cash deposits of Spring Bank as well as expected additional equity financing to be raised by F-star in the Pre-Closing Financing. The expected closing is anticipated to be on or about November 20, 2020. The closing of the Exchange is, however, subject to approval by the shareholders of Spring Bank.

Risks Related to Development and Commercialization

If F-star is unable to advance its current or future mAb2 product candidates through clinical trials, obtain marketing approval and ultimately commercialize any mAb2 product candidates F-star develops, or if it experiences significant delays in doing so, F-star’s business will be materially harmed.

F-star is early in its mAb2 product candidate development efforts and only has one mAb2 product candidate in clinical development, which is still in early-stage clinical trials. F-star has invested substantially all of its efforts and financial resources in the development of its proprietary mAb2 technology, identification of targets and preclinical development of its mAb2 product candidates.

F-star’s ability to generate product revenues, which F-star does not expect will occur for several years, if ever, will depend heavily on the successful development and eventual commercialization of the mAb2 product candidates F-star develops, which may never occur. F-star’s current mAb2 product candidates, and any future mAb2 product candidates F-star develops, will require additional preclinical and clinical development, management of clinical, preclinical and manufacturing activities, marketing approval in the United States and other jurisdictions, demonstrating cost effectiveness to pricing and reimbursement authorities in various jurisdictions, obtaining and securing sufficient manufacturing supply for both clinical development and commercial production, building of a commercial organization, and substantial investment and significant marketing efforts before F-star generate any revenues from any future product sales. Moreover, the success of F-star’s current and future mAb2 product candidates will depend on several factors, including the following:

 

   

successful and timely completion of preclinical studies, including in vivo animal studies if necessary, and human clinical trials;

 

   

sufficiency of F-star’s financial and other resources to complete the necessary preclinical studies and clinical trials;

 

   

receiving regulatory approvals or authorizations for conducting F-star’s planned clinical trials or future clinical trials;

 

   

initiation and successful patient enrollment in and completion of clinical trials on a timely basis;

 

   

safety, tolerability and efficacy profiles that are satisfactory to the FDA, the EMA or any other comparable foreign regulatory authority for a product to receive marketing approval;

 

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timely receipt of marketing approvals for F-star’s mAb2 product candidates from applicable regulatory authorities;

 

   

the extent of any required post-marketing approval commitments made to applicable regulatory authorities;

 

   

establishing and scaling up, either alone or with third-party manufacturers, manufacturing capabilities of clinical supply for F-star’s clinical trials and commercial manufacturing, if any mAb2 product candidates are approved;

 

   

obtaining and maintaining patent and trade secret protection or regulatory exclusivity for F-star’s mAb2 product candidates, both in the United States and internationally;

 

   

successfully scaling a sales and marketing organization and launching commercial sales of F-star’s mAb2 product candidates, if approved;

 

   

acceptance of F-star’s mAb2 product candidates’ benefits and uses, if approved, by patients, the medical community and third-party payors;

 

   

maintaining a continued acceptable safety profile of F-star’s mAb2 product candidates following marketing approval and commercial launch;

 

   

effectively competing with companies developing and commercializing other therapies in the same indications targeted by F-star’s mAb2 product candidates;

 

   

obtaining and maintaining healthcare coverage and adequate reimbursement from third-party payors for any approved products; and

 

   

enforcing and defending intellectual property rights and claims.

If F-star is not successful with respect to one or more of these factors in a timely manner or at all, F-star could experience significant delays or an inability to successfully commercialize any mAb2 product candidates F-star develops, which would materially harm F-star’s business. If F-star does not receive marketing approvals for F-star’s current and future product candidates, F-star may not be able to continue its operations.

All of F-star’s mAb2 product candidates are in preclinical or early clinical development. Clinical trials are difficult to design and implement, and they involve a lengthy and expensive process with uncertain outcomes. F-star may experience delays in completing, or ultimately be unable to complete, the development and commercialization of F-star’s current and future mAb2 product candidates.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process and F-star’s future clinical trial results may not be successful.

To date, F-star has not completed any clinical trials required for the approval of any of its mAb2 product candidates. Although F-star expects completion of the current Phase 1 clinical trial of FS118 in the fourth quarter of 2020 and initiation of a Phase 1 clinical trial for FS120 in the fourth quarter of 2020, and it also plans to submit a Clinical Trial Application (“CTA”), to the EMA for FS222 in the second half of 2020, F-star may experience delays in its ongoing clinical trials or preclinical studies and F-star does not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time, have sufficient drug supply for F-star’s mAb2 product candidates on a timely basis or be completed on schedule, if at all. F-star may also experience numerous unforeseen events during its clinical trials that could delay or prevent F-star’s ability to receive marketing approval or to commercialize the mAb2 product candidates F-star develops, including:

 

   

delays in or failure to obtain regulatory approval to commence a clinical trial;

 

   

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

 

   

delays in or failure to obtain institutional review board (“IRB”), approval at each site;

 

   

delays in or failure to recruit a sufficient number of suitable patients to participate in a trial;

 

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failure to have participants complete a trial or return for post-treatment follow-up;

 

   

clinical sites deviating from trial protocol or dropping out of a trial;

 

   

delays in adding new clinical trial sites;

 

   

failure to manufacture sufficient quantities of a mAb2 product candidate for use in clinical trials in a timely manner;

 

   

safety or tolerability concerns that could cause it or F-star’s collaborators, as applicable, to suspend or terminate a trial if F-star or F-star’s collaborators find that the participants are being exposed to unacceptable health risks;

 

   

changes in regulatory requirements, policies and guidelines;

 

   

failure of F-star’s third-party research contractors to comply with regulatory requirements or meet their contractual obligations to it in a timely manner, or at all;

 

   

delays in establishing the appropriate dosage levels for a particular product candidate through clinical trials;

 

   

the quality or stability of the mAb2 product candidate falling below acceptable standards; and

 

   

business interruptions resulting from pandemics, including those related to COVID-19, geo-political actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.

F-star could encounter delays if a clinical trial is suspended or terminated by it, by the IRBs of the institutions in which such trials are being conducted or ethics committees, or by the FDA, the EMA, or other comparable foreign regulatory authorities, or if a trial is recommended for suspension or termination by the Data Review Committee (“DRC”), or Data Safety Monitoring Board (“DSMB”), for such trial. Any such authorities may impose such a suspension or termination of ongoing human subjects research due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or F-star’s clinical protocols, inspection of the clinical trial operations or trial site by the FDA, the EMA, or other comparable foreign regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, including those relating to the class to which F-star’s mAb2 product candidates belong, failure to demonstrate a benefit from using a mAb2 product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If F-star experiences delays in the completion of, or if F-star terminates, any clinical trial of its mAb2 product candidates, the commercial prospects of its mAb2 product candidates will be harmed, and F-star’s ability to generate product revenues from any of these mAb2 product candidates will be delayed or may become impossible. In addition, any delays in completing clinical trials will increase F-star’s costs, slow down F-star’s mAb2 product candidate development and approval process and jeopardize F-star’s ability to commence product sales and generate revenues. Moreover, if F-star makes changes to F-star’s mAb2 product candidates, F-star may need to conduct additional scientific studies to bridge its modified mAb2 product candidates to earlier versions, which could delay F-star’s clinical development plan or marketing approval for F-star’s mAb2 product candidates. Significant clinical trial delays could also allow F-star’s competitors to bring products to market before F-star does or shorten any periods during which F-star has the exclusive right to commercialize F-star’s mAb2 product candidates and impair F-star’s ability to commercialize its mAb2 product candidates.

Any of these occurrences may harm F-star’s business, reputation, financial condition and results of operations 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 for F-star’s mAb2 product candidates or result in the cessation of development of F-star’s mAb2 product candidates.

F-star’s clinical trials may fail to demonstrate adequately the safety and efficacy of any of F-star’s mAb2 product candidates, which would prevent or delay regulatory approval and commercialization.

To obtain the requisite regulatory approvals to market and sell any of F-star’s mAb2 product candidates, including FS118, FS120, FS222 and any other future product candidates, F-star must demonstrate through

 

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extensive preclinical studies and clinical trials that F-star’s products are safe and effective in humans. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process and F-star’s future clinical trial results may not be successful. Further, the process of obtaining regulatory approval is expensive, often takes many years following the commencement of clinical trials and can vary substantially based upon the type, complexity and novelty of the product candidates involved, as well as the target indications, patient population and regulatory agency considering the product’s marketing application. Prior to obtaining approval to commercialize a mAb2 product candidate in the United States or abroad, F-star or F-star’s potential future collaborators must demonstrate with substantial evidence from adequate and well-controlled clinical trials, and to the satisfaction of the FDA, the EMA or other comparable foreign regulatory authorities, that such mAb2 product candidates are safe and effective for their intended uses.

Clinical trials that F-star conducts may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market F-star’s mAb2 product candidates. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. If the results of F-star’s ongoing or future clinical trials are inconclusive with respect to the efficacy of F-star’s mAb2 product candidates, if F-star does not meet the clinical endpoints with statistical and clinically meaningful significance, or if there are safety concerns associated with its mAb2 product candidates, F-star may be delayed in obtaining marketing approval, if at all.

Even if the trials are successfully completed, clinical data are often susceptible to varying interpretations and analyses, and F-star cannot guarantee that the FDA, the EMA, or other comparable foreign regulatory authorities will interpret the results as F-star does, and more trials could be required before F-star submits its mAb2 product candidates for approval. F-star cannot guarantee that the FDA, the EMA or other comparable foreign regulatory authorities will view F-star’s mAb2 product candidates as being effective and having a favorable benefit-risk profile even if positive results are observed in clinical trials. To the extent that the results of the trials are not satisfactory to the FDA, the EMA or other comparable foreign regulatory authorities for support of a marketing application, approval of F-star’s mAb2 product candidates may be significantly delayed, or F-star may be required to expend significant additional resources, which may not be available to F-star, to conduct additional trials in support of potential approval of F-star’s mAb2 product candidates.

Preclinical drug development is uncertain. Some or all of F-star’s preclinical mAb2 product candidates, such as FS120 and FS222 may experience delays or may never advance to clinical trials, which would adversely affect F-star’s ability to obtain regulatory approvals or commercialize these mAb2 product candidates on a timely basis or at all, which would have an adverse effect on F-star’s business.

Before F-star can commence clinical trials for a mAb2 product candidate, F-star must complete extensive preclinical testing and studies that support F-star’s INDs in the United States, or CTAs in Europe. Conducting preclinical testing is a lengthy, time-consuming and expensive process and delays associated with mAb2 product candidates for which F-star is directly conducting preclinical testing and studies may cause it to incur additional operating expenses. Although F-star is currently conducting a Phase 1 clinical trial for FS118 and preparing for a Phase 1 clinical trial for FS120, F-star cannot be certain of the timely completion or outcome. Additionally, while F-star currently intends to submit a CTA to the EMA, for FS222 in the third quarter of 2020, F-star cannot be sure that it will be able to submit the CTA on that timeline, if at all, and F-star cannot be sure that submission of INDs or CTAs for this mAb2 product candidate or other mAb2 product candidates in the future will result in the FDA or the EMA allowing clinical trials for such candidates to begin.

The results of preclinical studies and early-stage clinical trials of F-star’s mAb2 product candidates may not be predictive of the results of later-stage clinical trials. Initial success in F-star’s ongoing clinical trials may not be indicative of results obtained when these trials are completed or in later-stage trials.

Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. Furthermore, there can be no

 

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assurance that any of F-star’s clinical trials will ultimately be successful or support further clinical development of any of F-star’s mAb2 product candidates. There is a high failure rate for drugs proceeding through clinical trials. Many companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development and F-star cannot be certain that it will not face similar setbacks. These setbacks have been caused by, among other things, preclinical findings made while clinical trials were underway, or safety or efficacy observations made in preclinical studies and clinical trials, including previously unreported adverse events. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA or EMA approval. Any such setbacks in F-star’s clinical development could have a material adverse effect on F-star’s business, financial condition and results of operations.

Additionally, some of the clinical trials F-star conducts may include open-label trials conducted at a limited number of clinical sites on a limited number of patients. An “open-label” clinical trial is one where both the patient and investigator know whether the patient is receiving the investigational product candidate or either an existing approved product or placebo. Most typically, open-label clinical trials test only the investigational product candidate and sometimes may do so at different dose levels. Open-label clinical trials are subject to various limitations that may exaggerate any therapeutic effect as patients in open-label clinical trials are aware when they are receiving treatment. Open-label clinical trials may be subject to a “patient bias” where patients perceive their symptoms to have improved merely due to their awareness of receiving an experimental treatment. Moreover, patients selected for early-stage clinical trials often include the most severe sufferers and their symptoms may have been bound to improve notwithstanding the new treatment. In addition, open-label clinical trials may be subject to an “investigator bias” where those assessing and reviewing the physiological outcomes of the clinical trials are aware of which patients have received treatment and may interpret the information of the treated group more favorably given this knowledge.

Interim, topline and preliminary data from F-star’s clinical trials that F-star announces or publishes from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, F-star may publish interim, topline or preliminary data from F-star’s clinical trials. Preliminary and interim data from F-star’s clinical trials may change as more patient data become available. Preliminary or interim data from F-star’s clinical trials are not necessarily predictive of final results. Preliminary and interim data are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues, more patient data become available and F-star issues its final clinical trial report. Interim, topline and preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data F-star previously published. As a result, preliminary, topline and interim data should be viewed with caution until the final data are available. Material adverse changes in the final data compared to the interim data could significantly harm F-star’s business prospects.

Further, others, including regulatory agencies, may not accept or agree with F-star’s assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular mAb2 product candidate or product, if any, and F-star in general. In addition, the information F-star chooses to publicly disclose regarding a particular preclinical study or clinical trial is based on what is typically extensive information, and you or others may not agree with what F-star determines is the material or otherwise appropriate information to include in F-star’s disclosure, and any information F-star determines not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product, if any, mAb2 product candidate or F-star’s business. If the preliminary and interim data that F-star reports differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, F-star’s ability to obtain approval for, and commercialize, F-star’s mAb2 product candidates may be harmed, which could harm F-star’s business, operating results, prospects or financial condition.

 

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F-star’s mAb2 product candidates may have serious adverse, undesirable or unacceptable side effects that may delay or prevent marketing approval. If such side effects are identified during the development of F-star’s mAb2 product candidates or following approval F-star may need to abandon development of such mAb2 product candidates, the commercial profile of any approved label may be limited, or F-star may be subject to other significant negative consequences following marketing approval.

Undesirable side effects that may be caused by F-star’s mAb2 product candidates could cause it or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, the EMA or other comparable foreign regulatory authorities. While F-star’s mAb2 product candidates in F-star’s preclinical studies, and the early clinical trial experience with FS118 to date have generally been well-tolerated from a risk-benefit perspective, the results from future preclinical studies and clinical trials, including of F-star’s other mAb2 product candidates, may not support this conclusion.

The results of F-star’s ongoing Phase 1 clinical trial of FS118 and future clinical trials of this and other mAb2 product candidates may show that F-star’s mAb2 product candidates cause undesirable or unacceptable side effects or even death. In such an event, F-star’s trials could be suspended or terminated and the FDA, the EMA or other comparable foreign regulatory authorities could order it to cease further development of or deny approval of F-star’s mAb2 product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Further, because all of F-star’s current mAb2 product candidates are based on F-star’s modular antibody technology platform and F-star’s mAb2 technology, any adverse safety or efficacy findings related to any mAb2 product candidate or preclinical program may adversely impact the viability of F-star’s other mAb2 product candidates or preclinical programs. Any of these occurrences may harm F-star’s business, reputation, financial condition and results of operations significantly. Additionally, if any of F-star’s mAb2 product candidates receives marketing approval and F-star or others later identify undesirable or unacceptable side effects caused by such products, a number of potentially significant negative consequences could result, including:

 

   

regulatory authorities may withdraw approvals of such product and require F-star’s approved product to be taken off the market, through a recall or other action;

 

   

regulatory authorities may require the addition of labeling statements or specific warnings, such as a “black box” warning or a contraindication, to the product’s prescribing information, or require field alerts to be sent to physicians and pharmacies;

 

   

regulatory authorities may require a medication guide explaining the risks of such side effects to be distributed to patients, or that F-star implement a risk evaluation and mitigation strategy plan to ensure that the benefits of the product outweigh its risks (such as through a REMS in the United States that may include a restricted distribution program or educational programs for prescribers);

 

   

F-star may be required to change the way the product is administered or to conduct additional clinical trials;

 

   

F-star may be subject to limitations on how it may promote the product;

 

   

sales of the product may decrease significantly;

 

   

F-star may be subject to litigation or product liability claims; and

 

   

F-star’s reputation may suffer.

Any of these events could prevent F-star, F-star’s collaborators or F-star’s potential future partners from achieving or maintaining market acceptance of the affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent it from generating significant revenue from the sale of its mAb2 product candidates, if approved.

F-star may find it difficult to enroll patients in F-star’s clinical trials, which could delay or prevent it from proceeding with clinical trials of F-star’s mAb2 product candidates.

Identifying and qualifying patients to participate in clinical trials of F-star’s mAb2 product candidates is critical to F-star’s success. The timing of F-star’s clinical trials depends on F-star’s ability to recruit eligible

 

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patients to participate as well as the completion of required follow-up evaluations. Patients may be unwilling to participate in F-star’s clinical trials because of negative publicity from adverse events related to novel therapeutic approaches, competitive clinical trials for similar patient populations, the existence of current treatments or for other reasons including due to concerns posed by the COVID-19 pandemic. Enrollment risks are heightened with respect to indications that F-star may target in the future that may be rare or orphan diseases, which may limit the pool of patients that may be enrolled in F-star’s planned clinical trials. Any delays related to patient enrollment could result in increased costs, delays in advancing F-star’s mAb2 product candidates, delays in testing the effectiveness of F-star’s mAb2 product candidates or termination of the clinical trials altogether. F-star may not be able to identify, recruit and enroll a sufficient number of patients, or those with the required or desired characteristics, to complete its clinical trials in a timely manner. Patient enrollment and trial completion is affected by many factors, including the:

 

   

size and nature of the patient population and process for identifying patients;

 

   

proximity and availability of clinical trial sites for prospective patients;

 

   

eligibility and exclusion criteria for the trial;

 

   

design of the clinical trial;

 

   

safety profile, to date, of the mAb2 product candidate under study;

 

   

perceived risks and benefits of the mAb2 product candidate under study;

 

   

perceived risks and benefits of F-star’s approach to treatment of diseases;

 

   

competition with other companies for clinical sites of patients;

 

   

severity of the disease under investigation;

 

   

degree of progression of the patient’s disease at the time of enrollment;

 

   

ability to obtain and maintain patient consent;

 

   

risk that enrolled patients will drop out before completion of the trial;

 

   

competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the mAb2 product candidate being studied in relation to other available therapies, including any new products that may be approved for the indications F-star is investigating;

 

   

patient referral practices of physicians; and

 

   

ability to adequately monitor patients during and after treatment.

F-star faces significant competition for its drug discovery and development efforts, and if F-star does not compete effectively, its commercial opportunities will be reduced or eliminated.

F-star competes in the segments of the biotechnology, pharmaceutical and other related markets that develop immuno-oncology therapies, and the market for biopharmaceutical products is highly competitive. F-star’s competitors include many established pharmaceutical companies, biotechnology companies, universities and other research or commercial institutions, many of which have substantially greater financial, research and development resources than F-star. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, recruiting patients, obtaining regulatory approvals, manufacturing and marketing pharmaceutical products. Smaller and early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with it in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, the development of F-star’s mAb2 product candidates. The fields in which F-star operates are characterized by rapid technological change and innovation.

There are many other companies that have commercialized and/or are developing immuno-oncology therapies for cancer including large biotechnology and pharmaceutical companies, such as AstraZeneca plc (“AstraZeneca”), BMS, Eli Lilly and Company (“Eli Lilly”), MSD, Merck KGaA (“EMD Serono”), Novartis, Pfizer, Inc. (“Pfizer”), Genentech, Inc. (“Genentech”), a subsidiary of the F. Hoffmann-La Roche AG Group

 

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(“Roche”) and Sanofi. A number of companies, not limited to those above, are attempting to combine immuno-oncology antibody therapies in order to modulate two cancer pathways simultaneously. Others have developed bispecific antibodies or bispecific fusion proteins in order to leverage the effect of a combination of single-target traditional monoclonal antibodies, which F-star refer to as traditional antibodies, in a single molecule.

With respect to F-star’s mAb2 bispecific antibody pipeline, F-star is aware of a number of competitors using other technology methods to create bispecific antibodies to treat a variety of cancer types, including, but not limited to: Eli Lilly, Genmab A/S, Inhibrx, Inc. (“Inhibrx”), MacroGenics, Inc. (“MacroGenics”), Merus N.V. (“Merus”), Pieris Pharmaceuticals, Inc. (“Pieris Pharmaceuticals”), Roche and Xencor, Inc.

With respect to F-star’s lead mAb2 product candidate, FS118, F-star is aware of other competing molecules targeting LAG-3 and PD-1/PD-L1 receptors. Companies pursuing a bispecific molecule include, but are not limited to: Avacta Group plc, Crescendo Biologics Ltd., GSK, Innovent Biologics (“Innovent”), Inc. Y-Biologics, MacroGenics and Hoffmann-La Roche. In addition, companies pursuing a combination of two traditional antibodies include, but are not limited to: BMS, C.H. Boehringer Sohn AG & Co. KG, GSK, MSD, Novartis/Immutep Limited, Incyte Corp (“Incyte”), Regeneron Pharmaceuticals, Inc. and Symphogen A/S, now a subsidiary of Servier Laboratories (“Servier”).

With respect to F-star’s second mAb2 product candidate, FS120, F-star is aware of other competing bispecific antibodies targeting OX40 and CD137, which include Aptevo Therapeutics. F-star is also aware that Pfizer still has ongoing clinical studies evaluating a combination of CD137 plus OX40 traditional antibodies.

With respect to F-star’s third mAb2 product candidate, FS222, F-star is aware of other competing bispecific antibodies targeting PD-L1 and CD137, which include Genmab/BioNTech SE, Inhibrx/Elpiscience, Merus/Incyte, Numab Therapeutics AG/CStone Pharmaceuticals, Pieris Pharmaceuticals/Servier, Shattuck Labs, I-mab Biopharma, Macrogenics, QLSF Biotherapeutics and Kahr Medical. F-star is aware of other companies pursuing a combination of two traditional antibodies targeting PD-1/PD-L1 and CD137, which include Lyvgen Biopharma (Suzhou)/MSD, Pfizer, and BMS.

F-star anticipates that it will continue to face increasing competition as new treatments enter the market and advanced technologies become available. There can be no assurance that F-star’s competitors are not currently developing, or will not in the future develop, products that are equally or more effective or are safer, or are more economically attractive than any of F-star’s current or future mAb2 product candidates, or platforms and technology that are superior to F-star’s modular antibody technology platform and F-star’s mAb2 technology. Competing products or technology platforms may gain faster or greater approval or market acceptance than F-star’s mAb2 products, if any, or modular antibody technology platform and medical advances or rapid technological development by competitors may result in F-star’s mAb2 product candidates or modular antibody technology platform becoming non-competitive or obsolete before F-star is able to recover F-star’s research and development and commercialization expenses. If F-star, F-star’s mAb2 product candidates or F-star’s modular antibody technology platform do not compete effectively, it may have a material adverse effect on F-star’s business, financial condition, and results of operations.

The regulatory approval processes of the FDA, the EMA and other comparable foreign regulatory authorities are lengthy, time consuming and inherently unpredictable, and if F-star is ultimately unable to obtain regulatory approval for F-star’s mAb2 product candidates, F-star’s business will be substantially harmed.

The time required to obtain approval by the FDA, the EMA and other comparable foreign regulatory authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, laws or regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. F-star has not obtained regulatory approval for commercialization, for any mAb2 product candidate and it is possible that none of F-star’s existing mAb2 product candidates or any mAb2 product candidates F-star may seek to develop in the future will ever obtain that approval.

 

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F-star’s mAb2 product candidates could fail to receive regulatory approval for many reasons, including the following:

 

   

The FDA, EMA or comparable foreign regulatory authorities may disagree with the design or implementation of F-star’s clinical trials;

 

   

F-star may be unable to demonstrate to the satisfaction of the FDA, the EMA or other comparable foreign regulatory authorities that a mAb2 product candidate is safe, pure and potent or effective for its proposed indication;

 

   

the results of clinical trials may not meet the level of statistical significance required by the FDA, the EMA or other comparable foreign regulatory authorities for approval;

 

   

F-star may be unable to demonstrate that a mAb2 product candidate’s clinical and other benefits outweigh its safety risks;

 

   

the FDA, the EMA or other comparable foreign regulatory authorities may disagree with F-star’s interpretation of data from preclinical studies or clinical trials;

 

   

the data collected from clinical trials of F-star’s mAb2 product candidates may not be sufficient to support the submission of a Biologics License Application (“BLA”), to the FDA or other submission or to obtain regulatory approval in the United States, the EU or elsewhere;

 

   

upon review of F-star clinical trial sites and data, the FDA, EMA or comparable foreign regulatory authorities may find F-star’s record keeping or the record keeping of its clinical trial sites to be inadequate;

 

   

the FDA, the EMA or other comparable foreign regulatory authorities may find deficiencies with or fail to approve the manufacturing processes or facilities of third-party manufacturers with which F-star contract for clinical and commercial supplies; and

 

   

the approval policies or regulations of the FDA, the EMA or other comparable foreign regulatory authorities or the laws they enforce may significantly change in a manner rendering F-star’s clinical data insufficient for approval.

This lengthy approval process as well as the unpredictability of future clinical trial results may result in F-star’s failing to obtain regulatory approval to market any of F-star’s mAb2 product candidates, which would significantly harm F-star’s business, financial condition and results of operations. The FDA, the EMA and other comparable foreign regulatory authorities have substantial discretion in the approval process, and determining when or whether to grant regulatory approval will be obtained for any of F-star’s mAb2 product candidates, and whether to impose any conditions on such marketing approvals as described below. Even if F-star believes the data collected from clinical trials of F-star’s mAb2 product candidates are promising, such data may not be sufficient to support approval by the FDA, the EMA or other comparable foreign regulatory authorities.

In addition, even if F-star were to obtain approval, regulatory authorities may approve any of F-star’s mAb2 product candidates for fewer or more limited indications than F-star request, may not approve the price F-star intends to charge for F-star’s mAb2 products, if any, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a mAb2 product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that mAb2 product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for F-star’s mAb2 product candidates.

If F-star is required by the FDA to obtain approval of a companion diagnostic in connection with approval of a mAb2 product candidate, and F-star does not obtain or face delays in obtaining FDA approval of a diagnostic device, F-star will not be able to commercialize the mAb2 product candidate and F-star’s ability to generate revenue will be materially impaired.

According to FDA guidance, if the FDA determines that a companion diagnostic device is essential to the safe and effective use of a novel therapeutic product in an intent to treat indication, the FDA will not approve the therapeutic product or new therapeutic product indication if the companion diagnostic is not also approved or cleared for that indication. Under the U.S. Federal Food, Drug, and Cosmetic Act, companion diagnostics are

 

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regulated as medical devices, and the FDA requires companion diagnostics intended to select the patients who likely will respond to cancer treatment to obtain Premarket Approval (“PMA”), for the diagnostic. The PMA process, including the gathering of analytical and prospective clinical data and the submission to and review by the FDA, involves a rigorous premarket review during which the applicant must prepare and provide the FDA with reasonable assurance of the device’s safety and effectiveness and information about the device and its components regarding, among other things, device design, performance, good manufacturing practices, and labeling. A PMA is not guaranteed and may take considerable time, and the FDA may ultimately respond to a PMA submission with a “not approvable” determination based on deficiencies in the application and require additional clinical trial or other data that may be expensive and time-consuming to generate and that can substantially delay approval. As a result, if F-star is required by the FDA to obtain approval of a companion diagnostic for a therapeutic mAb2 product candidate, and F-star does not obtain or there are delays in obtaining FDA approval of a diagnostic device, F-star may not be able to commercialize the mAb2 product candidate on a timely basis or at all and F-star’s ability to generate revenue will be materially impaired.

Even if F-star’s mAb2 product candidates obtain regulatory approval, F-star will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense.

Additionally, F-star’s mAb2 product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and F-star may be subject to penalties if F-star fails to comply with ongoing regulatory requirements or experiences unanticipated problems with any such approved products.

If the FDA, the EMA or other comparable foreign regulatory authority approves any of F-star’s mAb2 product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the mAb2 product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, establishment registration, as well as continued compliance with current Good Manufacturing Practices (“cGMPs”), by all facilities involved in the production of the approved therapeutic product and with Good Clinical Practices (“GCPs”), for any clinical trials that F-star conducts post-approval, all of which may result in significant expense and limit F-star’s ability to commercialize such products. In addition, any regulatory approvals that F-star receives for F-star’s mAb2 product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the mAb2 product candidate. The FDA, as well as its foreign regulatory counterparts, also have significant post-market authority, including the authority to require labeling changes based on new safety information.

Moreover, the FDA strictly regulates the promotional claims that may be made about prescription drug and biological products. In particular, a product may not be promoted for off-label uses that are not approved by the FDA as reflected in the product’s approved packaging label. However, companies may share truthful and not misleading information that is otherwise consistent with a product’s FDA approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Further, if there are any modifications to the biologic, including changes in indications, labeling or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new BLA or BLA supplement.

If there are changes in the application of legislation, regulations or regulatory policies, or if problems are discovered with a product or F-star’s manufacture of a product, or if F-star or one of F-star’s distributors, licensees or co-marketers fails to comply with regulatory requirements, regulatory authorities could take various actions. These include imposing fines on F-star, imposing restrictions on the product or its manufacture and requiring a recall or other removal of the product from the market. The regulators could also suspend or withdraw F-star’s marketing authorizations, require it to conduct additional clinical trials, change F-star’s product labeling or require F-star to submit additional applications for marketing authorization. If any of these events occurs, F-star’s ability to sell such product may be impaired, and F-star may incur substantial additional expense to comply with regulatory requirements, which could materially adversely affect F-star’s business, financial condition and results of operations.

 

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F-star may become exposed to costly and damaging liability claims, either when testing F-star’s mAb2 product candidates in the clinic or at the commercial stage, and F-star’s product liability insurance may not cover all damages from such claims.

F-star is exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing, marketing and use of biopharmaceutical products. Currently, F-star has no products that have been approved for commercial sale; however, the current and future use of mAb2 product candidates by it and F-star’s collaborators in clinical trials, and the potential sale of any approved products in the future, may expose it to liability claims. These claims might be made by patients who use the product, healthcare providers, pharmaceutical companies, F-star’s collaborators or others selling such products. Any claims against F-star, regardless of their merit, could be difficult and costly to defend and could materially adversely affect the market for F-star’s mAb2 product candidates or any prospects for commercialization of F-star’s mAb2 product candidates. Although the clinical trial process is designed to identify and assess potential side effects, it is always possible that a product, even after regulatory approval, may exhibit unforeseen side effects. If any of F-star’s mAb2 product candidates were to cause adverse side effects during clinical trials or after approval of the mAb2 product candidate, F-star may be exposed to substantial liabilities. Physicians and patients may not comply with any warnings that identify known potential adverse effects and patients who should not use F-star’s mAb2 product candidates. Regardless of the merits or eventual outcome, liability claims may result in:

 

   

decreased demand for F-star’s products due to negative public perception;

 

   

injury to F-star’s reputation;

 

   

withdrawal of clinical trial participants or difficulties in recruiting new trial participants;

 

   

initiation of investigations by regulators;

 

   

costs to defend or settle the related litigation;

 

   

a diversion of management’s time and F-star’s resources;

 

   

substantial monetary awards to trial participants or patients;

 

   

product recalls, withdrawals or labeling, marketing or promotional restrictions;

 

   

loss of revenues from product sales; and

 

   

the inability to commercialize any of F-star’s mAb2 product candidates, if approved.

Although F-star believes it maintains adequate product liability insurance for its mAb2 product candidates, it is possible that F-star’s liabilities could exceed F-star’s insurance coverage. F-star intends to expand F-star’s insurance coverage to include the sale of commercial products if F-star obtains marketing approval for any of F-star’s mAb2 product candidates. However, F-star may not be able to maintain insurance coverage at a reasonable cost or obtain insurance coverage that will be adequate to satisfy any liability that may arise. If a successful product liability claim or series of claims is brought against it for uninsured liabilities or in excess of insured liabilities, F-star’s assets may not be sufficient to cover such claims and F-star’s business operations could be impaired.

Should any of the events described above occur, this could have a material adverse effect on F-star’s business, financial condition and results of operations.

Due to F-star’s limited resources and access to capital, F-star must, and has in the past decided to, prioritize development of certain mAb2 product candidates over other potential mAb2 product candidates. These decisions may prove to have been wrong and may adversely affect F-star’s ability to develop its own programs, F-star’s attractiveness as a commercial partner and may ultimately have an impact on F-star’s commercial success.

Because F-star has limited resources and access to capital to fund its operations, F-star must decide which mAb2 product candidates to pursue and the amount of resources to allocate to each. F-star’s decisions concerning the allocation of research, collaboration, management and financial resources toward particular mAb2 bispecific antibodies, mAb2 product candidates or therapeutic areas may not lead to the development of viable commercial products and may divert resources away from better opportunities. Similarly, F-star’s decisions to delay, terminate or collaborate with third parties in respect of certain product development programs may also prove not

 

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to be optimal and could cause it to miss valuable opportunities. If F-star makes incorrect determinations regarding the market potential of its mAb2 product candidates or misreads trends in the biopharmaceutical industry, in particular for F-star’s lead mAb2 product candidate, F-star’s business, financial condition and results of operations could be materially adversely affected.

F-star may seek orphan drug designation for mAb2 product candidates F-star develops, and F-star may be unsuccessful or may be unable to maintain the benefits associated with orphan drug designation, including the potential for market exclusivity if a designed product candidate is ultimately approved.

As part of F-star’s business strategy, F-star may seek orphan drug designation for any mAb2 product candidates F-star develops, and F-star may be unsuccessful. Regulatory authorities in some jurisdictions, including the United States and the EU, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act in the United States, the FDA may designate a drug as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards certain clinical trial costs, tax advantages and user-fee waivers.

Similarly, in Europe, the European Commission grants orphan designation after receiving the opinion of the EMA Committee for Orphan Medicinal Products on an orphan designation application. Orphan designation is intended to promote the development of drugs that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than 5 in 10,000 persons in the EU and for which no satisfactory method of diagnosis, prevention, or treatment has been authorized (or the product would be a significant benefit to those affected). Additionally, designation is granted for drugs intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the EU would be sufficient to justify the necessary investment in developing the drug. In the EU, orphan designation entitles a party to a number of incentives, such as protocol assistance and scientific advice specifically for designated orphan medicines, and potential fee reductions depending on the status of the sponsor.

Generally in the United States, if a drug with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the drug is entitled to a period of marketing exclusivity, which precludes the FDA from approving another marketing application for the same drug and the same orphan indication for that time period, except in limited circumstances. The applicable period is seven years in the United States, with a potential six-month extension of exclusivity if certain pediatric studies are conducted and the results are reported to the FDA.

In Europe, an approved orphan medicinal product is entitled to ten years of market exclusivity in all EU member states. However, marketing authorization may be granted to a similar medicinal product with the same orphan indication during the ten-year period with the consent of the marketing authorization holder for the original orphan medicinal product or if the manufacturer of the original orphan medicinal product is unable to supply sufficient quantities of such product. Marketing authorization may also be granted to a similar medicinal product with the same orphan indication if the similar product is established to be safer, more effective or otherwise clinically superior to the original orphan medicinal product. After five years, an EU member state can request that the period of market exclusivity be reduced to six years if it can be demonstrated that the criteria for orphan designation no longer apply and the medicine is sufficiently profitable. The period of market exclusivity may be extended for an additional two years for medicines that have also complied with an agreed pediatric investigation plan (“PIP”).

Similarly, even if F-star obtains orphan drug exclusivity for a mAb2 product candidate that is approved for marketing in the U.S., such exclusivity may not effectively protect the mAb2 product candidate from competition because different therapies can be approved for the same condition and the same therapies can be approved for different conditions but used off-label. Even after an orphan drug is approved, the FDA can subsequently approve the later drug for the same condition if the FDA concludes that the later drug is clinically superior in that

 

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it is shown to be safer, more effective or makes a major contribution to patient care. In addition, a designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. Moreover, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process. While F-star may seek orphan drug designation for applicable indications for F-star’s current and any future mAb2 product candidates, F-star may never receive such designations.

Accordingly, even if F-star does receive such designations in the U.S. and/or in Europe, there is no guarantee that F-star will enjoy the benefits of those designations.

F-star’s approach to the discovery and development of F-star’s therapeutic treatments is based on novel technologies that are unproven and may not result in marketable products.

F-star plans to develop a pipeline of mAb2 product candidates using F-star’s modular antibody technology platform. F-star believes that mAb2 product candidates identified with its modular antibody technology platform may offer an improved therapeutic approach by creating fully formed molecules using standard antibody production technology, thereby potentially improving the binding and biological response, and reducing any need for reassembly or other post-synthesis modifications.

However, F-star has not, nor to F-star’s knowledge has any other company, received regulatory approval for a therapeutic that uses tetravalent bispecific IgG1 antibody technology. F-star cannot be certain that its approach will lead to the development of approvable or marketable products. In addition, the FDA, the EMA or other comparable foreign regulatory agencies may lack experience in evaluating the safety and efficacy of products based on F-star’s mAb2 technology, which could result in a longer than expected regulatory review process, increase F-star’s expected development costs and delay or prevent commercialization of F-star’s mAb2 product candidates.

F-star may not be successful in its efforts to utilize its modular antibody technology platform and mAb2 technology to build a pipeline of additional mAb2 product candidates. Failure to successfully identify, develop and commercialize additional products or mAb2 product candidates could impair F-star’s ability to grow.

Although a substantial amount of F-star’s efforts will continue to focus on the preclinical studies and clinical testing and potential approval of the mAb2 product candidates in F-star’s current pipeline, a key element of F-star’s long-term growth strategy is to identify, develop and market additional products and mAb2 product candidates. Because F-star has limited financial and managerial resources, continuing to utilize F-star’s modular antibody technology platform and F-star’s mAb2 technology to generate mAb2 bispecific antibodies and identify mAb2 product candidates with certain advantages, such as safety and potency, beyond what would be achieved with a combination of two traditional antibodies or bispecific antibodies, will require substantial additional technical, financial and human resources, whether or not any mAb2 product candidates are ultimately identified. F-star’s modular antibody technology platform may fail to generate mAb2 bispecific antibodies that are suitable for further development, and F-star may fail to correctly identify future mAb2 product candidates that have the potential to become successful products. F-star will need to continue to invest in improving and expanding F-star’s modular antibody technology platform and F-star’s mAb2 technology, which will require scientific expertise and substantial resources.

All product candidates are prone to risks of failure typical of biopharmaceutical product development, including the possibility that a product candidate may not be suitable for clinical development as a result of its harmful side effects, limited efficacy or other characteristics that indicate that it is unlikely to be a product that will receive approval by the FDA, the EMA and other comparable foreign regulatory authorities and achieve market acceptance. If F-star does not successfully develop and commercialize F-star’s mAb2 product candidates based upon F-star’s current platform and technological approach, F-star may not be able to obtain product or collaboration revenues in future periods, which would adversely affect F-star’s business, financial condition and results of operations.

 

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F-star’s mAb2 product candidates that are successful in achieving marketing approval may face competition sooner than anticipated.

Even if F-star is successful in achieving regulatory approval to commercialize a mAb2 product candidate for a specific indication ahead of its competitors, such an approved therapeutic candidate may face competition from biosimilar products. In the United States, mAb2 product candidates are regulated by the FDA as biological products and F-star intends to seek approval for these therapeutic candidates pursuant to the BLA pathway. The BPCIA created an abbreviated pathway for the FDA approval of biosimilar biological products based on a previously licensed innovator, or reference, biological product. Under the BPCIA, an application for a biosimilar biological product cannot be approved by the FDA until 12 years after the original reference biological product was approved under a BLA.

F-star believes that any of its mAb2 product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity available to reference biological products. However, there is a risk that this exclusivity could be shortened due to Congressional action or otherwise, or that the FDA will not consider F-star’s therapeutic candidates to be reference biological products pursuant to its interpretation of the exclusivity provisions of the BPCIA, potentially creating the opportunity for follow-on biosimilar competition sooner than anticipated. Moreover, the extent to which a biosimilar product, once approved, will be substituted for any reference product 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 including whether a future competitor seeks an interchangeability designation for a biosimilar of a future F-star approved biological products. Under the BPCIA as well as state pharmacy laws, only so-called “interchangeable” biosimilar products are considered substitutable for the reference biological product without the intervention of the healthcare provider who prescribed the original biological product. However, as with all prescribing decisions made in the context of a patient-provider relationship and a patient’s specific medical needs, healthcare providers are not restricted from prescribing biosimilar products in an off-label manner. In addition, a competitor could decide to forego the abbreviated approval pathway available for biosimilar products and to submit a full BLA for product licensure after completing its own preclinical studies and clinical trials. In such a situation, any exclusivity to which F-star may be eligible under the BPCIA would not prevent the competitor from marketing its biological product as soon as it is approved.

In Europe, the European Commission has granted marketing authorizations for several biosimilar products pursuant to a set of general and product class-specific guidelines for biosimilar approvals issued over the past few years. In addition, companies may be developing biosimilar products in other countries that could compete with F-star’s products, if approved.

If competitors are able to obtain marketing approval for biosimilars referencing an approved F-star mAb2 product candidates, if approved, F-star’s future products may become subject to competition from such biosimilars, whether or not they are designated as interchangeable, with the attendant competitive pressure and potential adverse consequences. Such competitive products may be able to immediately compete with F-star in each indication for which its product candidates may have received approval.

The successful commercialization of F-star’s mAb2 product candidates will depend in part on the extent to which governmental authorities and health insurers establish coverage and adequate reimbursement levels, as well as pricing policies. Failure to obtain or maintain adequate coverage and reimbursement for F-star’s mAb2 product candidates, if approved, could limit F-star’s ability to market those products and decrease F-star’s ability to generate revenue.

The availability and adequacy of coverage and reimbursement by governmental healthcare programs such as Medicare and Medicaid, private health insurers and other third-party payors are essential for most patients to be able to afford products such as F-star’s mAb2 product candidates, if approved. Even if F-star receives approval to market one or more of F-star’s mAb2 product candidates in the future, F-star’s ability to achieve acceptable levels of coverage and reimbursement for such mAb2 product candidates by governmental authorities, private health insurers and other organizations will have an effect on F-star’s ability to successfully commercialize, and attract additional collaboration partners to invest in the development of, F-star’s mAb2 product candidates. Assuming

 

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F-star obtains coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. F-star cannot be sure that coverage and reimbursement in the United States, the EU or elsewhere will be available for any product that F-star may develop, and any reimbursement that may become available may be decreased or eliminated in the future.

Obtaining and maintaining reimbursement status is time-consuming and costly. No uniform policy for coverage and reimbursement for drug products exist among third-party payors in the United States. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require it to provide scientific and clinical support for the use of F-star’s products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases at short notice, and F-star believes that changes in these rules and regulations are likely.

Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:

 

   

a covered benefit under its health plan;

 

   

safe, effective and medically necessary;

 

   

appropriate for the specific patient;

 

   

cost-effective; and

 

   

neither experimental nor investigational.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs and biologics will be covered. The Medicare and Medicaid programs increasingly are used as models for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs and biologics. Some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers who use such therapies. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for F-star’s mAb2 product candidates.

Third-party payors increasingly are challenging prices charged for pharmaceutical products and services, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs when an equivalent generic/biosimilar drug or a less expensive therapy is available. It is possible that a third-party payor may consider F-star’s mAb2 product candidate and other therapies as substitutable and only offer to reimburse patients for the less expensive product. Even if F-star shows improved efficacy or improved convenience of administration with F-star’s mAb2 product candidate over other available and comparable products, pricing of existing drugs may limit the amount F-star will be able to charge for its mAb2 product candidate. These payors may deny or revoke the reimbursement status of a given drug product or establish prices for new or existing marketed products at levels that are too low to enable it to realize an appropriate return on F-star’s investment in product development. If coverage and reimbursement is not available or is available only at limited levels, F-star may not be able to successfully commercialize F-star’s mAb2 product candidates, and may not be able to obtain a satisfactory financial return on products that F-star may develop.

For products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. Additionally, separate reimbursement for the product itself or the treatment or procedure in which the product is used may not be available, which may impact physician utilization. For example, under these circumstances, physicians may limit how much or under what circumstances they will prescribe or administer F-star’s products and patients may deliver to purchase such products. This, in turn, could affect F-star’s ability to commercialize F-star’s products successfully and impact F-star’s profitability, results of operations, financial condition, and future success.

 

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Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and F-star believes the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue to put pressure on the pricing and usage of F-star’s mAb2 product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for medical products but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that F-star is able to charge for F-star’s mAb2 product candidates. Accordingly, in markets outside the United States, the reimbursement for F-star’s products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.

The delivery of healthcare in the EU, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy. National governments and health service providers have different priorities and approaches to the delivery of healthcare and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing EU and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of F-star’s mAb2 product candidates, restrict or regulate post-approval activities and affect F-star’s ability to commercialize any products for which F-star obtains marketing approval.

Moreover, increasing efforts by governmental and third-party payors in the United States, the EU and other jurisdictions to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for F-star’s mAb2 product candidates. F-star expects to experience pricing pressures in connection with the sale of any of F-star’s mAb2 product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.

The future commercial success of F-star’s mAb2 product candidates will depend on the degree of market acceptance of F-star’s potential products among physicians, patients, third-party payors and the medical community.

To date, F-star has no products authorized for marketing and F-star does not expect to be able to commercialize any of F-star’s mAb2 product candidates for a number of years, if ever. Even if one or more of F-star’s mAb2 product candidates are approved for commercialization, they may not achieve an adequate level of acceptance by physicians, patients and the medical community, and F-star may not become profitable. In addition, efforts to educate the medical community and third-party payors on the benefits of F-star’s future approved products may require significant resources and may never be successful which would prevent F-star from generating significant revenues or becoming profitable. Market acceptance of F-star’s future products by physicians, patients and third-party payors will depend on a number of factors, many of which are beyond F-star’s control, including, but not limited to:

 

   

the clinical indications for which F-star’s mAb2 product candidates are approved;

 

   

physicians, hospitals, cancer treatment centers and patients considering F-star’s mAb2 product candidates as a safe and effective treatment;

 

   

the potential and perceived advantages of F-star’s mAb2 product candidates over alternative treatments;

 

   

the prevalence and severity of any side effects;

 

   

product labeling or product insert requirements of the FDA, the EMA or other comparable foreign regulatory authorities, or any risk mitigation measures that are required to be followed as part of the product’s marketing approval;

 

   

limitations or warnings contained in the labeling approved by the FDA, the EMA or other comparable foreign regulatory authorities;

 

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the timing of market introduction of F-star’s mAb2 product candidates in relation to other potentially competitive products;

 

   

the cost of F-star’s mAb2 product candidates in relation to alternative treatments;

 

   

the amount of upfront costs or training required for physicians to administer F-star’s mAb2 product candidates;

 

   

the availability of coverage and adequate reimbursement from third-party payors and government authorities;

 

   

the willingness of patients to pay out-of-pocket in the absence of comprehensive coverage and reimbursement by third-party payors and government authorities;

 

   

the relative convenience and ease of administration, including as compared to alternative treatments and competitive therapies;

 

   

the effectiveness of F-star’s sales and marketing efforts and distribution support; and

 

   

the presence or perceived risk of potential product liability claims.

If F-star’s mAb2 product candidates fail to gain market acceptance, this will have a material adverse impact on F-star’s ability to generate revenues to provide a satisfactory, or any, return on F-star’s investments. Even if some products achieve market acceptance, the market may prove not to be large enough to allow it to generate significant revenues.

Healthcare legislative reform measures may have a negative impact on F-star’s business and results of operations.

In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and affect F-star’s ability to profitably sell any mAb2 product candidates for which F-star obtains marketing approval. Changes in regulations, statutes or the interpretation of existing regulations could impact F-star’s business in the future by requiring, for example: (i) changes to F-star’s manufacturing arrangements, (ii) additions or modifications to product labeling, (iii) the recall or discontinuation of F-star’s products, (iv) restriction on coverage, reimbursement, and pricing for F-star’s products, (v) transparency reporting obligations regarding transfers of value to healthcare professionals or (vi) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect F-star’s business, financial condition and results of operations.

In March 2010, the Affordable Care Act (“ACA”) was enacted, which includes measures that have significantly changed the way healthcare is financed by both governmental and private insurers in the United States. It also included the Biologics Price Competition and Innovation Act of 2009 (the “BPCIA”), which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. The ACA continues to significantly impact the United States’ pharmaceutical industry. Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, and as a result certain sections of the law have not been fully implemented or effectively repealed. In particular, in December of 2018, a Texas U.S. District Court ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Cuts and Jobs Act, effective January 1, 2019. On December 18, 2019, the Fifth Circuit U.S. Court of Appeals upheld the District Court ruling that the individual mandate was unconstitutional, but remanded the case back to the lower court to determine whether other reforms enacted as part of the ACA but not specifically related to the individual mandate or health insurance, including the provisions comprising the BPCIA, could be severed from the rest of the ACA so as not to be declared invalid as well. On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case and has allocated one hour for oral arguments, which are expected to occur in the fall, with a decision likely to follow in 2021. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results. F-star will continue to evaluate the effect that the ACA and its possible repeal and replacement has on its business. Complying with any new legislation or reversing changes implemented under the ACA could be time-intensive and expensive, resulting in a material adverse effect on F-star’s business.

 

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Other legislative changes have been proposed and adopted in the United States since the ACA was enacted that affect healthcare expenditures. In particular, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices and the manner in which manufacturers set prices for their marketed products. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. At the federal level, the current administration’s budget for fiscal year 2021, as well as policies included in several executive orders issued by President Trump in late July 2020, contain further drug price control measures that could be enacted during the budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low income patients. Additionally, the current administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of product candidates paid by consumers. The U.S. Department of Health and Human Services (“HHS”), has already started the process of soliciting feedback on some of these measures and, at the same time, is immediately implementing others under its existing authority. For example, in May 2019, CMS issued a final rule to allow Medicare Advantage Plans the option of using step therapy, a type of prior authorization, for Part B drugs beginning January 1, 2020. This final rule codified CMS’s policy change that was effective January 1, 2019.

The Further Consolidated Appropriations Act for 2020 (P.L. 116-94), signed into law in December 2019, included a piece of bipartisan legislation called the Creating and Restoring Equal Access to Equivalent Samples Act of 2019 (the “CREATES Act”). The CREATES Act aims to address the concern articulated by both the FDA and others in the industry that some brand manufacturers have improperly restricted the distribution of their products, including by invoking the existence of a REMS for certain products, to deny generic and biosimilar product developers access to samples of brand products. Because generic and biosimilar product developers need samples to conduct certain comparative testing required by the FDA, some have attributed the inability to timely obtain samples as a cause of delay in the entry of generic and biosimilar products. To remedy this concern, the CREATES Act establishes a private cause of action that permits a generic or biosimilar product developer to sue the brand manufacturer to compel it to furnish the necessary samples on “commercially reasonable, market-based terms.” Whether and how generic and biosimilar product developments will use this new pathway, as well as the likely outcome of any legal challenges to provisions of the CREATES Act, remain highly uncertain and its potential effects on F-star’s future commercial products are unknown.

At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. These measures could reduce the ultimate demand for F-star’s products, once approved, or put pressure on F-star’s product pricing.

F-star expects that these and other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that F-star receive for any approved drug, which could have an adverse effect on customers for F-star’s mAb2 product candidates. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.

In the EU, similar political, economic and regulatory developments may affect F-star’s ability to profitably commercialize current or any future product candidates, if approved. In addition to continuing pressure on prices and cost containment measures, legislative developments at the EU or member state level may result in

 

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significant additional requirements or obstacles that may increase F-star’s operating costs. In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies.

There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, U.S. federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. The implementation of cost containment measures or other healthcare reforms may prevent F-star from being able to generate revenue, attain profitability, or commercialize F-star’s products. Such reforms could have an adverse effect on anticipated revenue from mAb2 product candidates that F-star may successfully develop and for which F-star may obtain regulatory approval and may affect F-star’s overall financial condition and ability to develop mAb2 product candidates.

F-star’s business operations and current and future relationships with clinical investigators, healthcare professionals, consultants, third-party payors and customers may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, and other healthcare laws. If F-star is unable to comply, or has not fully complied, with such laws, F-star could face substantial penalties.

Although F-star does not currently have any products on the market, F-star’s current and future operations may be directly, or indirectly through F-star’s relationships with clinical investigators, healthcare professionals, customers and third-party payors, subject to broadly applicable healthcare laws U.S. federal and state fraud and abuse and other healthcare laws and regulations, including, without limitation, the Anti-Kickback Statute. Healthcare providers, physicians and others play a primary role in the recommendation and prescription of any products for which F-star obtains marketing approval. These laws impact, among other things, F-star’s proposed sales, marketing and education programs and constrain F-star’s business and financial arrangements and relationships with third-party payors, healthcare professionals who participate in F-star’s clinical research program, healthcare professionals and others who recommend, purchase, or provide F-star’s approved products, and other parties through which F-star market, sell and distribute F-star’s products for which F-star obtains marketing approval. In addition, F-star may be subject to patient data privacy and security regulation by both the U.S. federal government and the states in which F-star conducts F-star’s business. Finally, F-star’s current and future operations are subject to additional healthcare-related statutory and regulatory requirements and enforcement by foreign regulatory authorities in jurisdictions in which F-star conducts F-star’s business.

 

   

the Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration (including any kickback, bribe, or certain rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under U.S. federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, a claim including items or services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act, (“FCA”);

 

   

federal civil and criminal false claims laws and civil monetary penalty laws, including the FCA, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment to, or approval by Medicare, Medicaid, or other federal healthcare programs, knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim or an obligation to pay or transmit money to the federal government, or knowingly concealing or knowingly and improperly avoiding or decreasing or concealing an obligation to pay money to the federal government. Manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The FCA also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery;

 

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HIPAA, which created new federal criminal and civil statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual knowledge of the statute or specific intent to violate it;

 

   

HIPAA, as amended by HITECH, and their implementing regulations, which impose certain obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information by covered entities subject to the rule, such as health plans, healthcare clearinghouses and certain healthcare providers, as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information and require notification to affected individuals and regulatory authorities of certain breaches of individually identifiable health information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions;

 

   

federal legislation commonly referred to as Physician Payments Sunshine Act, enacted as part of the ACA, and its implementing regulations, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the CMS information related to certain payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists, chiropractors and, beginning in 2022 for payments and other transfers of value provided in the previous year, certain advanced non-physician healthcare practitioners) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;

 

   

analogous state laws and regulations, including: state anti-kickback and false claims laws that may apply to claims involving healthcare items or services reimbursed by any third-party payor, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral source; state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information, which requires tracking gifts and other remuneration and items of value provided to healthcare professionals and entities; state and local laws that require the registration of pharmaceutical sales representatives; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts; and

 

   

European and other foreign law equivalents of each of the laws, including reporting requirements detailing interactions with and payments to healthcare providers.

The distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products and to limit the distribution of product samples and impose requirements to ensure accountability in prescription drug sample distribution.

The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry.

 

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It is possible that governmental authorities will conclude that F-star’s business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws. If F-star’s operations are found to be in violation of any of these laws or any other laws that may apply to F-star, F-star may be subject to significant sanctions, including civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participating in government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if F-star become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, reputational harm and the curtailment or restructuring of F-star’s operations. If any of the physicians or other healthcare providers or entities with whom F-star expects to do business is found not to be in compliance with applicable laws, that person or entity may be subject to significant criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. Prohibitions or restrictions on sales or withdrawal of future marketed products could materially affect business in an adverse way.

The risk of it being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts or otherwise have broad coverage. For example, the definition of the “remuneration” under the Anti-Kickback Statute has been interpreted to include anything of value. Further, courts have found that if “one purpose” of remuneration is to induce referrals, the Anti-Kickback Statute is violated.

Efforts to ensure that F-star’s business arrangements with third parties will comply with applicable healthcare laws will involve substantial costs. Any action against it for violation of these laws, even if F-star successfully defends against it, could cause it to incur significant legal expenses and divert F-star’s management’s attention from the operation of F-star’s business. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance or reporting requirements increases the possibility that a biopharmaceutical company may run afoul of one or more of the requirements.

Obtaining and maintaining marketing approval of F-star’s current and future mAb2 product candidates in one jurisdiction does not mean that F-star will be successful in obtaining marketing approval of its current and future mAb2 product candidates in other jurisdictions.

Obtaining and maintaining marketing approval of F-star’s current and future mAb2 product candidates in one jurisdiction does not guarantee that F-star will be able to obtain or maintain marketing approval in any other jurisdiction, while a failure or delay in obtaining marketing approval in one jurisdiction may have a negative effect on the marketing approval process in others. For example, even if the FDA grants marketing approval of a mAb2 product candidate, comparable foreign regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the mAb2 product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials as clinical studies conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that F-star intends to charge for F-star’s future products will also be subject to approval.

F-star may submit marketing applications in other countries in addition to the United States. Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product candidates with which F-star must comply prior to marketing in those jurisdictions. Obtaining foreign marketing approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for F-star and could delay or prevent the introduction of F-star’s products in certain countries. If F-star fails to comply with the regulatory requirements in international markets and/or receive applicable marketing approvals, F-star’s target market will be reduced and F-star’s ability to realize the full market potential of F-star’s mAb2 product candidates will be harmed.

 

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F-star has never commercialized a mAb2 product candidate before and may lack the necessary expertise, personnel and resources to successfully commercialize F-star’s products on its own or together with suitable partners.

F-star does not have a sales or marketing infrastructure and has no experience in the sale or marketing of biopharmaceutical products. To achieve commercial success for any approved product, F-star must develop or acquire a sales and marketing organization, outsource these functions to third parties or enter into partnerships.

F-star may decide to establish its own sales and marketing capabilities and promote its mAb2 product candidates if and when regulatory approval has been obtained in the United States and the major EU countries. There are risks involved if F-star decides to establishes F-star’s own sales and marketing capabilities or enter into arrangements with third parties to perform these services. Even if F-star establish sales and marketing capabilities, F-star may fail to launch F-star’s products effectively or to market F-star’s products effectively since F-star has no experience in the sales and marketing of biopharmaceutical products. In addition, recruiting and training a sales force is expensive and time consuming and could delay any product launch. In the event that any such launch is delayed or does not occur for any reason, F-star would have prematurely or unnecessarily incurred these commercialization expenses, and F-star’s investment would be lost if F-star cannot retain or reposition F-star’s sales and marketing personnel. Factors that may inhibit F-star’s efforts to commercialize F-star’s products on F-star’s own include:

 

   

F-star’s inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;

 

   

the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe F-star’s products;

 

   

the lack of complementary products to be offered by sales personnel, which may put F-star at a competitive disadvantage relative to companies with more extensive product lines;

 

   

unforeseen costs and expenses associated with creating an independent sales and marketing organization; and

 

   

costs of marketing and promotion above those anticipated by F-star.

If F-star enters into arrangements with third parties to perform sales and marketing services, F-star’s product revenues or the profitability of these product revenues to it could be lower than if F-star were to market and sell any products that F-star develops itself. Such collaborative arrangements with partners may place the commercialization of F-star’s products outside of F-star’s control and would make it subject to a number of risks including that F-star may not be able to control the amount or timing of resources that F-star’s collaborative partner devotes to F-star’s products or that F-star’s collaborator’s willingness or ability to complete its obligations, and F-star’s obligations under F-star’s arrangements may be adversely affected by business combinations or significant changes in F-star’s collaborator’s business strategy. In addition, F-star may not be successful in entering into arrangements with third parties to sell and market F-star’s products or may be unable to do so on terms that are favorable to F-star. Acceptable third parties may fail to devote the necessary resources and attention to sell and market F-star’s products effectively.

If F-star does not establish sales and marketing capabilities successfully, either on F-star’s own or in collaboration with third parties, F-star may not be successful in commercializing F-star’s products, which in turn would have a material adverse effect on F-star’s business, financial condition and results of operations.

Adverse events in the field of immuno-oncology could damage public perception of F-star’s current or future mAb2 product candidates and negatively affect F-star’s business.

The commercial success of F-star’s immuno-oncology mAb2 product candidates, if approved, will depend in part on public acceptance of the use of cancer immunotherapies. Adverse events in marketed products, in clinical trials of F-star’s mAb2 product candidates or in clinical trials of others developing similar products and the resulting publicity, as well as any other adverse events in the field of immuno-oncology that may occur in the future, could result in a decrease in demand for any products that F-star may develop. If public perception is influenced by claims that the use of cancer immunotherapies is unsafe, whether related to F-star’s products or

 

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those of F-star’s competitors, F-star’s products may not be accepted by the general public or the medical community.

Future adverse events in immuno-oncology or the biopharmaceutical industry could also result in heightened governmental regulation, stricter labeling requirements and potential regulatory delays in the testing or approvals of F-star’s mAb2 product candidates. Any increased scrutiny could delay or increase the costs of obtaining marketing approval for the mAb2 product candidates F-star develops or prevent it from receiving marketing approval at all.

The market opportunities for any current or future immuno-oncology mAb2 product candidates F-star develops, if approved, may be limited to those patients who are ineligible for established therapies or for whom prior therapies have failed, and may be small.

Cancer therapies are sometimes characterized as first-line, second-line or third-line, and the FDA often approves new therapies initially only for third-line use. When cancer is detected early enough, first-line therapy, usually chemotherapy, hormone therapy, surgery, radiation therapy or a combination of these, is sometimes adequate to cure the cancer or prolong life without a cure. Second- and third-line therapies are administered to patients when prior therapy is not effective. F-star expects to initially seek approval of F-star’s current and future immuno-oncology mAb2 product candidates as a therapy for patients who have received one or more prior treatments. Subsequently, for those products that prove to be sufficiently beneficial, if any, F-star would expect to seek approval potentially as a first-line therapy, but there is no guarantee that mAb2 product candidates F-star develops, even if approved, would be approved for first-line therapy, and, prior to any such approvals, F-star may have to conduct additional clinical trials.

In addition, subsequent developments in cancer biomarkers may demonstrate that F-star’s mAb2 product candidates are not suitable for the treatment of certain cancers or subpopulations, thereby reducing the market opportunity for those mAb2 product candidates. Even if F-star obtains significant market share for any mAb2 product candidate, if approved, if the potential target populations are small, F-star may never achieve profitability without obtaining marketing approval for additional indications, including to be used as first- or second-line therapy or for other related cancer indications.

If the market opportunities for F-star’s mAb2 product candidates are smaller than F-star believes they are, even assuming approval of a mAb2 product candidate, F-star’s business may suffer.

F-star’s projections of both the number of people who are affected by disease within F-star’s potential target indications, as well as the subset of these people who have the potential to benefit from treatment with F-star’s mAb2 product candidates, are based on F-star’s beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific literature, healthcare utilization databases and market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. Likewise, the potentially addressable patient population for each of F-star’s mAb2 product candidates may be limited or may not be amenable to treatment with F-star’s mAb2 product candidates, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect F-star’s business, financial condition and results of operations.

A pandemic, epidemic, or outbreak of an infectious disease, such as COVID-19, may materially and adversely affect F-star’s business and financial results and could cause a disruption to the development of its product candidates.

Public health crises such as pandemics or similar outbreaks could adversely impact F-star’s business. Recently, COVID-19 has spread across the United States and in other countries, including specifically Cambridge, U.K., where F-star’s primary office and laboratory space is located. The coronavirus pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. The extent to which the novel coronavirus impacts F-star’s operations or those of its third-party collaborators and partners, including F-star’s preclinical studies or clinical trial operations, will depend on future developments, which are highly uncertain

 

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and cannot be predicted with confidence, including the duration of the outbreak, new information that will emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. The continued spread of COVID-19 globally could adversely impact F-star’s preclinical or clinical trial operations, including its ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if an outbreak occurs in their geography. For example, similar to other biopharmaceutical companies, F-star may experience delays in initiating preclinical studies, enrolling its clinical trials, or dosing of patients in its clinical trials as well as in activating new trial sites. COVID-19 may also affect employees of third-party CROs located in affected geographies that F-star relies upon to carry out clinical trials. Any negative impact COVID-19 has to patient enrollment or treatment or the execution of F-star’s product candidates could cause costly delays to clinical trial activities, which could adversely affect F-star’s ability to obtain regulatory approval for and to commercialize F-star’s product candidates, increase F-star’s operating expenses, and have a material adverse effect on F-star’s financial results.

Additionally, timely enrollment in planned clinical trials is dependent upon clinical trial sites that could be adversely affected by global health matters, such as pandemics. F-star plans to conduct clinical trials for its mAb2 product candidates in geographies that are currently being affected by the COVID-19. Some factors from the novel coronavirus outbreak that will delay or otherwise adversely affect enrollment in the clinical trials of its mAb2 product candidates, as well as F-star’s business generally, include:

 

   

the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, including the attention of physicians serving as F-star’s clinical trial investigators, hospitals serving as F-star’s clinical trial sites and hospital staff supporting the conduct of F-star’s prospective clinical trials;

 

   

limitations on travel that could interrupt key trial and business activities, such as clinical trial site initiations and monitoring, domestic and international travel by employees, contractors or patients to clinical trial sites, including any government-imposed travel restrictions or quarantines that will impact the ability or willingness of patients, employees or contractors to travel to F-star’s clinical trial sites or secure visas or entry permissions, a loss of face-to-face meetings and other interactions with potential partners, any of which could delay or adversely impact the conduct or progress of F-star’s prospective clinical trials;

 

   

the potential negative affect on the operations of F-star’s third-party manufacturers;

 

   

interruption in global shipping affecting the transport of clinical trial materials, such as patient samples, investigational drug product and conditioning drugs and other supplies used in F-star’s prospective clinical trials; and

 

   

business disruptions caused by potential workplace, laboratory and office closures and an increased reliance on employees working from home, disruptions to or delays in ongoing laboratory experiments.

Risks Related to F-star’s Intellectual Property

F-star relies on patents and other intellectual property rights to protect its mAb2 product candidates and F-star’s modular antibody technology platform, the enforcement, defense and maintenance of which may be challenging and costly. Failure to protect or enforce these rights adequately could harm F-star’s ability to compete and impair F-star’s business.

F-star’s commercial success depends in part on obtaining and maintaining patents and other forms of intellectual property rights for F-star’s mAb2 product candidates, methods used to manufacture those mAb2 product candidates and the methods for treating patients using those mAb2 product candidates, or on in-licensing such rights. Failure to protect or to obtain, maintain or extend adequate patent and other intellectual property rights could materially adversely affect F-star’s ability to develop and market F-star’s products and mAb2 product candidates.

Patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications, and then only to the extent the issued claims cover the technology at issue. F-star cannot be certain that patents will be issued or granted with respect to

 

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applications that are currently pending, or that issued or granted patents will not later be found to be invalid or enforceable. The patent position of biopharmaceutical companies is generally uncertain because it involves complex legal and factual considerations that have in recent years been the subject of much litigation. The standards applied by the European Patent Office (“EPO”), the U.S. Patent and Trademark Office (“USPTO”), and foreign patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable in biopharmaceutical patents. Consequently, patents may not issue from F-star’s pending patent applications. As such, F-star does not know the degree of future protection that it will obtain that covers its proprietary mAb2 product candidates and modular antibody technology platform. The scope of patent protection that the EPO and the USPTO will grant with respect to the bispecific antibodies in F-star’s product pipeline is uncertain. It is possible that the EPO and the USPTO will not allow broad antibody claims that cover antibodies closely related to F-star’s mAb2 product candidates as well as the specific antibody. As a result, upon receipt of EMA or FDA approval, competitors may be free to market antibodies almost identical to F-star’s, including biosimilar antibodies, thereby decreasing F-star’s market share. However, a competitor cannot submit to the FDA an application for a biosimilar product based on one of F-star’s products until four years following the date of approval of F-star’s “reference product,” and the FDA may not approve such a biosimilar product until 12 years from the date on which the reference product was approved, with a potential six-month extension of exclusivity if certain pediatric studies are conducted and the results are reported to the FDA.

The patent prosecution process is expensive and time-consuming, and F-star and its current or future licensors, licensees or collaboration partners may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that F-star or its licensors, licensees or collaboration partners will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Further, the issuance, scope, validity, enforceability and commercial value of F-star’s and F-star’s current or future licensors’, licensees’ or collaboration partners’ patent rights are highly uncertain. F-star’s pending and future patent applications may not result in patents being issued which protect F-star’s modular antibody technology platform or F-star’s mAb2 product candidates, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. F-star’s competitors may be able to circumvent F-star’s patents by developing similar or alternative product candidates in a non-infringing manner. Moreover, in some circumstances, F-star may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that F-star license from or license to third parties and are reliant on F-star’s licensors, licensees or collaboration partners. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of F-star’s business. If F-star’s current or future licensors, licensees or collaboration partners fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If F-star’s current or future licensors, licensees or collaboration partners are not fully cooperative or disagree with it as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised. The patent examination process may require it or F-star’s current or future licensors, licensees or collaboration partners to narrow the scope of the claims of F-star’s or F-star’s licensors’, licensees’ or collaboration partners’ pending and future patent applications, which may limit the scope of patent protection that may be obtained.

F-star cannot assure you that all of the potentially relevant prior art relating to F-star’s patents and patent applications has been found. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or, in some cases, not at all. Therefore, F-star cannot know with certainty whether it was the first to make the inventions claimed in F-star’s patents or pending patent applications, or that F-star was the first to file for patent protection of such inventions. If such prior art exists, it can invalidate a patent or prevent a patent from issuing from a pending patent application. Furthermore, if third parties have filed such patent applications on or before March 15, 2013, an interference proceeding can be initiated by such third parties to determine who was the first to invent any of the subject matter covered by the patent claims of F-star’s applications. If third parties have filed such applications after March 15, 2013, a derivation proceeding can be initiated by such third parties to determine whether F-star’s invention was derived from theirs. Even where F-star

 

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has a valid and enforceable patent, F-star may not be able to exclude others from practicing F-star’s invention where the other party can show that they used the invention in commerce before F-star’s filing date or the other party benefits from a compulsory license.

F-star has pending patent applications at the USPTO, the EPO, and the patent offices of other foreign jurisdictions, and it is possible that F-star will need to defend other patents from challenges by others from time to time. Certain of F-star’s U.S. patent applications have been and may in the future be the subject of submissions of prior art by third parties. Even if patents do successfully issue, third parties may initiate an opposition, interference, re-examination, post-grant review, inter partes review, nullification or derivation action in court or before patent offices, or similar proceedings challenging the validity, enforceability or scope of such patents, which may result in the patent claims being narrowed, invalidated, or held unenforceable, in whole or in part. For example, opposition proceedings at the EPO are increasingly common, and are costly and time consuming to defend. Similar proceedings are available in other patent offices around the world. It is possible that one or more of F-star’s U.S. patents may be challenged by parties who file a request for post-grant review or inter partes review or ex parte reexamination. Post-grant proceedings are increasingly common in the United States and are costly to defend. F-star’s patent rights may not provide it with a proprietary position or competitive advantages against competitors. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, F-star’s patent rights, allow third parties to commercialize F-star’s mAb2 product candidates and compete directly with F-star, without payment to F-star, or result in F-star’s inability to manufacture or commercialize drugs without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by F-star’s patents and patent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with it to license, develop or commercialize current or future mAb2 product candidates. Furthermore, even if the outcome is favorable to F-star, the enforcement of F-star’s intellectual property rights can be extremely expensive and time consuming.

F-star may become involved in lawsuits to protect or enforce F-star’s patents or other intellectual property, which could be expensive, time consuming and unsuccessful, and issued patents covering one or more of F-star’s mAb2 product candidates or F-star’s modular antibody technology platform could be found invalid or unenforceable if challenged in court.

To protect F-star’s competitive position, F-star may from time to time need to resort to litigation in order to enforce or defend any patents or other intellectual property rights owned by or licensed to F-star, or to determine or challenge the scope or validity of patents or other intellectual property rights of third parties. As enforcement of intellectual property rights is difficult, unpredictable and expensive, and many of F-star’s or F-star’s collaboration partners’ adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than F-star or F-star’s collaboration partners can. Accordingly, despite F-star’s or F-star’s collaboration partners’ efforts, F-star or F-star’s collaboration partners may not prevent third parties from infringing upon or misappropriating intellectual property rights F-star own or control, particularly in countries where the laws may not protect those rights as fully as in the United States and the EU. F-star may fail in enforcing F-star’s rights, in which case F-star’s competitors may be permitted to use F-star’s technology without being required to pay it any license fees. In addition, however, litigation involving F-star’s patents carries the risk that one or more of F-star’s patents will be held invalid (in whole or in part, on a claim-by-claim basis) or held unenforceable. Such an adverse court ruling could allow third parties to commercialize F-star’s mAb2 product candidates or use F-star’s modular antibody technology platform, and then compete directly with F-star, without payment to F-star.

If F-star were to initiate legal proceedings against a third party to enforce a patent covering one of F-star’s products, the defendant could counterclaim that F-star’s patent is invalid or unenforceable. In patent litigation in the United States or in Europe, defendant counterclaims alleging invalidity or unenforceability are commonplace. A claim for a validity challenge may be based on failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or non-enablement. A claim for unenforceability assertion could be an allegation that someone connected with prosecuting 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. With respect to the validity question, for example,

 

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F-star cannot be certain that there is no invalidating prior art, of which F-star and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, F-star would lose at least part, and perhaps all, of the patent protection on one or more of F-star’s mAb2 product candidates or certain aspects of F-star’s modular antibody technology platform. Such a loss of patent protection could have a material adverse impact on F-star’s business. Interference or derivation proceedings provoked by third parties or brought by it or declared by the USPTO may be necessary to determine the priority of inventions with respect to F-star’s patents or patent applications. An unfavorable outcome could require it to cease using the related technology or to attempt to license rights to it from the prevailing party. F-star’s business could be harmed if the prevailing party does not offer it a license on commercially reasonable terms or at all, or if a non-exclusive license is offered and F-star’s competitors gain access to the same technology. Further, litigation could result in substantial costs and diversion of management resources, regardless of the outcome, and this could harm F-star’s business and financial results. Patents and other intellectual property rights also will not protect F-star’s technology if competitors design around F-star’s protected technology without infringing F-star’s patents or other intellectual property rights. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of F-star’s confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of the combined company’s common stock.

Intellectual property rights of third parties could adversely affect F-star’s ability to commercialize F-star’s mAb2 product candidates, such that F-star could be required to litigate or obtain licenses from third parties in order to develop or market F-star’s mAb2 product candidates. Such litigation is, and will continue to be, costly and any required licenses may not available on commercially reasonable terms.

Third-party claims of intellectual property infringement may prevent or delay F-star’s development and commercialization efforts. F-star’s commercial success depends in part on F-star’s avoiding infringement of the patents and proprietary rights of third parties. However, F-star’s research, development and commercialization activities may be subject to claims that F-star infringe or otherwise violate patents or other intellectual property rights owned or controlled by third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, derivation proceedings, oppositions and inter partes reexamination proceedings before the USPTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which F-star is pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that F-star may be subject to claims of infringement of the patent rights of third parties.

F-star’s competitive position may suffer if patents issued to third parties or other third-party intellectual property rights cover F-star’s products or elements thereof, F-star’s manufacture or uses relevant to F-star’s development plans, the targets of F-star’s mAb2 product candidates, or other attributes of F-star’s mAb2 product candidates or F-star’s mAb2 technology. In such cases, F-star may not be in a position to develop or commercialize products or mAb2 product candidates unless F-star successfully pursue litigation to nullify or invalidate the third-party intellectual property right concerned, or enter into a license agreement with the intellectual property right holder, if available on commercially reasonable terms or at all.

It is also possible that F-star fails to identify relevant patents or patent applications. For example, certain U.S. applications filed after November 29, 2000 that will not be filed outside the United States may remain confidential until issuance of a patent. In general, patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering F-star’s products or platform technology could have been filed by others without F-star’s knowledge. Furthermore, F-star operates in a highly competitive field, and given F-star’s limited resources, it is unreasonable to monitor all patent applications purporting to gain broad coverage in the areas in which F-star is active. Additionally, pending patent

 

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applications which have been published can, subject to certain limitations, be later amended in a manner that could cover F-star’s platform technologies, F-star’s products or the use of F-star’s products.

Parties making claims of infringement against it or defending against F-star’s invalidity actions may be able to sustain the costs of complex patent litigation more effectively than F-star can because they have substantially greater resources. If F-star fails in any such dispute, in addition to being forced to pay damages, F-star or F-star’s licensees may be temporarily or permanently prohibited from commercializing any of F-star’s mAb2 product candidates that are held to be infringing. F-star might, if possible, also be forced to redesign mAb2 product candidates so that F-star no longer infringe the third-party intellectual property rights. Or, F-star may be required to seek a license to any such technology that F-star is found to infringe, which license may not be available on commercially reasonable terms, or at all. Even if F-star or F-star’s collaboration partners obtain a license, it may be non-exclusive; thereby giving F-star’s competitors access to the same technologies licensed to it or F-star’s licensors or collaboration partners. Moreover, such a license may require F-star to pay royalties to the licensor; thus reducing F-star’s expected revenues. In addition, F-star could be found liable for monetary damages, including treble damages and attorneys’ fees, if F-star is found to have willfully infringed a patent in the United States. Any of these events, even if F-star were ultimately to prevail, could require it to divert substantial financial and management resources that F-star would otherwise be able to devote to F-star’s business.

In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, F-star could have a substantial adverse effect on F-star’s share price. Such litigation or proceedings could substantially increase F-star’s operating losses and reduce F-star’s resources available for development activities. F-star may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of F-star’s competitors may be able to sustain the costs of such litigation or proceedings more effectively than F-star can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on F-star’s ability to compete in the marketplace.

In addition, if the breadth or strength of protection provided by F-star’s or F-star’s collaboration partners’ patents and patent applications is threatened, it could dissuade companies from collaborating with F-star to license, develop or commercialize current or future mAb2 product candidates. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of F-star’s confidential information could be compromised by disclosure during this type of litigation.

If F-star fails to comply with its obligations in the agreements under which F-star licenses intellectual property rights from third parties or otherwise experience disruptions to F-star’s business relationships with F-star’s licensors, F-star could lose intellectual property rights that are important to F-star’s business.

F-star is a party to license agreements, and F-star may in the future need to obtain additional licenses from others to advance F-star’s research and development activities or allow the commercialization of F-star’s mAb2 product candidates. F-star’s current license agreements impose, and F-star expects that future license agreements will impose, various development, diligence, commercialization and other obligations on F-star. In spite of F-star’s efforts, F-star’s current or future licensors might conclude that F-star has materially breached F-star’s obligations under such license agreements and might therefore terminate the license agreements, thereby removing or limiting F-star’s ability to develop and commercialize mAb2 product candidates and otherwise use technology covered by these license agreements. If these in-licenses are terminated, or if the underlying patents fail to provide the intended exclusivity, competitors or other third parties would have the freedom to seek regulatory approval of, and to market, products identical to F-star’s and F-star may be required to cease F-star’s development and commercialization of F-star’s mAb2 product candidates. Any of the foregoing could have a material adverse effect on F-star’s competitive position, business, financial conditions, results of operations, and prospects.

Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including:

 

   

the scope of rights granted under the license agreement and other interpretation-related issues;

 

   

the extent to which F-star’s mAb2 product candidates, technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

 

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the sublicensing of patent and other rights under F-star’s collaborative development relationships;

 

   

F-star’s diligence obligations under the license agreement and what activities satisfy those diligence obligations;

 

   

the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by F-star’s licensors F-star and F-star’s partners; and

 

   

the priority of invention of patented technology.

In addition, the agreements under which F-star currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what F-star believes to be the scope of F-star’s rights to the relevant intellectual property or technology, or increase what F-star believes to be its financial or other obligations under the relevant agreement, either of which could have a material adverse effect on F-star’s business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that F-star has licensed prevent or impair F-star’s ability to maintain F-star’s current licensing arrangements on commercially acceptable terms, F-star may be unable to successfully develop and commercialize the affected mAb2 product candidates, which could have a material adverse effect on F-star’s business, financial conditions, results of operations, and prospects.

F-star may not be successful in obtaining or maintaining necessary rights to F-star’s mAb2 product candidates through acquisitions and in-licenses.

Because F-star’s programs may require the use of proprietary rights held by third parties, the growth of F-star’s business will likely depend in part on F-star’s ability to acquire or in-license such proprietary rights. F-star may be unable to acquire or in-license any compositions, methods of use, processes, or other third-party intellectual property rights from third parties that F-star identifies as necessary for F-star’s mAb2 product candidates. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies may pursue strategies to license or acquire third-party intellectual property rights that F-star may consider attractive. These established companies may have a competitive advantage over F-star due to their size, cash resources and greater clinical development and commercialization capabilities.

In addition, companies that perceive it to be a competitor may be unwilling to assign or license rights to F-star. F-star also may be unable to license or acquire third-party intellectual property rights on terms that would allow F-star to make an appropriate return on F-star’s investment. If F-star is unable to successfully obtain a license to third-party intellectual property rights necessary for the development of a mAb2 product candidate or program, F-star may have to abandon development of that mAb2 product candidate or program, and F-star’s business and financial condition could suffer.

If F-star’s trademarks and trade names are not adequately protected, then F-star may not be able to build name recognition in F-star’s markets of interest and F-star’s business may be adversely affected.

F-star’s registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. F-star may not be able to protect F-star’s rights to these trademarks and trade names, which F-star need to build name recognition by potential partners or customers in F-star’s markets of interest. Over the long term, if F-star is unable to establish name recognition based on F-star’s trademarks and trade names, then F-star may not be able to compete effectively and F-star’s business may be adversely affected. If other entities use trademarks similar to F-star’s in different jurisdictions, or have senior rights to F-star’s, it could interfere with F-star’s use of F-star’s current trademarks throughout the world.

If F-star does not obtain protection under the Hatch-Waxman Amendments and similar non-U.S. legislation for extending the term of patents covering each of F-star’s mAb2 product candidates, F-star’s business may be materially harmed.

Patents have a limited duration. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions

 

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may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering F-star’s mAb2 product candidates, their manufacture or use are obtained, once the patent life has expired, F-star may be open to competition from competitive medications, including biosimilar medications. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, F-star’s owned and in-licensed patent portfolio may not provide it with sufficient rights to exclude others from commercializing products similar or identical to F-star’s.

Depending upon the timing, duration and conditions of FDA marketing approval of F-star’s mAb2 product candidates, one or more of F-star’s U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act and similar legislation in the EU. The Hatch-Waxman Act permits a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. The patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, and only one patent applicable to an approved drug may be extended. Patent term extension also may be available in certain foreign countries upon regulatory approval of F-star’s mAb2 product candidates. However, F-star may not receive an extension if F-star fails to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension, as well as the scope of the protection during such an extension, could be less than F-star request. If F-star is unable to obtain patent term extension or the term of any such extension is less than F-star request, the period during which F-star can enforce F-star’s patent rights for that product will be shortened and F-star’s competitors may obtain approval to market competing products sooner than F-star expects. As a result, F-star’s revenue from applicable products could be reduced, possibly materially.

F-star enjoys only limited geographical protection with respect to certain patents and may face difficulties in certain jurisdictions, which may diminish the value of intellectual property rights in those jurisdictions.

F-star often files its first patent application (i.e., priority filing) in Great Britain or with the USPTO. International applications under the Patent Cooperation Treaty (“PCT”), are usually filed within 12 months after the priority filing. Based on the PCT filing, national and regional patent applications may be filed in additional jurisdictions where F-star believes its mAb2 product candidates may be marketed. F-star has so far not filed for patent protection in all national and regional jurisdictions where such protection may be available. In addition, F-star may decide to abandon national and regional patent applications before grant. Finally, the grant proceeding of each national/regional patent is an independent proceeding which may lead to situations in which applications might be refused by certain patent offices, while granted by others, and the scope of patent protection may vary for the same mAb2 product candidate or technology.

Competitors may use F-star’s and its collaboration partners’ technologies in jurisdictions where F-star has not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where F-star and F-star’s licensors or collaboration partners have patent protection, but enforcement is not as strong as that in the United States and the EU. These products may compete with F-star’s mAb2 product candidates, and F-star’s and F-star’s collaboration partners’ patents or other intellectual property rights may not be effective or sufficient to prevent them from competing with F-star.

The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws in the United States and the EU, and companies have encountered significant difficulties in protecting and defending such rights in such jurisdictions. If F-star encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important for F-star’s business in such jurisdictions, the value of these rights may be diminished, and F-star may face additional competition from others in those jurisdictions.

Some countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, some countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could

 

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materially diminish the value of such patent. If F-star or any of F-star’s licensors are forced to grant a license to third parties with respect to any patents relevant to F-star’s business, F-star’s competitive position may be impaired and F-star’s business and results of operations may be adversely affected.

Proceedings to enforce F-star’s and F-star’s collaboration partners’ patent rights in foreign jurisdictions could result in substantial costs and divert F-star’s and F-star’s collaboration partners’ efforts and attention from other aspects of F-star’s business, could put F-star’s and F-star’s collaboration partners’ patents at risk of being invalidated or interpreted narrowly and F-star’s and F-star’s collaboration partners’ patent applications at risk of not issuing and could provoke third parties to assert claims against it or F-star’s licensors or collaboration partners. F-star or F-star’s collaboration partners may not prevail in any lawsuits that F-star or F-star’s licensors or collaboration partners initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, F-star’s efforts to enforce F-star’s intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that F-star develops or license.

Intellectual property rights do not necessarily address all potential threats to F-star’s competitive advantage.

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

 

   

others may be able to make bispecific antibodies that are the same as or similar to F-star’s mAb2 product candidates but that are not covered by the claims of the patents that F-star own or have exclusively licensed;

 

   

the patents of third parties may have an adverse effect on F-star’s business;

 

   

F-star or any current or future licensors or strategic partners might not have been the first to conceive or reduce to practice the inventions covered by the issued patent or pending patent application that F-star own or have exclusively licensed;

 

   

F-star or any future licensors or strategic partners might not have been the first to file patent applications covering certain of F-star’s inventions;

 

   

others may independently develop similar or alternative technologies or duplicate any of F-star’s technologies without infringing F-star’s intellectual property rights;

 

   

it is possible that F-star’s pending patent applications will not lead to issued patents;

 

   

issued patents that F-star own or have exclusively licensed may not provide F-star with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by F-star’s competitors;

 

   

F-star’s competitors might conduct research and development activities in countries where F-star does not have patent rights and then use the information learned from such activities to develop competitive products for sale in F-star’s major commercial markets;

 

   

third parties performing manufacturing or testing for F-star using F-star’s products or technologies could use the intellectual property of others without obtaining a proper license; and

 

   

F-star may not develop additional technologies that are patentable.

Changes in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing F-star’s ability to protect F-star’s products.

As is the case with other biopharmaceutical companies, F-star’s success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological complexity and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is costly, time-consuming and inherently uncertain. In addition, the America Invents Act (the “AIA”), has been enacted in the United States, resulting in significant changes to the U.S. patent system.

An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications

 

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are filed by different parties claiming the same invention. A third party that files a patent application in the USPTO after that date but before F-star could therefore be awarded a patent covering an invention of F-star’s even if F-star had made the invention before it was made by the third party. This requires F-star to be cognizant of the time from invention to filing of a patent application, but circumstances could prevent F-star from promptly filing patent applications on F-star’s inventions.

Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and providing opportunities for third parties to challenge any issued patent in the USPTO via various proceedings including, e.g., post-grant review, inter partes review, and derivation proceedings. This applies to all of F-star’s U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate F-star’s patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. The AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of F-star’s patent applications and the enforcement or defense of F-star’s issued patents.

Additionally, the U.S. Supreme Court and the Court of Appeals for the Federal Circuit have ruled on patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to F-star’s 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 weaken F-star’s ability to obtain new patents or to enforce F-star’s existing patents and patents that F-star might obtain in the future.

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and protect other proprietary information.

F-star considers proprietary trade secrets, confidential know-how and unpatented know-how to be important to F-star’s business. F-star may rely on trade secrets or confidential know-how to protect F-star’s technology, especially where patent protection is believed to be of limited value. However, trade secrets and confidential know-how are difficult to maintain as confidential.

To protect this type of information against disclosure or appropriation by competitors, F-star’s policy is to require F-star’s employees, consultants, contractors and advisors to enter into confidentiality agreements and invention assignment agreements with F-star. However, F-star cannot be certain that such agreements have been entered into with all relevant parties, and F-star cannot be certain that F-star’s trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to F-star’s trade secrets or independently develop substantially equivalent information and techniques. Current or former employees, consultants, contractors and advisers may unintentionally or willfully disclose F-star’s confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third party obtained illegally and is using trade secrets or confidential know-how is expensive, time consuming and unpredictable. The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction. Furthermore, if a competitor lawfully obtained or independently developed any of F-star’s trade secrets, F-star would have no right to prevent such competitor from using that technology or information to compete with F-star, which could harm F-star’s competitive position. Additionally, if the steps taken to maintain F-star’s trade secrets are deemed inadequate, F-star may have insufficient recourse against third parties for misappropriating the trade secret.

Failure to obtain or maintain trade secrets or confidential know-how trade protection could adversely affect F-star’s competitive position. Moreover, F-star’s competitors may independently develop substantially equivalent proprietary information and may even apply for patent protection in respect of the same. If successful in

 

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obtaining such patent protection, F-star’s competitors could limit F-star’s use of F-star’s trade secrets or confidential know-how.

Under certain circumstances, F-star may also decide to publish some know-how to attempt to prevent others from obtaining patent rights covering such know-how.

F-star may be subject to claims by third parties asserting that F-star’s employees or F-star has misappropriated their intellectual property, or claiming ownership of what F-star regard as F-star’s own intellectual property.

Many of F-star’s employees, including F-star’s senior management, were previously employed at other biotechnology or pharmaceutical companies, including F-star’s competitors or potential competitors. Some of these employees executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although F-star tries to ensure that F-star’s employees do not use the proprietary information or know-how of others in their work for F-star, F-star may be subject to claims that F-star or these employees have used or disclosed confidential information or intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against these claims.

If F-star fails in prosecuting or defending any such claims, in addition to paying monetary damages, F-star may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and F-star could be required to obtain a license from such third party to commercialize F-star’s technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if F-star successfully prosecute or defend against such claims, litigation could result in substantial costs and distract management.

Obtaining and maintaining F-star’s patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and F-star’s patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance and annuity fees on any issued patent are due to be paid to the USPTO, the EPO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO, the EPO and various foreign governmental patent agencies require compliance with a number of procedural, documentaries, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If F-star or F-star’s licensors or collaboration partners fail to maintain the patents and patent applications covering F-star’s mAb2 product candidates, F-star’s competitors might be able to enter the market, which would have an adverse effect on F-star’s business.

Risks Related to F-star’s Dependence on Third Parties

F-star relies, and expects to continue to rely, on third parties, including independent clinical investigators, contracted laboratories and CROs, to conduct F-star’s preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, F-star may not be able to obtain regulatory approval for or commercialize its mAb2 product candidates and F-star’s business could be substantially harmed.

F-star has relied upon and plan to continue to rely upon third parties, including independent clinical investigators, contracted laboratories and third-party CROs, to conduct F-star’s preclinical studies and clinical trials in accordance with applicable regulatory requirements and to monitor and manage data for F-star’s ongoing preclinical and clinical programs. F-star relies on these parties for execution of its preclinical studies and clinical trials, and controls only certain aspects of their activities. Nevertheless, F-star is responsible for ensuring that

 

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each of F-star’s studies and trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and F-star’s reliance on these third parties does not relieve it of its regulatory responsibilities. F-star and its third-party contractors and CROs are required to comply with good laboratory practices (“GLPs”), as applicable, and GCP requirements, which are regulations and guidelines enforced by the FDA, the EMA and other comparable foreign regulatory authorities for all of F-star’s products in clinical development. Regulatory authorities enforce these GLPs and GCPs through periodic inspections of laboratories conducting GLP studies, trial sponsors, principal investigators and trial sites. If F-star, F-star’s investigators or any of F-star’s CROs or contracted laboratories fail to comply with applicable GLPs and GCPs, the clinical data generated in F-star’s clinical trials may be deemed unreliable and the FDA, the EMA or other comparable foreign regulatory authorities may require F-star to perform additional preclinical studies or clinical trials before approving F-star’s marketing applications. F-star cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of F-star’s preclinical studies or clinical trials comply with applicable GLP or GCP regulations. In addition, F-star’s clinical trials must be conducted with product produced in compliance with applicable cGMP regulations. F-star’s failure to comply with these regulations may require it to repeat preclinical studies or clinical trials, which would delay the regulatory approval process.

Further, these laboratories, investigators and CROs are not F-star’s employees and F-star will not be able to control, other than by contract, the amount of resources, including time, which they devote to F-star’s mAb2 product candidates and clinical trials. If independent laboratories, investigators or CROs fail to devote sufficient resources to the development of F-star’s mAb2 product candidates, or if their performance is substandard, it may delay or compromise the prospects for approval and commercialization of any mAb2 product candidates that F-star develops. In addition, the use of third-party service providers requires it to disclose F-star’s proprietary information to these parties, which could increase the risk that this information will be misappropriated.

F-star’s CROs have the right to terminate their agreements with F-star in the event of an uncured material breach. In addition, some of F-star’s CROs have an ability to terminate their respective agreements with F-star if it can be reasonably demonstrated that the safety of the subjects participating in F-star’s clinical trials warrants such termination, if F-star makes a general assignment for the benefit of F-star’s creditors or if F-star is liquidated.

There is a limited number of third-party service providers that specialize or have the expertise required to achieve F-star’s business objectives. If any of F-star’s relationships with these third-party laboratories, CROs or clinical investigators terminate, F-star may not be able to enter into arrangements with alternative laboratories, CROs or investigators or to do so in a timely manner or on commercially reasonable terms. If laboratories, CROs or clinical investigators do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to F-star’s preclinical or clinical protocols, regulatory requirements or for other reasons, F-star’s preclinical studies or clinical trials may be extended, delayed or terminated and F-star may not be able to obtain regulatory approval for or successfully commercialize F-star’s mAb2 product candidates. As a result, F-star’s results of operations and the commercial prospects for F-star’s mAb2 product candidates would be harmed, F-star’s costs could increase and F-star’s ability to generate revenues could be delayed.

Switching or adding additional laboratories or CROs (or investigators) involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new laboratory or CRO commences work. As a result, delays occur, which can materially impact F-star’s ability to meet its desired clinical development timelines. Though F-star carefully manages F-star’s relationships with its contracted laboratories and CROs, there can be no assurance that F-star will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on F-star’s business, financial condition and results of operations.

In addition, clinical investigators may serve as scientific advisors or consultants to F-star from time to time and may receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, or the FDA concludes that the financial

 

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relationship may have affected the interpretation of the preclinical study or clinical trial, the integrity of the data generated at the applicable preclinical study or clinical trial site may be questioned and the utility of the preclinical study or clinical trial itself may be jeopardized, which could result in the delay or rejection by the FDA. Any such delay or rejection could prevent F-star from commercializing its clinical-stage mAb2 product candidate or any future mAb2 product candidates.

The manufacture of biotechnology products is complex, and manufacturers often encounter difficulties in production. If F-star or any of its third party manufacturers encounter such difficulties, or otherwise fail to comply with their contractual obligations, the development or commercialization of F-star mAb2 product candidates could be delayed or stopped.

The manufacture of biotechnology products is generally complex and requires significant expertise and capital investment. F-star and its contract manufacturers must comply with cGMP regulations and guidelines for clinical trial product manufacture and for commercial product manufacture. Manufacturers of biotechnology products often encounter difficulties in production, particularly in scaling up, addressing product quality, product comparability, validating production processes and mitigating potential sources of contamination. These problems include difficulties with raw material procurement, production costs and yields, quality control, product quality, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if microbial, viral or other contaminations are discovered in therapeutic products or in the manufacturing facilities in which F-star product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination.

F-star cannot assure you that manufacturing problems, including supply chain disruptions of any of mAb2 product candidates or products will not occur in the future. Any delay or interruption in the supply of preclinical or clinical trial supplies, including any delays arising from circumstances related to the COVID-19 pandemic, could delay the completion of these trials, increase the costs associated with maintaining these trial programs and, depending upon the period of delay, require F-star to commence new trials at additional expense or terminate trials completely.

F-star relies on third parties to supply and manufacture F-star’s mAb2 product candidates, and F-star expects to continue to rely on third parties to manufacture F-star’s products, if approved. The development of such mAb2 product candidates and the commercialization of any products, if approved, could be stopped, delayed or made less profitable if any such third party fails to provide F-star with sufficient quantities of mAb2 product candidates or products or fails to do so at acceptable quality levels or prices or fails to maintain or achieve satisfactory regulatory compliance.

F-star does not currently have the infrastructure or capability internally to manufacture F-star’s mAb2 product candidates for use in the conduct of F-star’s preclinical studies and clinical trials or for commercial supply, if F-star’s products are approved. F-star relies on, and expects to continue to rely on, contract manufacturing organizations (“CMOs”). F-star currently relies mainly on a few CMOs for the manufacturing of F-star’s mAb2 product candidates. Any replacement of F-star’s CMOs could require significant effort and expertise because there may be a limited number of qualified CMOs. Reliance on third-party providers may expose F-star to more risk than if F-star were to manufacture F-star’s mAb2 product candidates itself. F-star is dependent on its CMOs for the production of F-star’s mAb2 product candidates in accordance with relevant regulations, such as cGMP, which includes, among other things, quality control, quality assurance and the maintenance of records and documentation. Moreover, many of the third parties with whom F-star contracts may also have relationships with other commercial entities, including F-star’s competitors, for whom they may also be conducting product development activities that could harm F-star’s competitive position.

If F-star were to experience an unexpected loss of supply of or if any supplier were unable to meet F-star’s demand for any of F-star’s mAb2 product candidates, F-star could experience delays in F-star’s research or planned clinical trials or future commercialization activities. F-star could be unable to find alternative suppliers of acceptable quality, in the appropriate volumes and at an acceptable cost. Moreover, F-star’s suppliers are often

 

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subject to strict manufacturing requirements and rigorous testing requirements, which could limit or delay production. The long transition periods needed to switch manufacturers and suppliers, if necessary, could significantly delay F-star’s clinical studies and the commercialization of F-star’s products, if approved, which could materially adversely affect F-star’s business, financial condition and results of operation.

In complying with the applicable manufacturing regulations of the FDA, the EMA and other comparable foreign regulatory authorities, F-star and its third-party suppliers must spend significant time, money and effort in the areas of design and development, testing, production, record-keeping and quality control to assure that the products meet applicable specifications and other regulatory requirements. The failure to comply with these requirements could result in an enforcement action against F-star, including the seizure of products and shutting down of production. F-star and any of these third-party suppliers may also be subject to audits by the FDA, the EMA or other comparable foreign regulatory authorities. If any of F-star’s third-party suppliers fails to comply with cGMP or other applicable manufacturing regulations, F-star’s ability to develop and commercialize its future therapeutics products could suffer significant interruptions. F-star face risks inherent in relying on a single CMO, as any disruption, such as a fire, natural hazards or vandalism at the CMO could significantly interrupt F-star’s manufacturing capability. All of F-star’s CMOs currently do not have alternative production plans in place or disaster-recovery facilities available. In case of a disruption, F-star will have to establish alternative manufacturing sources. This would require substantial capital on F-star’s part, which F-star may not be able to obtain on commercially acceptable terms or at all. Additionally, F-star would likely experience months of manufacturing delays as the CMO builds or locates replacement facilities and seeks and obtains necessary regulatory approvals. If this occurs, F-star will be unable to satisfy manufacturing needs on a timely basis, if at all.

The manufacturing of all of F-star’s mAb2 product candidates requires using cells that are stored in a cell bank. F-star has one master cell bank for each product manufactured in accordance with cGMP. Working cell banks have not yet been manufactured. Half of each master cell bank is stored at a separate site so that in case of a catastrophic event at one site F-star believes sufficient vials of the master cell banks are left at the alternative storage site to continue manufacturing. F-star believes sufficient working cell banks could be produced from the vials of the master cell bank stored at a given site to assure product supply for the future. However, it is possible that F-star could lose multiple cell banks and have F-star’s manufacturing significantly impacted by the need to replace these cell banks, which could materially adversely affect F-star’s business, financial condition and results of operations.

F-star’s employees and independent contractors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.

F-star is exposed to the risk of fraud or other misconduct by its employees or independent contractors. Misconduct by these parties could include intentional failures to comply with applicable laws or regulations, provide accurate information to the FDA, EMA or foreign regulatory authorities, comply with manufacturing standards establishes for F-star’s product candidates, comply with federal and state data privacy, security, fraud and abuse, and other healthcare laws and regulations, report financial information or data accurately or disclose unauthorized activities to F-star. 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. Activities subject to these laws could also involve the improper use or misrepresentation of information obtained in the course of clinical trials, which could result in regulatory sanctions and cause serious harm to F-star’s reputation.

It is not always possible to identify and deter misconduct by employees and third parties, and the precautions F-star takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting it from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Additionally, F-star is subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such

 

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actions are instituted against F-star, and it is not successful in defending itself or asserting its rights, those actions could have a material and adverse effect on F-star’s business, financial condition, results of operations and prospects, including the imposition of significant civil, criminal and administrative penalties, monetary damages, fines, disgorgement, imprisonment, loss of eligibility to obtain marketing approvals from the FDA, exclusion from participation in government contracting, healthcare reimbursement or other government programs, including Medicare and Medicaid, reputational harm, diminished profits and future earnings, additional reporting requirements if subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with any of these laws, and the curtailment or restructuring of its operations.

F-star relies and expects to continue to rely on collaborative partners regarding the development of certain of F-star’s research programs and mAb2 product candidates. If F-star is not able to maintain its current relationships or enter into new strategic relationships, F-star’s business, financial condition, commercialization prospects and results of operations may be adversely affected.

F-star is, and expects to continue to be, dependent on partnerships with partners relating to the development and commercialization of certain of F-star’s existing and future research programs and mAb2 product candidates. F-star currently has collaborative research relationships with each of Ares Trading S.A. (“Ares”), an affiliate of Merck KGaA, Darmstadt, Germany, Denali Therapeutics Inc. and Kymab Limited for the development of certain mAb2 product candidates resulting from such collaborations. F-star has, and may in the future, depending on F-star’s business strategy, continue to have discussions on potential partnering opportunities with various pharmaceutical companies. If F-star fails to enter into or maintain collaborations on reasonable terms or at all, F-star’s ability to develop F-star’s existing or future research programs and mAb2 product candidates could be delayed, the commercial potential of F-star’s product could change and F-star’s costs of development and commercialization could increase. Furthermore, F-star may find that F-star’s programs require the use of intellectual property rights held by third parties, and the growth of F-star’s business may depend in part on F-star’s ability to acquire or in-license these intellectual property rights.

F-star’s dependence on collaborative partners subjects it to a number of risks, including, but not limited to, the following:

 

   

F-star may not be able to control the amount and timing of resources that the collaboration partner devotes to F-star’s research programs and mAb2 product candidates;

 

   

for collaboration agreements where F-star is solely or partially responsible for funding development expenses through a defined milestone event, the payments F-star receive from the collaboration partner may not be sufficient to cover the expenses F-star has or would need to incur in order to achieve that milestone event;

 

   

F-star may be required to relinquish significant rights to F-star’s collaborative partners, including rights to exploit F-star’s intellectual property and marketing and distribution rights;

 

   

if the development of the relevant mAb2 product candidates is not successful, F-star’s anticipated payments under any partnership agreement (e.g., royalty payments for licensed products) may not materialize;

 

   

F-star relies on the information and data received from third parties regarding their research programs and mAb2 product candidates and will not have control of the process conducted by the third party in gathering and composing such data and information;

 

   

if rights to develop and commercialize