8-K/A
true 0001566373 Common Stock, $0.0001 par value FSTX NASDAQ 0001566373 2020-11-19 2020-11-19

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 8-K/A

(Amendment No. 1)

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): November 19, 2020

 

 

F-STAR THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in Charter)

 

 

 

Delaware   001-37718   52-2386345

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

Eddeva B920 Babraham Research Campus

Cambridge, United Kingdom CB22 3AT

(Address of Principal Executive Offices, and Zip Code)

+44-1223-497400

Registrant’s Telephone Number, Including Area Code

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company  

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

 

 

 


Explanatory Note

On November 20, 2020, F-star Therapeutics, Inc., formerly known as “Spring Bank Pharmaceuticals, Inc.” (the “Company”), completed its business combination (the “Transaction”) with F-star Therapeutics Limited (“F-star”) in accordance with the terms of the Share Exchange Agreement, dated as of July 29, 2020 (the “Exchange Agreement”), by and among the Company, F-star and the holders of issued shares in the capital stock of F-star and the holders of convertible notes of F-star each as set forth therein (each a “Seller”, and collectively with holders of F-star securities who subsequently became parties to the Exchange Agreement, the “Sellers”). Pursuant to the Exchange Agreement, each ordinary share of F-star outstanding immediately prior to the closing of the Transaction (the “Closing”) was exchanged by the Seller that owned such F-star shares for such number of duly authorized, validly issued, fully paid and non-assessable shares of Company common stock as was equal to the exchange ratio formula determined pursuant to the Exchange Agreement (the “Exchange Ratio”), rounded to the nearest whole share of Company common stock (after aggregating all fractional shares of Company common stock issuable to such Seller) and, as a result, the Company became F-star Therapeutics, Inc. Also on November 20, 2020, in connection with, and prior to completion of, the Transaction, the Company effected a 1-for-4 reverse stock split of its common stock (the “Reverse Stock Split”) and, following the completion of the Transaction, changed its name to “F-star Therapeutics, Inc.” Following the completion of the Transaction, the business of the Company became the business conducted by F-star, which is a clinical stage immuno-oncology company focused on cancer treatment through its proprietary tetravalent bispecific antibody programs. Unless otherwise noted, all references to share amounts in this Current Report on Form 8-K reflect the Reverse Stock Split.

On November 20, 2020, the Company filed a Current Report on Form 8-K (the “Original Form 8-K”) reporting, among other items, the consummation of the Transaction. This amendment amends the Original Form 8-K to provide certain historical and pro-forma financial information required by Items 9.01(a) and 9.01(b) of Form 8-K, respectively. Such financial information as required by Items 9.01(a) and 9.01(b) was excluded from the Original Form 8-K in reliance on the instructions to such Items. Except as set forth in this amendment to the Original Form 8-K, no other changes are being made to the Original Form 8-K.

 

Item 8.01.

Other Events.

For the general information of investors, the Company is filing herewith information that was previously disclosed as part of the prospectus contained in the Form S-4 registration statement (File No. 333-248487) relating to the Transaction, as declared effective by the U.S. Securities and Exchange Commission on October 19, 2020 (the “Registration Statement”). Specifically, filed herewith as Exhibits 99.3 and 99.4, respectively, are the excerpts of the “F-star Business” and “Risk Factors” sections thereof, which are incorporated by reference herein. Such information is as of October 19, 2020 (unless another date is indicated).

 

Item 9.01.

Financial Statements and Exhibits

(a) Financial statements of business acquired.

The audited consolidated financial statements of F-star and its subsidiaries for the years ended December 31, 2019 and 2018, and the unaudited interim condensed consolidated financial statements of F-star and its subsidiaries as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and September 30, 2019, are filed as Exhibits 99.5 and 99.6 to this Current Report on Form 8-K and are incorporated herein by reference. The audited consolidated financial statements on F-star Biotechnologische Forschungs-und Entwicklungsges.m.b.H and its subsidiaries, and the audited financial statements of F-star Beta Limited as of May 6, 2019, December 31, 2018 and 2017, and for the period ended May 6, 2019 and for the years ended December 31, 2018 and 2017 are filed as Exhibits 99.8 and 99.9 to this Current Report on Form 8-K and are incorporated herein by reference.

(b) Pro forma financial information.

The pro forma financial information required by Item 9.01(b) is filed as Exhibit 99.7 to this Current Report on Form 8-K and is incorporated herein by reference.

(d) Exhibits

 

Exhibit
Number
   Description
23.1    Consents of PricewaterhouseCoopers LLP.
99.3    “F-star Business” section excerpt from Registration Statement.
99.4    “Risk Factors” section excerpt from Registration Statement.
99.5    Audited Consolidated Financial Statements of F-star and its subsidiaries as of December 31, 2019 and 2018 and for the years ended December 31, 2019 and 2018.
99.6    Unaudited Condensed Consolidated Financial Statements of F-star and its subsidiaries as of September 30, 2020 and for the three and nine months ended September 30, 2020 and September 30, 2019.
99.7    Unaudited Pro Forma Condensed Combined Financial Information of the Company as of September 30, 2020 and for the nine months ended September 30, 2020 and for the year ended December 31, 2019.
99.8    Audited Consolidated Financial Statements of F-star Biotechnologische Forschungs-und Entwicklungsges.m.b.H and its subsidiaries as of May 6, 2019, December 31, 2018 and 2017, and for the period ended May 6, 2019 and the years ended December 31, 2018 and 2017.
99.9    Audited Financial Statements of F-star Beta Limited as of May 6, 2019, December 31, 2018 and 2017, and for the period ended May 6, 2019 and the years ended December 31, 2018 and 2017.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

      F-STAR THERAPEUTICS, INC.
Date: February 5, 2021      

/s/ Darlene Deptula-Hicks

      Darlene Deptula-Hicks
      Chief Financial Officer and Treasurer
EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-215122, 333-218399, 333-234436, 333-212047, 333-226508, 333-251033 and 333-252396) of F-star Therapeutics, Inc. of our report dated August 28, 2020 relating to the financial statements of F-star Beta Limited, which appears in this Current Report on Form 8-K.

 

/s/ PricewaterhouseCoopers LLP
Cambridge, United Kingdom
February 5, 2021

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-215122, 333-218399, 333-234436, 333-212047, 333-226508, 333-251033 and 333-252396) of F-star Therapeutics, Inc. of our report dated August 28, 2020 relating to the financial statements of F-star Biotechnologische Forschungs-und Entwicklungsges.m.b.H, which appears in this Current Report on Form 8-K.

 

/s/ PricewaterhouseCoopers LLP
Cambridge, United Kingdom
February 5, 2021

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-215122, 333-218399, 333-234436, 333-212047, 333-226508, 333-251033 and 333-252396) of F-star Therapeutics, Inc. of our report dated February 5, 2021 relating to the financial statements of F-star Therapeutics Limited, which appears in this Current Report on Form 8-K.

 

/s/ PricewaterhouseCoopers LLP
Cambridge, United Kingdom
February 5, 2021
EX-99.3

Exhibit 99.3

The following is an excerpt of portions of the prospectus contained in the Form S-4 registration statement (File No. 333-248487) as declared effective by the U.S. Securities and Exchange Commission on October 19, 2020. Such information is as of October 19, 2020 (unless an earlier date is indicated).

F-STAR BUSINESS

Overview

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 clinically differentiated, different from other therapeutic agents, and well tolerated, as in safe to administer to patients, 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, is currently being evaluated in a Phase 1 clinical trial in heavily pre-treated patients with advanced cancer, having received a median of six lines of such treatments, and who have failed PD-1/PD-L1 therapy. FS118 is a tetravalent mAb2 bispecific antibody targeting two receptors, PD-L1 and LAG-3, both of which are established pivotal targets in immuno-oncology. Preliminary data from 43 patients in this trial showed that administration of FS118 was well-tolerated. In addition, a disease control rate, defined as either a complete response, partial response or stable disease, of 54% was observed in 20 of 37 evaluable patients, and long-term (greater than six months) disease control was observed in six of these patients. F-star expects to report additional results from this Phase 1 trial in the fourth quarter of 2020 and to initiate a proof of concept trial in PD-1 resistant head and neck cancer patients in the first half of 2021.

On January 27, 2020, the U.S. Food and Drug Administration (the “FDA”), accepted the Investigational New Drug (the “IND”) application of product candidate FS120. FS120 is a first-in-class dual agonist bispecific antibody, an antibody that stimulates two immune activating pathways, which F-star believes has the potential to overcome cancer resistance by simultaneously targeting CD137 (4-1BB) and OX40, two receptors present on the surface of tumor-infiltrating lymphocytes. Unlike checkpoint inhibitors, the mechanism of action of FS120 is designed to trigger a positive signal that enhances multiple mechanisms essential for killing tumor cells. FS120 has a natural antibody format. It is engineered to abrogate Fc gamma receptor binding and effector activity, providing increased specificity and, F-star believes, superior performance while reducing toxicity through conditional, crosslink-dependent activation upon binding to both CD137 and OX40. F-star expects to enroll up to 70 patients in a Phase 1 dose escalation clinical trial to assess the safety, tolerability and efficacy of FS120 in patients with advanced malignancies and include those patients who have high co-expression of CD137 and OX40.

F-star also plans to submit a Clinical Trial Application (“CTA”) to the European Medicines Agency (“EMA”) for FS222 in the second half of 2020 and to initiate a Phase 1 clinical trial in patients with advanced cancers in the first quarter of 2021. FS222 has the potential to provide clinical benefit through multiple mechanisms based on its tetravalency. These include: (1) blocking the PD-1/PD-L1 immunosuppressive pathway and (2) conditionally clustering and crosslinking CD137 receptors, resulting in activation of CD137 in a PD-L1-dependent manner. F-star believes this dual mechanism of action could amplify the anti-tumor activity of FS222. F-star’s preclinical data shows that FS222 has the potential to be more effective than a combination of traditional PD-L1 and CD137 antibodies. FS222 has been designed with specific mutations to make its activity independent of binding to Fc gamma receptors. PD-L1 is frequently highly expressed on cells within cancer tissue compared to non-cancer tissue. Therefore, F-star believes this will make FS222 immune activation conditional within cancer tissue, limit potential systemic toxicities and lead to safety benefits.

In 2019, combined sales of current immuno-oncology therapies were estimated to be approximately $23.5 billion. Despite the commercial success of currently approved immuno-oncology products, only approximately 20% of patients realize a long-lasting benefit from these treatments, leaving a large, unserved patient population without effective treatment options.

F-star believes its mAb2 bispecific antibodies may address the limitations of current immuno-oncology therapies through the following advantageous characteristics that differentiate F-star’s mAb2 product candidates, including F-star’s novel tetravalent and natural human antibody formats:

 

   

Novel Tetravalent Format. F-star engineers its mAb2 bispecific antibodies to simultaneously bind two different targets, with two binding sites for each target. The ability to bind F-star’s distinct targets is known as tetravalency. This unique tetravalent format is designed to enable F-star’s mAb2 bispecific antibodies to achieve more efficient crosslinking, clustering or conditionality than other bispecific antibodies, which have the potential to elicit improved biological responses and enable F-star’s mAb2 bispecific antibodies to overcome tumor evasion pathways. These three key characteristics are described further below:

 

   

Crosslinking. Crosslinking is the act of bringing either two target-bearing cells, or two targets on the same cell, into close proximity. The dual binding sites for each target, within F-star’s bispecific antibodies, enables durable and strong target crosslinking through the ability to engage with target-bearing cells simultaneously, for example, engaging both tumor cells and immune cells.

 


   

Clustering. Many cellular receptors can only be optimally activated when many of those receptors are brought into close physical proximity on the cell surface, referred to as “clustering”. Since F-star’s mAb2 bispecific antibodies have F-star’s distinct binding sites, they can potentially induce more potent clustering than non-tetravalent bispecific antibody formats.

 

   

Conditionality. Conditionality occurs when immune activation is dependent on the bispecific antibody binding both targets simultaneously, often in the tumor microenvironment. F-star is able to leverage the tetravalent format of its mAb2 bispecific antibodies so that targets are only activated when they are simultaneously bound.

 

   

Natural Human Antibody Format. F-star’s mAb2 bispecific antibodies are designed to conserve the natural human antibody format, with greater than 95% identity, allowing F-star to leverage the following advantages:

 

   

Minimal systemic toxicity. Since F-star’s mAb2 bispecific antibodies use a natural human antibody format, without synthetic linkers and domains, there is lower potential for systemic toxicity than traditional and bispecific antibodies.

 

   

Low immunogenicity risk. The natural human antibody format of F-star’s mAb2 bispecific antibodies and the low number of modifications F-star engineers into its mAb2 bispecific antibodies is designed to help mitigate immunogenicity risk, or the risk that the immune system recognizes the mAb2 bispecific antibody as foreign, potentially resulting in lower exposure and toxicity.

 

   

Ease of manufacturability. F-star is able to produce F-star’s mAb2 bispecific antibodies through established manufacturing processes readily and at large scale without potentially complicating additions, such as domain assembly or other modifications.

F-star believes the novel tetravalent and natural human antibody formats of its mAb2 bispecific antibodies have the potential to focus immune activation to enhance efficacy and reduce systemic toxicities.

The following table sets forth F-star’s mAb2 product candidates, which F-star has developed using its proprietary mAb2 technology, and their current development stages and anticipated upcoming milestones.

 

LOGO

The tetravalent format of FS118 simultaneously targets two immune checkpoint receptors, LAG-3 and PD-L1, to directly address known tumor evasion pathways. FS118 is currently being evaluated in an open label Phase 1 clinical trial in heavily pretreated patients with advanced cancer (a median of six different lines of prior treatment) and who have failed PD-1/PD-L1 therapy. Initial data from this trial have demonstrated that administration of FS118 has been well-tolerated and has provided long-term disease control in these patients. F-star expects to report the final primary objectives of the trial and clinical data in the fourth quarter of 2020. F-star’s pipeline also includes FS120, which targets CD137 and OX40 and FS222, which targets PD-L1 and CD137, respectively. For FS120, F-star plans to initiate a Phase 1 clinical trial in patients with advanced cancers in the fourth quarter of 2020 and for FS222, F-star intends to submit a CTA to the EMA in the second half of 2020 and to initiate a Phase 1 clinical trial in patients with advanced cancers in the first quarter of 2021.

F-star leverages its proprietary mAb2 technology to build its portfolio of wholly-owned immuno-oncology mAb2 product candidates and has generated a panel of early stage Fcab building blocks against a range of targets with the potential to go beyond immuno-oncology. These Fcab building blocks have been used to generate not only bispecific antibodies but also trispecific antibodies. With over 200 granted patents and over 60 pending applications protecting F-star’s mAb2 technology and pipeline, F-star believes it has a leading position in mAb2 bispecific antibody development and third parties are prohibited from utilizing F-star’s mAb2 technology without obtaining a license from F-star.

 

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F-star has collaborative partnerships with Ares Trading S.A., an affiliate of Merck KGaA, Darmstadt, Germany, and Denali Therapeutics Inc., which enable it to further validate F-star’s technological approach. To date, F-star has generated more than $165 million in non-dilutive revenue. F-star believes that these partnerships will provide both continued validation and ongoing revenue as F-star continues to advance F-star’s proprietary pipeline.

F-star is led by a team of highly experienced executives, clinicians, scientists and advisors with notable expertise in antibody research, immuno-oncology, antibody manufacturing and clinical development. F-star’s team has spent over a decade developing its proprietary mAb2 technology into a robust drug discovery platform. F-star’s team has collectively worked on the development of 20 marketed products and has worked at companies including AstraZeneca, BMS, Celgene Corporation, Domantis Ltd., Eli Lilly, GSK, Immunocore Ltd. and Pfizer Inc. (“Pfizer”).

Strategy

F-star’s mission is to generate highly differentiated, best-in-class mAb2 product candidates that will transform the lives of patients with cancer. The key elements of F-star’s strategy include:

 

   

Rapidly accelerating the clinical development of F-star’s three novel mAb2 product candidates to treat a range of advanced cancers. F-star believes its mAb2 product candidates represent potentially best-in-class immuno-oncology therapies that address a variety of patients with cancer inadequately treated with existing therapies. F-star believes FS118, which is being evaluated in a Phase 1 clinical trial, has the potential to provide significant clinical benefit through its dual-checkpoint inhibitor targets (LAG-3 and PD-L1). In addition to FS118, F-star anticipates that it will initiate a Phase 1 trial for FS120 (targeting OX40 and CD137, dual-stimulatory) in the fourth quarter of 2020 and will submit a CTA to the EMA for FS222 (targeting CD137 and PD-L1, stimulatory/inhibitory) in the second half of 2020.

 

   

Initially focusing F-star’s development strategy on tumors where checkpoint inhibitors are currently utilized but are poor long-term treatment options, and then subsequently broadening to other tumor types and potentially, first-line therapies. F-star’s early-stage clinical trials include or will include a broad range of tumor types to evaluate safety, tolerability and dosing, as well as early signals of efficacy. Following these early-stage clinical trials, F-star intends to employ a patient selection strategy using biomarkers to focus further development on targeted patient subsets. These subsets are expected to include patients with high cancer target co-expression and/or resistance to current checkpoint therapies. F-star believes its mAb2 bispecific antibodies may also ultimately deliver therapeutic benefit in a broader range of tumors, expanding beyond the initial indications F-star may pursue. F-star believes its development strategy best serves the patient, can be efficiently pursued by F-star’s organization and, is likely to lead to a rapid development strategy and regulatory pathway to market. For example, F-star has identified several tumor types which have a strong fit with the potential FS118 mechanism of action, including appropriate target expression.

 

   

Leveraging the transformational potential of F-star’s modular antibody technology platform to create a leading immuno-oncology pipeline of differentiated clinical assets capable of improving patient outcomes. F-star’s proprietary mAb2 bispecific antibodies have a number of potential advantages resulting from their novel tetravalent and natural human antibody formats. This approach could provide therapeutic advantages compared to other modalities, such as combinations of monospecific and other bispecific antibodies, which F-star believes will result in improved efficacy, minimized toxicity and simplified manufacturability. F-star believes its technology has the potential to be matched with any antibody domain in a modular “plug-and-play” approach to further expand its innovative pipeline of mAb2 product candidates. F-star believes these benefits provide multiple opportunities to consistently generate clinical candidates that could potentially address the needs of patients who are without adequate therapeutic options.

 

   

Leveraging and continuing to build F-star’s comprehensive intellectual property portfolio in order to protect F-star’s dominant position in mAb2 bispecific antibodies. F-star has built a comprehensive patent portfolio around its technology and product pipeline with over 200 granted patents and over 60 pending applications. This patent estate covers F-star’s mAb2 bispecific format and aims to provide F-star with robust intellectual property exclusivity and prohibit use of F-star’s technology by third parties. F-star intends to continue to seek additional patent protection as it develops additional novel mAb2 product candidates.

The Immuno-oncology Challenge and F-star’s mAb2 Technology

Cancer Treatment Overview

The incidence of cancer is increasing due to the aging of the world population, as well as an increasing prevalence in individuals of known risk factors. Based on GLOBOCAN 2018 estimates, approximately 18.1 million new cancer cases were diagnosed and 9.2 million cancer deaths occurred in 2018 worldwide. Cancer treatment has traditionally included chemotherapy, radiation, hormone therapy, surgery or a combination of these approaches. While these approaches can be effective in treating certain types of cancers, many can also cause toxicities that may have life-threatening consequences, lower quality of life or untimely termination of treatment. Furthermore, F-star believes the traditional therapeutic approaches have reached their efficacy plateau with limited room to prolong the patient’s life expectancy. More recently, cancer research has leveraged antibody approaches to target the emerging field of immuno-oncology, which aims to enhance natural anti-tumor immune responses by, for example, overcoming mechanisms that cancer

 

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cells have developed to evade the immune system. Initially, antibody approaches were developed for treatment in second- or third-line settings but, recently, have become more common as the standard of care, first-line treatment for a variety of tumor types, including non-small cell lung cancer, melanoma, renal cell carcinoma, liver cancers, gastric cancers and head and neck cancers, amongst others. F-star believes this has created a significant treatment gap and new unmet need for the large number of patients whose disease becomes resistant to those antibodies.

Successes and Limitations of Immuno-oncology

Under normal conditions, cell surface proteins known as immune checkpoints help to control T cell attacks on healthy cells in the body. The activity of stimulatory checkpoints that activate or “hit the gas” on immune response is balanced by inhibitory checkpoints that inactivate or “apply the brake” on the immune response. The immune system recognizes cancers and mobilizes special immune cells known as lymphocytes, which are primarily T cells and B cells, to attack the tumor. A specific type of lymphocyte with the capacity to recognize and attack the tumor, known as tumor infiltrating lymphocytes (“TILs”), travel to and infiltrate into the tumor. However, the anti-tumor effect of the TIL is usually short-lived, as some cancer cells overexpress inhibitory immune checkpoints, which suppress the immune system and enable the tumor cells to evade elimination. Popular immuno-oncology approaches to enhance anti-tumor immune responses include the use of traditional monoclonal antibodies, which F-star refer to as traditional antibodies, antibody combinations and bispecific antibodies to overcome these immune checkpoint blockades and engage the immune system to fight the cancer. One of the few approved approaches involves the use of traditional antibodies that turn off certain inhibitory checkpoints. The use of traditional antibodies to activate stimulatory checkpoints within the immune system is also being explored extensively, but with less notable clinical success to date.

One of these inhibitory checkpoints, programmed cell death protein 1 (“PD-1”), is expressed on T cells and can be controlled by programmed cell death ligand 1 (“PD-L1”), which is a protein that is overexpressed by some tumors in an attempt by the tumor to inhibit natural immune response. Traditional antibody therapeutics against PD-1 or PD-L1 have been transformational for some patients with long-lasting tumor control. However, large patient populations are resistant. Resistance to PD-1/PD-L1 regimens can come in two main forms. “Primary Resistance” is where the cancer shows no sensitivity to treatment and continues to grow. “Acquired Resistance” to PD-1/PD-L1 regimens, sometimes referred to as secondary resistance, is where there is initial sustained (greater than or equal to three months) clinical benefit (defined as a complete response, partial response, or stable disease) from therapy but the cancer then starts to grow again while the patient is still being treated. A meta-analysis of data from several well-controlled clinical trials with PD-1 or PD-L1 therapeutic antibodies indicated that responses were seen in only approximately 20% of treated patients, compared to approximately 9% of control patients, using RECIST (response evaluation criteria in solid tumors) criteria. Besides PD-1/PD-L1, it is generally believed that there are multiple other immuno-oncology checkpoint targets with the potential to improve patient response rates alone or when used in combination.

Other Antibody Approaches in Immuno-oncology

One approach to address patient populations with Primary or Acquired Resistance on monotherapy is the use of a combination of two traditional antibodies to inhibit and/or activate two checkpoint pathways at the same time. Such traditional antibody combination treatment has been shown to have some success in limited settings, leading to an additive clinical benefit. The combination of PD-1 and cytotoxic T-lymphocyte-associated protein 4 (“CTLA-4”), antibodies, for example, increases overall survival of melanoma patients when compared to CTLA-4 monotherapy (37.6 months versus 19.9 months, respectively). However, the toxicity observed when PD-1 and CTLA-4 antibodies are used individually (21% and 28%, respectively, grade 3 or 4 adverse events) is increased when they are used in combination (59% grade 3 or 4 adverse events). This increased toxicity has limited the clinical application of this combination approach. Additionally, using two traditional antibodies can increase costs and administrative burden to patients, physicians and the broader healthcare system.

The goal of targeting two cancer pathways at the same time can also be achieved by bispecific antibodies, which have several benefits over existing mono- or combination therapies. This approach builds on the strengths of using a combination of two traditional antibodies and potentially addresses some of their limitations. Generally, bispecific antibodies have the potential to elicit improved biological responses relative to traditional antibodies or combinations thereof. Some bispecific antibodies are able to achieve improved responses through the deployment of one or more of crosslinking, clustering and conditionality, which F-star refer to collectively as the “3Cs”:

 

   

Crosslinking. Crosslinking is the act of bringing either two target-bearing cells, or two targets on the same cell, into close proximity for optimal biological effect. As a result of this crosslinking, bispecific antibodies have the potential to induce novel desirable biological responses. Binding to two different cells, for example a tumor cell and a T cell, can result in the recruitment of T cells to the tumor site, thereby increasing the anti-tumor activity, as well as reducing toxicity.

 

   

Clustering. Much of the regulation of the immune system occurs through cell-surface proteins known as receptors. Many cellular receptors can only be optimally activated when many of those receptors are brought into close physical proximity on the cell surface, referred to as “clustering.” By binding two target receptors, bispecific antibodies can group together the receptors on the cell, leading to activation of certain receptors. In the context of modulating the immune response, receptor clustering and activation can increase the likelihood of anti-tumor activity.

 

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Conditionality. The binding of a bispecific antibody to both antigens can induce immune activation. Conditionality occurs when immune activation is dependent on the bispecific antibody binding both targets simultaneously, usually in the tumor microenvironment. Conversely, where one antigen is bound by the bispecific antibody resulting in immune activation without the need for simultaneous binding to the other target, conditionality does not exist. When there is conditional activity, increased localized anti-tumor activity can be elicited, while, in the absence of conditional activity, there is greater risk for systemic toxicity.

When bispecific antibodies can achieve one or more of the 3Cs, they may be able to concentrate their activity at the tumor site, potentially increasing efficacy with an improved safety profile. Moreover, since bispecific antibodies are a single-infused product, they offer administrative benefits for patients and healthcare professionals as compared to a combination of traditional antibodies that are individually infused.

Many different molecular design approaches have been taken to create bispecific antibodies against a range of target pairings. These include heterodimeric bispecific IgG antibodies and alternative scaffold bispecific antibodies. These all aim to achieve the aforementioned characteristics of the 3Cs.

Heterodimeric Bispecific IgG Antibodies

Heterodimeric bispecific antibodies seek to conserve the native architecture of the IgG molecule by incorporating asymmetric chain pairings into the same molecule such that each of the two binding sites in the Fragment variable (“Fv”), region of the antibody structure is able to bind different targets. This structure supports bispecific crosslinking of targets but is limited to monovalent binding at each of these sites, meaning they cannot achieve tetravalent clustering. The strong conservation of the native IgG architecture supports IgG-like manufacturing.

Alternative Scaffold Bispecific Antibodies

Another approach to achieving bispecificity is to engineer modular antibody target binding domains, or “fragments,” into so-called “alternative scaffolds.” Alternative scaffolds take many forms, some of which can achieve tetravalent bispecificity and support target crosslinking. However, such approaches result in a significant departure from the natural IgG architecture which can result in a variety of problems. One such approach could involve combining two different antibody fragments to bind to two targets. However, such architecture lacks important regions that protect the molecule from natural breakdown in circulation by the neonatal fragment crystallizable (“Fc”), receptor, resulting in a potentially short half-life or lessened persistence. Other approaches to alternative scaffolds involve “bolting on” such antibody fragments to natural IgG antibodies. In these cases, manufacturing of the molecules becomes a significant challenge. In addition, the departure from the natural antibody structure increases immunogenicity risk.

F-star’s mAb2 Technology

F-star’s platform is designed to effectively achieve the 3Cs while also conserving the natural human antibody format. F-star believes this natural human antibody format, with greater than 95% identity to the unmodified Fc region, is the ideal approach to target unmet medical needs in immuno-oncology.

F-star’s mAb2 Potential Advantages over Other Antibodies and Bispecific Antibodies

 

LOGO

 

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Novel Tetravalent Format

F-star believes its strong intellectual property position combined with over a decade of research and testing focused on the development of its proprietary technology put it in the unique position to produce mAb2 bispecific antibodies through the introduction of an additional and proprietary second set of antigen binding sites into the Fc domain while also conserving the natural human antibody format. F-star believes it is differentiated in its approach in that F-star engineers mAb2 bispecific antibodies to contain two independent antigen binding regions: (1) a dual binding site in the normal antibody antigen binding domains (“Fv portions”), of the antibody and (2) a second, proprietary, dual binding site introduced into the Fc portion of the antibody. F-star refers to this portion of a mAb2 bispecific antibody as an Fcab (Fc with antigen binding). This unique tetravalent format is designed to enable F-star’s mAb2 bispecific antibodies to achieve more efficient crosslinking, clustering or conditionality than other bispecific antibodies. F-star’s mAb2 bispecific antibodies have the potential to elicit improved biological responses and overcome tumor evasion pathways, which F-star believes positions them as attractive candidates for clinical development.

 

   

Tetravalent crosslinking. The tetravalent format of F-star’s mAb2 bispecific antibodies is designed to allow for more efficient target cell crosslinking than certain bispecific antibodies because there is an additional, second set of dual binding sites in the Fc region, and both sets can be engineered to engage with antigens that are found on both tumor cells and immune cells. For F-star’s mAb2 product candidates that target tumor-associated antigens, such as PD-L1 (FS118 and FS222), crosslinking also supports safety by targeting the mAb2 product candidates to the tumor, localizing the immune activation and thereby minimizing systemic toxicities.

 

   

Optimal clustering. Antibodies with more than one binding site for a single receptor promote clustering of cellular receptors on the cell surface, resulting in robust activation of targets. Because each of F-star’s mAb2 bispecific antibodies has F-star’s distinct binding sites, two for each antigen, they are designed to potentially induce more potent activation of multiple cellular receptors, including those on single cells, than other bispecific antibodies. This is particularly useful for F-star’s mAb2 product candidates FS120 and FS222, which activate costimulatory molecules such as CD137 which employ clustering for potent activation.

 

   

Conditionality. F-star combines bivalency for two targets with careful selection of target antigens to achieve optimal activation of the immune system, but only when both target antigens are present. For example, while some of F-star’s mAb2 bispecific antibodies may be able to activate the immune system through binding to only one antigen, the greatest effect is expected to be seen when both antigens are bound at the same time, as observed with FS118. Additionally, through selection of target antigens and precise engineering of the dual antigen binding sites, F-star aims to increase the activity of its immunostimulatory mAb2 bispecific antibodies at the tumor site, as observed with FS222 preclinically. F-star believes it can potentially increase the safety of its mAb2 product candidates compared to other bispecific antibodies which bind to their targets only monovalently and cannot be engineered for such optimal antigen binding.

F-star believes, through its novel tetravalent format with bivalent binding to each target, that its mAb2 bispecific antibodies have the potential to enhance efficacy and reduce potential for systemic toxicities.

Natural Human Antibody Format

F-star’s mAb2 bispecific antibodies are designed to conserve the natural human antibody format. With greater than 95% sequence identity to the equivalent traditional antibody, F-star is able to leverage the following advantages:

 

   

Plug-and-play. F-star refers to its proprietary platform as modular antibody technology, because F-star’s library of Fcabs can be combined in a modular fashion with potentially any standard antibody antigen binding domains. This plug-and-play approach allows for rapid drug discovery to identify optimal target pairings, resulting in the creation of a broad portfolio of mAb2 bispecific antibodies. F-star’s Fcabs contain new target binding sites resulting from minimal modifications made in the Fc domain of the existing antibody structure. F-star routinely generates, in parallel, Fcabs that bind to human targets as well as those that bind to mouse targets. From these mouse Fcabs, F-star generate mouse mAb2 bispecific antibody equivalents that can be used to test activity in animal models. The modular nature of the technology enables the rapid generation of novel mAb2 product candidates.

 

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F-star’s Modular Antibody Technology

 

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Minimized systemic toxicity. Traditional antibodies targeting costimulatory molecules require engagement with Fc gamma receptors to induce target crosslinking, clustering and activation. However, binding to these receptors is often weak and the number of receptors is highly variable in tumor cells, which can lead to variable levels of immune cell activation. Additionally, engagement with Fc gamma receptors can result in binding to normal cellular receptors found in healthy cells, potentially resulting in systemic activation such as antibody-dependent cellular cytotoxicity (“ADCC”). Accordingly, F-star can engineer specific mutations in the Fc domain of F-star’s mAb2 bispecific antibodies to prevent binding to Fc gamma receptors and eliminate Fc gamma receptor-mediated crosslinking. As a result, F-star’s mAb2 bispecific antibodies can potentially improve immune activation while minimizing systemic toxicity.

 

   

Low immunogenicity risk. The natural human antibody format of F-star’s mAb2 bispecific antibodies and the low number of modifications F-star engineers into its mAb2 bispecific antibodies is designed to help mitigate immunogenicity risk.

 

   

Ease of manufacturability. F-star is able to produce its mAb2 bispecific antibodies through established manufacturing processes readily and at large scale without potentially complicating additions, such as domain assembly or other modifications. F-star’s mAb2 bispecific antibodies also have pharmacologic properties consistent with other traditional antibody products, potentially allowing dosing to be adjusted based on patient response and off-the-shelf usage.

By leveraging these characteristics, which are demonstrated in the graphic below, F-star is developing a broad pipeline of mAb2 product candidates.

 

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F-star’s mAb2 Solution to the Unmet Medical Need in Immuno-oncology

In 2019, combined sales of current immuno-oncology therapies were approximately $23.5 billion worldwide. Despite the commercial success of these products, only approximately 20% of patients realize a long-lasting benefit from these treatments, leaving a large, unserved patient population without effective treatment options. F-star’s mAb2 bispecific antibodies have the potential to overcome the limitations associated with current antibody therapies in immuno-oncology. F-star’s mAb2 bispecific antibodies not only bind to two cancer targets at the same time, but the efficient receptor crosslinking and clustering of tumor and immune cells can also increase overall potency and biological response. F-star’s current mAb2 product candidates are directed against targets that have already demonstrated some level of activity in clinical trials using single traditional antibodies. The target pairings for F-star’s mAb2

 

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product candidates are selected on the basis of co-expression in tumors of defined patient populations with an unmet medical need, some of which have orphan status. F-star’s mAb2 product candidates are progressed only if they demonstrated potential advantages in preclinical studies, such as safety and/or potency, beyond what would be achieved with the combination of two traditional antibodies. F-star aims to identify subsets of patients most likely to respond to this treatment approach and to develop proof-of-concept clinical trials, with a focus on subsets of more common cancers and potentially orphan indications to facilitate a rapid path to registration and approval.

FS118 – F-star’s LAG-3 and PD-L1 mAb2 Bispecific Antibody

 

LOGO    F-star’s most advanced product candidate, FS118, is an anti-cancer mAb2 bispecific antibody targeting two receptors, PD-L1 and LAG-3, both of which are established pivotal targets in immuno-oncology. F-star is conducting an open-label, dose-escalation Phase 1 clinical trial with FS118 in patients with advanced cancers that have progressed on PD-1/PD-L1 checkpoint inhibitor therapy and standard of care. F-star expects to report Phase 1 results in the fourth quarter of 2020 and initiate a proof of concept trial for FS118 in the first quarter of 2021 in patients with acquired resistance head and neck cancers. F-star’s current findings support the testing of FS118 in cancers with Acquired Resistance to prior PD-1/PD-L1 inhibitors.

Inhibitory Roles of LAG-3 and PD-L1 in Immuno-oncology

PD-1 is a checkpoint inhibitor that is present on the surface of activated T cells and has a role in downregulating the immune system to help prevent an attack on healthy tissue. However, this inhibitory mechanism can also prevent the immune system from killing cancer cells. PD-L1, the ligand for PD-1, is expressed by a broad range of both tissues and immune cells. A wide range of tumors, including solid tumors, can upregulate PD-L1 in response to pro-inflammatory cytokines, such as interferon gamma. Engagement of PD-L1 with PD-1 on activated tumor infiltrating lymphocytes (“TILs”), can deliver inhibitory signals that protect the tumor from immune destruction.

LAG-3 is also a checkpoint inhibitor expressed on immune cells, including activated T cells. LAG-3 binds to a group of cell surface proteins known as major histocompatibility complex (“MHC”), class II molecules that are present on antigen presenting cells. MHC proteins are responsible for presenting foreign antigens to the immune system, after which the T cells are activated to attack and clear the foreign entity. When MHC class II molecules bind to LAG-3, this T cell activation is suppressed, which, under normal conditions, helps to prevent over activation of the immune system. In tumors, LAG-3 becomes overexpressed on TILs, thereby suppressing the T cell activation needed for an anti-tumor immune response. Accordingly, LAG-3 expression in TILs is generally associated with poor prognosis.

Potential Clinical Applications of a LAG-3/PD-L1 Bispecific Antibody

Therapeutic antibodies that reverse the immunosuppression of checkpoint inhibitors, thereby “releasing the brake” to allow the T cell to attack the tumor cell, have been clinically successful. Currently, several PD-1/PD-L1 antibodies are in development or have been approved by the FDA and other regulatory agencies in a variety of tumor types, including lung cancers, melanoma, renal cancers, bladder cancers, gastro-intestinal cancers, liver, head and neck and breast and cervical cancers. This cancer population represented over 10 million cases worldwide in 2018. Although long-lasting responses to PD-1/PD-L1 have been observed, the cancer ultimately becomes resistant, leaving a large, unserved patient population without effective treatment options, despite a portion of these patients expressing PD-1/PD-L1.

Emerging data suggest that LAG-3 upregulation may be a mechanism of resistance to PD-1 or PD-L1 therapy. A key observation is that therapeutic inhibition of the PD-1/PD-L1 checkpoint pathway leads to increased expression of LAG-3, which, in turn, may prevent responses to PD-1/PD-L1 therapy. Both LAG-3 and PD-1 become overexpressed on TILs in multiple preclinical tumor models and the combination of LAG-3 and PD-1 antibodies have demonstrated improvement of the anti-tumor response in murine models compared to blocking either one alone. The potential therapeutic benefit of the combination of traditional antibodies and bispecific antibodies targeting PD-1 and LAG-3 has been investigated in several clinical trials, and preliminary clinical results have indicated activity in PD-1/PD-L1 treatment naïve and resistant tumors.

Based on results generated using a combination of two traditional antibodies targeting PD-1 and LAG-3, and the observation that an increase in LAG-3 expression may contribute to resistance to PD-1 checkpoint therapy, F-star believes that a bispecific antibody that targets both PD-L1 and LAG-3 simultaneously, such as FS118, has broad potential as an immuno-oncology therapeutic. Simultaneous targeting of LAG-3 and PD-L1 with a bispecific antibody not only releases the brakes of two immunosuppressive pathways, it may also have advantages over a combination of traditional antibodies by focusing these effects at PD-L1 positive sites in the tumor or by crosslinking between immune cells in the tumor microenvironment. Recently, LAG-3 shedding was found to correlate with responsiveness to PD-1 therapy in murine tumors and in the clinic high levels of LAG-3 on T cells correlated with PD-1 treatment efficacy. Therefore, increased shedding of LAG-3 from the surface of the T cell, due to tetravalent bispecific-binding to LAG-3 and PD-L1, may result in lower LAG-3 levels in the tumor and potentially prevents one of the mechanisms of Acquired Resistance to PD-1/PD-L1 therapies.

 

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Resistance to PD-1/PD-L1 regimens can come in two main forms. “Primary Resistance” is where the cancer shows no sensitivity to treatment and continues to grow. “Acquired Resistance” to PD-1/PD-L1 regimens, sometimes referred to as secondary resistance, is where there is initial sustained (greater than or equal to three months) clinical benefit (defined as a complete response, partial response, or stable disease) from therapy but the cancer then starts to grow again while the patient is still being treated. F-star’s analysis of preliminary clinical data from the first-in-human study of FS118 indicates that FS118 may have greater clinical activity in patients with Acquired Resistance compared to Primary Resistance. While F-star has not assessed this, it believes that FS118 will have clinical activity in cancer patients who have not previously been exposed to PD-1/PD-L1 therapy.

Tumor types with immuno-suppression or T cell exhaustion may co-express LAG-3 and PD-L1 and could benefit from treatment with F-star’s dual checkpoint inhibitor product candidate, FS118. Examples of such tumors include head and neck, soft-tissue sarcoma, mesothelioma, ovarian, gastric cancer, anaplastic thyroid cancer and small cell lung cancer. Globally, this cancer population represents over two million new diagnoses annually. F-star’s focus will be on patients with cancers whose tumors co-express LAG-3 and PD-L1 and who have developed Acquired Resistance to PD-1/PD-L1 therapy or who have not yet received it.

Squamous cell carcinoma of the head and neck, otherwise known as head and neck cancer, includes cancers of the mouth (oral cavity, oral cancers, tongue) and throat (oropharynx and tonsils, nasopharynx and hypopharynx), as well as rarer cancers of the nasal cavity, sinuses, salivary glands and the middle ear. According to GLOBOCAN, in 2018 approximately 700,000 new head and neck cancer were estimated to have been diagnosed worldwide. Treatment of patients with advanced head and neck cancer consists of PD-1 therapy alone or in combination with chemotherapy in the first-line, in the metastatic setting. Approximately one-third of these patients develop Acquired Resistance to PD-1 therapy and, therefore, F-star plans to develop FS118 as a sequential treatment for these patients, either alone or in combination with standard of care therapies.

Malignant pleural mesothelioma (“MPM”), is a rare but aggressive cancer usually caused by asbestos exposure. According to GLOBOCAN, in 2018, it estimates up to approximately 30,433 new patients were diagnosed with MPM. For patients ineligible for surgery, which represents the large majority of this patient population, the first-line treatment consists of chemotherapy. Recently, published data from a randomized Phase 3 trial comparing the current standard of care of chemotherapy to the combination of a PD-1 inhibitor and a CTLA-4 inhibitor defines a new standard of care therapy and an opportunity to investigate the efficacy of FS118 in Acquired Resistance patients.

F-star’s Solution: FS118

FS118 is a mAb2 bispecific antibody that can simultaneously bind to LAG-3 through its Fcab domain and PD-L1 via its Fv domain. FS118 has demonstrated the potential to provide clinical benefit through multiple mechanisms based on its tetravalency. These include: (1) blocking the PD-1/PD-L1 immunosuppressive pathway, (2) blocking the LAG-3/MHC class II molecules interactions and (3) crosslinking and potentially clustering PD-L1 and LAG-3 receptors, including between different cells.

Mechanism of Action of FS118

 

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F-star’s preclinical data demonstrated that FS118 has the potential to be more effective than a combination of PD-L1 and LAG-3 traditional antibodies. Moreover, these preclinical mice studies showed that administration of the mAb2 bispecific antibody led to a downregulation of LAG-3 expression levels on T cells within the tumor, with an increase in serum soluble LAG-3, which F-star believes is due to receptor clustering, and is indicative of the strong pharmacology enabled by tetravalent bispecific binding. F-star believes this an important mechanism for potent disease control.

 

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Ongoing Phase 1 Clinical Trial and Clinical Development Strategy

F-star is conducting a first-in-human Phase 1, open-label, dose-escalation clinical trial of FS118 in patients with advanced malignancies that have progressed on or after PD-1/PD-L1 checkpoint therapy for whom either no effective standard therapy is available or standard therapy has failed. The tumor types enrolled in this trial to date include sarcomas, lung cancers, mesothelioma, bladder cancers, ovarian cancers, prostate cancers, melanoma, mesothelioma, head and neck cancers, cervical cancers and thyroid cancers. Patients were heavily pretreated, including surgical procedures, chemotherapy or radiation therapy, and with a median of six prior lines of therapy. In addition, patients were required to have received prior treatment with a PD-1/PD-L1 containing regimen for a minimum of 12 weeks and subsequently shown disease progression. This patient population derives infrequent benefits from any further PD-1 therapy, and disease worsening may occur within eight weeks without an effective therapy.

Under the current protocol, as depicted below, 43 patients have received FS118 administered intravenously once weekly in three weekly cycles until disease progression. The initial cohorts were enrolled sequentially in single-patient dose escalation cohorts. Because no dose limiting toxicities were observed, further dose escalation up to 20 mg/kg proceeded in a 3+3 design associated with cohort extension to obtain more PK/PD data. The primary endpoints of this trial are safety, tolerability and pharmacokinetics. Secondary endpoints include disease control, as measured by RECIST 1.1 and iRECIST.

FS118 Phase I clinical trial design

 

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A total of 43 patients were enrolled in this trial at dose levels up to 20 mg/kg. As of July 2020, preliminary data from this trial suggested that weekly administration of FS118 was well-tolerated and did not result in dose- or treatment-limiting toxicities and a maximum tolerated dose was not reached. No safety signals unexpected for the drug class of immune-checkpoint inhibitors were identified in the early study population. The majority (95%) of treatment-emergent adverse events (“TEAE”), considered by the SRC to be treatment-related were mild to moderate in severity (Grade 1 and 2). FS118-related grade 3 toxicities (liver enzyme increases) were observed in two patients (5%). No deaths were attributed to FS118 treatment. FS118 has been dosed for over 16 months.

Anti-drug antibodies were typically transient in nature. The pharmacokinetic profile confirmed preclinical predictions and PD parameters included a dose-dependent increase in serum soluble LAG-3 and expansion of peripheral T cells. As of July 2020, in a preliminary analysis, a disease control rate of 54% was observed across 20 of 37 evaluable patients. In six of these patients, long term disease control (greater than six months) was observed and it was noted that all of these patients had Acquired Resistance. In Acquired Resistance patients, the disease control rate at six months was 26.9% (six out of 26 patients).

 

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FS118 Preliminary Phase I clinical trial interim data

 

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The FS118 first-in-human clinical study data support further clinical investigations for monotherapy FS118 in cancers with Acquired Resistance. Initial clinical trials will take place in the second/third line metastatic setting. In order to identify patients who gain more benefit from FS118 therapy, F-star plans to investigate a number of biomarkers. Rational combinations with other anti-cancer therapies are also being considered for patients who are pre-treated with, or naïve to, PD-1/PD-L1 therapy.

F-star plans to initiate a focused monotherapy proof of concept study in selected head and neck cancers with Acquired Resistance in the first quarter of 2021. If the study meets its primary objective of efficacy in LAG-3+/PD-L1+ patients, additional clinical studies in head and neck cancer will follow, assessing FS118 alone or in combination with other tumor targeting antibodies or chemotherapeutic agents. A Phase 3 registration clinical study would subsequently be conducted.

Other tumor types of interest that co-express PD-L1 and LAG-3, such as small cell lung cancer, ovarian cancer, mesothelioma and anaplastic thyroid tumors will be investigated in a “basket” or “platform” clinical trial. This is designed to facilitate multiple clinical efficacy signals with FS118 therapy in these tumor types, and has the potential to apply biomarker patient selection strategies to enrich for efficacy and provides opportunity for accelerated approval.

If these trials are successful, F-star intends to seek marketing approval from the FDA, the EMA and other comparable regulatory bodies.

Preclinical Data

Superior anti-tumor activity observed compared to a combination of traditional antibodies

In order to explore the biology of FS118 in mice, F-star created a mouse mAb2 bispecific antibody equivalent of FS118 (mouse LAG-3/PD-L1 mAb2) and tested its ability to control tumor growth in an established immuno-oncology preclinical mouse model (MC38). In this preclinical model, FS118 effectively reduced tumor growth and was observed to be more potent than the combination of a PD-L1 and a LAG-3 antibody, as demonstrated by the number of tumor-free animals at the end of the preclinical study.

 

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FS118 observed to be a potent activator of T cells in a human cell-based assay

The ability of FS118 to activate human T cells was tested in vitro using immune cells from human blood, as detected by increased interferon gamma release. FS118, which is designed to bind to and crosslink both LAG-3 and PD-L1, was more potent than the combination of the individual bispecific components, suggesting that the tetravalent binding and crosslinking of FS118 led to enhanced immune cell activation.

 

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FS118 observed to induce shedding of LAG-3 in human ex vivo T cells

In an in vitro T cell activation assay with immune cells expressing PD-L1, it was observed that FS118 increased the concentration of soluble LAG-3 detected in the cell culture medium. This increase in soluble LAG-3 was not observed with the combination of the individual bispecific components, demonstrating a potentially differentiated bispecific antibody mechanism of action for FS118 where LAG-3 shedding requires simultaneous binding to both PD-L1 and LAG-3. An increase in soluble LAG-3 in the blood was observed in a mouse tumor model upon dosing with a mouse LAG-3/PD-L1 mAb2.

 

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FS120 – F-star’s OX40 and CD137 mAb2 Bispecific Antibody

 

LOGO    FS120 is an anti-cancer mAb2 bispecific antibody that is designed to bind to and stimulate OX40 and CD137, two proteins found on the surface of T cells that both function to enhance T cell activity. F-star is developing FS120 alone and in combination with PD-1/PD-L1 therapy for the treatment of tumors where PD-1/PD-L1 agents are approved and which have co-expression of OX40 and CD137 in the tumor microenvironment, such as gastric and bladder cancer. F-star has an open IND for FS120 and plans to initiate a Phase 1 clinical trial in patients with advanced cancers in the fourth quarter of 2020.

Stimulatory Roles of OX40 and CD137 in Immuno-oncology

The biological basis for Primary and Acquired Resistance to current checkpoint therapies has been widely explored, resulting in the identification of many contributory factors. Key among these factors are the number of TILs and the number of mutations in the tumor cells, which is known as the tumor mutational burden (“TMB”). Tumors with low levels of TILs, referred to as “cold” tumors, are less responsive or non-responsive to current therapies.

One approach to increase the number and level of activation of TILs is by broad stimulation of the immune system via costimulatory regulators. Preclinical studies showed that the anti-tumor efficacy of therapeutic tumor targeting antibodies can be augmented by the addition of antibodies targeting costimulatory molecules, such as CD137 and OX40.

When TILs first become activated, they upregulate OX40 and CD137 which are members of the tumor necrosis factor receptor superfamily. Further activation can be achieved by stimulation of OX40 and CD137. OX40 stimulation promotes T cell proliferation and survival and decreases the activity of immuno-suppressive T cells to further amplify the immune activation. Moreover, it preserves cellular memory for a more durable response and facilitates migration to other tumor sites. CD137 is expressed on multiple cell types including T cells and natural killer (“NK cells”). CD137 stimulation on T cells helps to mount an effective immune response by enhancing T cell proliferation and survival. Both the OX40 and CD137 activation pathway requires receptor clustering of the respective molecules on cells that triggers a signaling cascade resulting in enhanced immune response and thereby, tumor cell killing.

 

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Potential Clinical Applications of an OX40/CD137 Bispecific Antibody

OX40 and CD137 agonist antibodies can “hit the gas” (immune stimulation) and have been shown to be effective immunotherapeutic agents across preclinical cancer models. Traditional OX40 antibodies have been extensively studied in the clinic as monotherapies. In addition, OX40 antibodies have been studied in combination with PD-1/PD-L1 and CTLA-4 antibodies and chemotherapy. Other programs are exploring a triple combination approach with PD-L1, CD137 and OX40 antibodies.

Monotherapy with traditional CD137 antibodies has not restored immune control of cancer in the majority of patients tested in clinical trials. In the case of the two most advanced traditional CD137 antibodies in clinical trials, doses tested have either demonstrated early efficacy but have been limited by severe liver toxicity or have been well-tolerated but have not demonstrated anti-cancer efficacy even at the highest doses tested. Both of these traditional CD137 antibodies are being tested in combination with PD-1/PD-L1 antibodies and other agents to potentially improve efficacy.

OX40 activation predominantly stimulates CD4+ T cells, called helper T cells, whereas CD137 stimulates CD8+ T cells, called killer T cells. F-star believes a bispecific antibody that “hits the gas” simultaneously through OX40 and CD137, such as FS120, will be able to concentrate these different immune cell subsets in the tumor, increasing activity of both helper and killer T cells. In addition, F-star believes this targeted stimulation of the immune system will increase the number of activated TILs in the tumors. Both mechanisms lead to stronger anti-tumor activity and increased therapeutic benefit as compared to traditional antibodies. Using a bispecific dual agonist for broad stimulation could also be combined with checkpoint inhibitors, including PD-1 and PD-L1.

F-star believes that its preclinical data support FS120 being developed in combination with PD-1/PD-L1 therapy or chemotherapy. This approach may broaden the application of PD-1/PD-L1 therapy to tumor types or sub-populations that respond poorly to PD-1/PD-L1 therapy because they are likely to have TILs expressing both CD137 and OX40. Conversely, a PD-1/PD-L1 and FS120 combination may deepen clinical responses and prolong clinical benefit in patients who already gain benefit from PD-1/PD-L1 therapy. In order to select tumor types of interest F-star analyzed gene expression data from solid tumors and found highly correlated expression levels of both OX40 and CD137 in several cancers where PD-1/PD-L1 therapy is approved including, but not limited to, bladder, head and neck, NSCLC and gastric cancer.

Bladder cancer was diagnosed in over 500,000 patients globally in 2018. PD-1 therapy is approved for use in the first line setting in patients who are not eligible for standard chemotherapy and who have high levels of PD-L1. F-star plans to explore PD-1 in combination with FS120 in bladder cancer patients with varying levels of PD-L1. Head and neck cancer affects over 850,000 patients world-wide every year. Therapy with PD-1 regimens is approved as a treatment in the first line setting. However, clinical outcomes remain suboptimal across PD-L1 levels and F-star believes there is an opportunity to bolster PD-1 clinical activity through combining with FS120 in first-line treatment.

F-star’s Solution: FS120

FS120 is a mAb2 bispecific antibody that binds to OX40 through its Fcab domain, and CD137 via the Fv domain. FS120 is a dual costimulatory antibody or agonist that “hits the gas” on immune activation by activating both CD137 and OX40. F-star believes the tetravalent binding of FS120 differentiates it from current therapeutic approaches being developed in the clinic, because FS120 is designed to lead to enhanced clustering and potent and conditional stimulation between T cells (trans) and potentially on the same cell (cis).

Mechanism of Action of FS120

 

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F-star’s preclinical studies have shown superior anti-tumor activity of a mouse OX40/CD137 mAb2 compared to a combination of two traditional antibodies. Based on the results, F-star believes FS120 may deliver clinical benefit through mechanisms arising from dual stimulation. These include: (1) activation of TILs in tumors to help overcome checkpoint inhibitory signals, which F-star believes will improve the response rates to PD-1/PD-L1 inhibitors and (2) increasing the number and persistence of CD4+ (helper) and CD8+ (killer) T cells and destabilizing T regulatory cells, which has the potential to reduce the risk of relapse for patients treated with the standard of care.

Traditional CD137 antibodies have Fc domains that lead to crosslinking using Fc gamma receptors that are widely expressed in the body, which are believed to result in off-tumor activation and subsequent hepato-toxicities. Accordingly, F-star designed FS120 with specific mutations that alter the binding of the Fc domain to Fc gamma receptors to prevent the killing of the immune cells by ADCC and to make FS120 activity independent of Fc gamma receptors, which F-star believes is important for efficacy and safety benefits. Both OX40 and CD137 are found highly expressed in TILs versus blood. Therefore, F-star believes this will make FS120 immune activation conditional within cancer tissue, limit potential systemic toxicities and lead to safety benefits.

Clinical Plans

F-star plans to initiate a Phase 1 open-label, dose-escalation clinical trial of FS120 in patients with advanced cancers in the fourth quarter of 2020. If F-star is able to establish a preliminary safety profile of FS120 in the dose-escalation phase of this trial, F-star will investigate its clinical activity in patients with cancers that co-express OX40 and CD137. Further, F-star intends to explore FS120 in combination with PD-1/PD-L1 therapy focusing on selected tumor types. In the future, FS120 may also be explored in combination with chemotherapy. The initial safety and proof of concept efficacy studies in selected tumor types will be conducted within the Phase 1 protocol. This approach could potentially support expedited regulatory approval and the initiation of additional Phase 3 registrational trials.

Preclinical Data

Co-expression of OX40 and CD137

In an established preclinical mouse tumor model (CT26), F-star analyzed the number of immune cells that co-expressed OX40 and CD137 in the tumor, blood and in the liver. F-star observed that a high number of T cells in the tumor co-expressed OX40 and CD137, whereas T cells in peripheral blood and liver did not co-express OX40 and CD137. Co-expression of OX40 and CD137 has also been observed in human tumors including non-small-cell lung cancer. The higher number of co-expressing T cells in the tumor suggests that the activity of FS120 should be highly active at the tumor site, in comparison to non-specific activation of immune cells throughout the body, potentially providing a safety benefit.

 

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Enhanced anti-tumor response to PD-1 blockade observed

F-star observed a significant reduction in tumor growth in an established preclinical mouse tumor model (CT26) in a treatment with a mouse mAb2 bispecific antibody equivalent of FS120, referred to as the mouse OX40/CD137 mAb2. When the mouse OX40/CD137 mAb2 was used in combination with a PD-1 antibody, F-star observed increased long-term survival compared to what was observed with the monotherapy of either PD-1 or the mouse OX40/CD137 mAb2.

 

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FS120 was observed to be superior to antibody combinations in activating human T cells

Human immune cells can be activated in vitro to upregulate OX40. Addition of FS120 to these cells resulted in enhanced stimulation of human T cells, as detected by increased interleukin-2 expression. The combination of CD137 and OX40 traditional antibodies was observed to be ineffective in this assay. F-star believes that, in contrast to the traditional antibodies, FS120’s observed potent activity is due to its ability to activate T cells independent of Fc gamma receptors.

 

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FS120 was observed to be well-tolerated in preclinical studies

In an IND-enabling toxicology study conducted in non-human primates, FS120 was observed to be well-tolerated at doses up to the maximum administered dose of 30 mg/kg. No adverse observations, including no acute increases in serum cytokines levels were reported. This was consistent with F-star’s results from cytokine release assays performed using human blood. The non-human primate study also showed dose-dependent increases in proliferating CD4+ (helper), CD8+ (killer) T cells and NK cells, consistent with F-star’s findings in murine pharmacology studies using the OX40/CD137 mAb2 surrogate.

 

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FS222 – F-star’s CD137 and PD-L1 mAb2 Bispecific Antibody

 

LOGO    FS222 is an anti-cancer mAb2 bispecific antibody that is designed to target both the costimulatory CD137 and the inhibitory PD-L1 receptors, which are co-expressed in a number of tumor types including non-small-cell lung cancer, breast cancer and gastrointestinal cancers such as colorectal and esophageal cancer. F-star plans to submit a CTA in the second half of 2020 and to initiate a Phase 1 clinical trial in patients with advanced cancers for FS222 in the first quarter of 2021. F-star believes there is a strong rationale to combine FS222 with other anti-cancer agents, including targeted therapy and chemotherapy, and this can be done within the Phase 1 study.

Potential Clinical Applications of a CD137/PD-L1 Bispecific Antibody

A CD137 and PD-L1 bispecific antibody has the potential to increase the efficacy compared to the combination of two traditional antibodies. Both targets are present on tumor and immune cells within the tumor environment. Blocking the PD-L1 pathway acts to “release the brake” thereby reducing immunosuppression, while stimulating the CD137 pathway acts to “hit the gas” and amplify immune activation. CD137-driven T cell activation results in interferon gamma cytokine release. This cytokine release causes increases in PD-L1 on tumor and immune cells. F-star believes that this upregulation of PD-L1 could be a resistance mechanism of traditional CD137 antibody therapy that limits its activity in the tumor microenvironment.

F-star intends to develop FS222 in cancers that co-express both CD137 and PD-L1 receptors. Tumors such as non-small-cell lung cancer, triple negative breast cancer, colorectal cancer, esophageal and cancers positive for tertiary lymphoid structures (TLS+) are likely to have tumor-resident T cells and NK cells expressing CD137, as well as cells that express PD-L1. These represent tumor types that individually and collectively have a spectrum of PD-L1 expression from high to low (less than 5% cells that express PD-L1). These cancer types are diagnosed in over 4.5 million patients globally every year and represent attractive indications for FS222. F-star plans to focus on defined clinical segments of these cancers. For example, there is need for sequential treatments after failure on PD-1/PD-L1 regimens in non-small-cell lung cancer, which are currently given in the first-line setting or after failure on targeted agents. F-star believes there is a broad opportunity for FS222, either alone or in combination with other anti-cancer therapies, in treating these patient populations.

F-star’s Solution: FS222

FS222 is a mAb2 bispecific antibody that binds to CD137 through its Fcab domain and PD-L1 via the Fv domain. FS222 simultaneously “releases the brake” on immune control of cancer by blocking the PD-1/PD-L1 pathway and “hits the gas” on immune activation by activating the CD137 pathway. FS222 has the potential to provide clinical benefit through multiple mechanisms based on its tetravalency. These include: (1) blocking the PD-1/PD-L1 immunosuppressive pathway and (2) conditionally clustering and crosslinking CD137 receptors, resulting in activation of CD137 in a PD-L1-dependent manner. F-star believes this dual mechanism of action would amplify the anti-tumor activity of FS222. F-star’s preclinical data shows that FS222 has the potential to be more effective than a combination of traditional PD-L1 and CD137 antibodies.

 

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Mechanism of Action of FS222

 

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Similar to FS120, FS222 has been designed with specific mutations to make its activity independent of binding to Fc gamma receptors. PD-L1 is frequently expressed at high levels on cells within cancer tissue compared to non-cancer tissue. Therefore, F-star believes this will make FS222 immune activation conditional within cancer tissue, limit potential systemic toxicities and lead to safety benefits.

Clinical Plans

F-star plans to file a CTA in the second half of 2020 and initiate a Phase 1 open-label, dose-escalation clinical trial of FS222 in patients with advanced cancers in the first quarter of 2021. The initial safety and proof of concept efficacy studies in selected tumor types will be conducted within the Phase 1 protocol. While F-star attempts to establish the preliminary safety and optimal dosing regimen for FS222, F-star will simultaneously investigate preliminary efficacy signals with FS222 therapy in a small number of tumor types of interest, potentially including colorectal, non-small-cell lung cancer, esophageal and TLS+ tumors. These data will form the basis for the selection of specific tumor types in which to assess the clinical activity of FS222 in a larger group of patients in the Phase 1 study. This approach could potentially support expedited regulatory approval and the initiation of additional Phase 3 registrational trials.

Preclinical Data

Co-expression of CD137 and PD-L1

In an established preclinical mouse tumor model (CT26), F-star analyzed the percentage of immune cells that co-expressed CD137 and PD-L1, both in the tumor and in the blood. F-star observed that a high number of T cells in the tumor co-expressed CD137 and PD-L1, whereas T cells in peripheral blood did not co-express CD137 and PD-L1. Co-expression of CD137 and PD-L1 has also been observed in human tumors including non-small-cell lung cancer. The higher number of co-expressing T cells in the tumor suggests that the activity of FS222 should be highly active at the tumor site, in comparison to non-specific activation of immune cells throughout the body, potentially providing a safety benefit. In an IND/CTA-enabling toxicology study conducted in non-human primates, FS222 was observed to be well-tolerated at doses up to the maximum administered dose of 30 mg/kg. No adverse observations, including no acute increases in serum cytokines levels were reported. This was consistent with F-star’s results from cytokine release assays performed using human blood. The non-human primate study also showed dose-dependent increases in proliferating CD4+ (helper), CD8+ (killer) T cells and NK cells, consistent with F-star’s findings in murine pharmacology studies using the CD137/PD-L1 mAb2 surrogate.

 

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Superior anti-tumor activity observed compared to a combination of traditional antibodies

In an established preclinical mouse tumor model (MC38), treatment with a mouse mAb2 bispecific antibody equivalent of FS222 (mouse CD137/PD-L1 mAb2) was observed to lead to long-term survival and complete tumor elimination in all treated mice, an effect that was observed to be unmatched by two traditional antibodies in combination. F-star believes this effect was observed because of FS222’s ability to deliver the dual anti-cancer mechanisms.

 

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FS222 observed to be a potent activator of human T cells

The ability of FS222 to activate T cells isolated from human blood was tested in vitro. FS222 was observed to be a potent activator of human T cells, as detected by increased interferon gamma release. FS222 was more potent than the combination of its individual bispecific components, indicating that FS222’s tetravalent binding and crosslinking led to enhanced T cell activation.

 

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FS222-induced T cell activation was observed to be dependent on PD-L1

F-star tested whether FS222’s T cell activation was dependent on PD-L1 binding and therefore, conditional. In an in vitro assay with human T cells and other cells expressing PD-L1, F-star observed that FS222 activation of T cells required binding to PD-L1. This demonstrated that FS222 required binding to both CD137 and PD-L1 to crosslink and cluster CD137 and conditionally activate the T cells. As anticipated, in addition to inducing CD137 activation, FS222 also blocked the PD-1/PD-L1 pathway, which F-star has demonstrated in vitro.

 

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Collaborations and License Agreements

2016 License and Collaboration Agreement with Denali Therapeutics Inc.

In August 2016, F-star Biotechnology Limited, F-star Gamma Limited (“F-star Gamma”), and F-star Biotechnologische Forchungs-und Entwicklungsges.m.b.H entered into a license and collaboration agreement (the “Denali License and Collaboration Agreement”), with Denali Therapeutics Inc. (“Denali”). The goal of the collaboration was the development of certain constant Fc domains of an antibody with non-native antigen binding activity (“Fcabs”), to enhance delivery of therapeutics across the blood brain barrier into the brain. The collaboration was designed to leverage F-star’s modular antibody technology and Denali’s expertise in the development of therapies for neurodegenerative diseases. In connection with the entry into the collaboration agreement, Denali also purchased from the F-star Gamma shareholders an option, which F-star refer to as the buy-out-option, to acquire all of the outstanding shares of F-star Gamma pursuant to a pre-negotiated share purchase agreement.

On May 30, 2018, Denali exercised such buy-out option and entered into a Share Purchase Agreement (the “Purchase Agreement”), with the shareholders of F-star Gamma and Shareholder Representative Services LLC, pursuant to which Denali acquired all of the outstanding shares of F-star Gamma (the “Acquisition”).

 

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As a result of the Acquisition, F-star Gamma has become a wholly owned subsidiary of Denali and Denali changed the entity’s name to Denali BBB Holding Limited. In addition, Denali became a direct licensee of certain of F-star’s intellectual property (by way of Denali’s assumption of F-star Gamma’s license agreement with F-star (the “F-star Gamma License”)). Denali made initial exercise payments to F-star and the former shareholders of F-star Gamma under the Purchase Agreement and the F-star Gamma License in the aggregate, of $18.0 million, less the net liabilities of F-star Gamma, which were approximately $0.2 million. Of this total, $4.0 million was payable to F-star. In June 2019, Denali made a payment of $1.5 million to F-star upon achieving a GMP Manufacturing milestone. In addition, Denali is required to make future contingent payments, to it and the former shareholders of F-star Gamma, up to a maximum amount of $437.0 million in the aggregate upon the achievement of certain defined preclinical, clinical, regulatory and commercial milestones. Of this total, up to a maximum amount of $91.4 million is payable to F-star. The total amount of the contingent payments varies based on whether F-star deliver an Fcab that meets pre-defined criteria and whether the Fcab has been identified solely by it or solely by Denali or jointly by it and Denali.

Under the terms of the Denali License and Collaboration Agreement, Denali has the right to nominate up to three Fcab targets (“Accepted Fcab Targets”), within the first three years of the date of the Denali License and Collaboration Agreement. Upon entering into the Denali License and Collaboration Agreement, Denali had selected transferrin receptor (“TfR”), as the first Accepted Fcab Target and paid it an upfront fee of $5.5 million, which included selection of the first Accepted Fcab Target. In May 2018, Denali exercised its right to nominate two additional Fcab targets and identified a second Accepted Fcab Target. Denali made a one-time payment for the two additional Accepted Fcab Targets of, in the aggregate, $6.0 million and has extended the time period for its selection of the third Accepted Fcab Target until approximately the fourth anniversary of the date of the Denali License and Collaboration Agreement.

Denali is also responsible for certain research costs incurred by F-star in conducting activities under each agreed development plan, for up to 24 months.

Under the terms of the Denali agreements, F-star is prohibited from developing, commercializing and manufacturing any antibody or other molecule that incorporates any Fcab directed to an Accepted Fcab Target, or any such Fcab as a standalone product, and from authorizing any third party to take any such action.

2018 Agreement with Iontas Limited

In March 2018, F-star entered into an agreement (the “Iontas Agreement”), with Iontas Limited (“Iontas”), pursuant to which F-star acquired all Iontas’ right, title and interest in and to certain anti-PD-L1 human antibodies. Additionally, Iontas granted F-star a worldwide, exclusive license under any know-how or related intellectual property rights to exploit any products containing such antibodies. In connection with the entry into the Iontas Agreement, F-star made an upfront payment of £200,000 to Iontas.

Pursuant to the Iontas Agreement, F-star is obligated to pay an annual fee of £50,000 and up to £400,000 in the aggregate for certain specified preclinical milestones on a per product basis. F-star is obligated to pay Iontas up to £13 million in the aggregate upon the achievement of certain development and regulatory milestones and up to £12.75 million in the aggregate upon the achievement of certain commercial milestones, in each case on a per product basis.

Unless earlier terminated, the term of the Iontas Agreement will continue in perpetuity. F-star may terminate the Iontas Agreement upon specified prior written notice. Additionally, either party may terminate the Iontas Agreement in the event of an uncured material breach under the agreement by the other party or for certain bankruptcy or insolvency events involving the other party.

2018 Amended and Restated PD-LI License Agreements with Kymab Limited

Out-License Agreement

In November 2018, F-star entered into a license agreement (the “Kymab Out-License Agreement”), with Kymab Limited (“Kymab”), which amended and restated an original agreement dated April 19, 2016, pursuant to which F-star granted Kymab an exclusive license to certain of F-star’s patents and a non-exclusive license to certain of F-star’s know-how to research, develop, manufacture, use and commercialize antibodies comprising a PD-L1 Fcab and an Inducible T-Cell Co-Stimulator Fab component, or licensed products, for all therapeutic, prophylactic and diagnostic uses, including the treatment of human and animal disease.

Under the Kymab Out-License Agreement, Kymab must use commercially reasonable efforts to develop and commercialize a licensed product. During the term of the Kymab Out-License Agreement, F-star is subject to certain non-compete obligations. Failure of Kymab to meet certain diligence milestones will relieve it of such non-compete obligations.

Pursuant to the Kymab Out-License Agreement, F-star is entitled to receive a percentage of sublicensing revenue received by Kymab ranging in the low to high single digits. In the event that Kymab is acquired by a third party prior to entering into a sublicense agreement with respect to a licensed product, or, in the case where the acquirer is the sublicensee, then, in lieu of F-star’s right to receive a percentage of sublicensing revenue, F-star is entitled to receive development and regulatory milestones of up to £4.75 million in the aggregate, commercial milestones of up to £7.5 million in the aggregate and a low-single digit royalty on net sales of licensed products. In the event that Kymab sells licensed products, F-star is eligible to receive a low-single digit royalty on these net sales on a licensed product-by-product basis. F-star’s right to receive royalties under the Kymab Out-License Agreement expires, on a licensed product-by-licensed product and country-by-country basis, on the first to occur of: (i) the expiration, invalidation or abandonment date of the last valid licensed patent claim that covers the manufacture, sale or use of such licensed product in such country, and (ii) the tenth anniversary of the first commercial sale of such licensed product anywhere in the world.

 

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Unless earlier terminated, the term of the Kymab Out-License Agreement will continue in perpetuity. Kymab may terminate the Kymab Out-License Agreement for convenience at any time effective upon expiration of a certain specified notice period. F-star may terminate the Kymab Out-License Agreement in the event of an uncured material breach under the agreement by Kymab. F-star may terminate Kymab’s rights under the Kymab Out-License Agreement if Kymab challenges any patent licensed to it under the Kymab Out-License Agreement. Kymab may terminate F-star’s rights under the Kymab Out-License Agreement if F-star challenge any patent controlled by Kymab.

In-License Agreement

In November 2018, F-star entered into a license agreement (the “Kymab In-License Agreement”), with Kymab, which amended and restated an original agreement dated April 19, 2016, pursuant to which F-star obtained from Kymab an exclusive license to certain of Kymab’s patents and a non-exclusive license to certain of Kymab’s know-how to research, develop, manufacture, use and commercialize antibodies comprising a LAG-3 Fcab and a single specified anti-PD-L1 Fab component, or licensed products, for all therapeutic, prophylactic and diagnostic uses, including the treatment of human and animal disease.

Under the Kymab In-License Agreement, F-star must use commercially reasonable efforts to develop and commercialize a licensed product. During the term of the Kymab In-License Agreement, F-star is subject to certain non-compete obligations, provided that such obligations shall cease upon the termination or expiration of the Kymab Out-License Agreement.

Pursuant to the Kymab In-License Agreement, F-star is obligated to pay Kymab a percentage of sublicensing revenue ranging in the low to high single digits. In the event that F-star is acquired by a third party prior to entering into a sublicense agreement with respect to a licensed product, or, in the case where the acquirer is the sublicensee, then, in lieu of F-star’s obligation to pay Kymab a percentage of sublicensing revenue, F-star is obligated to pay Kymab development and regulatory milestones of up to £4.75 million in the aggregate, commercial milestones of up to £7.5 million in the aggregate and a low-single digit royalty on net sales of licensed products. In the event that F-star sell licensed products F-star is obligated to pay Kymab a low-single digit royalty on these net sales. F-star’s obligation to pay royalties under the Kymab In-License Agreement expires, on a licensed product-by-licensed product and country-by-country basis, on the first to occur of: (i) the expiration, invalidation or abandonment date of the last valid licensed patent claim that covers the manufacture, sale or use of such licensed product in such country, and (ii) the tenth anniversary of the first commercial sale of such licensed product anywhere in the world.

Unless earlier terminated, the term of the Kymab In-License Agreement will continue in perpetuity. F-star may terminate the Kymab In-License Agreement for convenience at any time effective upon expiration of a certain specified notice period. Kymab may terminate the Kymab In-License Agreement in the event of an uncured material breach under the agreement by F-star. Kymab may terminate F-star’s rights under Kymab In-License Agreement if F-star challenges any patent licensed to it under the Kymab In-License Agreement. F-star may terminate Kymab’s rights under the Kymab In-License Agreement if Kymab challenges any patent controlled by F-star.

2019 License and Collaboration Agreement with Ares Trading S.A., an affiliate of Merck KGaA, Darmstadt, Germany (as amended, July 2020)

On May 13, 2019, F-star entered into a license and collaboration agreement (the “Ares Agreement”), with Ares, pursuant to which F-star granted Ares the option to enter into a worldwide, exclusive license to certain of F-star’s patents and know-how to develop, manufacture and commercialize two separate mAb2 antibody products that each contain a specific Fcab and a Fab target pair (each a licensed product), in the field of the treatment and prevention of diseases in humans.

Under the Ares Agreement, F-star received reimbursement of F-star’s internal and external development costs for each preclinical program. Under the Ares Agreement F-star conducted certain mutually agreed upon preclinical development activities and delivered data packages to Ares. Following receipt of each data package, Ares had the option to continue with the program and if Ares elected to continue with the program, Ares would be solely responsible for the continued development, manufacture and commercialization of the applicable licensed products. Ares exercised its option in relation to one of the preclinical programs (the “First Program”) on May 13, 2019, and exercised its option in relation to the second preclinical program (the “Second Program”) in July 2020.

In July 2020, the Ares Agreement was amended such that F-star granted Ares a time-limited option to enter into a worldwide, exclusive license to develop, manufacture and commercialize two additional mAb2 products (the “Third Program” and the “Fourth Program”) in the field of the treatment and prevention of diseases in humans. With respect to the Third Program and Fourth Program, F-star is not required to deliver data packages to Ares, and upon exercise of the option Ares will be solely responsible for the continued development, manufacture and commercialization of the applicable licensed products.

During the term of the Ares Agreement, F-star is subject to certain non-compete obligations.

 

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Pursuant to the Ares Agreement, Ares paid €10 million in connection with the exercise of the option for the First Program and €7.5 million in connection with the exercise of the option for the Second Program. Additionally, Ares is obligated to pay F-star up to €408.5 million in the aggregate for the programs upon the achievement of certain development and regulatory milestones and up to €252 million in the aggregate upon the achievement of certain commercial milestones. F-star is eligible to receive a low single digit royalty on net sales of licensed products. The royalties payable to F-star under the Ares agreement may be reduced under certain circumstances. F-star’s right to receive royalties under the Ares Agreement expires, on a licensed product-by-licensed product and country-by-country basis, on the latest of: (i) the expiration, invalidation or abandonment date of the last valid licensed patent claim that covers such licensed product in such country, (ii) the expiration of regulatory exclusivity for such licensed product in such country and (iii) the twelfth anniversary of the first commercial sale of such licensed product in such country.

In connection with the Ares Agreement, F-star also granted Ares the right to negotiate a royalty agreement in the event of commercialization of FS118, and F-star reserved the right to receive a license to Ares’ FS118 manufacturing technology and a transfer of certain materials, provided such technology is not subject to a legal restriction. If this royalty agreement is entered into, F-star may be obligated to pay Ares a low single digit royalty on net sales of FS118 products, subject to certain reductions.

Unless earlier terminated, the term of the Ares Agreement will expire on a program-by-program basis on the date on which Ares has no further milestone or royalty obligations with respect to such program. F-star may terminate the Ares Agreement if Ares or any sublicensee challenges any patent licensed to it under the Ares Agreement. Ares may terminate the Ares Agreement on a program-by-program basis for convenience at any time effective upon expiration of certain specified notice periods. Either F-star or Ares may terminate the Ares Agreement in the event of an uncured material breach under the agreement by the other party or for certain bankruptcy or insolvency events involving the other party; provided, however that, in the event of F-star’s uncured material breach, under certain circumstances Ares may elect not to terminate the Ares Agreement and instead, as its sole remedy, to reduce future milestone and royalty payments by an agreed upon amount.

Manufacturing

F-star currently generates batches of its mAb2 bispecific antibody candidates in F-star’s laboratories for initial preclinical studies using standardized procedures. F-star relies on and expect to continue to rely on third-party contract manufacturing organizations (“CMOs”), to manufacture clinical materials and any future commercial materials for F-star’s mAb2 product candidates. F-star requires its CMOs to produce bulk drug substance and finished drug product in accordance with current Good Manufacturing Practices and all other applicable laws and regulations. F-star maintains agreements with its CMOs that include confidentiality and intellectual property provisions to protect F-star’s proprietary rights related to F-star’s mAb2 product candidates. F-star believes that the standard IgG platform processes used for mAb2 manufacturing can be transferred to a number of other CMOs for the production of clinical and commercial supplies of F-star’s mAb2 product candidates in the ordinary course of business.

Competition

The biotechnology and pharmaceutical industries, in developing novel and proprietary therapies for the treatment of cancer, are characterized by rapidly advancing technologies, intense competition and a strong emphasis on intellectual property. F-star believes that F-star’s differentiated technology, dominant intellectual property position, significant development experience and scientific knowledge provide F-star with competitive advantages, but F-star faces potential competition from many different sources, including large biotechnology and pharmaceutical companies, academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for the research, development, manufacturing and commercialization of oncology therapies. F-star anticipates that it will face intense and increasing competition from the constantly evolving therapeutic landscape, as new drugs and therapies enter the market and advanced technologies become available. Any product candidates that F-star successfully develops and commercializes will compete with new oncology therapies that may become available in the future.

F-star competes in the segments of the biotechnology, pharmaceutical and other related markets that develop immuno-oncology therapies. 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, BMS, Lilly, MSD, EMD Serono, Novartis, Pfizer, Genentech, a member of the Roche Group, and Sanofi. Several 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 in order to leverage the effect of a combination of single-target 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, MacroGenics, Merus, 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, 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, Regeneron Pharmaceuticals, Inc. and Symphogen A/S, now a subsidiary of Servier.

 

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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.

Many of the companies against which F-star is competing or against which F-star may compete in the future, either alone or with their strategic collaborators, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved drugs than F-star does. Mergers and acquisitions in the biotechnology, pharmaceutical and diagnostic industries may result in even more resources being concentrated among a smaller number of F-star’s competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with F-star in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and enrolling patients for F-star’s clinical trials, as well as in acquiring technologies complementary to, or necessary for, F-star’s programs.

F-star could see a reduction or elimination of F-star’s commercial opportunity if F-star’s competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that F-star may develop. F-star’s competitors also may obtain FDA, EMA or other foreign regulatory approval for their products more rapidly than F-star may obtain approval for F-star’s, which could result in F-star’s competitors establishing a strong market position before F-star is able to enter the market.

Intellectual Property

F-star strives to protect and enhance the proprietary technology, inventions and improvements that are commercially important to the development of F-star’s business, including seeking, maintaining and defending patent rights, whether developed internally or licensed from third parties. F-star also relies on trade secrets relating to F-star’s proprietary modular antibody technology platform and on know-how, continuing technological innovation and in-licensing opportunities to develop, strengthen and maintain F-star’s proprietary position in the immuno-oncology field and other fields that are or may be important for the development of F-star’s business. F-star additionally expects to rely on regulatory protection afforded through orphan drug designations, data exclusivity, market exclusivity and patent term extensions where available.

F-star’s commercial success may depend in part on its ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to F-star’s business; defend and enforce F-star’s patents; preserve the confidentiality of F-star’s trade secrets; and operate without infringing the valid enforceable patents and proprietary rights of third parties. F-star’s ability to stop third parties from making, using, selling, offering to sell or importing F-star’s products may depend on the extent to which F-star has rights under valid and enforceable patents or trade secrets that cover these activities. With respect to both licensed and company-owned intellectual property, F-star cannot be sure that patents will be granted with respect to any of F-star’s pending patent applications or with respect to any patent applications filed by it in the future, nor can F-star be sure that any of F-star’s existing patents or any patents that may be granted to F-star in the future will be commercially useful in protecting F-star’s commercial products and methods of manufacturing the same.

F-star has developed or in-licensed numerous patents and patent applications and possesses substantial know-how and trade secrets relating to the development and commercialization of F-star’s mAb2 product candidates and the underlying modular antibody technology platform. To date, F-star’s patent estate includes over 200 granted patents and over 60 pending patent applications generally directed to, for example, compositions and methods related to F-star’s Fcabs, F-star’s modular antibody technology platform, F-star’s lead mAb2 product development candidates, and other products, proprietary technologies and processes.

The patent portfolios for the fields containing F-star’s most advanced mAb2 product candidates as of the date of this proxy statement/prospectus are summarized below.

FS118 (LAG-3/PD-L1 mAb2)

F-star’s patent portfolio related to FS118 includes 12 owned or licensed patent families, which relate generally to the FS118 mAb2 bispecific antibody composition of matter, the LAG-3 Fcab and PD-L1 mAb antibody included in FS118, and methods of making and using the mAb2 bispecific antibody to treat cancer.

Specifically, F-star solely owns two FS118-focused patent families that include claims directed to the FS118 mAb2 bispecific antibody composition of matter and the LAG-3 Fcab included in FS118, respectively, as well as methods of making and using such compositions to treat cancer. Patent applications are pending in each of these families in major territories worldwide, including Australia, Canada, China, Europe, Japan and the United States. Any patents that may issue from these pending applications are expected to expire in 2037, absent any patent term adjustments or extensions.

 

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F-star also solely owns a third FS118-focused patent family directed to FS118 dosing schedules. This patent family consists of a pending international application filed under the Patent Cooperation Treaty (“PCT”) filed, in 2020. Any patents that may derive from this international application will be expected to expire in 2040, absent any patent term adjustments or extensions.

Further, F-star solely owns patent families in F-star’s modular antibody technology platform portfolio that include claims directed to different aspects of the underlying Fcab and mAb2 bispecific antibody technologies utilized in FS118. Issued patents in these families are expected to expire between 2026 and 2028, absent any patent term adjustments or extensions. F-star’s modular antibody technology platform portfolio is discussed in more detail below.

Finally, F-star has an exclusive license to research, develop, manufacture, use and commercialize FS118 from Kymab under a number of patents related to the PD-L1 mAb utilized in FS118. Patents are expected to expire up to 2036, absent any patent term adjustments or extensions.

FS120 (OX40/CD137 mAb2)

F-star’s patent portfolio related to FS120 includes seven patent families, solely owned by F-star, which relate generally to the FS120 mAb2 bispecific antibody composition of matter, the OX40 Fcab and CD137 antibody included in FS120, and methods of making and using the mAb2 bispecific antibody to treat cancer.

Specifically, F-star solely owns three pending PCT applications and three corresponding Taiwan patent applications with claims directed to the composition of matter of the OX40 Fcab included in FS120, the CD137 antibody included in FS120, and the FS120 mAb2 bispecific antibody, respectively, as well as methods of making and using such compositions to treat cancer. Any patents that may issue from these patent applications will be expected to expire in 2039, absent any patent term adjustments or extensions.

Further, the F-star patent families in F-star’s modular antibody technology platform portfolio discussed above include claims directed to aspects of the underlying Fcab and mAb2 technologies utilized in FS120.

FS222 (CD137/PD-L1 mAb2)

F-star’s patent portfolio related to FS222 includes eight patent families, solely owned by F-star, which relate generally to the FS222 mAb2 bispecific antibody composition of matter, the CD137 Fcab and PD-L1 antibody included in FS222, and methods of making and using the mAb2 bispecific antibody to treat cancer.

Specifically, F-star solely owns three patent families with claims directed to the composition of matter of the CD137 Fcab included in FS222, the PD-L1 antibody included in FS222 (acquired under agreement from Iontas), and the FS222 mAb2 bispecific antibody, respectively, as well as methods of making and using them to treat cancer. Each of these patent families consists of a pending PCT application and a pending application in Taiwan, and any patents that may issue from these will be expected to expire in 2039, absent any patent term adjustments or extensions.

F-star also solely owns one patent family related to FS222 with claims directed to mAb2 bispecific antibodies that bind both a tumor antigen and a tumor necrosis factor receptor superfamily (TNFRSF) receptor on the surface of an immune cell and methods of making and using the same to treat cancer. This patent family contains pending patent application in Australia, Canada, China, Europe, Japan, South Korea and the United States. Any patents that may issue from these pending applications will be expected to expire in 2038, absent any patent term adjustments or extensions.

Additionally, the F-star patent families in F-star’s modular antibody technology platform portfolio discussed above include claims directed to aspects of the underlying Fcab and mAb2 technologies utilized in FS222.

Platform Technology

F-star’s patent portfolio also includes numerous patents and patent applications generally relating to its modular antibody technology platform and other products and programs not currently under development by F-star.

Specifically, F-star owns patent families relating to F-star’s modular antibody technology platform, including two patent families that generically claim the technology, one family that claims both the mAb2 technology and the Fcab technology, and one family with claims directed to improved methods for selecting functional Fcabs. Included in these four patent families are six issued U.S. patents, four pending U.S. patent applications, more than 200 issued ex-U.S. patents, and 11 pending ex-U.S. patent applications. Patents in these families are expected to expire between 2026 and 2028, absent any patent term adjustments or extensions.

Individual patents extend for varying periods depending on the date of filing of the patent application or the date of patent issuance and the legal term of patents in the countries in which they are obtained. Generally, patents issued for regularly filed applications in the United States are granted a term of 20 years from the earliest effective non-provisional filing date. In addition, in certain instances, a patent term can be extended to recapture a portion of the U.S. Patent and Trademark Office delay in issuing the patent as well as a portion of the term effectively lost as a result of the FDA regulatory review period. However, as to the FDA component, the restoration period cannot be longer than five years and the total patent term including the restoration period must not exceed 14 years following FDA approval.

 

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Government Regulation and Product Approval

In the United States, the FDA regulates therapeutics like F-star’s mAb2 product candidates as biological products, or biologics, under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act and related regulations. Biologics are also subject to other federal, state, local and foreign statutes and regulations. Failure to comply with the applicable U.S. regulatory requirements at any time during the product development process, approval process or after approval may subject an applicant to significant fines and penalties, including administrative or judicial actions. These actions could include, for example, the suspension or termination of clinical trials by the FDA or an Institutional Review Board (“IRB”), the FDA’s refusal to approve pending applications or supplements, revocation of a biologics license, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, import detention, injunctions, civil penalties or criminal prosecution. Any such penalty or enforcement action could have a material adverse effect on F-star.

The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinical development, manufacture and marketing of biologics. These agencies and other federal, state, local and foreign entities regulate, among other things, research and development activities and the testing, manufacture, quality control, effectiveness, safety, purity, potency, labeling, packaging, storage, distribution, record keeping and reporting, approval, import and export, advertising and promotion and post-market surveillance of biologics.

The FDA’s and comparable regulatory agencies’ policies may change and additional government regulations may be enacted that could prevent or delay regulatory approval of any future product candidates or approval of product or manufacturing changes, new disease indications, or label changes. F-star cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the United States or abroad.

Biological Product Development

The process required by the FDA before a biologic may be marketed in the United States generally involves the following:

 

   

completion of nonclinical laboratory tests and animal studies according to “GLPs”, and applicable requirements for the human use of laboratory animals or other applicable regulations;

 

   

submission of an IND application, which must become effective before clinical trials may begin;

 

   

approval of the protocol and related documentation by an independent IRB or ethics committee at each clinical trial site before each study may be initiated;

 

   

performance of adequate and well-controlled human clinical trials according to the FDA’s regulations commonly referred to as “GCPs”, and any additional requirements for the protection of human research subjects and their health information, to establish the safety, purity and potency of the proposed biologic for its intended use or uses;

 

   

submission to the FDA of a Biologics License Application (“BLA”), for marketing approval that includes substantive evidence of safety, purity, and potency from results of nonclinical studies and clinical trials;

 

   

satisfactory completion of FDA pre-approval inspections of manufacturing facilities where the biologic is produced to assess compliance with current Good Manufacturing Practice (“GMP”), requirements to assure that the facilities, methods and controls are adequate to preserve the biologic’s identity, strength, quality and purity;

 

   

potential FDA audits of the nonclinical study and clinical trial sites that generated the data in support of the BLA; and

 

   

FDA review and approval, or licensure, of the BLA, which must occur before the biologic can be marketed or sold.

The testing and approval process requires substantial time and financial resources, and F-star cannot be certain that any new approvals for F-star’s mAb2 product candidates will be granted on a timely basis, if at all.

Preclinical Studies

Before testing any biological product candidate in human subjects, a company must develop extensive preclinical data. Preclinical tests, also referred to as nonclinical studies, generally include laboratory evaluations of product biological characteristics, chemistry and formulation as well as toxicological and pharmacological studies in several animal species to assess the potential quality, safety and activity of the product. Nonclinical studies must be performed in compliance with the FDA’s GLP regulations and, as applicable, the U.S. Department of Agriculture’s Animal Welfare Act and related regulations.

Prior to commencing the first clinical trial in humans, an IND application must be submitted to the FDA. A company must submit preclinical testing results, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. Some preclinical testing may continue even after the IND is submitted. An IND is a request for authorization from the FDA to ship an unapproved, investigational product in interstate commerce and to administer it to humans, and it must become effective before clinical trials may begin. The IND application automatically becomes effective 30 days after receipt by the FDA unless the FDA within the 30-day time period raises concerns or questions about the conduct of the clinical trial and places the trial on clinical hold. In such case, the IND application sponsor must resolve any outstanding concerns with the FDA before the clinical trial may begin. The FDA also may impose clinical holds on a biological product candidate at any time before or during clinical trials due to, among other considerations, unreasonable or significant safety

 

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concerns, inability to assess safety concerns, lack of qualified investigators, a misleading or materially incomplete investigator brochure, study design deficiencies, interference with the conduct or completion of a study designed to be adequate and well-controlled for the same or another investigational product, insufficient quantities of investigational product, lack of effectiveness or non-compliance. If the FDA imposes a clinical hold, studies may not recommence without FDA authorization and then only under terms authorized by the FDA.

Human Clinical Trials

Clinical trials involve the administration of a biological product candidate to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the study sponsor’s control. Clinical trials are conducted under protocols detailing, among other things, the objective of the clinical trial, dosing procedures, subject selection and exclusion criteria and the parameters to be used to monitor subject safety, including stopping results that assure a clinical trial will be stopped if certain adverse events should occur. Each protocol and any amendments to the protocol must be submitted to the FDA as part of the IND.

Informed consent must also be obtained from each study subject. Further, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and related documentation, including the form and content of the informed consent that must be signed by each study subject or his or her legal representative, before the trial commences at that site. The IRB for each site also monitors the clinical trial until completed. Regulatory authorities, an IRB, a data safety monitoring board or the study sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the participants are being exposed to an unacceptable safety risk.

A clinical trial sponsor is required to submit to the National Institutes of Health (“NIH”), for public posting on NIH’s clinical trial website details about certain active clinical trials and clinical trial results. Information related to the product, patient population, phase of investigation, study sites and investigators and other aspects of the clinical trial is made public as part of the registration of the clinical trial. Although sponsors are obligated to disclose the results of their clinical trials after completion, disclosure of the results can be delayed in some cases for up to two years after the date of completion of the trial. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs. Failure to timely register a covered clinical study or to submit study results as provided for in the law can give rise to civil monetary penalties and also prevent the non-compliant party from receiving future grant funds from the federal government. The NIH’s Final Rule on ClinicalTrials.gov registration and reporting requirements became effective in 2017, and both NIH and FDA recently signaled the government’s willingness to begin enforcing those requirements against non-compliant clinical trial sponsors.

Human clinical trials are typically conducted in the following phases, which may overlap:

 

   

Phase 1 — the product candidate is initially given to healthy human subjects or patients and tested for safety, dosage tolerance, reactivity, absorption, metabolism, distribution and excretion. These trials may also provide early evidence of effectiveness. During Phase 1 clinical trials, sufficient information about the investigational product’s activity may be obtained to permit the design of well-controlled and scientifically valid Phase 2 clinical trials.

 

   

Phase 2 — clinical trials are conducted in a limited number of patients in the target population to identify possible adverse effects and safety risks, to evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more expensive Phase 3 clinical trials.

 

   

Phase 3 — when Phase 2 evaluations demonstrate that a dosage range of the product appears effective and has an acceptable safety profile and provide sufficient information for the design of Phase 3 clinical trials, Phase 3 clinical trials are undertaken to provide statistically significant evidence of clinical efficacy and to further test for safety in an expanded patient population at multiple clinical trial sites. Phase 3 clinical trials are performed after preliminary evidence suggesting effectiveness of the biologic has been obtained, and they are intended to further evaluate dosage, effectiveness and safety, to establish the overall benefit-risk relationship of the investigational biologic, and to provide an adequate basis for product approval by the FDA.

All of these trials must be conducted in accordance with GCP requirements in order for the data to be considered reliable for regulatory purposes. Further, during all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data and clinical trial investigators. Annual progress reports detailing the results of the clinical trials must be submitted to the FDA. Written IND safety reports must be promptly submitted to the FDA and the investigators for serious and unexpected adverse events, any findings from other studies, test in laboratory animals or in vitro testing that suggests a significant risk for human subjects or any clinically important increase in the rate of a serious adverse reactions over that listed in the protocol or investigator brochure. The sponsor must submit an IND safety report within 15 calendar days after the sponsor determines that the information qualifies for reporting. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction within seven calendar days after the sponsor’s initial receipt of the information. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all.

 

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The FDA may require, or companies may pursue, additional clinical trials after a product is approved. These so-called Phase 4 clinical trials may be made a condition to be satisfied for continuing product approval. The results of Phase 4 clinical trials can confirm the effectiveness of a product candidate and can provide important safety information. Conversely, the results of Phase 4 clinical trials can raise new safety or effectiveness issues that were not apparent during the original review of the product, which may result in product restrictions or even withdrawal of product approval. If any of F-star’s products are subject to post-marketing requirements and commitments, there may be resource and financial implications for F-star’s business.

The U.S. Biologics License Application Approval Process

In order to obtain approval to market a biologic in the United States, a BLA must be submitted to the FDA and must provide data establishing to the FDA’s satisfaction, among other things, the safety and effectiveness of the investigational product for the proposed indication. Each BLA submission requires a substantial user fee payment unless a waiver or exemption applies. The application includes all relevant data available from pertinent nonclinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a product. In addition, the application may include supplemental data from a number of alternative sources, including studies initiated by investigators. The FDA will initially review a BLA for completeness before it accepts it for filing. Under the FDA’s procedures, the agency has 60 days from its receipt of a BLA, or the filing period, to determine whether the application will be accepted for filing based on the agency’s threshold determination that the application is sufficiently complete to permit substantive review. After the BLA submission is accepted for filing, the FDA reviews the BLA to determine, among other things, whether the proposed product is safe and potent, which includes determining whether it is effective for its intended use, whether it has an acceptable purity profile, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, safety, strength, quality, potency and purity. The FDA may refer applications for novel biological products or biological products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and, if so, under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making its approval decisions.

During the review and approval process, the FDA also will determine whether a “REMS” is necessary to assure that the benefits of the new biological product outweigh its risks. A REMS may include various elements depending on what the FDA considers necessary for the safe use of the biologic. These elements range from a medication guide or patient package insert to training and certification requirements for prescribers and/or pharmacies to safe use conditions that must be in place before the product is dispensed. If the FDA concludes that a REMS is needed, the BLA sponsor must submit a proposed REMS plan that the FDA deems satisfactory or the FDA will not approve the BLA.

The FDA’s standard review time for a BLA for a new biological product is ten months from the end of the 60-day filing period. Based on pivotal clinical trial results submitted in a BLA, at the discretion of the FDA or upon the request of an applicant, the FDA may grant a priority review designation to a product, which sets the target date for FDA action on the application at six months from the end of the filing period. The FDA assigns priority review designation to a biologic that is intended to prevent or treat a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. Priority review designation does not change the scientific or medical standard for approval or the quality of evidence necessary to support approval.

After the FDA completes its review of a BLA, it will either communicate to the sponsor that it will approve the product, or issue a complete response letter to communicate that it will not approve the BLA in its current form and to inform the sponsor of changes that the sponsor must make or additional clinical, nonclinical or manufacturing data that must be received before the FDA can approve the application, with no implication regarding the ultimate approvability of the application. If a complete response letter is issued, the sponsor may either resubmit the BLA, addressing all deficiencies identified in the letter, or withdraw the application. Resubmitting a BLA in response to a complete response letter can add additional time to the approval process for a product.

Before approving a BLA, the FDA typically will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and are adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA may inspect one or more clinical sites to assure compliance with GCP. If the FDA determines the application, manufacturing process or manufacturing facilities are not acceptable, it typically will outline the deficiencies and often will request additional testing or information. This may significantly delay further review of the application. If the FDA finds that a clinical site did not conduct the clinical trial in accordance with GCP, the FDA may, for example, determine the data generated by the clinical site should be excluded from the primary efficacy analyses provided in the BLA. Additionally, notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

Under the “PREA”, an initial BLA or certain supplements to a BLA for a novel product must contain data to assess the safety and effectiveness of the biologic for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of pediatric data until after approval of the product for use in adults or full or partial waivers from the pediatric data requirement. Unless otherwise required by regulation, PREA does not typically apply to any

 

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biological product for an indication for which orphan designation has been granted. The “FDASIA”, enacted in 2012, made permanent the PREA requirement that a sponsor who is planning to submit a marketing application for a product that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration must submit an initial Pediatric Study Plan (“PSP”), within sixty days of an end-of-Phase 2 meeting or, if there is no such meeting, as early as practicable before the initiation of the Phase 3 or Phase 2/3 clinical trial. The initial PSP must include an outline of the pediatric study or studies that the sponsor plans to conduct, including trial objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information. The FDA and the sponsor must reach an agreement on the PSP. A sponsor can submit amendments to an agreed upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from pre-clinical studies, early phase clinical trials or other clinical development programs.

The testing and approval process for a biologic requires substantial time, effort and financial resources and this process may take several years to complete. Data obtained from clinical activities are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely basis or at all. F-star may encounter difficulties or unanticipated costs in F-star’s efforts to secure necessary governmental approvals, which could delay or preclude F-star from marketing its products.

Even if a product candidate receives regulatory approval, the approval will be limited to specific disease states, patient populations and/or dosages, or might contain significant limitations on use in the form of warnings, precautions or contraindications, or in the form of a REMS-imposed risk management plan or restrictions on distribution, or the approval may include mandatory post-marketing study or clinical trial requirements. Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product, including imposition of restrictions and conditions on product distribution, prescribing, or dispensing in the form of a REMS, requirements to conduct additional studies or trials, or even complete withdrawal of the product from the market. In addition, F-star cannot predict what adverse governmental regulations may arise from future U.S. or foreign governmental action.

U.S. Post-Approval Requirements

Any products manufactured or distributed by F-star or on F-star’s behalf pursuant to FDA approvals will be subject to continuing regulation by the FDA, including requirements for record-keeping, reporting of adverse experiences with the biologic, and submitting biological product deviation reports to notify the FDA of unanticipated changes in distributed products. Manufacturers are required to register their facilities with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP standards. This will require F-star and any third-party manufacturers to implement certain quality processes, manufacturing controls and documentation requirements in order to ensure that the product is safe, has the identity and strength and meets the quality, purity and potency characteristics that it purports to have. There are continuing, annual user fee requirements for any marketed products and the establishments where such products are manufactured, as well as new application fees for supplemental applications with clinical data.

F-star cannot be certain that F-star or F-star’s present or future suppliers will be able to comply with the cGMP and other FDA regulatory requirements. If F-star’s present or future suppliers are not able to comply with these requirements, the FDA may halt F-star’s clinical trials, refuse to approve any BLA or other application, force F-star to recall a product from distribution, shut down manufacturing operations or withdraw approval of the BLA for that biologic. Noncompliance with cGMP or other requirements can also result in issuance of warning letters, civil and criminal penalties, seizures, and injunctive action. The distribution of biological products is subject to additional state requirements and regulations, including record-keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of prescription biological products.

The FDA and other federal and state agencies closely regulate the labeling, marketing and promotion of biologics. While doctors may prescribe any product approved by the FDA for unapproved uses or patient populations (known as “off-label” uses), manufacturers may not market or promote such uses. In addition, biologic promotional materials must be submitted to the FDA in conjunction with their first publication or first dissemination. 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. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising, injunctions, potential civil and criminal penalties, criminal prosecution and agreements with governmental agencies that materially restrict the manner in which a product approved by FDA may be promoted or distributed.

In addition, the distribution of prescription pharmaceutical products is subject to the “PDMA”, which regulates the distribution of drugs and biological product samples at the federal level, and sets minimum standards for the registration and regulation of prescription drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution. Most recently, the “DSCSA”, was enacted with the aim of building an electronic system to identify and trace certain prescription drugs distributed in the United States, including most biological products. The DSCSA mandates phased-in and resource-intensive obligations for pharmaceutical manufacturers, wholesale distributors, and dispensers over a 10 year period that is expected to culminate in November 2023. From time to time, new legislation and regulations may be implemented that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products regulated by the FDA. It is impossible to predict whether further legislative or regulatory changes will be enacted, or FDA regulations, guidance or interpretations changed or what the impact of such changes, if any, may be.

 

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FDA’s Regulation of Companion Diagnostics

F-star believes that the success of certain of its mAb2 product candidates may depend, in part, on the development and commercialization of a companion diagnostic. Companion diagnostics identify patients who are most likely to benefit from a particular therapeutic product; identify patients likely to be at increased risk for serious side effects as a result of treatment with a particular therapeutic product; or monitor response to treatment with a particular therapeutic product for the purpose of adjusting treatment to achieve improved safety or effectiveness. Companion diagnostics are regulated as medical devices by the FDA. In the United States, the U.S. Federal Food, Drug, and Cosmetic Act and its implementing regulations, and other federal and state statutes and regulations govern, among other things, medical device design and development, preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling, storage, advertising and promotion, sales and distribution, export and import and post-market surveillance. Unless an exemption or FDA exercise of enforcement discretion applies, diagnostic tests generally require marketing clearance or approval from the FDA prior to commercialization. The two primary types of FDA marketing authorization applicable to a medical device are premarket notification, also called 510(k) clearance, and premarket approval (“PMA”).

To obtain 510(k) clearance for a medical device, or for certain modifications to devices that have received 510(k) clearance, a manufacturer must submit a premarket notification demonstrating that the proposed device is substantially equivalent to a previously cleared 510(k) device or to a pre-amendment device that was in commercial distribution before May 28, 1976, or a predicate device, for which the FDA has not yet called for the submission of a PMA. In making a determination that the device is substantially equivalent to a predicate device, the FDA compares the proposed device to the predicate device or predicate devices and assesses whether the proposed device is comparable to the predicate device or predicate devices with respect to intended use, technology, design and other features which could affect safety and effectiveness. If the FDA determines that the proposed device is substantially equivalent to the predicate device or predicate devices, the proposed device may be cleared for marketing. The 510(k) premarket notification pathway generally takes from three to 12 months from the date the application is completed, but can take significantly longer.

In contrast, PMA applications must be supported by valid scientific evidence, which typically requires extensive data, including technical, preclinical, clinical and manufacturing data, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device. For diagnostic tests, a PMA application typically includes data regarding analytical and clinical validation studies. As part of its review of the PMA, the FDA will conduct a pre-approval inspection of the manufacturing facility or facilities to ensure compliance with the Quality System Regulation, which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures. The FDA’s review of an initial PMA application is expected to take between six to ten months, although the process typically takes longer, and may require several years to complete. If the FDA evaluations of both the PMA application and the manufacturing facilities are favorable, the FDA will either issue an approval letter or an approvable letter, which usually contains a number of conditions that must be met in order to secure the final approval of the PMA. If the FDA’s evaluation of the PMA or manufacturing facilities is not favorable, the FDA will deny the approval of the PMA or issue a not approvable letter. A not approvable letter will outline the deficiencies in the application and, where practical, will identify what is necessary to make the PMA approvable. Once granted, PMA approval may be withdrawn by the FDA if compliance with post-approval requirements, conditions of approval or other regulatory standards is not maintained, or problems are identified following initial marketing.

In 2014, the FDA issued a final guidance document addressing the development and approval process for “In Vitro Companion Diagnostic Devices.” According to the agency, for novel therapeutic products that depend on the use of a diagnostic test and where the diagnostic device could be essential for the safe and effective use of the corresponding therapeutic product, the PMA application for the companion diagnostic device should be developed and approved or cleared contemporaneously with the therapeutic, although the FDA recognizes that there may be cases when contemporaneous development may not be possible. However, in cases where a drug cannot be used safely or effectively without the companion diagnostic, the FDA’s guidance indicates that the agency will generally not approve the drug without the approval or clearance of the diagnostic device. The FDA also issued a draft guidance in July 2016 setting forth the principles for co-development of an in vitro companion diagnostic device with a therapeutic product. The draft guidance describes principles to guide the development and contemporaneous marketing authorization for the therapeutic product and its corresponding in vitro companion diagnostic. Subsequently, in December 2018, the FDA published a draft guidance entitled “Developing and Labeling In Vitro Companion Diagnostic Devices for a Specific Group or Class of Oncology Therapeutic Products” that is intended to facilitate class labeling on diagnostic tests for oncology therapeutic products, where scientifically appropriate. The draft guidance notes that in some cases, if evidence is sufficient to conclude that the companion diagnostic is appropriate for use with a specific group or class of therapeutic products, the companion diagnostic’s intended use should name the specific group or class of therapeutic products, rather than specific products.

Once cleared or approved, a companion diagnostic device must adhere to post-marketing requirements for medical device products including the requirements of FDA’s Quality System Regulation, adverse event reporting, recalls and corrections along with product marketing requirements and limitations. Like drug and biologic makers, companion diagnostic makers are subject to unannounced FDA inspections at any time, during which the FDA will conduct an audit of the product(s) and the company’s facilities for compliance with its authorities.

 

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U.S. Orphan Drug and European Orphan Medicinal Product Designation and Exclusivity

The U.S. Orphan Drug Act provides incentives for the development of products intended to treat rare diseases or conditions, which are generally diseases or conditions that affect fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States for which there is no reasonable expectation that the cost of developing and making a drug or biologic available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan designation must be requested and granted by the FDA before submitting a BLA. The benefits of orphan drug designation include research and development tax credits and exemption from FDA user fees. Orphan designation, however, does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.

Under PREA, submission of a pediatric assessment is not typically required for pediatric investigation of a product that has been granted orphan drug designation. However, under the FDA Reauthorization Act of 2017, the scope of the PREA was extended to require pediatric studies for products intended for the treatment of an adult cancer that are directed at a molecular target that are determined to be substantially relevant to the growth or progression of a pediatric cancer. In addition, the FDA finalized guidance in 2018 indicating that it does not expect to grant any additional orphan drug designation to products for pediatric subpopulations of common diseases. Nevertheless, FDA intends to still grant orphan drug designation to a drug or biologic that otherwise meets all other criteria for designation when it prevents, diagnoses or treats either (i) a rare disease that includes a rare pediatric subpopulation, (ii) a pediatric subpopulation that constitutes a valid orphan subset, or (iii) a rare disease that is in fact a different disease in the pediatric population as compared to the adult population. Generally, if a product that receives orphan designation receives the first FDA approval for the orphan indication, the product is entitled to orphan drug exclusivity, which means that for seven years, the FDA is prohibited from approving any other applications to market the same drug or biological product for the same indication, except in limited circumstances. Orphan exclusivity does not block the approval of a different drug or biologic for the same rare disease or condition, nor does it block the approval of the same drug or biologic for different conditions. As a result, even if one of F-star’s mAb2 product candidates receives orphan exclusivity, the FDA can still approve different drugs or biologics for use in treating the same indication or disease, which could create a more competitive market for F-star. Additionally, if a drug or biologic designated as an orphan product receives marketing approval for an indication broader than what was designated, it may not be entitled to orphan drug exclusivity.

Orphan exclusivity will not bar approval of another product with the same drug or biologic for the same condition under certain circumstances, including if a subsequent product with the same drug or biologic for the same condition is shown to be clinically superior to the approved product on the basis of greater efficacy or safety or a major contribution to patient care, or if the company with orphan drug exclusivity cannot assure the availability of sufficient quantities of the drug or biologic to meet the needs of persons with the disease or condition for which the drug or biologic was designated.

After the FDA grants orphan designation, the identity of the applicant, as well as the name of the therapeutic agent and its designated orphan use, are disclosed publicly by the FDA.

Similarly, the European Commission grants orphan medicinal product designation to products intended for the treatment, prevention or diagnosis of a disease that is life-threatening or chronically debilitating, affecting not more than five in 10,000 people in the European Union. In addition, orphan drug designation can be granted if the drug is intended for a life-threatening or chronically debilitating condition in the European Union and without incentives it is unlikely that returns from sales of the drug in the European Union would be sufficient to justify the investment required to develop the drug. In order to receive orphan designation, there must also be no satisfactory method of diagnosis, prevention or treatment of the condition, or if such a method exists, the medicine in question must be of significant benefit to those affected by the condition. In addition, sponsors are required to submit to the “EMA’s” Pediatric Committee, and comply with a “PIP”, in order to initiate pivotal clinical investigation and seek marketing authorization in the European Union, unless the particular product is eligible for a deferral or waiver of the requirement to submit a PIP. The requirement to submit a PIP is waived for specific medicines or classes of medicines that are likely to be ineffective or unsafe in part or all of the pediatric population, are intended for conditions that occur only in adults or do not represent a significant therapeutic benefit over existing treatments for pediatric patients.

Designated orphan medicinal products are entitled to a range of incentives during the development and regulatory review process, including scientific assistance for study protocols, a partial or total reduction in fees and eligibility for conditional marketing authorization. Once authorized, orphan medicinal products are entitled to 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. An EU member state can request that the period of market exclusivity be reduced to six years if it can be demonstrated at the end of the fifth year of market exclusivity that the criteria for orphan designation no longer apply, such as where 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 PIP.

 

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Pediatric Exclusivity

Pediatric exclusivity is another type of non-patent marketing exclusivity available in the United States and, if granted, it provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity for the approved drug or biological product. Under the Best Pharmaceuticals for Children Act (“BPCA”), certain therapeutic candidates may obtain an additional six months of exclusivity if the sponsor submits information requested in writing by the FDA, referred to as a Written Request, relating to the use of the active moiety of the product or therapeutic candidate in children. The data do not need to show the product to be effective in the pediatric population studied; rather, the additional protection is granted if the pediatric clinical study is deemed to have fairly responded to the FDA’s Written Request. As part of the FDASIA in 2012, the United States Congress permanently reauthorized the BPCA in addition to the PREA.

Although the FDA may issue a Written Request for studies on either approved or unapproved indications, it may only do so where it determines that information relating to that use of a product or therapeutic candidate in a pediatric population, or part of the pediatric population, may produce health benefits in that population. The issuance of a Written Request does not require the sponsor to undertake the described studies. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application.

U.S. Reference Product Exclusivity for Biological Products

The Biologics Price Competition and Innovation Act of 2009 (“BPCIA”), enacted as part of the Patient Protection and Affordable Care Act in March 2010, created a unique licensure framework for biosimilars in the United States, which could ultimately subject F-star’s biological product candidates, if approved for marketing, to direct competition from potential future biosimilars. A biosimilar product is defined as one that is highly similar to a reference biological product notwithstanding minor differences in clinically inactive components and for which there are no clinically meaningful differences between the follow-on biological product and the reference product in terms of the safety, purity and potency of the product. To date, the FDA has approved a number of biosimilars, and numerous biosimilars have been approved in Europe. The FDA has also issued several guidance documents outlining its approach to reviewing and approving biosimilars and interchangeable biosimilars.

Under the BPCIA, a manufacturer may submit an abbreviated application for licensure of a biologic that is biosimilar to or interchangeable with an FDA-licensed reference biological product. This abbreviated approval pathway is intended to permit a biosimilar to come to market more quickly and less expensively than if a “full” BLA were submitted, by relying to some extent on the FDA’s previous review and approval of the reference biologic to which the proposed product is similar. Additionally, under the BPCIA, a biosimilar may be licensed as an interchangeable product upon a demonstration that the proposed product can be expected to produce the same clinical results as the reference product in any given patient, and, for products administered multiple times to an individual, that the product and the reference product may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biological product without such alternation or switch. Upon licensure by the FDA, an interchangeable biosimilar may be substituted for the reference product without the intervention of the healthcare provider who prescribed the reference product, although to date no such products have been approved for marketing in the United States.

Under the abbreviated approval pathway, the biosimilar applicant must demonstrate that the product is biosimilar based on data from (1) analytical studies showing that the biosimilar product is highly similar to the reference product; (2) animal studies (including toxicity); and (3) one or more clinical studies to demonstrate safety, purity and potency in one or more appropriate conditions of use for which the reference product is approved. In addition, the applicant must show that the biosimilar and reference products have the same mechanism of action for the conditions of use on the label, route of administration, dosage and strength, and the production facility must meet standards designed to assure product safety, purity and potency.

A reference biological product is granted 12 years of data exclusivity from the time of first licensure of the product, and the first approved interchangeable biologic product will be granted an exclusivity period of up to one year after it is first commercially marketed. If pediatric studies are performed and accepted by the FDA as responsive to a Written Request, the 12-year exclusivity period will be extended for an additional six months.

In addition, the FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four years after the date of first licensure of the reference product. “First licensure” typically means the initial date the particular product at issue was licensed in the United States. Date of first licensure does not include the date of licensure of (and a new period of exclusivity is not available for) a supplement for the reference product for a subsequent application filed by the same sponsor or manufacturer of the reference product (or licensor, predecessor in interest or other related entity) for a change (not including a modification to the structure of the biological product) that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength or for a modification to the structure of the biological product that does not result in a change in safety, purity or potency. Therefore, one must determine whether a new product includes a modification to the structure of a previously licensed product that results in a change in safety, purity or potency to assess whether the licensure of the new product is a first licensure that triggers its own period of exclusivity. Whether a subsequent application, if approved, warrants exclusivity as the “first licensure” of a biological product is determined on a case-by-case basis with data submitted by the sponsor.

 

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The BPCIA is complex and only beginning to be interpreted and implemented by the FDA. As part of the Affordable Care Act, moreover, the future of the BPCIA is subject to uncertainty following a December 2019 Fifth Circuit Court of Appeals ruling that upheld a lower court’s finding that the individual mandate in the Affordable Care Act is unconstitutional. The Fifth Circuit also reversed and remanded the case to the district court to determine if other reforms enacted as part of the Affordable Care Act but not specifically related to the individual mandate or health insurance, including the BPCIA, could be severed from the rest of the Affordable Care Act so as not to be declared invalid. 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. In addition, recent government proposals have sought to reduce the 12-year reference product exclusivity period. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. As a result, the ultimate impact, implementation and meaning of the BPCIA is subject to significant uncertainty.

Coverage, Pricing, and Reimbursement

In both domestic and foreign markets, sales of any products for which F-star may receive regulatory approval will depend in part upon the availability of coverage and adequate reimbursement from third-party payors. Coverage also may be more limited than the purposes for which the product is approved by the FDA or regulatory authorities in other countries. In the United States, such third-party payors include government health programs, such as Medicare and Medicaid, private health insurers and managed care providers and other organizations. Coverage decisions may depend upon clinical and economic standards that disfavor new drug and biological products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Assuming coverage is granted, the reimbursement rates paid for covered products might not be adequate and eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers F-star’s costs, including research, development, manufacture, sale and distribution. Interim payments for new products, if applicable, may also not be sufficient to cover F-star’s costs and may not be made permanent. Even if favorable coverage status and adequate reimbursement rates are attained, less favorable coverage policies and reimbursement rates may be implemented in the future. The marketability of any products for which F-star may receive regulatory approval for commercial sale may suffer if the government and other third-party payors fail to provide coverage and adequate reimbursement to allow F-star to sell such products on a competitive and profitable basis. 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 and biologics. 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 future therapeutic products and patients may decline to purchase such products. This, in turn, could affect F-star’s ability to successfully commercialize F-star’s future therapeutic products and impact F-star’s profitability, results of operations, financial condition, and future success.

The market for any mAb2 product candidates for which F-star may receive regulatory approval in the United States will depend significantly on the degree to which these products are listed on third-party payors’ drug formularies or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included on such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a particular branded drug or biologic on their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent, biosimilar product, or other alternative is available. In addition, no uniform coverage and reimbursement policy exists and coverage and reimbursement can differ significantly from payor to payor. As such, one third-party payor’s determination to provide coverage does not assure that other third-party payors will also provide coverage. Third-party payors often rely on Medicare coverage policy and payment limitations in setting their own reimbursement rates but also have their own methods to individually establish coverage and reimbursement policies. As a result, obtaining coverage and adequate reimbursement can be a time-consuming and costly process. F-star may be required to provide scientific and clinical support for the use of any of its approved biological products to each third-party payor separately with no assurance that approval would be obtained, and F-star may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost-effectiveness of F-star’s future therapeutic products. F-star cannot be certain that F-star’s mAb2 product candidates will be considered cost-effective by any private or government payors. This process could delay the market acceptance of any product candidates for which F-star may receive approval and could have a negative effect on F-star’s future revenues and operating results.

In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. In some countries, the pricing of prescription pharmaceuticals is subject to government control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain coverage and adequate reimbursement or pricing approval in some countries, F-star may be required to conduct a clinical trial that compares the cost-effectiveness of F-star’s product to other available therapies. Historically, therapeutic candidates launched in the European Union do not follow price structures of the United States and generally tend to be significantly lower.

 

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Additionally, the containment of healthcare costs has become a priority of federal and state governments and the prices of therapeutics have been a focus in this effort. The United States government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic and biosimilar products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit F-star’s future net revenue and operating results. In addition, companion diagnostic tests require coverage and reimbursement separate and apart from the coverage and reimbursement for their companion pharmaceutical or biological products. Similar challenges to obtaining coverage and reimbursement for the pharmaceutical or biological products apply to companion diagnostics.

Anti-Kickback, False Claims, Physician Payments Sunshine and Other U.S. Healthcare Laws

In addition to FDA restrictions on marketing, several other types of U.S. state and federal laws are relevant to F-star’s current and future business operations, including broadly applicable fraud and abuse and other healthcare laws, including the anti-kickback and false claims laws, privacy and security laws and transparency laws. F-star is subject to these laws or will become subject to them in the future, and they may affect F-star’s business.

The U.S. federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully soliciting, receiving, offering or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for an item of service, or the purchase, lease, order or recommendation of any good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs. The federal Anti-Kickback Statute is subject to evolving interpretations. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, formulary managers and other individuals and entities on the other hand, and the government has enforced the federal Anti-Kickback Statute to reach large settlements with healthcare companies based on sham consulting and other financial arrangements with physicians. A person or entity does not need to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act, described below. There are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions; however, the exceptions and safe harbors are drawn narrowly, and practices that do not fit squarely within an exception or safe harbor may be subject to scrutiny.

The federal civil and criminal false claims laws, including the civil False Claims Act, and civil monetary penalty laws, prohibit, among other things, any person from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment to the U.S. government, or knowingly making, or causing to be made or used, a false record or statement material to a false or fraudulent claim to the U.S. government, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. government. Actions under these laws may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Many pharmaceutical and other healthcare companies have faced investigations and lawsuits, including those brought by individuals through qui tam actions, for a variety of allegedly improper promotional and marketing activities, including inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates; providing free product to customers with the expectation that the customers would bill federal programs for the product; providing consulting fees and other benefits to physicians to induce them to prescribe products; or engaging in promotion for “off-label” uses.

The Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and its implementing regulations (“HIPAA”), created new federal, civil and criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, 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 criminal violation of these laws. HIPAA also imposes obligations on certain covered entity healthcare providers, health plans and healthcare clearinghouses as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information. The 2009 amendments to HIPAA makes the law’s privacy and security standards directly applicable to “business associates,” defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. The amendments also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorney’s fees and costs associated with pursuing federal civil actions.

The Physician Payments Sunshine Act, enacted as part of the Affordable Care Act in 2020 and implemented by the U.S. Department of Health and Human Services (HHS) as the Open Payments Program, among other things, 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 to track 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 physician ownership and investment interests held by physicians and their immediate family members, and to publicly report such data to HHS. Manufacturers subject to the Open Payments Program must submit a report on or before the 90th day of each calendar year disclosing reportable payments made in the previous calendar year.

 

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There are also analogous state laws and regulations, such as state anti-kickback and false claims laws, that may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers or that apply regardless of payor. Several states now require pharmaceutical companies to report expenses relating to the marketing and promotion of pharmaceutical products in those states and to report gifts and payments to individual healthcare providers in those states. Some of these states also prohibit certain marketing related activities including the provision of gifts, meals, or other items to certain healthcare providers. Some states also require pharmaceutical companies to implement compliance programs or marketing codes and report information on the pricing of certain drugs. Certain state and local laws also require the registration of pharmaceutical sales representatives,; and newly emerging state that govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts.

Because of the breadth of these laws and the narrowness of available statutory exceptions and regulatory exemptions, it is possible that some of F-star’s future business activities could be subject to challenge under one or more of such laws. If F-star’s operations were found to be in violation of any of the federal or state laws described above or any other governmental regulations that apply to F-star, F-star may be subject to penalties, including significant criminal, civil monetary penalties, damages, disgorgement, fines, imprisonment, exclusion from participation in government programs, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, private “qui tam” actions brought by individual whistleblowers in the name of the government, additional reporting requirements and oversight if F-star become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of F-star’s operations, any of which could adversely affect F-star’s ability to operate F-star’s business and F-star’s results of operations.

To the extent that any of F-star’s products are in the future sold in a foreign country, F-star may be subject to similar foreign laws and regulations, which may include, for instance, applicable anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.

U.S. Healthcare Reform

The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect F-star’s ability to sell F-star’s mAb2 product candidates profitably, even if they are approved for sale. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.

In March 2010, the Affordable Care Act (“ACA”), was passed, which substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S. pharmaceutical industry. The ACA, among other things, subjected biological products to potential competition by lower-cost biosimilars, created a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, established annual fees and taxes on manufacturers of certain branded prescription drugs, and created a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.

Members of the U.S. Congress and the current administration have expressed intent to pass legislation or adopt executive orders to fundamentally change or repeal parts of the ACA, and since its enactment, there have been judicial and Congressional challenges to the law, and as a result certain sections have not been fully implemented or effectively repealed. In addition, the Tax Cuts and Jobs Act, repealed, effective January 1, 2019 (the “TCJA”), the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” On December 14, 2018, a federal district court in Texas ruled the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the TCJA, the remaining provisions of the ACA are invalid as well. The current administration and “CMS” have both stated that the ruling will have no immediate effect. On December 18, 2019, the Fifth Circuit U.S. Court of Appeals held that the individual mandate is unconstitutional, and remanded the case 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 that affect health care expenditures. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year pursuant to the Budget Control Act of 2011, which began in 2013 and will remain in effect through 2030 unless additional Congressional action is taken. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) which was signed into law on March 27, 2020, designed to provide financial support and resources to individuals and businesses affected by the COVID-19 pandemic, suspended the 2% Medicare sequester from May 1, 2020 through December 31, 2020, and extended the sequester by one year, through 2030, in order to offset the added expense of the 2020 cancellation. Moreover, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. Notably, on December 20, 2019, President Trump signed the Further Consolidated Appropriations Act for 2020 into law (P.L. 116-94) that includes 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.

On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place limits on pharmaceutical price increases. In addition, the Trump administration previously released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contained 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 drug products paid by consumers. The United States Department of Health and Human Services(“HHS”) has solicited feedback on some of these measures and implemented others under its existing authority. For example, in May 2019, HHS issued a final rule to allow Medicare Advantage plans the option to use step therapy for Part B drugs beginning January 1, 2020. This final rule codified an HHS policy change that was effective January 1, 2019. Additionally, in October 2018 President Trump announced a Medicare Part B payment proposal that will use HHS authority to test three new drug pricing measures to use international pricing as a metric, to develop a new competitive acquisition program, and to alter the average sales price model already in effect. As part of the Administration’s Blueprint to lower drug prices, HHS and FDA also released on July 31, 2019 their Safe Importation Action Plan proposing two different pathways for the importation of foreign drug products. One pathway focuses on the importation of certain drugs from Canada, which will take time to implement because it will require the agencies to go through notice-and-comment rulemaking. FDA’s notice of proposed rulemaking to implement a system whereby state governmental entities could lawfully import and distribute prescription drugs sourced from Canada was released at the end of December 2019. The second pathway would allow manufacturers to distribute their drugs manufactured abroad and it is unclear whether manufacturers will seek to take advantage of the second pathway, which was also released as a draft policy in December 2019. Both Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs making this area subject to ongoing uncertainty.

In addition, on May 30, 2018, the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new product candidates that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a pharmaceutical manufacturer to make its product candidates available to eligible patients as a result of the Right to Try Act, although the FDA recently published a notice of proposed rulemaking that would require manufacturers who do so to make annual reports of those programs to FDA.

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.

 

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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.

There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. 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.

Foreign Regulation

In addition to regulations in the United States, F-star will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of F-star’s mAb2 product candidates. Whether or not F-star obtains FDA approval for a product candidate, F-star must obtain approval from the comparable regulatory authorities of foreign countries or economic areas, such as the European Union, before F-star may commence clinical trials or market products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.

In the European Union, for example, an application for a Clinical Trial Application (“CTA”), must be submitted to the competent national authority and an application made to an independent ethics committee in each country in which the trial is to be conducted, much like the FDA and IRB, respectively. Once the CTA is approved in accordance with a country’s requirements and a favorable ethics committee opinion has been issued, clinical trial development may proceed.

The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials are conducted in accordance with cGCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. To obtain regulatory approval of an investigational drug or biological product under EU regulatory systems, F-star must submit a marketing authorization application either under the so-called centralized or national authorization procedures.

Centralized procedure. The centralized procedure provides for the grant of a single marketing authorization by the European Commission following a favorable opinion by the EMA that is valid in all EU member states, as well as Iceland, Liechtenstein and Norway. The centralized procedure is compulsory for medicines produced by specified biotechnological processes, products designated as orphan medicinal products and products with a new active substance indicated for the treatment of specified diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative disorders or autoimmune diseases, other immune dysfunctions and viral diseases. The centralized procedure is optional for other products that represent a significant therapeutic, scientific or technical innovation, or whose authorization would be in the interest of patients in the EU or which contain a new active substance for indications other than those specified to be compulsory.

National authorization procedures. There are also three other possible routes to authorize medicinal products in several EU countries, which are available for investigational medicinal products that fall outside the scope of the centralized procedure:

 

   

National procedure. Where a medicinal product falls outside the mandatory scope of the centralized procedure and is intended for marketing only in one EU member state, an application under the national procedure of that EU member state can be made.

 

   

Decentralized procedure. Using the decentralized procedure, an applicant may apply for simultaneous authorizations in more than one EU member state of medicinal products that have not yet been authorized in any EU member state and that do not fall within the mandatory scope of the centralized procedure. One EU state’s competent authority will act as the Reference Member State and prepare the initial assessment report. Once all competent authorities have agreed the assessment and the application is successful, each competent authority will issue an authorization for their jurisdiction.

 

   

Mutual recognition procedure. In the mutual recognition procedure, a medicine is first authorized in one EU member state, in accordance with the national procedures of that country. Following this, further marketing authorizations can be sought from other EU countries in a procedure whereby the countries concerned agree to recognize the validity of the original, national marketing authorization.

For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials are conducted in accordance with cGCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

 

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If F-star or F-star’s potential collaborators fail to comply with applicable foreign regulatory requirements, F-star may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Other Regulations

F-star is also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. F-star may incur significant costs to comply with such laws and regulations now or in the future.

F-star is also subject to privacy laws in the jurisdictions in which F-star is established or in which F-star sell or market F-star’s products or run clinical trials. For example, F-star and F-star’s EU-based subsidiaries are subject to Regulation (EU) 2016/679, the General Data Protection Regulation (“GDPR”), in relation to F-star’s collection, control, processing and other use of personal data (i.e., data relating to an identifiable living individual) to the extent that the activities are by a data controller or processor established in the EU or where the individuals who are being monitored are based in the EU. F-star process personal data in relation to participants in F-star’s clinical trials, including the health and medical information of these participants. The GDPR is directly applicable in each EU member state, however, it provides that EU member states may introduce further conditions, including limitations which could limit F-star’s ability to collect, use and share personal data (including health and medical information), or could cause F-star’s compliance costs to increase, ultimately having an adverse impact on F-star’s business. The GDPR imposes onerous accountability obligations requiring data controllers and processors to maintain a record of their data processing and implement policies as part of its mandated privacy governance framework. It also requires data controllers to be transparent and disclose to data subjects (in a concise, intelligible and easily accessible form) how their personal information is to be used; imposes limitations on retention of personal data; defines for the first time pseudonymized (i.e., key-coded) data; introduces mandatory data breach notification requirements; and sets higher standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities. F-star is also subject to EU rules with respect to cross-border transfers of personal data out of the European Union and European Economic Area. F-star is subject to the supervision of local data protection authorities in those EU jurisdictions where F-star is established or otherwise subject to the GDPR. Fines for certain breaches of the GDPR can be significant: up to the greater of €20 million or 4% of total global annual turnover. In addition to the foregoing, a breach of the GDPR or other applicable privacy and data protection laws and regulations could result in regulatory investigations, reputational damage, orders to cease/ change F-star’s use of data, enforcement notices, or potential civil claims including class action type litigation.

Employees

As of September 30, 2020, F-star had 75 full-time employees and five part-time employees, 77 are located in the United Kingdom and three in the United States. None of F-star’s employees is subject to a collective bargaining agreement or represented by a trade or labor union. F-star considers its relationship with its employees to be good.

Facilities

F-star’s principal offices occupy approximately 13,554 square feet of leased office, research and development and laboratory facility space in Cambridge, United Kingdom, pursuant to a lease agreement that expires in 2021. F-star also has an office agreement with Regus Management Group, LLC in Cambridge, Massachusetts, pursuant to a rolling lease agreement that expires in 2020. F-star believes that its current facilities are suitable and adequate to meet its current needs.

Legal Proceedings

From time to time, F-star may become involved in legal proceedings or be subject to claims arising in the ordinary course of its business. F-star is not currently a party to any material legal proceedings and is not aware of any pending or threatened legal proceeding against it that it believes could have a material adverse effect on F-star’s business, operating results or financial condition. Regardless of the outcome, litigation can have an adverse impact on F-star because of defense and settlement costs, diversion of management resources and other factors.

 

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EX-99.4

Exhibit 99.4

The following is a revised excerpt of portions of the prospectus contained in the Form S-4 registration statement (File No. 333-248487) as declared effective by the U.S. Securities and Exchange Commission on October 19, 2020. Such information is as of October 19, 2020 (unless an earlier or alternative date is indicated) and reflects the then current and continuing nature of each individual risk factor.

RISK FACTORS

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 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 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;

 

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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

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 of 2002 (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.

 

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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 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.

F-star expects its costs and expenses to increase as it continues to develop its product candidates and progress its current clinical programs and cost associated with being a public company.

Since its inception, F-star has incurred significant losses and has an accumulated deficit of $21.5 million as of December 31, 2019. F-star expects to incur substantial losses in the foreseeable future as it conducts and expands its research and development activities. As of February 5, 2021 the date of the approval of the consolidated financial statements, 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, These conditions give rise to a substantial doubt over the company’s ability to continue as a going concern.

F-star will be required to seek additional funding through public equity, private equity, debt financing, collaboration partnerships, or other sources. There are no assurances, however, that F-star will be successful in raising additional working capital, or if it is able to raise additional working capital, it may be unable to do so on commercially favorable terms. F-star’s failure to raise capital or enter into other such arrangements if and when needed would have a negative impact on its business, results of operations and financial condition and its ability to develop its product candidates.

Pursuant to the requirements of Accounting Standard Codification (ASC) 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about F-star’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date of these financial statements, and (1) is probable that the plan will be effectively implemented within one year after the date the financial statements are issued, and (2) it is probable that the plan, when implemented, will mitigate the relevant condition or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financials are issued.

Certain elements of F-star’s operating plan to alleviate the condition that raise substantial doubt are outside of F-star’s control and cannot be included in management’s evaluation under the requirements of Accounting Standard Codification (ASC) 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Accordingly, the Company has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least twelve months from the date of the financial statements.

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.

 

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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;

 

   

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;

 

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

 

   

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 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.

 

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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 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.

 

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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.

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.

 

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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 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 (“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.

 

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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.

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

 

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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

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.

 

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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.

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 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.

 

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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 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.

 

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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.

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.

 

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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 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.

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.

 

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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;

 

   

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.

 

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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.

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.

 

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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 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 federal healthcare Anti-Kickback Statute (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;

 

   

The federal Health Insurance Portability and Accountability Act of 1996, (“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;

 

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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“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.

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.

 

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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.

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.

 

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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 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 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:

 

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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 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.

 

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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 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, 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.

 

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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 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.

 

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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;

 

   

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.

 

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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 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 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.

 

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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 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.

 

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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 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.

 

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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 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 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.

 

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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 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.

 

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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 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 F-star’s mAb2 product candidates that are subject to collaborations revert to it for any reason, F-star may not have sufficient financial resources to develop such mAb2 product candidates, which may result in F-star failing to recognize any value from F-star’s investments in developing such mAb2 product candidates;

 

   

a collaborative partner may develop a competing product either by itself or in collaboration with others, including one or more of F-star’s competitors, or seek to restrict F-star from working with other collaborators that may compete with F-star’s partner’s products, which could deprioritize the development of F-star’s products;

 

   

F-star’s collaborative partners’ willingness or ability to complete their obligations under F-star’s partnership arrangements may be adversely affected by business combinations or significant changes in a collaborative partner’s business strategy;

 

   

F-star may experience delays in, or increases in the costs of, the development of F-star’s research programs and mAb2 product candidates due to the termination or expiration of collaborative research and development arrangements;

 

   

F-star may have disagreements with collaborative partners, including disagreements over proprietary rights, contract interpretation, non-competition limitations, or the preferred course of development, that might cause delays or termination of the research, development or commercialization of mAb2 product candidates, might lead to additional responsibilities for F-star with respect to mAb2 product candidates, or might result in litigation or arbitration, any of which may be time-consuming and expensive;

 

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collaborative partners may not properly maintain or defend F-star’s intellectual property rights or may use proprietary information in such a way as to invite litigation or other intellectual property-related proceedings that could invalidate F-star’s intellectual property or jeopardize F-star’s proprietary information or expose F-star to potential litigation; or

 

   

collaborative partners may infringe or otherwise violate the intellectual property rights of third parties, which may expose F-star to litigation and potential liability.

F-star faces significant competition in seeking appropriate collaborative partners. F-star’s ability to reach a definitive agreement for a partnership will depend, among other things, upon an assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed partnership and the proposed collaborator’s evaluation of a number of factors. These factors may include the design or results of preclinical studies or clinical trials, the likelihood of regulatory approval, the potential market for the subject mAb2 product candidate, the costs and complexities of manufacturing and delivering such mAb2 product candidate to patients, the potential of competing products, the existence of any uncertainty with respect to F-star’s ownership of technology (which can exist if there is a challenge to such ownership regardless of the merits of the challenge) and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a partnership could be more attractive than the one with F-star.

F-star may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If F-star is unable to do so, F-star may have to curtail the development of the mAb2 product candidate for which F-star is seeking to collaborate, reduce or delay its development program or one or more of F-star’s other development programs, delay its potential commercialization, reduce the scope of any sales or marketing activities or increase F-star’s expenditures and undertake development or commercialization activities at F-star’s own expense. If F-star elect to increase F-star’s expenditures to fund development or commercialization activities on F-star’s own, F-star may need to obtain additional capital, which may not be available to F-star on acceptable terms or at all. If F-star does not have sufficient funds, F-star may not be able to further develop mAb2 product candidates or bring them to market and generate product revenue.

Risks Related to F-star’s Business Operations, Employee Matters and Managing Growth

F-star’s future growth and ability to compete depends on retaining F-star’s key personnel and recruiting additional qualified personnel.

F-star’s success depends upon the continued contributions of its key management, scientific and technical personnel, many of whom have been instrumental for F-star and have substantial experience with F-star’s mAb2 product candidates, mAb2 technology and modular antibody technology platform. F-star is highly dependent upon F-star’s senior management, particularly Eliot Forster, F-star’s Chief Executive Officer, Neil Brewis, F-star’s Chief Scientific Officer, and Louis Kayitalire, F-star’s Chief Medical Officer, as well as F-star’s senior scientists and other members of F-star’s senior management team.

The loss of key managers and senior scientists could delay F-star’s research and development activities. In addition, F-star’s ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon F-star’s ability to attract and retain highly qualified management, scientific and medical personnel. Many other biotechnology and pharmaceutical companies and academic institutions that F-star competes with for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than F-star does. Therefore, F-star might not be able to attract or retain these key persons on conditions that are economically acceptable. Furthermore, F-star will need to recruit new managers and qualified scientific personnel to develop F-star’s business if F-star expand into fields that will require additional skills. F-star’s inability to attract and retain these key persons could prevent F-star from achieving its objectives and implementing F-star’s business strategy, which could have a material adverse effect on F-star’s business and prospects.

F-star expects to expand F-star’s development, regulatory and sales and marketing capabilities, and as a result, F-star may encounter difficulties in managing F-star’s growth, which could disrupt its operations.

F-star expects to experience significant growth in the number of F-star’s employees and the scope of F-star’s operations, particularly in the areas of drug development, manufacturing, regulatory affairs and sales and marketing. To manage F-star’s anticipated future growth, F-star must continue to implement and improve F-star’s managerial, operational and financial systems, expand F-star’s facilities and continue to recruit and train additional qualified personnel. Due to F-star’s limited financial resources and the limited experience of F-star’s management team in managing a company with such anticipated growth, F-star may not be able to effectively manage the expansion of F-star’s operations or recruit and train additional qualified personnel. The expansion of F-star’s operations may lead to significant costs and may divert F-star’s management and business development resources. Any inability to manage growth could delay the execution of F-star’s business plans or disrupt F-star’s operations.

F-star’s business is subject to economic, political, regulatory and other risks associated with international operations.

As a company incorporated and based in the United Kingdom, F-star’s business is subject to risks associated with conducting business internationally. Accordingly, F-star’s future results could be harmed by a variety of factors, including:

 

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economic weakness, including inflation, or political instability in particular non-U.S. economies and markets;

 

   

differing regulatory requirements for product approvals;

 

   

differing jurisdictions could present different issues for securing, maintaining or obtaining freedom to operate in such jurisdictions;

 

   

potentially reduced protection for intellectual property rights;

 

   

difficulties in compliance with different, complex and changing laws, regulations and court systems of multiple jurisdictions and compliance with a wide variety of foreign laws, treaties and regulations;

 

   

changes in non-U.S. regulations and customs, tariffs and trade barriers;

 

   

changes in non-U.S. currency exchange rates of the pound sterling, U.S. dollar, euro and currency controls;

 

   

changes in a specific country’s or region’s political or economic environment, including the implications of the United Kingdom’s withdrawal from the European Union;

 

   

trade protection measures, import or export licensing requirements or other restrictive actions by governments;

 

   

differing reimbursement regimes and price controls in certain international markets;

 

   

negative consequences from changes in tax laws;

 

   

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad, including, for example, the variable tax treatment in different jurisdictions of share options granted under F-star’s employee stock plan or equity incentive plan;

 

   

workforce uncertainty in countries where labor unrest is more common than in the United States;

 

   

difficulties associated with staffing and managing international operations, including differing labor relations;

 

   

production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

 

   

business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.

Exchange rate fluctuations may materially affect F-star’s results of operations and financial condition.

Due to the international scope of F-star’s operations, F-star’s assets, earnings and cash flows are affected by fluctuations in the exchange rates of several currencies, particularly the U.S. dollar and pound sterling. The functional currency of F-star Therapeutics Limited and F-star’s English subsidiaries is the pound sterling and the majority of F-star’s operating expenses are paid in pounds sterling. The functional currency of F-star’s Austrian subsidiary is the euro.

Additionally, although F-star is based primarily in the United Kingdom, F-star may receive payments from F-star’s business partners in U.S. dollars, Swiss francs and euros and F-star regularly acquire services, consumables and materials in U.S. dollars and euros. Further, potential future revenue may be derived from the United States, countries within the euro zone and various other countries around the world. These future revenues may also be affected by fluctuations in foreign exchange rates which may, in turn, have a significant impact on F-star’s results of operations and cash flows from period to period. As a result, to the extent F-star continue F-star’s expansion on a global basis, F-star expects that increasing portions of F-star’s revenue, cost of revenue, assets and liabilities will be affected by fluctuations in currency valuations. F-star may, therefore, experience economic loss and a negative impact on earnings or net assets solely as a result of currency exchange rate fluctuations.

F-star’s business and operations would suffer in the event of computer system failures, cyber-attacks or a deficiency in F-star, or F-star’s collaborators’ or third-party vendors’, cyber-security.

F-star collects, stores and transmits large amounts of confidential information, including personal information, operational and financial transactions and records, clinical trial data and information relating to intellectual property, on internal information systems and through the information systems of collaborators and third-party vendors with whom F-star contracts. Despite the implementation of security measures, these information systems are vulnerable to damage from computer viruses, malware, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the internet or other mechanisms, attachments to emails, persons inside F-star’s organization, or persons with access to systems inside the organization. No such security measures can eliminate the possibility of the information systems’ improper functioning or the improper access or disclosure of confidential or personally identifiable information such as in the event of cyber-attacks. The risk of a security breach or disruption, particularly through cyber-attacks or cyber-intrusion, including by computer hackers, criminals, ex-U.S. governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.

 

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Additionally, outside parties may attempt to fraudulently induce employees, collaborators, or other third-party vendors to disclose sensitive information or take other actions, including making fraudulent payments or downloading malware, by using “spoofing” and “phishing” emails or other types of attacks. F-star has previously experienced, and in the future may experience “Phishing” attacks despite efforts to prevent and mitigate future instances. For example, in recent years F-star was the target of cyber-attacks comprised of phishing incidents where an immaterial unauthorized payment was made based on misrepresentations or confidential company information was inadvertently shared with an unauthorized external party. The related immaterial payment was recovered by F-star upon identification of the incident. The unauthorized data shared was anonymized therefore no GDPR protection regulations were breached. After an internal investigation, it was determined that no further action was required under either U.K., U.S. federal or state law. It was deemed that the cyber-attacks did not have a material impact to F-star’s business or financial condition. As a result of these incidents F-star, increased its cybersecurity training for all staff. While F-star believes it responded appropriately, including implementing remedial measures to stop this cyber-attack and with the goal of preventing similar events in the future, there can be no assurance that F-star will be successful in these remedial and preventative measures or successfully mitigating the effects of future cyber-attacks.

If such future events were to occur and cause interruptions in F-star’s operations, it could result in a material disruption of F-star’s clinical and research and development activities and business operations. To the extent that any disruption or security breach was to result in a loss of or damage to F-star’s data or applications, or inappropriate disclosure of confidential or proprietary information or making of fraudulent payments, F-star could incur material legal claims and liability, damage to F-star’s reputation, suffer loss or harm to F-star’s intellectual property rights, face significant financial exposure, including incurring significant costs to remediate possible injury to the affected parties and the further research, development and commercial efforts of F-star’s future mAb2 products and product candidates could be delayed.

F-star’s employees, independent contractors, vendors, principal investigators, CROs and consultants may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

F-star is exposed to the risk that its employees, independent contractors, vendors, principal investigators, CROs and consultants may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to F-star that violate the regulations of the FDA, the EMA and other comparable foreign regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to such authorities; healthcare fraud and abuse laws and regulations in the United States and abroad; or laws that require the reporting of financial information or data accurately. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, 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 also involve the improper use of information obtained in the course of clinical trials or creating fraudulent data in F-star’s preclinical studies or clinical trials, which could result in regulatory sanctions and cause serious harm to F-star’s reputation. F-star intends to adopt, prior to the completion of this offering, a code of conduct applicable to all of F-star’s employees, but it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions F-star take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting F-star from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. Additionally, F-star is subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against F-star, and F-star is not successful in defending itself or asserting F-star’s rights, those actions could have a significant impact on F-star’s business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, 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, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of F-star’s operations, any of which could adversely affect F-star’s ability to operate F-star’s business, financial condition and results of operations.

Failure to comply with health and data protection laws and regulations could lead to government enforcement actions, including civil or criminal penalties, private litigation, and adverse publicity and could negatively affect F-star’s operating results and business.

F-star and any potential collaborators may be subject to federal, state, and foreign data protection laws and regulations, such as laws and regulations that address privacy and data security. In the United States, numerous federal and state laws and regulations, including federal health information privacy laws, state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws, including Section 5 of the Federal Trade Commission Act, that govern the collection, use, disclosure and protection of health-related and other personal information could apply to F-star’s operations or the operations of F-star’s collaborators. In addition, F-star may obtain health information from third parties, including research institutions from which F-star obtains clinical trial data that are subject to privacy and security requirements under HIPAA, as amended by HITECH. Depending on the facts and circumstances, F-star could be subject to civil, criminal, and administrative penalties if F-star knowingly obtain, use, or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA.

Compliance with U.S. and international data protection laws and regulations could require F-star to take on more onerous obligations in F-star’s contracts, restrict F-star’s ability to collect, use and disclose data, or in some cases, impact F-star’s ability to operate in certain jurisdictions. Failure to comply with these laws and regulations could result in government enforcement actions (which could include civil, criminal and administrative penalties), private litigation, and/or adverse publicity and could negatively affect F-star’s operating results and business. Moreover, clinical trial subjects, employees and other individuals about whom F-star or F-star’s potential collaborators obtain personal information, as well as the providers who share this information with F-star, may limit F-star’s ability to collect, use and disclose the information. Claims that F-star has violated individuals’ privacy rights, failed to comply with data protection laws, or breached F-star’s contractual obligations, even if F-star is not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm F-star’s business.

 

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F-star is subject to the U.K. Bribery Act 2010, the U.S. Foreign Corrupt Practices Act of 1977, and other anti-corruption laws, as well as export control laws, import and customs laws, trade and economic sanctions laws and other laws governing F-star’s operations.

F-star’s operations are subject to anti-corruption laws, including the U.K. Bribery Act 2010 (the “Bribery Act”), the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. §201, the U.S. Travel Act and other anti-corruption laws that apply in countries where F-star does business. The Bribery Act, the FCPA and these other laws generally prohibit F-star and F-star’s employees and intermediaries from authorizing, promising, offering, or providing, directly or indirectly, a financial or other advantage to government officials or other persons to induce them to improperly perform a relevant function or activity (or reward them for such behavior).

Under the Bribery Act, F-star may also be liable for failing to prevent a person associated with F-star from committing a bribery offense. F-star, along with those acting on F-star’s behalf and F-star’s commercial partners, operate in a number of jurisdictions that pose a high risk of potential Bribery Act or FCPA violations, and F-star participates in collaborations and relationships with third parties whose corrupt or illegal activities could potentially subject F-star to liability under the Bribery Act, FCPA or local anti-corruption laws, even if F-star does not explicitly authorize or have actual knowledge of such activities. In addition, F-star cannot predict the nature, scope or effect of future regulatory requirements to which F-star’s international operations might be subject or the manner in which existing laws might be administered or interpreted.

Compliance with the Bribery Act, the FCPA and these other laws is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, anti-corruption laws present particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials.

F-star is also subject to other laws and regulations governing F-star’s international operations, including regulations administered by the governments of the United Kingdom and the United States, and authorities in the European Union, including applicable export control regulations, economic sanctions and embargoes on certain countries and persons, anti-money laundering laws, import and customs requirements and currency exchange regulations, collectively referred to as the Trade Control laws.

There is no assurance that F-star will be completely effective in ensuring F-star’s compliance with all applicable anti-corruption laws, including the Bribery Act, the FCPA or other legal requirements, including Trade Control laws. If F-star is not in compliance with the Bribery Act, the FCPA and other anti-corruption laws or Trade Control laws, F-star may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses. Such liabilities could have an adverse impact on F-star’s business, financial condition, results of operations and liquidity. Likewise, any investigation of any potential violations of the Bribery Act, the FCPA, other anti-corruption laws or Trade Control laws could also have an adverse impact on F-star’s reputation, business, results of operations and financial condition. Further, the failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting.

If F-star fails to comply with environmental, health and safety laws and regulations, F-star could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of F-star’s business.

F-star 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. F-star’s operations involve the use of hazardous and flammable materials, including chemicals and biological materials. F-star’s operations also produce hazardous waste products. F-star generally contract with third parties for the disposal of these materials and wastes. F-star cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from F-star’s use of hazardous materials, F-star could be held liable for any resulting damages, and any liability could exceed F-star’s resources. F-star also could incur significant costs associated with civil or criminal fines and penalties.

Although F-star maintains workers’ compensation insurance to cover it for costs and expenses F-star may incur due to injuries to F-star’s employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. F-star does not maintain insurance for environmental liability or toxic tort claims that may be asserted against F-star in connection with F-star’s storage or disposal of biological, hazardous or radioactive materials.

Legal, political and economic uncertainty surrounding the exit of the United Kingdom from the European Union may be a source of instability in international markets, create significant currency fluctuations, adversely affect F-star’s operations in the United Kingdom and pose additional risks to F-star’s business, revenue, financial condition, and results of operations.

On June 23, 2016, the electorate in the United Kingdom voted in favor of Brexit. Thereafter, on March 29, 2017, the country formally notified the EU of its intention to withdraw pursuant to Article 50 of the Lisbon Treaty. The withdrawal of the United Kingdom from the European Union took effect on January 31, 2020 the effective date of the withdrawal agreement with a transition period due to end on December 31, 2020. It appears likely that this withdrawal will involve a process of lengthy negotiations between the United Kingdom and European Union member states to determine the future terms of the United Kingdom’s relationship with the European Union. This could lead to a period of considerable uncertainty and volatility, particularly in relation to United Kingdom financial and banking markets. Weakening of economic conditions or economic uncertainties could harm F-star’s business, and if such conditions emerge in the United Kingdom or in the rest of Europe, it may have a material adverse effect on F-star’s operations.

 

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Currency exchange rates in the pound sterling and the euro with respect to each other and the U.S. dollar have already been adversely affected by Brexit and that may continue to be the case. In addition, depending on the terms of Brexit, the United Kingdom could lose the benefits of global trade agreements negotiated by the European Union on behalf of its members, which may result in increased trade barriers which could make doing business in Europe more difficult.

F-star may also face new and additional regulatory costs and challenges from Brexit that could have a material adverse effect on operations. Since a significant proportion of the regulatory framework in the United Kingdom is derived from EU directives and regulations, the referendum could materially impact the regulatory regime with respect to the approval of F-star’s product candidates in the United Kingdom or the European Union. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent F-star from commercializing product candidates in the United Kingdom and/or the EU and restrict its ability to generate revenue and achieve and sustain profitability. If any of these outcomes occur, F-star may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom and/or EU for its product candidates, which could significantly and materially harm F-star’s business.

European data collection (in the context of a European establishment or related to the monitoring of European individuals’ behavior) is governed by restrictive regulations governing the use, processing and cross-border transfer of personal information.

The collection and use of personal health data in the European Union is governed by the provisions of the GDPR. This legislation imposes requirements relating to having legal bases for processing personal information relating to identifiable individuals (personal data) and transferring such information outside the European Economic Area (“EEA”) including to the United States, providing details to those individuals regarding the processing of their personal data, keeping personal data secure, having data processing agreements with third parties who process personal data on F-star’s behalf, responding to individuals’ requests to exercise their rights in respect of their personal data, reporting security breaches involving personal data to the competent national data protection authority and affected individuals, appointing data protection officers, conducting data protection impact assessments and record-keeping. As F-star has operations based in the United Kingdom and Austria, F-star is subject to the GDPR because of F-star’s data processing activities that involve the personal data of individuals in connection with F-star’s clinical trials. The GDPR imposes responsibilities and liabilities in relation to personal data that F-star process and F-star may be required to put in place additional mechanisms ensuring compliance with these data protection rules. This may be onerous and may interrupt or delay F-star’s development activities, and adversely affect F-star’s business, financial condition, results of operations and prospects. Failure to comply with the requirements of the GDPR and related national data protection laws of the member states of the European Union may result in substantial fines, other administrative penalties and civil claims being brought against F-star, which could have a material adverse effect on F-star’s business, results of operations and financial condition.

 

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EX-99.5
Table of Contents


Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of F-star Therapeutics Inc

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of F-star Therapeutics Limited and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit) and cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has incurred significant losses and has an accumulated deficit that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Cambridge, United Kingdom

February 5, 2021

We have served as the Company’s or its predecessor’s auditor since 2013.

 

F-2


Table of Contents

F-star Therapeutics Limited

Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Amounts)

 

     December 31,
2019
    December 31,
2018
 
Assets     

Current assets:

    

Cash and cash equivalents

   $ 4,901     $ 8,196  

Prepaid expenses and other current assets

     3,588       439  

Research and development tax credit receivable

     10,532       241  
  

 

 

   

 

 

 

Total Current Assets

     19,021       8,876  

Property and equipment, net

     1,425       —    

Goodwill

     4,320       —    

In-process research and development

     13,049       —    

Other long-term assets

     663       —    
  

 

 

   

 

 

 

Total Assets

   $ 38,478     $ 8,876  
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity     

Current Liabilities:

    

Accounts payable

   $ 5,056     $ 596  

Accounts payable - related party

     —         783  

Accrued expenses and other current liabilities

     8,876       597  

Operating lease liability

     610       —    

Deferred revenue

     442       5,824  

Convertible notes

     14,906       —    
  

 

 

   

 

 

 

Total Current Liabilities

     29,890       7,800  

Operating lease liability

     52       —    
  

 

 

   

 

 

 

Total Liabilities

     29,942       7,800  
  

 

 

   

 

 

 

Stockholders’ Equity

    

Preferred stock, $0.00759446 par value; unlimited authorized at December 31, 2019; 103,611 and zero seed preferred shares issued and outstanding at December 31, 2018

     1       —    

Preferred stock, $0.00759446 par value; unlimited authorized at December 31, 2019;1, 441,418 and zero series A preferred shares issued and outstanding at December 31, 2018

     19       —    

Ordinary shares, $0.0131675 par value; unlimited authorized at December 31, 2019;16,231,731 and 100 ordinary shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively

     214       —    

Additional paid-in capital

     31,485       —    

Accumulated other comprehensive (loss) income

     (1,634     (388

Accumulated deficit

     (21,549     1,464  
  

 

 

   

 

 

 

Total Stockholders’ Equity

     8,536       1,076  
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 38,478     $ 8,876  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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F-star Therapeutics Limited

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, Except Share and Per Share Amounts)

 

     For the Year Ended December 31,  
     2019     2018  

License revenue

   $ 28,321     $ 40,109  

Operating expenses:

    

Research and development

     (31,386     (30,133

General and administrative

     (15,280     (519

Impairment of intangible assets

     (4,152     —    
  

 

 

   

 

 

 

Total operating expenses

     (50,818     (30,652
  

 

 

   

 

 

 

(Loss) profit from operations

     (22,497     9,457  
  

 

 

   

 

 

 

Other income (expense), net:

    

Other income (net)

     197       246  

Change in fair value of convertible notes

     (1,450     —    
  

 

 

   

 

 

 

(Loss) income before income taxes

     (23,750     9,703  
  

 

 

   

 

 

 

Benefit (loss) for income taxes

     737       (1
  

 

 

   

 

 

 

Net (loss) income

   $ (23,013   $ 9,702  
  

 

 

   

 

 

 

Net (loss) income attributable to ordinary shareholders

   $ (23,013   $ 9,702  
  

 

 

   

 

 

 

Basic and diluted net (loss) earnings per share

   $ (1.68   $ 1.07  
  

 

 

   

 

 

 

Weighted-average number of ordinary shares outstanding

     13,734,903       9,053,658  
  

 

 

   

 

 

 

Net (loss) income

   $ (23,013   $ 9,702  

Other comprehensive (loss) income:

    

Foreign currency translation adjustments

     (1,246     115
  

 

 

   

 

 

 

Total comprehensive (loss) income

   $ (24,259   $ 9,817  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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F-star Therapeutics Limited

Consolidated Statements of Stockholders’ Equity (Deficit)

(In thousands, except share amounts)

 

     Seed preferred shares      Series A
preferred shares
     Shareholders’ Equity (Deficit)  
                                 Ordinary Shares      Additional
Paid-in Capital
     Accumulated
Other
    Retained
earnings
    Total
Shareholders’
 
     Number      Value      Number      Value      Number      Value     

 

     Comprehensive
Income/(loss)
    (Accumulated
deficit)
    (Deficit)/
Equity
 

Balance at January 1, 2018

     —        $ —          —        $ —          100      $ —        $ —        $ (503   $ (8,238   $ (8,741

Foreign currency translation adjustments

     —          —          —          —          —          —          —          115       —         115  

Net profit for the period

     —          —          —          —          —          —          —          —         9,702       9,702  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at December 31, 2018

     —          —          —          —          100        —          —          (388     1,464       1,076  

Issuance of shares for acquisition of GmbH

     103,611        1        —          —          —          —          168        —         —         169  

Issuance of shares for acquisition of GmbH

     —          —          1,441,418        19        —          —          2,341        —         —         2,360  

Issuance of shares for acquisition of Delta

     —          —          —          —          9,053,538        119        14,705        —         —         14,824  

Issuance of shares for acquisition of Beta

     —          —          —          —          6,446,843        85        10,471        —         —         10,556  

Issuance of shares for acquisition of GmbH

     —          —          —          —          125,715        2        204        —         —         206  

Issuance of shares for acquisition of Alpha

     —          —          —          —          570,387        8        927        —         —         935  

Issuance of shares for stock options exercised

                 35,148        —          —          —         —         —    

Foreign currency translation adjustments

     —          —          —          —          —          —          —          (1,246     —         (1,246

Net loss for the period

     —          —          —          —          —          —          —          —         (23,013     (23,013

Share based compensation expense

     —          —          —          —          —          —          2,669        —         —         2,669  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at December 31, 2019

     103,611      $ 1        1,441,418      $ 19        16,231,731      $ 214      $ 31,485      $ (1,634   $ (21,549   $ 8,536  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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F-star Therapeutics Limited

Consolidated Statements of Cash Flows

(In thousands)

 

     For the Year Ended December 31,  
     2019     2018  

Cash flows from operating activities:

    

Net (loss)/income

   $ (23,013   $ 9,702  

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

    

Share based compensation expense

     2,669       —    

Foreign currency loss

     81    

Loss on disposal of tangible fixed assets

     14       —    

Depreciation

     844       —    

Intangible asset impairment

     4,152       —    

Interest expense

     197       —    

Fair value adjustment of convertible term loan

     1,450       —    

Changes in operating assets and liabilities:

    

Prepaid expenses and other current assets

     322       520  

Tax incentive receivable

     (5,883     (681

Accounts payable

     3,049       207  

Accounts payable to related parties

     (789     (224

Accrued expenses and other current liabilities

     1,525       303  

Deferred revenue

     (6,350     (6,388

Operating lease liability

     (379     —    
  

 

 

   

 

 

 

Net cash (used in) provided by operating activities

     (22,111     3,439  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Cash acquired with subsidiaries*

     5,499       —    

Purchase of intangible assets

     (127     —    
  

 

 

   

 

 

 

Net cash provided by investing activities

     5,372       —    
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from issuance of convertible notes

     13,264       —    
  

 

 

   

 

 

 

Net cash provided by financing activities

     13,264       —    
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (3,475     3,439  

Effect of exchange rate changes on cash

     180       (343

Cash and cash equivalents at beginning of year

     8,196       5,100  
  

 

 

   

 

 

 

Cash and cash equivalents at end of year

   $ 4,901     $ 8,196  
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information

    

Cash paid for income taxes

   $ 249     $ 670  

Cash paid for amounts included in the measurement of operating lease

     380       —    

 

*

Consideration for acquisition of subsidiaries was entirely in the form of issued shares. See note 4 for supplemental disclosure of assets and liabilities acquired with subsidiaries.

The accompanying notes are an integral part of these consolidated financial statements.

 

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F-star Therapeutics Limited

Note to Consolidated Financial Statements

1. Nature of the business

F-star Therapeutics Limited (collectively with its subsidiaries, “F-star” or the “Company”) 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 clinically 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, is currently being evaluated in a Phase 1 clinical trial in heavily pre-treated patients with advanced cancer, having received a median of six lines of such treatments, and who have failed PD-1/PD-L1 therapy. FS118 is a tetravalent mAb2 bispecific antibody targeting two receptors, PD-L1 and LAG-3, both of which are established pivotal targets in immuno-oncology. Preliminary data from 43 patients in this trial showed that administration of FS118 was well-tolerated. In addition, a disease control rate, defined as either a complete response, partial response or stable disease, of 54% was observed in 20 of 37 evaluable patients, and long-term (greater than six months) disease control was observed in six of these patients. F-star expects to report additional results from this Phase 1 trial in the fourth quarter of 2020 and to initiate a proof-of-concept trial in PD-1 resistant head and neck cancer patients in the first half of 2021.

On January 27, 2020, the U.S. Food and Drug Administration (the “FDA”), accepted the Investigational New Drug (the “IND”) application of product candidate FS120. FS120 is a first-in-class dual agonist bispecific antibody that has the potential to overcome cancer resistance by simultaneously targeting CD137 (4-1BB) and OX40, two receptors present on the surface of tumor-infiltrating lymphocytes. Unlike checkpoint inhibitors, the mechanism of action of FS120 is designed to trigger a positive signal that enhances multiple mechanisms essential for killing tumor cells. FS120 has a natural antibody format. It is engineered to abrogate Fc gamma receptor binding and effector activity, providing increased specificity and, F-star believes, superior performance while reducing toxicity through conditional, crosslink-dependent activation upon binding to both CD137 and OX40. F-star expects to enroll up to 70 patients in a Phase 1 dose escalation clinical trial to assess the safety, tolerability and efficacy of FS120 in patients with advanced malignancies and include those patients who have high co-expression of CD137 and OX40.

Share Exchange Agreement with Spring Bank

On November 20, 2020, F-star completed a share exchange agreement with Spring Bank Pharmaceuticals Inc (“Spring Bank”), a NASDAQ- listed, clinical-stage biopharmaceutical company. Immediately prior to the combination, Spring Bank effectuated a 1:4 reverse stock split of shares of its common stock. Concurrent with the closing of the business combination, each outstanding share of F-star was exchanged for Spring Bank common stock at an exchange ratio of 0.1125. The resulting ownership percentages for Spring Bank shareholders and F-star shareholders immediately as of the closing was 46.3% and 53.7%, respectively. Concurrent with the closing of the combination, an investor syndicate that comprises Atlas, AESCAP, SR One, M Ventures, MH Partners and other new investors, invested $15 million in F-star. After the merger, the Company had approximately $30 million in cash. The combined company is now headquartered out of F-star’s existing facilities in Cambridge, U.K. and Cambridge, MA. Spring Bank has been re-named F-star Therapeutics, Inc.

Spring Bank shareholders will have the opportunity to obtain potential future value in the form of two Contingent Value Rights (CVR) associated with Spring Bank’s SB 11285 IV clinical program and a STING antagonist research and development program. Subject to the terms of the first CVR agreement for the STING agonist clinical program, if one or more strategic transactions are consummated for SB 11285 by the combined company during a period that is the longer of one and a half years following the closing of the combination or one year after the final database lock of the current SB 11285 IV Phase 1a/1b trial, those equity holders of Spring Bank will receive the greater of 25% of the net proceeds from such transactions or $1.00 per share (on a pre-reverse split basis), provided that the aggregate net proceeds are at least approximately $18.0 million. Subject to the terms of the second CVR agreement, if a potential development agreement is consummated and one or more strategic transactions are consummated for the STING antagonist research platform by the combined company during the seven (7)-year period following the closing of the combination, those equity holders of Spring Bank will receive 80% of the net proceeds from such transactions. If Spring Bank enters into a development agreement for the STING antagonist research platform in advance of the closing of the proposed combination, Spring Bank may include certain proceeds from such transaction in its net cash calculation.

 

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2019 reorganization

On May 7, 2019, F-star Therapeutics Limited (“FTL”) acquired 100% of the issued share capital of F-star Delta Ltd (“Delta”), F-star Beta Ltd (“Beta”), F-star Biotechnologische Forschungs-und Entwicklungsges.m.b.H. (“GmbH”), and F-star Alpha Ltd (“Alpha”) (collectively, the “F-star Group Entities”).

The shareholdings in the F-star Group Entities were transferred to FTL in consideration of the issue of new shares in FTL to the shareholders of Alpha, Beta, Delta and GmbH. The transactions were all enacted on May 7, 2019, in two steps:

 

  1.

The shareholders in Delta transferred their shares to FTL in consideration of receiving new shares in FTL (corporate reorganization)

 

  2.

The shareholders in Beta, GmbH and Alpha transferred their shares to FTL in consideration of receiving new shares in FTL (business combination and asset acquisition)

FTL, 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. Accordingly, it was not deemed substantive nor the accounting acquirer of the F-star Group Entities. The initial transaction was therefore accounted for as a reverse acquisition with Delta subsequently obtaining a controlling interest in GmbH and Beta, and a controlling interest in Alpha through asset acquisition. The effect of the reverse acquisition accounting is that the comparative financial statements and current year statements to the date of consolidation (May 7, 2019) will reflect the operations, historical financial position and financial performance of Delta.

The primary reason for the 2019 reorganization was to bring the F-star entities under common ownership of a holding company to enable management to enact its financial strategy of listing the share capital of F-star on a public exchange.

Risks and Uncertainties

The Company is subject to risks common to companies in the biotechnology industry, including but not limited to, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for any drug product candidate that it may identify and develop, the need to successfully commercialize and gain market acceptance of its product candidates, dependence on key personnel and collaboration partners, protection of proprietary technology, compliance with government regulations, development by competitors of technological innovations, and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval prior to commercialization. Even if the Company’s research and development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

The accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. Since inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and securing funding via collaborations. The Company has historically funded its operations with proceeds from sales of convertible notes and proceeds received from its collaboration arrangements. After the merger, the Company had approximately $30 million in cash. The Company expects to continue to generate operating losses in the foreseeable future, particularly as the Company advances its preclinical activities and clinical trials for its product candidates in development. The Company plans to seek additional funding through public equity, private equity, debt financing, collaboration partnerships, or other sources. There are no assurances, however, that the Company will be successful in these endeavors.

If the Company is unable to obtain funding, the Company could be forced to delay, reduce, or eliminate its research and development programs, or reduce product candidate expansion, which could adversely affect its business prospects. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding to fund continuing operations on terms acceptable to the Company to fund continuing operations, if at all.

Accordingly, the Company has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least twelve months from the date of the financial statements.

Covid-19

In March 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. The COVID-19 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.

 

 

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Management is closely monitoring the impact of the COVID-19 pandemic on all aspects of the business, including how it will impact operations and the operations of customers, vendors and business partners. Management took action in April 2020 to reduce its research and development workforce, but do not yet know the full extent of potential delays or impacts on the business, clinical trials, research programs, healthcare systems or the global economy and cannot presently predict the scope and severity of any potential business shutdowns or disruptions. The extent to which COVID-19 ultimately impacts the business, results of operation and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, new information that may emerge concerning the severity of COVID-19 or the effectiveness of actions to contain COVID-19 or treat its impact, among others. If the Company or any of the third parties with which it engages, however, were to experience shutdowns or other business disruptions, the ability to conduct business in the manner and on the timelines presently planned could be materially and negatively affected, which could have a material adverse impact on business, results of operation and financial condition. The estimates of the impact on the Company’s business may change based on new information that may emerge concerning COVID-19 and the actions to contain it or treat its impact and the economic impact on local, regional, national and international markets.

Management have not incurred any significant impairment losses in the carrying values of assets as a result of the pandemic and are not aware of any specific related event or circumstance that would require management to revise estimates reflected in these consolidated financial statements.

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company’s financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The financial statements for the years ended December 31, 2019 and 2018, which were previously presented in accordance with International Financial Reporting Standards (”IFRS”) as issued by the International Accounting Standards Board, have been adjusted as required to be compliant with the Company’s accounting policies under U.S. GAAP.

The significant impacts of the conversion are a reduction of acquired in-process research and development (IPR&D) assets held on the balance sheet prior to the 2019 reorganization, a reduction in the associated deferred tax liability and a reversal of amortization and impairment losses relating to these assets.

The accompanying consolidated financial statements include the accounts of F-star Therapeutics Limited and its wholly owned subsidiaries:

F-star Delta Limited, a limited company under the laws of England and Wales (“Delta”);

F-star Beta Limited, a limited company under the laws of England and Wales (“Beta”);

f-star Biotechnologische Forschungs-und Entwicklungsges.m.b.H, a limited company under the laws of Austria (“GmbH”);

F-star Biotechnology Limited, a limited company under the laws of England and Wales (“Biotechnology”);

F-star Therapeutics LLC, a limited liability Company under the laws of Delaware, United States (“LLC);

F-star Alpha Limited., a limited company under the laws of England and Wales (“Alpha”)

The consolidated financial statements include accounts of the parent and its wholly owned subsidiaries. All intercompany balances and transactions between the consolidated companies have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, consideration for the acquisition of Alpha, Beta, Delta and GmbH as part of the 2019 reorganization, fair value of the convertible loan notes containing embedded derivatives, the accrual for research and development expenses, revenue recognition, fair values of acquired intangible assets and impairment review of those assets, share based compensation expense, and income taxes. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. Estimates are periodically reviewed in light of reasonable changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates or assumptions.

Foreign currency and currency translation

The functional currency is the currency of the primary economic environment in which an entity’s operations are conducted. F-star Therapeutics Limited and its subsidiaries operate mainly in the United Kingdom and Austria and have the following functional currencies:

 

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F-star Therapeutics Limited, Cambridge, U.K.    pounds sterling   
F-star Delta Limited, Cambridge, U.K.    pounds sterling   
f-star Biotechnologische Forschungs-und Entwicklungsges.m.b.H., Vienna, Austria    euro   
F-star Biotechnology Limited, Cambridge, U.K.    pounds sterling   
F-star Alpha Limited, Cambridge, U.K.    pounds sterling   
F-star Beta Limited, Cambridge, U.K.    pounds sterling   
F-star Therapeutics LLC, Delaware, U.S    U.S. dollar   

The Company’s reporting currency is the U.S dollar. References to “$” are U.S dollars. Translation differences resulting from the conversion from functional currency to reporting currency are included as part of the cumulative foreign currency translation adjustment, which is reported as a component of shareholders’ equity under accumulated other comprehensive loss.

Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured into the functional currency at rates of exchange prevailing at the balance sheet dates. Non-monetary assets and liabilities denominated in foreign currencies are remeasured into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net loss for the respective periods. Adjustments that arise from exchange rate changes on transactions denominated in a currency other than the local currency are included in foreign currency gain/(loss) in the consolidated statements of operations and comprehensive loss as incurred. The Company recorded a foreign exchange gain of $0.3 million and $0.2 million included in other income (net) in the consolidated statement of operations and comprehensive loss for the years ended December 31, 2019, and 2018, respectively.

The Company translates the assets and liabilities of its subsidiaries into U.S. dollar at the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at the average exchange rate in effect during the period. Unrealized translation gains and losses are recorded as a cumulative translation adjustment, which is included in the consolidated statements of shareholders’ equity as a component of accumulated other comprehensive income/(loss).

Concentrations of credit risk and of significant suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains its cash and cash equivalents in financial institutions in amounts that could exceed government-insured limits. The Company does not believe it is subject to additional credit risks beyond those normally associated with commercial banking relationships.

The Company is dependent on third-party manufacturers to supply products for research and development activities in its programs. In particular, the Company relies and expects to continue to rely on a small number of manufacturers to supply its requirements for supplies and raw materials related to these programs. These programs could be adversely affected by a significant interruption in these manufacturing services or the availability of raw materials.

Cash and cash equivalents

The Company considers all highly liquid investments with original maturities of three months or less at date of purchase to be cash equivalents. The Company had no cash equivalents on December 31, 2019, and 2018.

Property. plant and equipment

Property, plant and equipment are stated at cost, less accumulated depreciation amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful lives of the respective assets as follows:

 

     Estimated Useful Economic Life

Leasehold property improvements, right of use assets

   Lesser of lease term or useful life

Laboratory equipment

   5 years

Furniture and office equipment

   3 years

Costs for capital assets not yet placed into service are capitalized as construction-in-progress and depreciated in accordance with the above guidelines once placed into service. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in loss from operations. As of December 31, 2019, and 2018, there have been no significant asset retirements to date. Expenditures for repairs and maintenance that do not improve or extend the lives of the respective assets are charged to expense as incurred.

 

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Impairment of long-lived assets

Long-lived assets consist of property and equipment, goodwill, and intangible assets. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. An impairment loss would be recognized in loss from operations when estimated undiscounted future cash flows expected to result from the use of an asset group or the estimated return on investment are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flow or return on investment calculations. The Company recorded an impairment loss on long-lived assets during the year ended December 31, 2019 (see note 7).    

Business Combinations and Goodwill

Business combinations are accounted for in accordance with ASC Topic 805 “Business Combinations”. The total purchase price of an acquisition is allocated to the underlying identifiable net assets, based on their respective estimated fair values as of the acquisition date. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, probabilities of success, discount rates, and asset lives, among other items. Assets acquired and liabilities assumed are recorded at their estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Goodwill is tested for impairment at the reporting unit level annually in the fourth quarter, or more frequently when events or changes in circumstances indicate that the asset might be impaired. Examples of such events or circumstances include, but are not limited to, a significant adverse change in legal or business climate, an adverse regulatory action or unanticipated competition. The Company has determined that it operates in a single operating segment and has a single reporting unit. To perform its quantitative test, the Company compares the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of its net assets, goodwill is not impaired, and no further testing is required. If the fair value of the reporting unit is less than the carrying value, the Company measures the amount of impairment loss, if any, as the excess of the carrying value over the fair value of the reporting unit. Management determined that there are no indications of impairment as of December 31, 2019.

Acquired In-process Research and Development (IPR&D)

In connection with the 2019 corporate reorganization, the Company acquired certain in-process research and development (“IPR&D”) assets, which were classified as indefinite-lived intangible assets. Acquired IPR&D represents the fair value assigned to research and development assets that the Company acquires and have not been completed at the acquisition date. The fair value of IPR&D acquired in a business combination is recorded on the Company’s consolidated balance sheets at the acquisition-date fair value and is determined by estimating the costs to develop the technology into commercially viable products, estimating the resulting revenue from the projects, and discounting the projected net cash flows to present value. IPR&D is not amortized, but rather is reviewed for impairment on an annual basis or more frequently if indicators of impairment are present, until the project is completed, abandoned or transferred to a third party. The projected discounted cash flow models used to estimate the fair value of partnered assets and cost approach model used to estimate proprietary assets as part of the Company’s IPR&D reflect significant assumptions regarding the estimates a market participant would make in order to evaluate a drug development asset, including the following:

 

   

Estimates of obsolescence of development expenditure;

 

   

Probability of successfully completing clinical trials and obtaining regulatory approval;

 

   

Estimates of future cash flows from potential milestone payments and royalties related to out-licensed product sales; and

 

   

A discount rate reflecting the Company’s weighted average cost of capital and specific risk inherent in the underlying assets.

Once brought into use, intangible assets are amortized over their estimated useful economic lives (“UEL”), which for acquired IPR&D assets is over the remaining life of the relevant patents.

Financial instruments

The Group recognizes financial assets and liabilities in the respective categories “Financial assets held at amortized cost”, ”Financial liabilities measured at amortized cost”, “Financial assets held at fair value through profit and loss” and “Financial liabilities held at fair value through profit and loss”.

Financial assets and liabilities held at amortized cost

Financial assets at amortized cost are non-derivative financial assets which are held to collect the contractual cash flows on specified dates. They arise when the Company provides money, goods or services directly to the debtor with no intention of trading the receivable.

 

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They are included in current assets, except for maturities greater than 12 months after the year / period end date, which are classified as non-current assets.

Other liabilities consist of trade and other payables, being balances arising in the course of normal business with suppliers, contractors and other service providers, and operating leases for office and laboratory space.

Financial assets at amortized cost, and other liabilities are initially recorded at fair value, and thereafter at amortized cost, if the timing difference is deemed to impact the fair value of the asset or liability. The Company makes judgments as to its ability to collect outstanding receivables and provides an allowance for receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices and the overall quality and age of those invoices. To date, the Company has not had any write-offs of bad debt, and the Company did not have an allowance for doubtful accounts as of December 31, 2019 and 2018.

Financial assets held at cost less impairment

The Company has elected to measure its equity investments at cost less impairment, with any impairment losses recognized in the Consolidated Statement of Operations.

Financial assets and liabilities held at fair value through profit and loss

The convertible debt instruments issued by the Company do not contain a non-contingent beneficial conversion feature or a cash conversion feature and therefore the Company has elected to classify the notes as held at fair value through profit and loss and the entire debt instrument is measured in the consolidated financial statement of financial position at fair value at each reporting date. The convertible notes are classified as current or non-current liabilities based upon either the remaining contractual term of the notes (if less than 1 year) or management’s best estimate of the most likely date of conversion.

Fair value measurements of financial instruments

Certain assets and liabilities of the Company are carried at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances.

ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following:

 

   

Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

   

Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

 

   

Level 3 — Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The carrying amounts reflected in the Consolidated Balance Sheets for cash and cash equivalents, and other current assets, research and development incentives receivable, accounts payable and accrued liabilities and other current liabilities approximate their fair values, due to their short-term nature.

Segment and geographic information

Operating segments are defined as components of a business for which separate discrete financial information is available for evaluation by the chief operating decision maker in deciding how to allocate resources and assess performance. The Company and its chief operating decision maker, the Company’s Chief Executive Officer, view the Company’s operations and manages its business as a single operating segment, which is developing a unique class of tetravalent, bispecific therapeutic antibodies.

 

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The Company operates in three geographic areas: the United Kingdom, United States and Austria.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in the Company’s consolidated balance sheet. The Company has not entered any into financing leases.

ROU assets represent the Company’s right to use and control an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The ROU asset also includes lease payments made before the lease commencement date and excludes any lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

The components of a lease shall be split into three categories, if applicable: lease components (e.g., land, building, etc.), non-lease components (e.g., common area maintenance, maintenance, consumables, etc.), and non-components (e.g., property taxes, insurance, etc.). The fixed and in-substance fixed contract consideration (including any related to non-components) must then be allocated based on fair values to the lease components and non-lease components. The Company’s facilities operating leases may have lease and non-lease components to which the Company has elected to apply a practical expedient to account for each lease component and related non-lease component as one single component. The lease component results in a right-of-use asset being recorded on the balance sheet. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

License and collaboration arrangements and revenue recognition

The Company’s revenues are generated primarily through license and collaboration agreements with pharmaceutical and biotechnology companies. The terms of these arrangements may include (i) the grant of intellectual property rights (IP licenses) to therapeutic drug candidates against specified targets, developed using the Company’s proprietary mAb2 bispecific antibody platform, (ii) performing research and development services to optimize drug candidates, and (iii) the grant of options to obtain additional research and development services or licenses for additional targets, or to optimize product candidates, upon the payment of option fees.

The terms of these arrangements typically include payment to the Company of one or more of the following: non-refundable, upfront license fees; payments for research and development services; fees upon the exercise of options to obtain additional services or licenses; payments based upon the achievement of defined collaboration objectives; future regulatory and sales-based milestone payments; and royalties on net sales of future products.

The Company has adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) using the full retrospective method as of January 1, 2018 and has applied it to all periods presented. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. To date, the Company has entered into License and Collaboration Agreements with Denali Therapeutics, Inc. and Ares Trading S.A. (Merck KGaA) which were determined to be within the scope of ASC 606.

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In determining the appropriate amount of revenue to be recognized under ASC 606, the company performs the following steps:

 

  (i)

identify the promised goods or services in the contract;

 

  (ii)

determine whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract;

 

  (iii)

measurement of the transaction price, including the constraint on variable consideration;

 

  (iv)

allocation of the transaction price to the performance obligations; and

 

  (v)

recognition of revenue when (or as) the Company satisfies each performance obligation.

As part of the accounting for these arrangements, the Company must make significant judgments, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each performance obligation.

Once a contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within the contract and determines those that are performance obligations. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations.

 

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Performance obligations are promised goods or services in a contract to transfer a distinct good or service to the customer. The promised goods or services in the Company’s contracts with customers primarily consist of license rights to the Company’s intellectual property for research and development, research and development services, options to acquire additional research and development services, and options to obtain additional licenses, such as a commercialization license for a potential product candidate. Promised goods or services are considered distinct when:

 

  (i)

the customer can benefit from the good or service on its own or together with other readily available resources, and

 

  (ii)

the promised good or service is separately identifiable from other promises in the contract.

In assessing whether promised goods or services are distinct, the Company considers factors such as the stage of development of the underlying intellectual property, the capabilities of the customer to develop the intellectual property on their own and whether the required expertise is readily available. In addition, the Company considers whether the collaboration partner can benefit from a promise for its intended purpose without the receipt of the remaining promises, whether the value of the promise is dependent on the unsatisfied promises, whether there are other vendors that could provide the remaining promises, and whether it is separately identifiable from the remaining promises. The Company estimates the transaction price based on the amount of consideration the Company expects to receive for transferring the promised goods or services in the contract. The consideration may include both fixed consideration and variable consideration. At the inception of each arrangement that includes variable consideration, the Company evaluates the amount of the potential payments and the likelihood that the payments will be received. The Company utilizes either the most likely amount method or expected value method to estimate variable consideration to include in the transaction price based on which method better predicts the amount of consideration expected to be received. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.

After the transaction price is determined it is allocated to the identified performance obligations based on the estimated standalone selling price. The Company must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract. The Company utilizes key assumptions to determine the standalone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction, probabilities of technical and regulatory success and the estimated costs. Certain variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated to each performance obligation are consistent with the amounts the Company would expect to receive for each performance obligation.

The Company then recognizes as revenue in the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time based on the use of an input method.

The Company accounts for contract modifications as a separate contract if both of the following conditions are met:

 

  (i)

the scope of the contract increases because of the addition of promised goods or services that are distinct; and

 

  (ii)

the price of the contract increases by an amount of consideration that reflects standalone selling prices of the additional promised goods or services and any appropriate adjustments to that price to reflect the circumstances of the particular contract.

If a contract modification is deemed to not be a separate contract, then the transaction price is updated and allocated to the remaining performance obligations (both from the existing contract and the modification). Previously recognized revenue for goods and services that are not distinct from the modified goods or services is adjusted based upon an updated measure of progress for the partially satisfied performance obligations.

If a contract modification is deemed to be a separate contract, any revenue recognized under the original contract is not retrospectively adjusted and any performance obligations remaining under the original contract continue to be recognized under the terms of that contract.

The Company’s collaboration revenue arrangements include the following:

Up-front License Fees: If a license is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from nonrefundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

 

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Milestone payments: The Company’s collaboration agreements may include development and regulatory milestones. The Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each reporting period, the Company re-evaluates the probability of achievement of such milestones and any related constraint, and if necessary, adjusts the estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenue and net loss in the period of adjustment.

Customer Options: The Company evaluates the customer options to obtain additional items (i.e., additional license rights) for material rights, or options to acquire additional goods or services for free or at a discount. Optional future services that reflect their standalone selling prices do not provide the customer with a material right and, therefore, are not considered performance obligations and are accounted for as separate contracts. If optional future services include a material right, they are accounted for as performance obligations. The Company determines an estimated standalone selling price of any material rights for the purpose of allocating the transaction price. The Company considers factors such as the identified discount and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized as revenue until, at the earliest, the option is exercised or expires.

Royalties: For arrangements that include sales-based royalties, including milestone payments based on a level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any revenue related to sales-based royalties or milestone payments based on the level of sales.

Research and Development Services: The promises under the Company’s collaboration agreements may include research and development services to be performed by the Company on behalf of the partner. Payments or reimbursements resulting from the Company’s research and development efforts are recognized as the services are performed and presented on a gross basis because the Company is the principal for such efforts.

Research and development costs

Research and development costs are expensed as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities, including salaries, stock-based compensation and benefits, facilities costs and laboratory supplies, depreciation, amortization and impairment expense, manufacturing expenses and external costs of outside vendors engaged to conduct preclinical development activities and clinical trials as well as the cost of licensing technology. Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

Research contract costs and accruals

The Company has entered into various research and development contracts with companies both inside and outside of the United States. These agreements are generally cancelable, and related payments are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies or trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs.

Research and development incentives and receivable

The Company, through its subsidiaries in the United Kingdom, receives reimbursements of certain research and development expenditures as part of a United Kingdom government’s research and development tax reliefs program. Under the program, the Company is able to surrender trading losses that arise from qualifying research and development expenses incurred by the Company’s subsidiaries in the United Kingdom for a tax credit of up to 14.5% of the surrenderable losses. Management has assessed the Company’s research and development activities and expenditures to determine which activities and expenditures are likely to be eligible under the research and development incentive program described above. At each period end, management estimates the reimbursement available to the Company based on available information at the time.

 

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The Company recognizes income from the research and development incentives when the relevant expenditure has been incurred, the associated conditions have been satisfied and there is reasonable assurance that the reimbursement will be received. The Company records these research and development incentives as a reduction to research and development expenses in the Consolidated Statements of Operations and Comprehensive Loss, as the research and development tax credits are not dependent on us generating future taxable income, the Company’s ongoing tax status, or tax position. The research and development incentives receivable represent an amount due in connection with the above program. The Company recorded a reduction to research and development expense of $6.6 million for the year ended December 31, 2019. There were no research and development tax credits payable to the Company in the year ended December 31, 2018.

Patent costs

All patent-related costs incurred in connection with preparing, filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Loss.

Share-based compensation

The Company measures all equity awards granted to employees and directors based on the fair value on the date of grant. Compensation expense of those awards is recognized over the requisite service period, which is generally the vesting period of the respective award. The Company records the expense for awards with only service-based vesting conditions using the graded vesting method. The Company accounts for forfeitures as they occur.

For share-based awards granted to non-employee consultants, the measurement date for non-employee awards is the date of grant. The compensation expense is then recognized over the requisite service period, which is the vesting period of the respective award.

The Company utilizes significant estimates and assumptions in determining the fair value of its common stock. Given the absence of an active market for the Company’s ordinary shares, the board of directors determined the estimated fair value of the Company’s equity instruments based on input from management, which utilized the most recently available independent third-party valuation, and considering a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector. Each valuation methodology includes estimates and assumptions that require judgment. These estimates and assumptions include a number of objective and subjective factors in determining the value of the Company’s ordinary shares at each grant date.

Expected volatility is calculated based on reported volatility data for a representative group of publicly traded companies for which historical information was available. The historical volatility is calculated based on a period of time commensurate with the assumption used for the expected term. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected term assumption. The Company uses the simplified method, under which the expected term is presumed to be the midpoint between the vesting date and the end of the contractual term. The Company utilizes this method due to the lack of historical exercise data and the plain nature of its share-based awards. The Company uses the remaining contractual term for the expected life of non-employee awards. The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends.

The Company classifies stock-based compensation expense in its statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.

Comprehensive (loss) income

Comprehensive (loss) income includes net (loss) income as well as other changes in shareholders’ equity (deficit) that result from transactions and economic events other than those with shareholders. The Company records unrealized gains and losses related to foreign currency translation as a component of other comprehensive (loss) income in the Consolidated Statements of Operations and Comprehensive (Loss) Income.

Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential loss range is probable and reasonably estimable under the provisions of the authoritative guidelines that address accounting for contingencies. The Company expenses costs as incurred in relation to such legal proceedings as general and administrative expense within the Consolidated Statements of Operations and Comprehensive Loss.

 

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Income taxes

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that will more likely than not be realized upon ultimate settlement. Any provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

Research and development tax credits received in the U.K. are recorded as a reduction to research and development expenses. The U.K. research and development tax credit is fully payable to the Company after surrendering tax losses and is not dependent on current or future taxable income. As a result it is not reflected as part of the income tax provision. If, in the future, any U.K. research and development tax credits generated are utilized to offset a corporate income tax liability in the U.K., that portion would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income would continue to be recorded as a reduction to research and development expenses.

Net (loss) income per share

The Company follows the two-class method when computing net (loss) income per share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net (loss) income per share for each class of equity and preferred securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to equity shareholders for the period to be allocated between equity and preferred securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Basic net (loss) income per share attributable to equity shareholders is computed by dividing the net (loss) income attributable to equity shareholders by the weighted average number of equity shares outstanding for the period. Diluted net (loss) income attributable to equity shareholders is computed by adjusting net (loss) income attributable to equity shareholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net (loss) income per share attributable to equity shareholders is computed by dividing the diluted net (loss) income attributable to equity shareholders by the weighted average number of equity shares outstanding for the period, including potential dilutive equity shares assuming the dilutive effect of equity share equivalents.

The Company reported a net loss attributable to equity shareholders for the year ended December 31, 2019, and net income attributable to equity shareholders in the year ended December 31, 2018.

Recently adopted accounting pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 requires lessees to recognize most leases on their balance sheet as a right-of-use asset and a lease liability. Leases are classified as either operating or finance, and classification is based on criteria similar to current lease accounting, but without explicit bright lines. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”), which provides narrow amendments to clarify how to apply certain aspects of the new lease standard, and ASU No. 2018-11, “Leases (Topic 842)—Targeted Improvements” (ASU 2018-11), which addresses implementation issues related to the new lease standard. The guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years, and early adoption is permitted. Under this standard, disclosures are required to enable users of financial statements in assessing the amount, timing, and uncertainty of cash flows arising from leases. The standard permits two transition methods, (1) to apply the new lease requirements at the beginning of the earliest period presented, or (2) to apply the new lease requirements at the effective date. The Company adopted the standard on the effective date of January 1, 2019, by applying the new lease requirements at the effective date. The Company had not entered into any lease agreements as of the adoption date. In connection with the adoption of ASU 201602 and as a result of the Group Reorganization on May 7, 2019, the Company recorded a $1.0 million of right of use assets on its consolidated balance sheet and $1.1 million of lease liabilities related to operating leases for the company’s office space in the U.K. The adoption of ASU 2016-02 did not have a material impact on the Company’s results of operations or cash flows.

 

 

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In June 2018, the FASB issued ASU No. 201807, Compensation—Stock Compensation: Improvements to Nonemployee Share Based Payment Accounting (“ASU 201807”) to simplify the accounting for share based payments to nonemployees by aligning it with the accounting for share based payments to employees, with certain exceptions. The new guidance expands the scope of ASC 718, Compensation — Stock Compensation, to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in an entity’s own operations and supersedes the guidance in ASC Topic 50550, Equity Based Payments to Nonemployees. The guidance is effective for public business entities in annual periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. The Company adopted the new standard on January 1, 2019. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13), which modifies the disclosure requirements on fair value measurements with respect to Level 3 rollforwards, timing of liquidation of investments in certain entities that calculate net asset value, and measurement uncertainty. This standard became effective for us on January 1, 2020. The adoption of this standard did not have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 changes how companies account for credit losses for most financial assets and certain other instruments. For trade receivables, loans and held-to-maturity debt securities, companies are required to recognize an allowance for credit losses rather than reducing the carrying value of the asset. This standard became effective for us on January 1, 2020. The adoption of this standard did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes—Simplifying the Accounting for Income Taxes.” The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles as well as clarifying and amending existing guidance to improve consistent application. The amendments to this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. Depending on the amendment, adoption may be applied on the retrospective, modified retrospective or prospective basis. The Company is currently evaluating the impact to the consolidated financial statements.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This standard makes targeted improvements for collaborative arrangements as follows:

 

   

Clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606, Revenue from Contracts with Customers, when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in ASC 606 should be applied, including recognition, measurement, presentation and disclosure requirements;

 

   

Adds unit-of-account guidance to ASC 808, Collaborative Arrangements, to align with the guidance in ASC 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of ASC 606; and

 

   

Precludes a company from presenting transactions with collaborative arrangement participants that are not directly related to sales to third parties with revenue recognized under ASC 606 if the collaborative arrangement participant is not a customer.

The amendments to ASU No. 2018-18 are effective for us for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The adoption of this standard is not expected to have a material impact on our financial position or results of operations upon adoption as the Company has had no transactions applicable to this guidance; however, the standard may impact how management accounts for certain business transactions in the future.

 

3.

Going Concern

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying financial statements do not reflect any adjustments relating to the recoverability and reclassifications of assets and liabilities that might be necessary if the Company is unable to continue as a going concern. The Company expects its costs and expenses to increase as it continues to develop its product candidates and progress its current clinical programs and cost associated with being a public company.

Pursuant to the requirements of Accounting Standard Codification (ASC) 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial

 

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statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date of these financial statements, and (1) is probable that the plan will be effectively implemented within one year after the date the financial statements are issued, and (2) it is probable that the plan, when implemented, will mitigate the relevant condition or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financials are issued. Certain elements of the Company’s operating plan to alleviate the conditions that raise substantial doubt are outside of the Company’s control and cannot be included in management’s evaluation under the requirements of Accounting Standard Codification (ASC) 205-40.

The Company has incurred significant losses and has an accumulated deficit of $21.5 million as of December 31, 2019. F-star expects to incur substantial losses in the foreseeable future as it conducts and expands its research and development activities. As of February 5, 2021, the date of issuance of the consolidated financial statements, 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. These conditions give rise to a substantial doubt over the company’s ability to continue as a going concern.

The Company plans to seek additional funding through public equity, private equity, debt financing, collaboration partnerships, or other sources. There are no assurances, however, that the Company will be successful in raising additional working capital, or if it is able to raise additional working capital, it may be unable to do so on commercially favorable terms. The Company’s failure to raise capital or enter into other such arrangements if and when needed would have a negative impact on its business, results of operations and financial condition and its ability to develop its product candidates.

 

4.

2019 Corporate Reorganization

On May 7, 2019, the Company (“FTL”) completed a corporate reorganization pursuant to which FTL became the direct holding company of each of Alpha, Beta, Delta, and GmbH and the indirect holding company of each of