10-K
Table of Contents
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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-K
 
 
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2020
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                
TO
    
Commission File
Number 001-37718
 
 
F-STAR THERAPEUTICS, INC.
(Exact name of Registrant as specified in its Charter)
 
 
 
Delaware
 
52-2386345
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
   
B920 Babraham Research Campus
CambridgeUnited Kingdom CB22 3AT
 
N/A
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code:
+44-1223-497400
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
  
Trading
Symbol(s)
  
Name of each exchange
on which registered
Common Stock, $0.0001 par value
  
FSTX
  
The Nasdaq Stock Market
(Nasdaq Capital Market)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  ☐    NO  ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    YES  ☐    NO  ☒
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  ☒    NO  ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    YES  ☒    NO  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer
 
  
Accelerated filer
 
       
Non-accelerated filer
 
  
Smaller reporting company
 
       
 
 
 
  
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.  
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).    YES  ☐    NO  
The aggregate market value of the voting and
non-voting
common equity held by
non-affiliates
of the Registrant, based on the closing price of the shares of common stock on The Nasdaq Stock Market on June 30, 2020, was $23.4 million.
The number of shares of Registrant’s Common Stock outstanding as of March 24, 2021 was 9,100,320.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to Regulation 14A relating to the 2021 Annual Meeting of Stockholders within 120 days of the end of the registrant’s fiscal year ended December 31, 2020. Portions of such definitive proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent stated herein.
 
 
 

Table of Contents
Table of Contents
 
         
Page
 
PART I
             
Item 1.
        1  
Item 1A.
        60  
Item 1B.
        113  
Item 2.
        113  
Item 3.
        113  
Item 4.
        114  
     
PART II
             
Item 5.
        115  
Item 6.
        116  
Item 7.
        117  
Item 7A.
        134  
Item 8.
        134  
Item 9.
        134  
Item 9A.
        134  
Item 9B.
        136  
     
PART III
             
Item 10.
        141  
Item 11.
        141  
Item 12.
        141  
Item 13.
        141  
Item 14.
        141  
     
PART IV
             
Item 15.
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Item 16
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PRESENTATION OF FINANCIAL INFORMATION
On November 20, 2020, Spring Bank Pharmaceuticals, Inc. acquired all of the outstanding capital stock
of F-star Therapeutics
Limited. While Spring Bank Pharmaceuticals, Inc. was the legal acquirer of
F-star Therapeutics
Limited in the transaction,
F-star Therapeutics
Limited was deemed to be the acquiring company for accounting purposes. As such, the transaction was accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States of America, and Spring Bank Pharmaceuticals, Inc.’s historical financial statements have been replaced with
F-star Therapeutics
Limited’s historical financial statements. The historical financial statements of Spring Bank Pharmaceuticals, Inc. are not included in this Annual Report. All common share, additional
paid-in
capital and per share amounts in the consolidated financial statements and related notes have been retrospectively adjusted to reflect the Exchange Ratio (as defined herein).
 
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PART I
Item 1. Business.
Overview
We are a clinical-stage biopharmaceutical company dedicated to developing next generation immunotherapies to transform the lives of patients with cancer. Our goal is to offer patients better and more durable benefits than currently available immuno-oncology treatments by developing medicines that seek to block tumor immune evasion. Through our proprietary tetravalent, bispecific natural antibody (mAb²
) format, our mission is to generate highly differentiated medicines with monoclonal antibody-like manufacturability, good safety and tolerability. With four distinct binding sites in a natural human antibody format, we believe our proprietary technology will overcome many of the challenges facing current immuno-oncology therapies, due to the strong pharmacology enabled by tetravalent bispecific binding.
Our most advanced product candidate, FS118, is currently being evaluated in a
proof-of-concept
Phase 2 trial in
PD-1/PD-L1
acquired resistance head and neck cancer (‘‘H&N’’) patients. FS118 is a tetravalent mAb
2
bispecific antibody targeting two receptors,
PD-L1
and
LAG-3,
both of which are established pivotal targets in immuno-oncology. Phase 1 data from 43 heavily
pre-treated
patients with advanced cancer, who have failed
PD-1/PD-L1
therapy, showed that administration of FS118 was well-tolerated with no dose limiting toxicities up to 20 mg/kg. In addition, a disease control rate (‘‘DCR’’), defined as either a complete response, partial response or stable disease, of 49% was observed in 39 evaluable patients receiving dose levels of FS118 of 1mg/kg or greater. In acquired resistance patients, DCR was 59% (16 out of 27 patients) and long-term (greater than six months) disease control was observed in six of these patients. We expect to provide an update from the
proof-of-concept
Phase 2 trial in
PD-1/PD-L1
acquired resistance head and neck cancer patients in H1 2022.
In our second program, FS120, we initiated a Phase 1 clinical trial in patients with advanced cancers in late 2020. FS120 is a
first-in-class
dual agonist bispecific antibody, an antibody that stimulates two immune activating pathways, which we believe has the potential to overcome cancer resistance by stimulating CD137
(4-1BB)
and OX40, two receptors present on the surface of tumor-infiltrating lymphocytes. Unlike checkpoint inhibitors (‘‘CPI’’), the mechanism of action of FS120 is designed to trigger a positive signal that enhances multiple mechanisms essential for killing tumor cells. FS120 may provide increased specificity and, we believe, superior performance while reducing toxicity through engineered conditional, crosslink-dependent activation upon binding to both CD137 and OX40. We expect to enroll up to 70 patients in the 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. We expect to provide an update on study progress in
mid-2021.
Our third bispecific program from our proprietary platform, FS222, began a Phase 1 clinical trial for FS222 in patients with advanced cancers in late 2020. FS222 has the potential to provide clinical benefit through multiple mechanisms based on its tetravalency, including (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. We believe this dual mechanism of action could lead to strong anti-tumor activity including benefits in cancers with low
PD-L1
expression. Our preclinical data shows that FS222 has the potential to be more effective than a combination of traditional
PD-L1
and CD137 antibodies.
PD-L1
is frequently highly expressed on cells within cancer tissue compared to
non-cancer
tissue. Therefore, we believe this will make FS222’s immune activation conditional within cancer tissue, limit potential systemic toxicities and lead to safety benefits. We expect to initiate a Phase 1 expansion cohort to measure pharmacokinetic (PK)/ pharmacodynamic (PD) profiles for FS222 in Q4 2021
In addition to the mAb
2
product candidates, we are evaluating SB 11285 in a Phase 1 clinical trial as an intravenously (‘‘IV’’) administered monotherapy, and in combination with a commercially approved
anti-PD-L1
antibody, in patients with advanced cancers. SB 11285 is a next generation cyclic dinucleotide-based stimulator
 
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of interferon genes (‘‘STING’’) agonist with efficient cellular uptake. We believe that SB 11285 has the potential to produce anti-tumor activity by inducing interferon pathways and activating the innate and, indirectly, the adaptive immune system. We believe combining SB 11285 with
PD-L1
therapy will further enhance anti-tumor activity. SB 11285 has been designed to allow IV administration which we believe will increase its applicability to treat a wide variety of advanced cancers. We expect to report an update on the trial in
mid-2021.
In 2020, combined sales of current immuno-oncology therapies were estimated to be approximately $28.7 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.
We believe our mAb
2
bispecific antibodies may address the limitations of current immuno-oncology therapies through the following advantageous characteristics that differentiate our mAb
2
product candidates:
 
   
Novel Tetravalent Format
. We engineer our mAb
2
bispecific antibodies to simultaneously bind two different targets, with two binding sites for each target. The ability to bind in this way is known as tetravalency. This unique tetravalent format is designed to enable our mAb
2
bispecific antibodies to achieve more efficient crosslinking, clustering or conditionality than other bispecific antibodies, and therefore have the potential to elicit improved biological responses and enable our mAb
2
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 our 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 our mAb
2
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. We are able to leverage the prospectively engineered tetravalent format of our mAb
2
bispecific antibodies so that targets are only activated when they are simultaneously bound.
 
   
Natural Human Antibody Format.
Our mAb
2
bispecific antibodies are designed to conserve the natural human antibody format, with greater than 95% identity, allowing us to leverage the following advantages:
 
   
Minimal systemic toxicity.
Since our mAb
2
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 our mAb
2
bispecific antibodies and the low number of modifications we engineer into our mAb
2
bispecific antibodies is designed to help mitigate immunogenicity risk, or the risk that the immune system recognizes the mAb
2
bispecific antibody as foreign, potentially resulting in lower exposure and toxicity.
 
   
Ease of manufacturability.
We are able to produce our mAb
2
bispecific antibodies through established manufacturing processes readily and at large scale with typical industry time and cost standards and without potentially complicating additions, such as domain assembly or other modifications.
 
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We believe the novel tetravalent and natural human antibody formats of our mAb
2
bispecific antibodies have the potential to focus immune activation to enhance efficacy and reduce systemic toxicities.
The following table sets forth our product candidates and their current development stages.
 

Abbreviations:
LAG-3,
lymphocyte activation gene 3;
PD-L1,
programmed death-ligand 1; CD137, cluster of differentiation 137; OX40, also known as cluster of differentiation 134; STING, stimulator of interferon genes; CPI: checkpoint inhibitors
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 a
proof-of-concept
Phase 2 trial in
PD-1/PD-L1
acquired resistance head and neck cancer patients. In the Phase 1 clinical trial in heavily pretreated patients with advanced cancer who have failed
PD-1/PD-L1
therapy
it was demonstrated that administration of FS118 was well-tolerated and has provided long-term disease control. FS120 and FS222 are currently being evaluated for safety, tolerability and efficacy in Phase 1 clinical trials in patients with advanced cancers. SB 11285 is a next generation cyclic dinucleotide-based STING agonist that is being evaluated for safety, tolerability and efficacy as a monotherapy and in combination with an
anti-PD-L1
antibody in a Phase 1 clinical trial with advanced cancers. Our portfolio includes further preclinical and clinical programs that are being developed by our partners as described below under “ Collaborations and License Agreements”.
We leverage our proprietary mAb
2
technology to build our portfolio of wholly owned immuno-oncology mAb
2
product candidates and have generated a panel of early stage Fcab, Fc with antigen binding, building
 
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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 and fusion proteins. We have over 230 granted patents and over 150 pending applications relating to our mAb
2
technology and our product pipeline. We believe we have a leading position in mAb
2
bispecific antibody development, and third parties are prohibited from utilizing our mAb
2
technology without obtaining a license from us.
We have collaborative partnerships with Ares Trading S.A., an affiliate of Merck KGaA, Darmstadt, Germany, and Denali Therapeutics Inc., which enable us to further validate our technological approach. Since inception, the F-star entities which have entered into collaborations, which are F-star Alpha Limited, F-star Beta Limited, F-star Biotechnology Limited and F-star Delta Limited, have collectively generated over $167 million in revenue to date, $90 million of which has been included in the cumulative equity of the Company. We believe that these partnerships will provide both continued validation and ongoing revenue as we continue to advance our proprietary pipeline.
We are 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. Our team has spent over a decade developing our proprietary mAb
2
technology into a robust drug discovery platform. Our team has collectively worked on the development of 20 marketed products and has worked at companies including AstraZeneca, BMS, Celgene Corporation, Domantis, Eli Lilly, GSK, Immunocore and Pfizer (“Pfizer”).
Strategy
We are dedicated to developing next generation immunotherapies to transform the lives of patients with cancer by generating highly differentiated, first and/or
best-in-class
product candidates. The key elements of our strategy include:
 
   
Rapidly accelerating the clinical development of our three novel mAb
2
product candidates and novel cyclic dinucleotide, SB 11285, to treat a range of advanced cancers.
We believe our mAb
2
product candidates represent potentially
best-in-class
immuno-oncology therapies that address a variety of patients with cancer inadequately treated with existing therapies. We believe FS118, which is being evaluated in a
proof-of-concept
Phase 2 trial in
PD-1/PD-L1
acquired resistance head and neck cancer patients, has the potential to provide significant clinical benefit through its dual-checkpoint inhibitor targets
(LAG-3
and
PD-L1).
In addition to FS118, we are currently evaluating FS120, FS222 and SB 11285 for safety, tolerability and efficacy in Phase 1 clinical trials in patients with advanced cancers. All of our product candidates have the potential to address multiple immune evasion pathways that limit the effect of current immuno-oncology therapies.
 
   
Initially focusing our 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.
Our 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, we intend 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. We believe our mAb
2
bispecific antibodies and SB 11285 may also ultimately deliver therapeutic benefit in a broader range of tumors, expanding beyond the initial indications we may pursue. We believe our development strategy best serves the patient, can be efficiently pursued by our organization, and has the potential to lead to a rapid development strategy and regulatory pathway to market. For example, we have identified several tumor types which have a strong fit with the potential FS118 mechanism of action, including appropriate target expression that would be candidates for accelerated approval pathways.
 
   
Leveraging the transformational potential of our modular antibody technology platform to create a leading immuno-oncology pipeline of differentiated clinical assets capable of improving patient outcomes.
We believe our proprietary mAb
2
bispecific antibodies have a number of potential advantages, compared to other modalities, resulting from their novel tetravalent and natural human
 
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antibody formats, which may result in improved efficacy, minimized toxicity and simplified manufacturability. We believe our technology has the potential to be matched with any disease target in a modular
“plug-and-play”
approach to further expand our innovative pipeline of mAb
2
product candidates. We also believe these benefits may 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 our extensive intellectual property portfolio in order to protect our dominant position in mAb
2
bispecific antibodies and our STING agonist program.
We have built an extensive patent portfolio around our mAb
2
technology and associated mAb
2
product pipeline. In addition, we have STING pathway-related filings, including those of a patent family relating to the composition of matter of the STING agonist SB 11285. This patent estate relates to our mAb
2
bispecific format and STING agonist program and aims to provide us with robust intellectual property exclusivity and prohibit use of our technology by third parties. We intend to continue to seek additional patent protection as we develop additional novel mAb
2
product candidates.
The Immuno-oncology Challenge and our mAb
2
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 with known risk factors. Based on GLOBOCAN 2020 estimates, approximately 19.2 million new cancer cases were diagnosed, and 9.9 million cancer deaths occurred in 2020 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, we believe 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 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. We believe this has created a significant treatment gap and new unmet need for the majority 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 we 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.
 
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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 we 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. We believe that optimal crosslinking is dependent on the relative affinities for both cellular targets and the geometry of the bispecific antibody.
 
   
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.
 
   
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
 
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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 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 but can be limited by relative affinities, valency and molecular geometry and in addition are often harder to manufacture.
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.
New Chemical Entity Approaches in Immuno-oncology
New chemical entity (“NCE”)-based immune therapies offer an additional approach to enhance the anti-tumor response. Among these are compounds that can target immune suppressive mechanisms or activate pathways in innate and/or adaptive immune cells that biologic therapies, such as antibodies, are not capable of accessing. Additional advantages of NCEs over biologics include oral bioavailability, greater tumor penetration, and the ability to cross cell membranes to access intracellular targets. The diverse types of immune cells, receptors, and molecular pathways implicated in responding to the tumor or in suppressing these responses offers a wide range of potential molecular targets. In general, these molecular targets correspond either to receptors such as Toll-like receptors or to enzymes involved in intracellular signal transduction. An example of an immunostimulatory NCE target is the stimulator of interferon genes (“STING”) which is a transmembrane protein localized to the endoplasmic reticulum. A conformational change of STING in response to direct binding of cyclic dinucleotides, results in a downstream signaling cascade, and production of
Type-I
interferons, including interferon-
b
, and other cytokines.
 
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F-star
mAb
2
Technology
Our platform is designed to effectively achieve the 3Cs whilst also conserving the natural human antibody format. We believe this natural human antibody format, with greater than 95% identity to the unmodified Fc region, is the ideal approach regarding safety and efficacy to target unmet medical needs in immuno-oncology.
Our mAb
2
Potential Advantages over Other Antibodies and Bispecific Antibodies
 
Novel Tetravalent Format
We believe our strong intellectual property position combined with over a decade of research and testing focused on the development of our proprietary technology put us in the unique position to produce mAb
2
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. We believe we are differentiated in our approach in that we engineer mAb
2
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. We refer to this portion of a mAb
2
bispecific antibody as an Fcab (Fc with antigen binding). We engineer this unique tetravalent format to enable our mAb
2
bispecific antibodies to achieve more efficient crosslinking, clustering or conditionality than other bispecific antibodies. Our mAb
2
bispecific antibodies have the potential to elicit improved biological responses and overcome tumor evasion pathways, which we believe positions them as attractive candidates for clinical development.
 
   
Tetravalent crosslinking.
The tetravalent format of our mAb
2
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 our mAb
2
product candidates that target tumor-associated antigens, such as
PD-L1
(FS118 and FS222), crosslinking also supports safety by targeting the mAb
2
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 our mAb
2
bispecific antibodies has our 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,
 
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than other bispecific antibodies. This is particularly useful for our mAb
2
product candidates FS120 and FS222, which activate the costimulatory molecule CD137 which clustering for potent activation.
 
   
Conditionality.
We combine 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 our mAb
2
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, we aim to increase the activity of our immunostimulatory mAb
2
bispecific antibodies at the tumor site, as observed with FS222 preclinically. We believe that we can potentially increase the safety of our mAb
2
product candidates compared to other bispecific antibodies which bind to their targets only monovalently and cannot be engineered for such optimal antigen binding.
We believe, through our novel tetravalent format with bivalent binding to each target, that our mAb
2
bispecific antibodies have the potential to enhance efficacy and reduce potential for systemic toxicities.
Natural Human Antibody Format
Our mAb
2
bispecific antibodies are designed to conserve the natural human antibody format. With greater than 95% sequence identity to the equivalent traditional antibody, we are able to leverage the following advantages:
 
   
Plug-and-play
. We refer to our proprietary platform as modular antibody technology, because our 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 mAb
2
bispecific antibodies. Our Fcabs contain new target binding sites resulting from minimal modifications made in the Fc domain of the existing antibody structure. We routinely generate, in parallel, Fcabs that bind to human targets as well as those that bind to mouse targets. From these mouse Fcabs, we generate mouse mAb
2
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 mAb
2
product candidates.
 
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F-star’s
Modular Antibody Technology
 
 
   
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, we can engineer specific mutations in the Fc domain of our mAb
2
bispecific antibodies to prevent binding to Fc gamma receptors and eliminate Fc gamma receptor-mediated crosslinking. As a result, our mAb
2
bispecific antibodies can potentially improve immune activation while minimizing systemic toxicity.
 
   
Low immunogenicity risk.
The natural human antibody format of our mAb
2
bispecific antibodies and the low number of modifications we engineer into our mAb
2
bispecific antibodies is designed to help mitigate immunogenicity risk.
 
   
Ease of manufacturability.
We are able to produce our mAb
2
bispecific antibodies through established manufacturing processes readily and at large scale without potentially complicating additions, such as domain assembly or other modifications. Our mAb
2
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, we are developing a broad pipeline of mAb
2
product candidates.
 
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F-star
Solution to the Unmet Medical Need in Immuno-oncology
In 2020, combined sales of current immuno-oncology therapies were approximately $28.7 billion worldwide. Despite the commercial success of these products, only approximately 20% of patients realize a long-lasting benefit from these treatments, leaving the majority, unserved patient population without effective treatment options. Our mAb
2
bispecific antibodies have the potential to overcome the limitations associated with current antibody therapies in immuno-oncology. They 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. Our current mAb
2
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 our mAb
2
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 and would be candidates for accelerated approval. Our mAb
2
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 and that are likely to differentiate from other bispecific antibody formats.
In addition to mAb
2
product candidates, we have a next generation
NCE-based
program to activate the immunostimulatory STING pathway. The synthetic cyclic dinucleotide-based STING agonist acts by activating the innate and, indirectly, the adaptive immune system, which in combination with
PD-1/PD-L1
therapies aims to further enhance anti-tumor activity.
We aim 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.
 
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FS118 –
F-star’s
LAG-3
and
PD-L1
mAb
2
Bispecific Antibody
 
  Our most advanced product candidate, FS118, aims to rescue checkpoint inhibitor treatment failures and is a mAb
2
bispecific antibody targeting two receptors,
PD-L1
and
LAG-3,
both of which are established pivotal targets in immuno-oncology. We are currently conducting in a
proof-of-concept
Phase 2 trial for FS118 in
PD-1/PD-L1
acquired resistance head and neck cancer patients. Phase 1 data demonstrated that FS118 is well tolerated with a disease control rate of 49 % in a heavily pretreated population and supports 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. A role for
LAG-3
shedding in resistance to
PD-1
blockade has been highlighted in a recent preclinical study showing that mice that are unable to shed
LAG-3
from the surface of T cells are resistant to
PD-1
therapy. A high level of
LAG-3
and low levels of a disintegrin and metalloproteinase
(“ADAM”)-10,
a metalloproteinase regulating
LAG-3
shedding, on T cells from the blood of patients with head and neck cancer was also associated with a 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 2020. 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.
 
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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, we believe 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, but 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
and low levels of
ADAM-10
correlated with a poor outcome of
PD-1
treatment. 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.
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. Our 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 we have not assessed this, we also believe 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 our 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 2.5 million new diagnoses annually. Our 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 2020 approximately 900,000 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, we plan 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 2020,
it estimates up to approximately 25,000 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
 
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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 to
PD-1/PD-L1
Resistance: FS118
FS118 is a mAb
2
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
 
Our 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 mAb
2
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 we believe is due to receptor clustering, and is indicative of the strong pharmacology enabled by tetravalent bispecific binding. We believe this an important mechanism for potent disease control.
Phase 1 Clinical Trial
We have conducted 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 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.
 
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Under the protocol, as depicted below, 43 patients 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 1 Clinical Trial Design
 
A total of 43 patients were enrolled in this trial at dose levels up to 20 mg/kg and data from this trial demonstrated 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. The majority (95%) of treatment-emergent adverse events (“TEAE”), considered by the scientific review committee 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. A recommended dose for Phase 2 trials (“RP2D”) was determined to be 10 mg/kg weekly. A disease control rate (“DCR”) of 49% in 39 evaluable patients was observed. 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 to their previous
PD-1
or
PD-L1
therapy. In acquired resistance patients, DCR was 59% (16 out of 27 patients) with a DCR at six months of 22.2% (six out of 27 patients). Low titers of anti-drug antibodies (“ADA”) were observed in 42% of patients. At the RP2D, ADAs were transient in nature and no effect on exposure was observed. Pharmacodynamic exposure was maintained across the dosing interval, as measured by an increase in soluble
LAG-3.
An increase in peripheral T cells was also observed following dosing.
 
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FS118 Phase 1 Clinical Trial Data
 
 
 
Clinical Development Strategy
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.
 
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In order to identify patients who, gain more benefit from FS118 therapy, we plan 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.
We initiated a focused monotherapy
proof-of-concept
Phase 2 trial in selected head and neck cancers with acquired resistance in early 2021. Squamous Cell Carcinoma of Head and Neck was chosen for the
proof-of-concept
study based on both the existence of the targeted population of acquired resistance following the approval of an
PD-1
inhibitor and the expression of both
PD-L1
and
LAG-3
in this patient set. 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, we intend 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, we created a mouse mAb
2
bispecific antibody equivalent of FS118 (mouse
LAG-3/PD-L1
mAb
2
) 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.
 
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.
Furthermore, FS118-mediated shedding was dependent upon
ADAM-10
and
ADAM-17
metalloproteinases, indicating that
LAG-3
is enzymatically cleaved from the cell surface. 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
mAb
2
.
 
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FS120 –
F-star’s
OX40 and CD137 mAb
2
Bispecific Antibody
 
  FS120 aims to improve checkpoint inhibitor and chemotherapy outcomes and is a mAb
2
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. We are developing FS120 alone and in combination with
PD-1/PD-L1
therapy for the treatment of tumors where
PD-1/PD-L1
products are approved and which have
co-expression
of OX40 and CD137 in the tumor microenvironment, such as gastric and bladder cancer. We initiated 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.
 
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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.
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. We believe 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, we believe 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.
We believe that our 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, we 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, small and
non-small
cell lung cancers.
Bladder cancer was diagnosed in over 500,000 patients globally in 2020.
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.
We plan to explore
PD-1
in combination with FS120 in bladder cancer patients with varying levels of
PD-L1.
Head and neck cancer affects over 900,000 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 we believ
e
there is an opportunity to bolster
PD-1
clinical activity through combining with FS120 in first-line treatment.
 
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F-star
Solution: FS120
FS120 is a mAb
2
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. We believe 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
 
Our preclinical studies have shown superior anti-tumor activity of a mouse OX40/CD137 mAb
2
compared to a combination of two traditional antibodies. Based on the results, we believe 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 we believe 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, we 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 we believe is important for efficacy and safety benefits. Both OX40 and CD137 are found highly expressed in TILs versus blood. Therefore, we believe this will make FS120 immune activation conditional within cancer tissue, limit potential systemic toxicities and lead to safety benefits.
Clinical Plans
We initiated a Phase 1 open-label, dose-escalation clinical trial of FS120 in patients with advanced cancers in the fourth quarter of 2020. If we are able to establish a preliminary safety profile of FS120 in the dose-escalation phase of this trial, we will investigate its clinical activity in patients with cancers that
co-express
OX40
 
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and CD137. Further, we intend to explore FS120 in combination with
PD-1
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/or the initiation of Phase 3 registrational trials.
Preclinical Data
Co-expression
of OX40 and CD137
In an established preclinical mouse tumor model (CT26), we analyzed the number of immune cells that
co-expressed
OX40 and CD137 in the tumor, blood and in the liver. We 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.
 
Enhanced anti-tumor response to
PD-1
blockade observed
We observed a significant reduction in tumor growth in an established preclinical mouse tumor model (CT26) in a treatment with a mouse mAb
2
bispecific antibody equivalent of FS120, referred to as the mouse OX40/CD137 mAb
2
. When the mouse OX40/CD137 mAb
2
was used in combination with a
PD-1
antibody, we observed increased long-term survival compared to what was observed with the monotherapy of either
PD-1
or the mouse OX40/CD137 mAb
2
.
 
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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. We believe 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.
 
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 our results from cytokine
 
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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 our findings in murine pharmacology studies using the OX40/CD137 mAb
2
surrogate.
FS222 –
F-star’s
CD137 and
PD-L1
mAb
2
Bispecific Antibody
 
  FS222 aims to improve outcomes in low
PD-L1
expressing tumors and is a mAb
2
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, ovarian cancer and gastrointestinal cancers such as colorectal and esophageal cancer. FS222 is aimed at improving outcomes in
PD-L1
low tumors. We initiated a Phase 1 clinical trial in patients with advanced cancers for FS222 in late 2020. We believe 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. We believe that this upregulation of
PD-L1
could be a resistance mechanism of traditional CD137 antibody therapy that limits its activity in the tumor microenvironment.
We intend to develop FS222 in cancers that
co-express
both CD137 and
PD-L1
receptors. Tumors such as
non-small-cell
lung cancer, ovarian 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 4.6 million patients globally every year and represent attractive indications for FS222. We plan 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. We believe 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 mAb
2
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. We believe this dual mechanism of action would
 
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amplify the anti-tumor activity of FS222. Our preclinical data shows that FS222 has the potential to be more effective than a combination of traditional
PD-L1
and CD137 antibodies, as well as applicability in
PD-L1
low tumors, a significant area of unmet medical need.
Mechanism of Action of FS222
 
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, we believe this will make FS222 immune activation conditional within cancer tissue, limit potential systemic toxicities and lead to safety benefits.
Clinical Plans
We initiated a Phase 1 open-label, dose-escalation clinical trial of FS222 in patients with advanced cancers in late 2020. The initial safety and
proof-of-concept
efficacy studies in selected tumor types will be conducted within the Phase 1 protocol. While we attempt to establish the preliminary safety and optimal dosing regimen for FS222, we 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, ovarian 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/or the initiation of Phase 3 registrational trials.
Preclinical Data
Co-expression
of CD137 and
PD-L1
In an established preclinical mouse tumor model (CT26), we analyzed the percentage of immune cells that
co-expressed
CD137 and
PD-L1,
both in the tumor and in the blood. We 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
 
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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 our 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 our findings in murine pharmacology studies using the
CD137/PD-L1
mAb
2
surrogate.
 
Superior anti-tumor activity observed compared to a combination of traditional antibodies
In an established preclinical mouse tumor model (MC38), treatment with a mouse mAb
2
bispecific antibody equivalent of FS222 (mouse
CD137/PD-L1
mAb
2
) 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. We believe 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.
 
FS222-induced T cell activation was observed to be dependent on
PD-L1
We 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,
we observed that FS222 activation of T
 
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cells required binding to
PD-L1
and importantly could be demonstrated with lower levels of
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 we have demonstrated
in vitro
.
 
SB 11285 –
F-star’s
STING Agonist
 
   SB 11285 is a next generation cyclic dinucleotide STING agonist designed to improve checkpoint inhibition outcomes as an immunotherapeutic compound for the treatment of selected cancers. We are conducting an open-label, dose-escalation Phase 1 clinical trial with SB 11285 as an IV administered monotherapy, and in combination with an
anti-PD-L1
antibody, in patients with advanced solid tumors.
Potential Clinical Application of STING Agonist
The induction of interferons and interferon-stimulated genes in tumor cells and within the tumor microenvironment has been shown to modulate the host-immune response and induce apoptosis of tumor cells. Activation of the STING pathway can result in the induction of cellular interferons including interferon-
b
and other cytokines while promoting a strong anti-tumor response through the induction of innate and adaptive immune responses. Therapeutically targeting the STING pathway could turn an immunologically “cold” tumor into a “hot” one, making it more likely to respond to other forms of immunotherapy, such as immune checkpoint inhibitors.
The cyclic
GMP-AMP
synthase (cGAS)–STING pathway is involved in the innate immune response against the tumor. Upon detection of cytosolic tumor-derived DNA, cGAS generates cyclic dinucleotides that bind
 
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STING, leading to the release of
Type-I
interferon and proinflammatory cytokines, ultimately promoting T cell priming and recruitment. STING also regulates anticancer immunity in a Type I interferon-independent manner by inducing cell death and facilitating the release of cancer cell antigens. Multiple STING agonists are being investigated in clinical trials, but many exhibit poor metabolic stability and were delivered intratumorally. A STING agonist that can be administered intravenously (IV) has the potential to target advanced metastatic tumors such as melanoma and head and neck carcinomas.
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 2020 approximately 900,000 new head and neck cancer were estimated to have been diagnosed worldwide.
The approval of the check point inhibitor pembrolizumab as a monotherapy or in combination with chemotherapy represents an opportunity for the STING agonist to improve upon the efficacy of
PD-1/PD-L1
inhibitors and offer to the patients a chemotherapy free option.
F-star’s
Solution: STING Agonist
We are developing our STING agonist product candidate, SB 11285, as a next-generation immunotherapeutic synthetic cyclic dinucleotide for the treatment of selected cancers. In preclinical studies in multiple tumor-derived cell lines, SB 11285 induced the release of cytokines consistent with engagement of the STING target, as well as cell death and apoptosis. Based on the preclinical studies performed to date, SB 11285 has demonstrated efficacy in multiple rodent tumor models when administered intravenously or intratumorally. We believe that SB 11285 may be administered clinically by multiple routes of administration, enabling SB 11285 to target a variety of tumors at various anatomic sites. Furthermore, SB 11285 has the potential to be used in combination with other therapeutic modalities to enhance efficacy. Following the administration of SB 11285 in a preclinical tumor model, there was upregulation of the
PD-1
molecule, which we believe underscores the potential utility of its approach to employ the activity of a
PD-1/PD-L1
checkpoint inhibitor.
Ongoing Phase 1 Clinical Trial and Clinical Development Strategy
SB 11285 is currently being evaluated as an
IV-administered
monotherapy in a Phase 1 multicenter, dose escalation clinical trial in patients with advanced solid tumors. Part 1a of this trial is a dose-escalation study with IV SB 11285 monotherapy and part 1b is a dose escalation of SB11285 combined with a fixed and therapeutic dose of an
anti-PD-L1
antibody. Roche’s
PD-L1
checkpoint inhibitor atezolizumab (Tecentriq
®
) is being used. This trial is designed to determine a recommended Phase 2 dose for both the monotherapy and combination with atezolizumab.
The objectives of the Phase 1 clinical trial include determining a safe and pharmacodynamically active dose of
IV-administered
SB 11285 and preliminary assessment of antitumor activity. The Phase 1 dose escalation study was designed to evaluate ascending doses of SB 11285 with respect to dose-limiting toxicities, maximum tolerated dose, and to determine a recommended Phase 2 dose as well as the pharmacokinetic/pharmacodynamic profile as monotherapy and in combination with atezolizumab. Following the completion of the part 1a/1b portion of the trial, part 2 of the trial is designed to explore the antitumor activity of SB11285 in combination with atezolizumab in
pre-specified
tumor types such as head and neck cancer and melanoma.
The Phase 1 trial was initiated in the fourth quarter of 2019 and we expect to report an update on the trial in
mid-2021.
Collaborations and License Agreements
We have entered several collaborations with an aim to discover and develop novel drug candidates across a variety of clinical indications.
 
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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 our 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 we 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 the
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”).
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 our intellectual property (by way of Denali’s assumption of
F-star
Gamma’s license agreement with us (the
“F-star
Gamma License”)). Denali made initial exercise payments to us 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 us. In June 2019, Denali made a payment of $1.5 million to us upon achieving a GMP Manufacturing milestone. In addition, Denali is required to make future contingent payments, to us and the former shareholders of
F-star
Gamma, with a maximum aggregate value of $437.0 million upon the achievement of certain defined preclinical, clinical, regulatory and commercial milestones. Of this total, a maximum of $91.4 million is payable to us. The total amount of the contingent payments varies depending on whether a milestone is triggered by a molecule that incorporates an Fcab that has been developed solely by us or developed solely by Denali.
Under the terms of the Denali License and Collaboration Agreement, Denali had 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 in May 2018, Denali exercised its right to nominate two additional Fcab targets and identified a second Accepted Fcab Target.
Under the Denali License and Collaboration Agreement, Denali was responsible for payment of certain research costs incurred by us in conducting activities under each agreed development plan, for up to 24 months. The last of the agreed development plans concluded in February 2021, with us having no ongoing obligation to conduct research activities under the Denali License and Collaboration Agreement.
Under the terms of the Denali agreements, we are 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, we entered into an agreement (the “Iontas Agreement”), with Iontas Limited (“Iontas”), pursuant to which we acquired all Iontas’ right, title and interest in and to certain
anti-PD-L1
human antibodies. Additionally, Iontas granted us a worldwide, exclusive license under any
know-how
or related intellectual property rights to exploit any products containing such antibodies. In connection with the Iontas Agreement, an upfront payment of $0.3 million was made by us to Iontas.
 
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Pursuant to the Iontas Agreement, we are obligated to pay an annual fee of £0.1 million ($0.1 million) and up to £0.4 million ($0.5 million) in the aggregate for certain specified preclinical milestones on a per product basis. We are obligated to pay Iontas up to £13.0 million ($17.7 million) in the aggregate upon the achievement of certain development and regulatory milestones and up to £12.8 million ($17.3 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. We 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 Iontas 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, we 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 we granted Kymab an exclusive license to certain of our patents and a
non-exclusive
license to certain of our
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
In-License
Agreement, we must use commercially reasonable efforts to develop and commercialize a licensed product. During the term of the Kymab
In-License
Agreement, we are 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
Out-License
Agreement, we are 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 our right to receive a percentage of sublicensing revenue, we are entitled to receive development and regulatory milestones of up to £4.75 million ($6.4 million) in the aggregate, commercial milestones of up to £7.5 million ($10.2 million) in the aggregate and a
low-single
digit royalty on net sales of licensed products. In the event that Kymab sells licensed products, we are eligible to receive a
low-single
digit royalty on these net sales on a licensed
product-by-product
basis. Our 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 relates to 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
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. We may terminate the Kymab
Out-License
Agreement in the event of an uncured material breach under the agreement by Kymab. We may terminate Kymab’s rights under the Kymab
Out-License
Agreement if Kymab challenge any patent licensed to it under the Kymab
Out-License
Agreement. Kymab may terminate our rights under the Kymab
Out-License
Agreement if we challenge any patent controlled by Kymab.
In-License
Agreement
In November 2018, we 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 we obtained from
 
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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, we must use commercially reasonable efforts to develop and commercialize a licensed product. During the term of the Kymab
In-License
Agreement, we are 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, we are obligated to pay Kymab a percentage of sublicensing revenue ranging in the low to high single digits. In the event that we are 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 our obligation to pay Kymab a percentage of sublicensing revenue, we are obligated to pay Kymab development and regulatory milestones of up to £4.75 million ($6.4 million) in the aggregate, commercial milestones of up to £7.5 million ($10.2 million) in the aggregate and a
low-single
digit royalty on net sales of licensed products. In the event that we sell licensed products, we are obligated to pay Kymab a
low-single
digit royalty on these net sales. Our 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 relates to 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. We 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 us. Kymab may terminate our rights under Kymab
In-License
Agreement if we challenge any patent licensed to it under the Kymab
In-License
Agreement. We may terminate Kymab’s rights under the Kymab
In-License
Agreement if Kymab challenges any patent controlled by us.
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, we entered into a license and collaboration agreement (the “Ares Agreement”), with Ares, pursuant to which we granted Ares the option to enter into a worldwide, exclusive license to certain of our patents and
know-how
to develop, manufacture and commercialize two separate mAb
2
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, we received reimbursement of our internal and external development costs for each preclinical program. Under the Ares Agreement we 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 we granted Ares a time-limited option to enter into a worldwide, exclusive license to develop, manufacture and commercialize two additional mAb
2
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, we are not required to deliver data packages to
 
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Ares, and upon exercise of each 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, we are subject to certain
non-compete
obligations.
Pursuant to the Ares Agreement, Ares paid €10 million ($11.2 million) in connection with the exercise of the option for the First Program and €7.5 million ($8.5 million) in connection with the exercise of the option for the Second Program. Additionally, Ares is obligated to pay us up to €408.5 million ($501.7 million) in the aggregate for the programs upon the achievement of certain development and regulatory milestones and up to €252 ($309.5 million) in the aggregate upon the achievement of certain commercial milestones. We are eligible to receive a low single digit royalty on net sales of licensed products. The royalties payable to us under the Ares agreement may be reduced under certain circumstances. Our 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 relates to 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, we also granted Ares the right to negotiate a royalty agreement in the event of commercialization of FS118, and we 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, we 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. We 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 us 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 our 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
We do not currently own or operate manufacturing facilities for production of clinical or commercial quantities of any of our drug candidates or their components. We currently generate batches of our mAb
2
bispecific antibody candidates in our laboratories for initial preclinical studies using standardized procedures. We rely on and expect to continue to rely on third-party contract manufacturing organizations (“CMOs”), to manufacture clinical materials and any future commercial materials for our product candidates. We require our CMOs to produce bulk drug substance and finished drug product in accordance with current Good Manufacturing Practices and all other applicable laws and regulations. We maintain agreements with our CMOs that include confidentiality and intellectual property provisions to protect our proprietary rights related to our product candidates. We believe that both the standard IgG platform processes used for mAb
2
manufacturing and chemical synthesis used for SB 11285 manufacturing can be transferred to a number of other CMOs for the production of clinical and commercial supplies of our 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 and innovation, intense competition and a strong emphasis on intellectual property. We believe that our differentiated technology, dominant intellectual
 
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property position, significant development experience and scientific knowledge provide us with competitive advantages. However, we face 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. We anticipate that we 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 we successfully develop and commercializes will compete with new oncology therapies that may become available in the future.
We compete 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, EMD Serono, Genentech, a member of the Roche Group, Lilly, MSD, Novartis, Pfizer, 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 our mAb
2
bispecific antibody pipeline, we are aware of several competitors using other technology methods to create bispecific antibodies to treat a variety of cancer types, including, but not limited to Genmab A/S, Inhibrx, MacroGenics, Merus, Pieris Pharmaceuticals, Hoffman-LaRoche, Shattuck Labs, and Xencor, Inc.
With respect to our lead mAb
2
product candidate, FS118, we are aware of other competing molecules targeting
LAG-3
and
PD-1/PD-L1
receptors. Companies pursuing a bispecific molecule directed against
LAG-3
and
PD-1/PD-L1
in different phases of clinical development include but are not limited to Epimab, MacroGenics and
Hoffmann-La
Roche. We are also aware of other companies pursuing a combination of two traditional antibodies in different phases of clinical development, with the targeting
PD-1/PD-L1,
and one targeting
LAG-3,
which include but are not limited to: BMS, C.H. Boehringer Sohn AG & Co. KG and MSD.
With respect to our second mAb
2
product candidate, FS120, we are aware of other companies pursuing bispecific antibodies targeting OX40 and CD137, which include but are not limited to Aptevo Therapeutics. We are also aware that Pfizer s has ongoing clinical studies evaluating a combination of CD137 plus OX40 traditional antibodies.
With respect to our third mAb
2
product candidate, FS222, we are aware of other companies pursuing bispecific antibodies targeting
PD-L1
and CD137 in clinical development, which include but are not limited to: Genmab/BioNTech SE, Inhibrx/Elpiscience, Merus/Incyte and Numab Therapeutics AG/CStone Pharmaceuticals. We are also aware of other companies that are pursuing a combination of two traditional antibodies in clinical development, with the targeting
PD-1/PD-L1,
and one targeting CD137, which include but are not limited to: Adagene, BMS, Lyvgen Biopharma (Suzhou)/MSD, Pfizer, and Hoffman LaRoche.
With respect to our fourth product candidate, SB 11285, we are aware of other companies pursuing a second generation, intravenously administered STING agonist, in clinical development which include but are not limited to: GSK, Millennium Therapeutics/ Takeda, and Silicon Therapeutics.
Many of the companies against which we are competing or against which we 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 we do. Mergers and acquisitions in the biotechnology, pharmaceutical and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors,
 
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particularly through unforeseen technological innovations, or collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and enrolling patients for our clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
We could see a reduction or elimination of our commercial opportunity if our 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 we may develop. Our competitors also may obtain FDA, EMA or other foreign regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.
Intellectual Property
We strive to protect and enhance the proprietary technology, inventions and improvements that are commercially important to the development of our business, including seeking, maintaining and defending patent rights, whether developed internally or licensed from third parties. We also rely on trade secrets relating to our proprietary modular antibody technology platform and on
know-how,
continuing technological innovation and
in-licensing
opportunities to develop, strengthen and maintain our proprietary position in the immuno-oncology field and other fields that are or may be important for the development of our business. We additionally expect to rely on regulatory protection afforded through orphan drug designations, data exclusivity, market exclusivity and patent term extensions where available.
Our commercial success may depend in part on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and
know-how
related to our business; defend and enforce our patents; preserve the confidentiality of our trade secrets; and operate without infringing the valid enforceable patents and proprietary rights of third parties. Our ability to stop third parties from making, using, selling, offering to sell or importing our products may depend on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities. With respect to both licensed and company-owned intellectual property, we cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our commercial products and methods of manufacturing the same.
We have developed or
in-licensed
numerous patents and patent applications and possesses substantial
know-how
and trade secrets relating to the development and commercialization of our mAb
2
product candidates and the underlying modular antibody technology platform and have also acquired a patent family relating to our STING agonist product candidate, SB 11285. To date, our patent estate includes over 230 granted patents and over 180 pending patent applications generally directed to, for example, compositions and methods related to our Fcabs, our modular antibody technology platform, our lead mAb
2
product development candidates, our STING agonist SB 11285 and other STING agonist compounds, and other products, proprietary technologies and processes.
The patent portfolios for the fields containing our most advanced mAb
2
product candidates as of the date of this Annual Report are summarized below.
FS118
(LAG-3/PD-L1
mAb
2
)
Our patent portfolio related to FS118 includes 12 owned or licensed patent families, which relate generally to the FS118 mAb
2
bispecific antibody composition of matter, the
LAG-3
Fcab and
PD-L1
mAb antibody included in FS118, methods of producing these molecules and use of the FS118 mAb
2
bispecific antibody in the treatment of cancer.
Specifically, we solely own two FS118-focused patent families which relate to the FS118 mAb
2
bispecific antibody composition of matter and the
LAG-3
Fcab included in FS118, respectively, as well as methods of
 
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producing these molecules and use of the FS118 mAb
2
bispecific antibody or LAG-3 Fcab in the treatment of 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 and subject to the potential effect of any terminal disclaimers.
We also solely own 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”) 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 and subject to the potential effect of any terminal disclaimers.
Further, we solely own patent families which relate to our modular antibody technology platform, including aspects of the underlying Fcab and mAb
2
bispecific antibody technologies utilized in FS118. Issued patents in these families are expected to expire between 2026 and 2027, absent any patent term adjustments or extensions and subject to the potential effect of any terminal disclaimers. Our modular antibody
technology platform portfolio is discussed in more detail below.
Finally, we have 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 and subject to the potential effect of any terminal disclaimers.
FS120 (OX40/CD137 mAb
2
)
Our patent portfolio related to FS120 includes six patent families, solely owned by us, which relate generally to the FS120 mAb
2
bispecific antibody
composition of matter, the OX40 Fcab and CD137 antibody included in FS120, methods of producing the mAb
2
bispecific antibody and use of the FS120 mAb
2
bispecific antibody in the treatment of cancer.
Specifically, we solely own three patent families which relate to the composition of matter of the OX40 Fcab included in FS120, the CD137 antibody included in FS120, and the FS120 mAb
2
bispecific antibody, respectively, as well as methods of producing such compositions and use of the compositions in the treatment of cancer. Patent applications are pending in each of these families in major territories worldwide, including Australia, Canada, Europe, Japan and the United States. Any patents that may issue from these patent applications will be expected to expire in 2039, absent any patent term adjustments or extensions and subject to the potential effect of any terminal disclaimers.
Further, the
F-star
patent families relating to our modular antibody technology platform discussed in more detail below include aspects of the underlying Fcab and mAb
2
technologies utilized in FS120.
FS222
(CD137/PD-L1
mAb
2
)
Our patent portfolio related to FS222 includes seven patent families, solely owned by us, which relate generally to the FS222 mAb
2
bispecific antibody
composition of matter, the CD137 Fcab and
PD-L1
antibody included in FS222, methods of making the mAb
2
bispecific antibody and use of the FS222 mAb
2
bispecific antibody in treatment of cancer.
Specifically, we solely own three patent families which relate 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 mAb
2
bispecific antibody, respectively, as well as methods of producing such compositions and use of the compositions in the treatment of a disease, such as cancer. Patent applications are pending in each of these families in major territories worldwide, including Australia, Canada, Europe, Japan and the United States. Any patents that may issue from these pending applications will be expected to expire in 2039, absent any patent term adjustments or extensions and subject to the potential effect of any terminal disclaimers.
 
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We also solely own one patent family related to FS222 which relates to mAb
2
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 producing and use of the same in the treatment of 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 and subject to the potential effect of any terminal disclaimers.
Additionally, our patent families relating to our modular antibody technology platform discussed below include aspects of the underlying Fcab and mAb
2
technologies utilized in FS222.
Platform Technology
Our patent portfolio also includes numerous patents and patent applications generally relating to our modular antibody technology platform and other products and programs not currently under development by us.
Specifically, we own patent families relating to our modular antibody technology platform, including two patent families that are generically related to the technology, one family that relates to both the mAb
2
technology and the Fcab technology, and one family that relates 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 nine 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 and subject to the potential effect of any terminal disclaimers.
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. Where a U.S. patent is subject to a terminal disclaimer, the term of the patent may alternatively be shorter than 20 years.
SB 11285 (STING agonist compound)
Our patent portfolio related to SB 11285 includes a patent family, solely owned by us, which includes claims directed generally to the composition of matter of a series of STING agonist compounds encompassing SB 11285, specifically to the composition of matter of SB 11285, as well as to methods of using such compounds to treat cancer. Patent applications are pending in this family in major territories worldwide, including 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 2037, absent any patent term adjustments or extensions and subject to the potential effect of any terminal disclaimers.
Government Regulation and Product Approval
In the United States, the FDA regulates therapeutics like our mAb
2
product candidates as biological products, or biologics, and therapeutics like SB 11285 as drugs under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act and related regulations. Biologics and drugs 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
 
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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 us.
The U.S. Food and Drug Administration (“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 and drugs. 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 and drugs.
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. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the United States or abroad.
Product Development
In the United States, the FDA regulates human drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and in the case of biological products, or biologics, also under the Public Health Service Act, or the PHSA, and their implementing regulations. SB 11285 are drugs. Biologics and drugs 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 marketing applications or supplemental applications, revocation of a biologics license or new drug approval, 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 us.
The process required by the FDA before a biologic or drug may be marketed in the United States generally involves the following:
 
   
completion of nonclinical laboratory tests and animal studies according to good laboratory practices, commonly “GLPs”, and applicable requirements for the human use of laboratory animals or other applicable regulations;
 
   
submission of an Investigational New Drug (“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 IND regulations, current good clinical practices, or “GCPs”, and any additional requirements for the protection of human research subjects and their health information, to establish the safety and efficacy of the investigational product for each proposed indication;;
 
   
submission to the FDA of a Biologics License Application (“BLA”) or a New Drug Application (“NDA”), for marketing approval, including payment of application user fees;
 
   
satisfactory completion of FDA
pre-approval
inspections of manufacturing facilities where the biologic or drug 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 or drug’s identity, strength, quality and purity;
 
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potential FDA audits of the nonclinical study and clinical trial sites that generated the data in support of the BLA or NDA; and
 
   
FDA review and approval of the BLA or NDA, including satisfactory completion of an FDA advisory committee review of the product candidate, where appropriate or if applicable, which must occur before the biologic or drug can be marketed or sold in the United States.
The testing and approval process requires substantial time and financial resources, and we cannot be certain that any new approvals for our product candidates will be granted on a timely basis, if at all.
Preclinical Studies
Before testing any compound or 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 compound or 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 product candidate at any time before or during clinical trials due to, among other considerations, unreasonable or significant safety 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 or drug 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 rules 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.
 
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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, tests 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 such 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.
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 our products are subject to post-marketing requirements and commitments, there may be resource and financial implications for our business.
 
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Marketing Application Submission and FDA Review
Assuming successful completion of required clinical testing and other requirements, the results of the preclinical studies and clinical trials, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of either a BLA or an NDA requesting approval to market the biologic or drug product for one or more indications. A BLA in particular must contain proof of the biological product candidate’s safety, purity, potency and efficacy for its proposed indication or indications. In order to obtain approval to market a therapeutic product in the United States, the marketing application must provide data establishing to the FDA’s satisfaction, among other things, the safety and effectiveness of the investigational product for the proposed indication. 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. Under federal law, the fee for the submission of an NDA or BLA is substantial (for example, for FY2021 this application fee exceeds $2.8 million), and the sponsor of an approved NDA or BLA is also subject to an annual program fee, currently more than $336,000 per program. These fees are typically adjusted annually, but exemptions and waivers may be available under certain circumstances.
The FDA will initially review a BLA or NDA for completeness before it accepts the application for filing. Under the FDA’s procedures, the agency has 60 days from its receipt of a BLA/NDA, also called 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 or NDA submission is accepted for filing, the FDA reviews the application to determine, among other things, whether the proposed product is safe and effective for its intended use, whether it has an acceptable purity profile (for biologics), 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 (as applicable depending on if the product is a drug or a biologic). The FDA may request additional information rather than accept a BLA or NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an
in-depth
substantive review. The FDA has agreed to specified performance goals in the review process of BLAs and NDAs. Under that agreement, 90% of New Molecular Entity (“NME”) NDAs and original BLAs, are meant to be reviewed within ten months from the date on which FDA accepts the NDA or BLA for filing, and 90% of applications for NMEs or new biological products that have been designated for “Priority Review” are meant to be reviewed within six months of the filing date. For applications seeking approval of drugs that are not NMEs, the
ten-month
and
six-month
review periods run from the date that FDA receives the application. The FDA may extend the review process and the Prescription Drug User Fee Act goal date for three additional months to consider new information or clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission. Moreover, despite these review goals, it is not uncommon for FDA review of a BLA or NDA to extend beyond the goal date.
Before approving a BLA or NDA, 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. These
pre-approval
inspections may cover all facilities associated with the BLA or NDA submission, including drug component manufacturing (e.g., active pharmaceutical ingredient manufacturers included within an NDA), finished product manufacturing, and control testing laboratories. Additionally, before approving a BLA or NDA, 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 or NDA. 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.
 
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The FDA may refer applications for novel biological products or biological products that present difficult questions of safety or efficacy to an advisory committee, and it is required to refer an application for a novel drug to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and, 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 likely will
re-analyze
the clinical trial data, which could result in extensive discussions between the FDA and the applicant during the review process. In addition, as a condition of approval, the FDA may require an applicant to develop a risk evaluation and mitigation strategy, or REMS, if it determines that a REMS is necessary to assure the safe use of the drug or biological product. REMS use risk minimization strategies beyond the professional labeling to ensure that the benefits of the product outweigh the potential risks. When determining on a
case-by-case
basis whether a REMS is needed, the FDA will consider the size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected duration of treatment, seriousness of known or potential adverse events and whether the product is an NME. REMS can include medication guides, physician communication plans for healthcare professionals and elements to assure safe use (“ETASU”). ETASU may include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, restricted distribution requirements, special clinical monitoring and/or the use of patient registries. The FDA may require a REMS before approval or post-approval if it becomes aware of a serious risk associated with use of the product. The requirement for a REMS can materially affect the potential market and profitability of an approved drug or biological product.
Based on the FDA’s evaluation of a BLA or an NDA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the BLA or NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. In addition, when a complete response letter is issued, the sponsor may elect to either resubmit the BLA or NDA or withdraw the application. Resubmitting a BLA or NDA in response to a complete response letter can add additional time to the approval process for a product.
Under the Pediatric Research Equity Act, or “PREA”, as amended, an initial BLA/NDA or certain supplements to a BLA/NDA for a novel product must contain data to assess the safety and effectiveness of the product candidate 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 therapeutic product for an indication for which orphan designation has been granted. The Food and Drug Administration Safety and Innovation Act, or “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
 
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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 novel biologic or drug 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. We may encounter difficulties or unanticipated costs in our efforts to secure necessary governmental approvals, which could delay or preclude us from marketing our products.
If the FDA approves a product, it may limit the approved indications for use for the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess the biologic’s or drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval. 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 therapeutic products manufactured or distributed by is or on our 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 or drug, and submitting product deviation reports to notify the FDA of unanticipated changes in distributed products. In addition, all 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 and other laws. The cGMP regulations include requirements relating to organization of personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, laboratory controls, records and reports and returned or salvaged products. This will require us and any third-party manufacturers to implement certain quality processes, manufacturing controls and documentation requirements in order to ensure that every product is safe for use, has the identity and strength it claims to have (for both a drug and a biologic) and meets the quality, purity and potency characteristics that it purports to have (for a biologic). There are continuing, annual program fee requirements for any marketed products, as well as new application fees for supplemental applications with clinical data.
We cannot be certain that we or our present or future suppliers will be able to comply with the cGMP and other FDA regulatory requirements. If our present or future suppliers are not able to comply with these requirements, the FDA may halt our clinical trials, refuse to approve any BLA, NDA or other application, force us to recall a product from distribution, shut down manufacturing operations or withdraw approval of the BLA or NDA for that biologic or drug. 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 prescription 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 drug and biological products.
 
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The FDA and other federal and state agencies closely regulate the labeling, marketing and promotion of biologics and drugs. 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 and drug promotional materials must be submitted to the FDA in conjunction with their first publication or first dissemination. (or, in the case of product candidates approved under the accelerated approval regulations, prior to dissemination). Further, if there are any modifications to the biologic or drug, 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 NDA or a BLA or NDA supplement, which may require the applicant to develop additional data or conduct additional preclinical studies and clinical trials. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising, injunctions, potential civil and criminal penalties, criminal prosecution or agreements with governmental agencies that materially restrict the manner in which a product approved by FDA may be promoted or distributed, among other potential consequences.
In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or “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 Drug Supply Chain Security Act, or “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.
FDA’s Regulation of Companion Diagnostics
We believe that the success of certain of our product candidates, if approved, 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 in vitro diagnostic medical devices by the FDA. In the United States, the FDCA and its implementing regulations, and other federal and state statutes and regulations govern, among other things, medical device design and development, preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling, storage, advertising and promotion, sales and distribution, export and import and post-market surveillance. Unless an exemption applies, diagnostic tests 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, for which the FDA has not yet called for the submission of a PMA. The device upon which the premarket notification is based is referred to as the Predicate Device. In making a determination that the proposed 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,
 
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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 analogous to the cGMP regulations for drugs and biologics. 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 marketing 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.
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
 
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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 or NDA. The benefits of orphan drug designation include research and development tax credits and exemption from FDA prescription drug user fees. Orphan designation, however, does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. 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.
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, or “FDASIA,” 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 described further below. 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 our product candidates receive 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 us. 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.
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 pediatric investigation plan or “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.
 
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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.
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. Moreover, the additional
six-month
period exclusivity may be granted if the BLA or NDA sponsor submits pediatric data that fairly respond to the written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. 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 our 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
 
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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, as described above in the section called “Pediatric Exclusivity,” 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.
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.
 
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New Drug Exclusivity and Marketing Applications for
Follow-on
Drugs
In 1984, with passage of the Hatch-Waxman Amendments to the FDCA, Congress enacted Section 505(b)(2) of the FDCA and also established an abbreviated regulatory scheme authorizing the FDA to approve generic drugs that are shown to contain the same active ingredients as, and to be bioequivalent to, drugs previously approved by the FDA pursuant to NDAs. To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application (“ANDA”), to the agency. An ANDA is a comprehensive submission that contains, among other things, data and information pertaining to the active pharmaceutical ingredient, bioequivalence, drug product formulation, specifications and stability of the generic drug, as well as analytical methods, manufacturing process validation data and quality control procedures. ANDAs are “abbreviated” because they cannot include preclinical and clinical data to demonstrate safety and effectiveness. Instead, in support of such applications, a generic manufacturer must rely on the preclinical and clinical testing previously conducted for a drug product previously approved under an NDA, known as the reference-listed drug (“RLD”).
Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, the route of administration, the dosage form, the strength of the drug and the conditions of use of the drug. At the same time, the FDA must also determine that the generic drug is “bioequivalent” to the innovator drug. Under the statute, a generic drug is bioequivalent to a RLD if “the rate and extent of absorption of the drug do not show a significant difference from the rate and extent of absorption of the listed drug”.
Upon approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the RLD in its publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD. In addition, by operation of certain state laws and numerous health insurance programs, the FDA’s designation of therapeutic equivalence often results in substitution of the generic drug without the knowledge or consent of either the prescribing physician or patient.
In contrast, Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. A Section 505(b)(2) applicant may eliminate the need to conduct certain preclinical or clinical studies, if it can establish that reliance on studies conducted for a previously approved product is scientifically appropriate. Unlike the ANDA pathway used by developers of bioequivalent versions of innovator drugs, which does not allow applicants to submit new clinical data other than bioavailability or bioequivalence data, the 505(b)(2) regulatory pathway does not preclude the possibility that a
follow-on
applicant would need to conduct additional clinical trials or nonclinical studies; for example, it may be seeking approval to market a previously approved drug for new indications or for a new patient population that would require new clinical data to demonstrate safety or effectiveness.
As part of the NDA review and approval process, applicants are required to list with the FDA each patent that has claims that cover the applicant’s product or method of therapeutic use. Upon approval of a new drug, each of the patents listed in the application for the drug is then published in the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential
follow-on
competitors in support of approval of an ANDA or 505(b)(2) NDA.
When an ANDA applicant submits its application to the FDA, it is required to certify to the FDA concerning any patents listed for the reference product in the FDA’s Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. Moreover, to the extent that the Section 505(b)(2)
 
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NDA applicant is relying on studies conducted for an already approved product, the applicant also is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would.
If the
follow-on
applicant does not challenge the innovator’s listed patents, FDA will not approve the ANDA or 505(b)(2) application until all the listed patents claiming the referenced product have expired. A certification that the new product will not infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the
follow-on
applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA or 505(b)(2) NDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA/505(b)(2) applicant.
An ANDA or 505(b)(2) application also will not be approved until any applicable
non-patent
exclusivity listed in the Orange Book for the referenced product has expired. In particular, the Hatch-Waxman Amendments provided a period of five years of
non-patent
data exclusivity for a new drug containing a new chemical entity (“NCE”). For the purposes of this provision an NCE is a drug that contains no active moiety that has previously been approved by the FDA in any other NDA. An active moiety is the molecule or ion responsible for the physiological or pharmacological action of the drug substance. In cases where such NCE exclusivity has been granted, an ANDA or 505(b)(2) NDA may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application four years following the original product approval.
The FDCA also provides for a period of three years of exclusivity if an NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the application. This three-year exclusivity period often protects changes to a previously approved drug product, such as a new dosage form, route of administration, combination or indication. Three-year exclusivity would be available for a drug product that contains a previously approved active moiety, provided the statutory requirement for a new clinical investigation is satisfied. Unlike five-year NCE exclusivity, an award of three-year exclusivity does not block the FDA from accepting ANDAs or 505(b)(2) NDAs seeking approval for generic versions of the drug as of the date of approval of the original drug product; rather this three-year exclusivity covers only the conditions of use associated with the new clinical investigations and does not prohibit the FDA from
approving follow-on
applications for drugs containing the original active agent.
The FDA typically makes decisions about awards of data exclusivity shortly before an original NDA or efficacy supplement is approved. Five-year and three-year exclusivity also will not delay the submission or approval of a traditional NDA filed under Section 505(b)(1) of the FDCA. However, an applicant submitting a traditional NDA would be required to either conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
Patent Term Extension
Depending upon the timing, duration and specifics of FDA approval of our drug candidate SB 11285 or any future drug candidates, some of our U.S. patents may be eligible for limited patent term extension under other provisions of the Hatch-Waxman Amendments. These patent term extensions permit a patent restoration term of up to five years as compensation for any patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally
one-half
the time between the effective date of an IND, and the submission date of an NDA, plus the time between the submission
 
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date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension, and the extension must be applied for prior to expiration of the patent. The United States Patent and Trademark Office (“USPTO”) in consultation with the FDA, reviews and approves the application for any patent term extension or restoration.
Coverage, Pricing, and Reimbursement
In both domestic and foreign markets, sales of any products for which we may receive regulatory approval will depend in part upon the availability of coverage and 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 our costs, including research, development, manufacture, sale and distribution. Interim payments for new products, if applicable, may also not be sufficient to cover our 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 we may receive regulatory approval for commercial sale may suffer if the government and other third-party payors fail to provide coverage and adequate reimbursement to allow us to sell such products on a competitive and profitable basis. For 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 our future therapeutic products and patients may decline to purchase such products. This, in turn, could affect our ability to successfully commercialize our future therapeutic products and impact our profitability, results of operations, financial condition, and future success.
The market for any product candidates for which we may receive regulatory approval 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. We 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 we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost-effectiveness of our future therapeutic products. We cannot be certain that our 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 we may receive approval and could have a negative effect on our 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
 
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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, we may be required to conduct a clinical trial that compares the cost-effectiveness of our 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.
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 our 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 Acts 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 our 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. We are subject to these laws or will become subject to them in the future, and they may affect our 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. Moreover, in November 2020, the U.S. Department of Health and Human Services (“HHS”) finalized significant changes to the regulations implementing the Anti-Kickback Statute, as well as the Physician Self-Referral Law (Stark Law) and the civil monetary penalty rules regarding beneficiary inducements, with the goal of offering the healthcare industry more flexibility and reducing the regulatory burden associated with those fraud and abuse laws, particularly with respect to value-based arrangements among industry participants. As noted below in the section called “U.S. Healthcare Reform,” however, those final rules may be potentially overturned under the Congressional Review Act following the change in control of the legislative and executive branches in January 2021.
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
 
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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 made 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 2010 and implemented by 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.
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
 
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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 our future business activities could be subject to challenge under one or more of such laws. If our 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 us, we 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 we become subject to a corporate integrity agreement or similar agreement to resolve allegations of
non-compliance
with these laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
To the extent that any of our products are in the future sold in a foreign country, we 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 our ability to sell our product candidates profitably, even if we 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 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.” In December 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. In December 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
 
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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 allocated one hour for oral arguments, which occurred on November 10, 2020. A decision from the Supreme Court is expected to be issued in spring 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 the biopharmaceutical industry. 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 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. The 2021 Consolidated Appropriations Act was subsequently signed into law on December 27, 2020 and extends the CARES Act suspension period to March 31, 2021.
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 our future commercial products are unknown.
In recent years, HHS has solicited feedback on various measures intended to lower drug prices and reduce the out of pocket costs of drugs 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. As part of the Trump Administration’s
so-called
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 required the agencies to go through
notice-and-comment
rulemaking, while the second pathway allows manufacturers to distribute their drugs manufactured abroad and was released as agency policy in an FDA guidance document first issued in December 2019. 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 and in September 2020, the rulemaking was finalized by FDA. Those new
 
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regulations became effective on November 30, 2020, although the impact of such future programs is uncertain, in part because lawsuits have been filed challenging the government’s authority to promulgate them. The final regulations may also be vulnerable to being overturned by a joint resolution of disapproval from Congress under the procedures set forth in the Congressional Review Act, which could be applied to regulatory actions taken by the Trump Administration on or after August 21, 2020 (
i.e.
, in the last 60 days of legislative session of the 116th Congress). Congress and the executive branch 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 in 2020 the FDA published a notice of proposed rulemaking that would require manufacturers who do so to make annual reports of those programs to FDA. However, the January 20, 2021 transition to a new
Democrat-led
presidential administration created new uncertainty for ongoing regulatory matters that were initiated during the Trump Administration’s final year in office. Following his inauguration, President Biden took immediate steps to order a regulatory freeze on all pending substantive executive actions in order to permit incoming department and agency heads to review whether questions of fact, policy, and law may be implicated and to determine how to proceed. It remains to be seen whether the proposed rule for annual reporting under the Right to Try Act advances to the final rule stage.
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 December 2020, the U.S. Supreme Court held unanimously that federal law does not preempt the states’ ability to regulate pharmaceutical benefit managers (“PBMs”) and other members of the healthcare and pharmaceutical supply chain, an important decision that may lead to further and more aggressive efforts by states in this area. 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 our products, once approved, or put pressure on our product pricing.
We expect 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 we receive for any approved drug, which could have an adverse effect on customers for our 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 us from being able to generate revenue, attain profitability, or commercialize our products. Such reforms could have an adverse effect on anticipated revenue from product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates.
Foreign Regulation
In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our product candidates. Whether or not we
 
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obtain FDA approval for a product candidate, we must obtain approval from the comparable regulatory authorities of foreign countries or economic areas, such as the European Union and the United Kingdom, before we may commence clinical trials or market products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly 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. A similar process applies in the United Kingdom.
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, we 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.
Following its departure from the European Union and the expiration of the transitional period, the United Kingdom recently adopted a decentralized and mutual recognition reliance procedure for marketing authorizations that allows the United Kingdom’s clinical trial regulator, the MHRA, to consider marketing authorizations granted in the European Union or the three additional European Economic Area countries. However, additional requests for information may arise and additional time may be required with respect to applications for marketing authorizations in the United Kingdom using these procedures. 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.
If we or our potential collaborators fail to comply with applicable foreign regulatory requirements, we 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
We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now or in the future.
We are also subject to privacy laws in the jurisdictions in which we are established or in which we sell or market our products or run clinical trials. For example, we and our
EU-based
subsidiaries are subject to Regulation (EU)
 
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2016/679, the General Data Protection Regulation (“GDPR”), in relation to our 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. We process personal data in relation to participants in our 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 our ability to collect, use and share personal data (including health and medical information), or could cause our compliance costs to increase, ultimately having an adverse impact on our 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; clarifies that data protection rules apply in full to pseudonymized (i.e.,
key-coded)
data 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. We are also subject to EU rules with respect to cross-border transfers of personal data out of the European Union and European Economic Area. We are subject to the supervision of local data protection authorities in those EU jurisdictions where we are 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 our use of data, enforcement notices, or potential civil claims including class action type litigation. Following Brexit, the United Kingdom has incorporated the GDPR into its own data protection laws, and substantially equivalent risks also apply in the United Kingdom.
Employees and Human Capital
As of February 15,
2021, F-star had
75 full-time employees and four part-time employees, 73 are located in the United Kingdom and six 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.
We are committed to developing therapies that can potentially benefit patients who are resistant to conventional cancer therapies or current therapies for other serious diseases. To that end, we recognize that our industry is specialized and dynamic, and a significant aspect of our success is our continued ability to execute our human capital strategy of attracting, engaging, developing and retaining highly skilled talent. There is fierce competition for highly skilled talent, particularly in the Boston, Massachusetts and Cambridge, United Kingdom areas, and we offer a robust set of benefits covering employees’ physical, emotional and financial health, a strong company culture and initiatives aligned with our mission, vision, and values. We offer competitive compensation for our employees and strongly embrace pay for performance. We also strive to provide a collegial atmosphere where teamwork and collaboration are emphasized and valued. We have dedicated full-time professional employees who oversee all aspects of our human capital management process including talent acquisition. We have built a strong recruiting culture through a system of employee referrals and also closely partner with talent acquisition organizations with the objective to locate, attract and retain qualified experienced professionals. We are continuously exploring new markets as sources of talent.
Our Employee Handbook and Code of Business Conduct and Ethics clearly outlines our unwavering commitment to diversity and inclusion, where all employees are welcomed in an environment designed to make them feel comfortable, respected, and accepted regardless of their age, race, national origin, gender, religion, disability or sexual orientation. We have a set of policies explicitly setting forth our expectations for nondiscrimination and a harassment-free work environment. We are also a proud equal opportunity employer and cultivate a highly collaborative and entrepreneurial culture.
 
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Facilities
Our principal offices occupy approximately 12,073 square feet of leased office, research and development and laboratory facility space in Cambridge, United Kingdom, pursuant to a lease agreement that expires in 2024. We also have additional lab space in Cambridge, UK. We have 2 properties in Hopkinton, USA, which are subleased to subtenants, and a virtual office agreement with Regus Management Group, LLC in Cambridge, Massachusetts, pursuant to a rolling lease agreement that expires in 2021. We believe that our current facilities are suitable and adequate to meet our current needs.
Corporate information
We were incorporated under the laws of the Commonwealth of Massachusetts as Spring Bank Technologies, Inc. on October 7, 2002. On May 12, 2008, we filed a certificate of incorporation in the State of Delaware and changed our state of incorporation to Delaware and our name to Spring Bank Pharmaceuticals, Inc. On November 20, 2020, we filed a certificate of amendment to the restated certificate of incorporation in the State of Delaware and changed our name to
F-star
Therapeutics, Inc. Our principal executive offices are located at Eddeva B920 Babraham Research Campus, Cambridge, United Kingdom CB22 3AT and our telephone number is
44-1223-497400.
Additional information
Our website address is
www.F-star.com
. The information contained in, or accessible through, our website does not constitute a part of this Annual Report on Form
10-K.
We make available free of charge through our website our Annual Reports on Form
10-K,
Quarterly Reports on Form
10-Q,
Current Reports on Form
8-K
and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after we electronically file or furnish such materials to the Securities and Exchange Commission or the SEC. The SEC maintains a website that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov. The information found on our website is not incorporated by reference into this Annual Report on
Form 10-K
or any other report we file with or furnish to the SEC.
 
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Item 1A. Risk Factors.
We have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition or results of operations. The risks described below are not the only ones we face. Additional risks not presently known to us or other factors not perceived by us to present significant risks to our business at this time may also significantly impair our business operations. Our business could be harmed by any of these risks. Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all other information contained in this Annual Report on Form
10-K,
including our condensed consolidated financial statements and the related notes, before making any decision to purchase our common stock. If any of the possible adverse events described below actually occurs, we may be unable to conduct our business as currently planned and our prospects, financial condition, operating results and cash flows could be materially harmed. In addition, the trading price of our common stock could decline due to the occurrence of any of the events described below, and you may lose all or part of your investment. In assessing these risks, you should refer to the other information contained in this Annual Report on Form
10-K,
including our condensed consolidated financial statements and related notes.
Summary Risk Factors
We are subject to a number of risks that if realized could affect our business, financial condition, results of operations and cash flows. As a clinical stage company, certain elements of risk are inherent to our business. Accordingly, we encounter risks as part of the normal course of our business. Some of the more significant challenges and risks include the following:
 
   
Uncertainty regarding future revenue and access to funding.
 
   
We are a clinical-stage biopharmaceutical company that currently generates no revenue from sales of any products, and we may never be able to develop or commercialize a drug or biologic product candidate. Even if we receive approval to market one or more products, we may never become profitable if we are unable to establish market acceptance, adequate market share or reimbursement from third-party payors. Additionally, if we receive approval, we expect our expenses to increase significantly in order to successfully launch such approved product candidate and such increases may not be commercially feasible. Further, if we cannot generate revenue from the sale of any approved products, we may never become profitable. We have also concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least twelve months from the issuance date of the financial statements.
 
   
Clinical trial delays, adverse events, and/or clinical trial results may affect our business adversely.
 
   
Clinical development is expensive, time consuming and involves significant risk. If there is a failure of one or more of our clinical trials, at any stage of development, or if we experience serious adverse events, such failure may lead to additional costs to us or impair our ability to generate revenue. In addition, many of the factors, including the incidence of serious adverse events, that cause or lead to a delay in the commencement or completion of a clinical trial may also lead to the denial of marketing approval for our product candidates, which would lead to material harm to our business.
 
   
We rely on third parties to manage our clinical programs, manufacture our product candidates and perform other services.
 
   
We rely on third-party vendors for key components of the development of our product candidates, including the manufacturing, management of clinical trials and other critical services. If such third-party vendors fail to comply with applicable laws, regulations or guidelines or are unable to obtain the materials needed for the manufacture of our product candidates, we may have a disruption in our clinical trials and potentially, commercial sale of a future approved product. We may not be able to manufacture product candidates or there may be substantial technical or
 
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logistical challenges to supporting manufacturing demand for product candidates either by us or by our third-party manufacturers. Additionally, as we rely upon these vendors to perform release testing on our product candidate prior to delivery to subjects in our clinical trials or patients being treated with our product candidates, if approved in the future, such subjects or patients could be put at risk for serious harm, and we may face damaging product liability suits.
 
   
We are subject to substantial regulation. As a biopharmaceutical company, we are subject to extensive regulation by government and regulatory agencies, such as the FDA and the EMA, among others. We may not receive the governmental approvals needed to market and commercialize our product candidates, which could have a material adverse effect on our financial condition, operations and prospects. The FDA and comparable foreign regulatory authorities have limited experience with mAb
2
products like our product candidates, which may increase the uncertainty surrounding as well as the expenses involved in the regulatory approval process for our product candidates. Such delays, unexpected costs or failure to obtain regulatory approval to market our product candidates could harm our ability to generate product revenue and our business, financial condition, results or operations and prospects may be harmed. Even if we obtain regulatory approval for a product, maintaining such compliance with regulatory requirements will result in additional expenses to us, which may be difficult to maintain.
 
   
We are reliant on our intellectual property and are subject to the risk that we will not be able to protect our intellectual property rights. We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect our intellectual property related to our technologies and product candidates. Our commercial success depends on our ability to obtain, maintain and enforce patent and other intellectual property protections for our current and future technologies and product candidates. If we are unable to do so, our business may be materially harmed, our ability to commercialize our product candidates may be limited and our profitability may be delayed or may never occur.
 
   
We depend on third party licensing or collaboration agreements. Our business strategy, along with our short- and long-term operating results depend in part on our ability to execute on existing strategic collaborations, including those with Ares Trading S.A, an affiliate of Merck KGaA, Darmstadt, Germany and Denali Therapeutics, and to license or partner with new strategic partners. If disputes arise between us and our partners in such agreements, there may be increased costs due to related litigation or if we decide to fund such programs ourselves. Disputes with partners may lead to substantial delays or possible termination of such agreements or related clinical trials and the need to seek a new partner for the development or commercialization of such product candidate. In addition, if commercialization collaboration partners do not commit sufficient resources to commercialize our future product candidates, and if we are unable to develop the necessary marketing and sales capabilities on our own, we will be unable to generate sufficient product revenue to sustain or grow our business.
 
   
We are subject to substantial competition.
 
   
We compete with large pharmaceutical companies that have access to significant capital and materially greater manufacturing, marketing, research and drug development resources. We also compete with specialty pharmaceutical companies and biotechnology companies, including but not limited to, such as AstraZeneca plc, BMS, Eli Lilly and Company, MSD, Merck KGaA, Darmstadt, Germany, Novartis, Pfizer, Inc., Genentech, Inc., a subsidiary of the F.
Hoffmann-La
Roche AG Group and Sanofi, among others, as well as, universities and other research institutions worldwide that are developing drug or biological products for the same indications as us that could be more effective or less costly than our product candidates, which may render our candidates obsolete and noncompetitive.
 
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We have material weaknesses in our internal control over financial reporting.
 
   
We will need to hire additional qualified accounting personnel in order to remediate these material weaknesses in our internal control over financial reporting, and we will need to expend any additional resources and efforts that may be necessary to establish and to maintain the effectiveness of our internal control over financial reporting and our disclosure controls and procedures.
 
  o
We are vulnerable to disruptions and volatility in the financial markets.
 
   
We are reliant in part on the financial markets to finance our future capital needs through public equity offerings, debt financings and other funding arrangements. Disruptions and volatility in the financial markets can have a material adverse effect on our ability to access capital and liquidity on acceptable financial terms. Negative and fluctuating economic conditions may present challenges in us obtaining additional capital needed to fund our operations. If we do not obtain funding on a timely basis and on acceptable terms, we may need to delay or discontinue one or more of our programs or the commercialization of our product candidates.
 
   
We and others in our industry face cybersecurity risks.
 
   
We take protective measures and monitor and develop our systems continuously to protect our technology infrastructure and sensitive data, such as personally identifiable information about our employees and intellectual property, from cyberattacks. However, cybersecurity risks continue to increase for our industry, including for our third party vendors, who may hold some of our data, and the proliferation of new technologies and the increased sophistication and activities of the actors behind such attacks present risks for compromised or lost data, which could result in substantial costs and harm to our reputation as well as delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce such data.
The above list is not exhaustive, and we face additional challenges and risks. Please carefully consider all of the information in this Form
10-K
including matters set forth in this “Risk Factors” section.
Risks Related to our Financial Position and Capital Requirements
We are a clinical-stage immuno-oncology company and have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.
We are a clinical-stage immuno-oncology company with a limited operating history. We incurred net losses of $25.6 million for the year ended December 31, 2020 and $23.0 million for the year ended December 31, 2019. As of December 31, 2020, we had an accumulated loss of $47.2 million. Our losses have resulted principally from expenses incurred in research and development, preclinical testing and clinical development of our therapeutic product candidates as well as expenses incurred for research programs and from general and administrative costs associated with our operations. We expect to continue to incur significant and increasing operating losses for the foreseeable future as we continue our clinical trial plans, research and development efforts and seeks to obtain regulatory approval and commercialization of our tetravalent bispecific antibody (“mAb2”) product candidates, and New Chemical entity (NCE) drug product candidates like SB 11285, and we do not know whether or when we will become profitable. We have concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least twelve months from the issuance date of the financial statements. Our losses, among other things, will continue to cause our working capital and shareholders’ equity to decrease. We anticipate that our expenses will increase substantially if and as we:
 
   
continue to develop and conduct clinical trials for our current product candidates, FS118, FS120, FS222 and SB 11285;
 
   
continue the research and development of our product candidates, including completing preclinical studies;
 
   
discover and develop additional mAb
2
product candidates and makes further investments in its modular antibody technology platform;
 
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seek regulatory approvals for any product candidates that successfully complete clinical trials;
 
   
experience 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;
 
   
establish a sales, marketing and distribution infrastructure and
scale-up
manufacturing capabilities, whether alone or with third parties, to commercialize any product candidates for which we may obtain regulatory approval, if any;
 
   
maintain, expand and protect our intellectual property portfolio, including litigation costs associated with defending against alleged patent infringement claims;
 
   
add clinical, scientific, operational, financial and management information systems and personnel, including personnel to support our product development and potential future commercialization efforts;
 
   
expand our operations in the United States, Europe and other geographies; and
 
   
incur additional legal, accounting and other expenses associated with operating as a public company.
To date, we have funded our operations through private placements of equity securities and upfront and milestone payments and expense reimbursement payments received from our collaborators. We have invested substantially all of our financial resources and efforts to developing our mAb
2
product candidates in immuno-oncology, building our intellectual property portfolio, developing its supply chain, conducting business planning, licensing our technology to our collaborators, raising capital and providing general and administrative support for these operations. We do not currently have any approved products and has never generated any revenue from product sales.
To become and remain profitable, we must succeed in developing and eventually commercializing products that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of our mAb
2
product candidates supportive of product approval, discovering and developing additional mAb
2
or small-molecule drug product candidates, obtaining regulatory approval for any product candidates that successfully complete clinical trials, establishing manufacturing and marketing capabilities and ultimately selling any products for which we may obtain regulatory approval. We are only in the preliminary stages of most of these activities. We may never succeed in these activities and, even if we do, may never generate revenue that is significant enough to achieve or maintain profitability. Even if one or more of the mAb
2
product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond current expectations if we are required by the FDA, the EMA or other comparable foreign regulatory agencies to perform clinical trials or studies in addition to those that we currently anticipate. Even if we are able to generate revenue from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.
Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable could impair our ability to raise capital, expand our business, maintain our research and development efforts or continue our operations and you could lose some or all of your investment.
Our limited operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.
Since inception, we have invested most of our resources in developing our modular antibody technology platform, our mAb
2
technology and mAb
2
product candidates, building our intellectual property portfolio, conducting business planning, licensing our technology to our collaborators, raising capital and providing general and administrative support for these operations. Our most advanced mAb
2
product candidate, FS118, is currently being evaluated in a
proof-of-concept
Phase 2 trial in
PD-1/PD-L1
acquired resistance head and neck cancer
 
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patients. We have not yet demonstrated our ability to successfully complete 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 our behalf or conduct sales and marketing activities necessary for successful product commercialization. In addition, given our limited operating history, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors in achieving our business objectives. Additionally, we expect our 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 our control. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or more experience developing product candidates.
We will need substantial additional funding in order to complete the development and commence commercialization of our product candidates. Failure to obtain this necessary capital at acceptable terms and when needed may force us to delay, reduce or eliminate out product development programs or commercialization efforts.
We expect our expenses to increase in connection with our ongoing activities, particularly as we complete the
proof-of-concept
Phase 2 clinical trial of FS118 and Phase 1 trials for FS120, FS222 and SB 11285 and initiate later-stage clinical development, and continues to research, develop and initiate clinical trials for any other product candidates. In addition, if we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.
Furthermore, we have incurred, and expect to continue to incur, additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our product development programs or any future commercialization efforts.
The Company has incurred significant losses and has an accumulated deficit of $47.2 million as of December 31, 2020. We expect to incur substantial losses in the foreseeable future as we conduct and expand our research and development and
pre-clinical
and clinical activities. We do not expect that our $18.5M of existing cash as of December 31, 2020 will enable us to fund our operating expenses and capital expenditure requirements for at least the next twelve months from the date of filing this Annual Report on Form 10K.    We will need to raise additional capital to complete the development and commercialization of FS118, FS120, FS222, and SB 11285, if approved, and may also need to raise additional funds to pursue other development activities related to additional product candidates.
Our future capital requirements will depend on many factors, including:
 
   
the cost, progress, results of the
proof-of-concept
Phase 2 clinical trial of FS118 and any later-stage clinical trials for this product candidate;
 
   
the cost, progress, results of the Phase 1 clinical trials of FS120, FS222 and SB 11285 and any later-stage clinical trials for these product candidates;
 
   
the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for any future product candidate;
 
   
the number of potential new product candidates we identify and decides to develop;
 
   
the cost of manufacturing drug supply for the clinical trials of our product candidates;
 
   
the time and costs involved in obtaining regulatory approval for our product candidates and any delays we may encounter as a result of evolving regulatory requirements or adverse clinical trial results with respect to any of our product candidates;
 
   
the costs involved in growing our organization to the size and expertise needed to allow for the research, development and potential commercialization of our current or any future product candidates;
 
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fulfilling obligations under our existing collaboration agreements and the entry into new collaboration agreements;
 
   
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims, including any claims by third parties that we are 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 product candidates we develop, if approved;
 
   
the potential additional expenses attributable to adjusting our development plans (including any supply related matters) to the
COVID-19
pandemic;
 
   
the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; and
 
   
the costs of operating as a public company.
Until we can generate sufficient product revenue to finance our cash requirements, which we may never do, we expect to finance our 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    the
COVID-19
pandemic may make equity and debt financing more difficult to obtain and may have a material adverse effect on our ability to meet our fundraising needs.
Our ability to raise additional funds will depend on financial, economic and market conditions and other factors, over which we may have no or limited control. If adequate funds are not available on commercially acceptable terms when needed, we may be forced to delay, reduce or terminate the development or commercialization of all or part of our research programs product candidates or we may be unable to take advantage of future business opportunities.
Raising additional capital may cause dilution to holders of existing shareholders of us, restrict our operations or require us to relinquish rights to our technologies or product candidates.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our operations with our existing cash and cash equivalents, including revenue from our collaborations. In order to further advance development of our product candidates, discover additional product candidates and pursue our other business objectives, however, we will need to seek additional funds.
We cannot guarantee that future financing will be available in sufficient amounts or on commercially reasonable terms, if at all. To the extent that we raise additional capital by issuing equity securities, our existing shareholders’ ownership may experience substantial dilution, and the terms of these securities may include liquidation or other preferences that adversely affect our rights as a shareholder. Equity and debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as redeeming our shares, making investments, incurring additional debt, making capital expenditures or declaring dividends.
The incurrence of indebtedness could result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants therein, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely affect our ability to conduct our business.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any of our product
 
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candidates, if approved, or be unable to expand its operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.
We will need to hire additional qualified accounting personnel in order to remediate material weaknesses in our internal control over financial reporting, and we will need to expend any additional resources and efforts that may be necessary to establish and to maintain the effectiveness of our internal control over financial reporting and our disclosure controls and procedures.
Although we are 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 our financial statements for the year ended December 31, 2019, our management identified two material weaknesses related to our 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 our annual or interim financial statements will not be prevented or detected and corrected on a timely basis.
Management determined two material weaknesses that existed at December 31, 2019 and 2020. 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 lack of sufficient formality and evidence of controls over key reports and spreadsheets.
We have commenced measures to remediate these material weaknesses and have hired 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 our financial management and reporting infrastructure, and further develop and document our accounting policies and financial reporting procedures, including ongoing senior management review and audit committee oversight. We will continue to assess our finance and accounting staffing needs to remediate these material weaknesses.
There can be no assurance that we 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 we have identified all of our material weaknesses or that we will not in the future have additional material weaknesses. If we fail to remediate the material weaknesses or to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting, and our share price may decline as a result. We also could become subject to investigations by Nasdaq, the SEC or other regulatory authorities.
We believe our current cash and cash equivalents will be sufficient to fund our business only for a limited amount of time, and if we are not able to raise additional funds, we may be unable to continue as a going concern.
We expect our costs and expenses to increase as we continue to develop our product candidates and progress our current clinical programs and cost associated with being a public company.
Since our inception, we have incurred significant losses and had an accumulated deficit of $47.2 million as of December 31, 2020. We expect to incur substantial losses in the foreseeable future as we conduct and expand our research and development activities. As of March 30, 2021, the date of the approval and issuance of the consolidated financial statements, we do not expect our cash deposits will be sufficient to fund our 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.
 
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We 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 we will be successful in raising additional working capital, or if we are able to raise additional working capital, we may be unable to do so on commercially favorable terms. Our failure to raise capital or enter into other such arrangements if and when needed would have a negative impact on our business, results of operations and financial condition and our ability to develop our 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 our 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 our operating plan to alleviate the condition that raise substantial doubt are outside of our 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 issuance date of the financial statements.
We may be subject to adverse legislative or regulatory tax changes that could negatively impact our financial condition.
The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect our stockholders or us. In recent years, many such changes have been made and changes are likely to continue to occur in the future. We cannot predict whether, when, in what form, or with what effective dates, tax laws, regulations and rulings may be enacted, promulgated or decided, which could result in an increase in our, or our stockholders’, tax liability or require changes in the manner in which we operate in order to minimize increases in our tax liability.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in the ownership of its equity over a three year period), the corporation’s ability to use its
pre-change
net operating loss carryforwards and certain other
pre-change
tax attributes to offset its post-change income may be limited. We may have experienced such ownership changes in the past, and we may experience ownership changes in the future as a result of shifts in our stock ownership, some of which are outside our control. As of December 31, 2020, we had federal net operating loss carryforwards of approximately $123.7 million, and our ability to utilize those net operating loss carryforwards could be limited by an “ownership change” as described above, which could result in increased tax liability to us. In addition, pursuant to the Tax Cuts and Jobs Act, we may not use U.S. federal net operating loss carry-forwards to reduce our taxable income in any year by more than 80%, and we may not carry back any net operating losses to prior years. These new rules apply regardless of the occurrence of an ownership change.
 
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Risks Related to Development and Commercialization
If we are unable to advance our current or future product candidates through clinical trials, obtain marketing approval and ultimately commercialize any product candidates we develop, or if we experience significant delays in doing so, our business will be materially harmed.
We are early in our product candidate development efforts and have four product candidates in clinical development, each of which is still in early-stage clinical trials. We have invested substantially all of our efforts and financial resources in the development of our proprietary mAb
2
technology, identification of targets and preclinical development of our product candidates.
Our ability to generate product revenues, which we do not expect will occur for several years, if ever, will depend heavily on the successful development and eventual commercialization of the product candidates we develop, which may never occur. Our current product candidates, and any future product candidates we develop, 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 we generate any revenues from any future product sales. Moreover, the success of our current and future 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 our financial and other resources to complete the necessary preclinical studies and clinical trials;
 
   
receiving regulatory approvals or authorizations for conducting our 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 our 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 our clinical trials and subsequently for commercial manufacturing, if any product candidates are approved;
 
   
obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our product candidates, the latter only if they receive marketing approval, both in the United States and internationally;
 
   
successfully scaling a sales and marketing organization and launching commercial sales of our product candidates, if approved;
 
   
acceptance of our product candidates’ benefits and uses, if approved, by patients, the medical community and third-party payors;
 
   
maintaining a continued acceptable safety profile of our product candidates following marketing approval and commercial launch;
 
   
effectively competing with companies developing and commercializing other therapies in the same indications targeted by our product candidates;
 
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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 we are not successful with respect to one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize any product candidates we develop, which would materially harm our business. If we do not receive marketing approvals for our current and future product candidates, we may not be able to continue our operations.
All of our product candidates are in early clinical development. Clinical trials are difficult to design and implement, and they involve a lengthy and expensive process with uncertain outcomes. We may experience delays in completing, or ultimately be unable to complete, the development and commercialization of our current and future 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 our future clinical trial results may not be successful.
To date, we have not completed any clinical trials required for the approval of any of our product candidates. Although FS118 is currently being evaluated in a Phase 2
proof-of-concept
trial and FS120, FS222 and SB 11285 are currently being evaluated in Phase 1 trials, we may experience delays in our ongoing clinical trials and we do not know whether planned clinical trials will begin on time, need to be redesigned, enroll study subjects on time, have sufficient drug supply of our product candidates in order to be completed timely or be completed on schedule, if at all. We may also experience numerous unforeseen events during our clinical trials that could delay or prevent our ability to complete the trials successfully and ultimately to receive marketing approval or to commercialize the product candidates we are developing, including:
 
   
delays in or failure to obtain regulatory approval or clearance to commence a clinical trial or inability to comply with conditions imposed by a regulatory authority regarding the scope or design of a clinical trial;
 
   
delays or failure in reaching agreement with the FDA or a comparable foreign regulatory authority on appropriate clinical trial designs;
 
   
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;
 
   
inability, delays or failure in identifying and maintaining a sufficient number of clinical trial sites, many of which may already be engaged in other clinical research programs;
 
   
delays in or failure to obtain ethics committee/institutional review board (“EC/IRB”) approval at each site participating in the trial;
 
   
delays in or failure to recruit a sufficient number of suitable subjects to participate in a trial;
 
   
failure to have participants complete a trial or return for post-treatment
follow-up,
or other inability to monitor patients adequately during or after treatment;
 
   
clinical sites or clinical investigators deviating from trial protocol or dropping out of a trial;
 
   
delays in adding new clinical trial sites;
 
   
failure to manufacture sufficient quantities of a product candidate for use in clinical trials in a timely manner;
 
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delay or failure in developing and validating companion diagnostics, if they are deemed necessary, on a timely basis;
 
   
safety or tolerability concerns that could cause us or our collaborators, as applicable, to suspend or terminate a trial if we or our collaborators find that the participants are being exposed to unacceptable health risks;
 
   
changes in regulatory requirements, policies and guidelines;
 
   
failure of our third-party research contractors, including clinical sites and investigators, to comply with regulatory requirements applicable to the trial, including GCPs, or to meet their contractual obligations to us 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 product candidate falling below acceptable standards; and
 
   
business interruptions resulting from pandemics, such as the ongoing
COVID-19
pandemic, or
geo-political
actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.
We could encounter delays if we elect to suspend or terminate a clinical trial, or if a trial is suspended or terminated by the EC/IRBs of the institutions in which such trials are being conducted, or by the FDA, the EMA, or other comparable foreign regulatory authorities, or if a trial is recommended for suspension or termination by the Safety Review Committee (“SRC”), 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 our 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 our product candidates belong, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience delays in the completion of, or if we terminate, any clinical trial of a product candidate, the commercial prospects of our product candidates will be harmed, and our ability to generate product revenues from any of these product candidates will be delayed or may become impossible. In addition, any delays in completing clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence future product sales and generate revenues.
Moreover, if we make changes to our product candidates, we may need to conduct additional scientific studies to bridge our modified product candidates to earlier versions, which could delay our clinical development plans or future marketing approval for our product candidates. Significant clinical trial delays could also allow our competitors to bring products to market before we do or shorten any periods during which we have the exclusive right to commercialize our product candidates, if approved for marketing, and impair our ability to commercialize any such product candidates.
Any of these occurrences may harm our 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 our
product candidates or result in the cessation of development of our
product candidates.
Our clinical trials may fail to demonstrate adequately the safety and efficacy of any of our product candidates, which would prevent or delay regulatory approval and commercialization.
We currently have no products approved for sale and cannot guarantee that we will ever have marketable products. To obtain the requisite regulatory approvals to market and sell any of our product candidates, including
 
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FS118, FS120, FS222, SB 11285 and any other future product candidates, we must demonstrate through extensive preclinical studies and clinical trials that our products are safe and effective in humans for their intended use or uses. 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 our future clinical trial results may not be successful. Further, the process of obtaining regulatory approval to market therapeutic products like our product candidates 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 product candidate in the United States or abroad, we or our 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 product candidates are safe and effective for their intended uses.
Clinical trials that we conduct may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market our 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 our ongoing or future clinical trials are inconclusive with respect to the efficacy of our
product candidates, if we do not meet the clinical endpoints with statistical and clinically meaningful significance, or if there are safety concerns associated with our
product candidates, we may be delayed in obtaining marketing approval, if at all.
Even if the trials are successfully completed, clinical data are often susceptible to varying interpretations and analyses, and we cannot guarantee that the FDA, the EMA, or other comparable foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit a product candidate for marketing approval. We cannot guarantee that the FDA, the EMA or other comparable foreign regulatory authorities will view our 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 our product candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.
The results of preclinical studies and early-stage clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Initial success in our 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 our clinical trials will ultimately be successful or support further clinical development of any of our 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 we cannot be certain that we 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 regulatory authority approval. Any such setbacks in our clinical development could have a material adverse effect on our business, financial condition and results of operations.
 
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Additionally, some of the clinical trials we conduct 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 our clinical trials that we announce or publish 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, we may publish interim, topline or preliminary data from our clinical trials. Preliminary and interim data from our clinical trials may change as more patient data become available. Preliminary or interim data from our 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 we issue our 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 we 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 our business prospects.
Further, others, including regulatory agencies, may not accept or agree with our 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 product candidate or therapeutic product, if any, and us in general. In addition, the information we choose 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 we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular therapeutic product, if any, product candidate or our business. If the preliminary and interim data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.
Our 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 our product candidates or following approval we may need to abandon development of such product candidates, the commercial profile of any approved label may be limited, or we may be subject to other significant negative consequences following marketing approval.
Undesirable side effects that may be caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label should the candidate be approved for marketing or the delay or denial of regulatory approval by the FDA, the EMA or other comparable foreign regulatory authorities. While the data collected on our product candidates in our preclinical studies, and the early clinical trial experience with FS118 and SB 11285 to date, suggest that the candidates have
 
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generally been well-tolerated from a risk-benefit perspective, the results from future preclinical studies and clinical trials, including of our other product candidates, may not support this conclusion.
The results of our ongoing
proof-of-concept
Phase 2 clinical trial of FS118 and Phase 1 trials for FS120, FS222 and SB 11285 and future clinical trials of these and other
product candidates may show that our product candidates cause undesirable or unacceptable side effects or even death. In such an event, our trials could be suspended or terminated and the FDA, the EMA or other comparable foreign regulatory authorities could order us to cease further development of or deny approval of our 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 the majority of our current product candidates are based on our modular antibody technology platform and our mAb
2
technology, any adverse safety or efficacy findings related to any mAb
2
product candidate or preclinical program may adversely impact the viability of our other mAb
2
product candidates or preclinical programs. Any of these occurrences may harm our business, reputation, financial condition and results of operations significantly.
Additionally, if any of our product candidates receives marketing approval and we or others later identify undesirable or unacceptable side effects caused by such a product, a number of potentially significant negative consequences could result, including:
 
   
regulatory authorities may withdraw approvals of such product and require our 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 we are to implement a risk evaluation and mitigation strategy 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);
 
   
we may be required to change the way the product is administered;
 
   
we may be required to conduct additional clinical trials or costly post-marketing testing and surveillance to monitor the safety of the product;
 
   
we may be subject to limitations on how we may promote the product;
 
   
sales of the product may decrease significantly;
 
   
we may be subject to litigation or product liability claims; and
 
   
our reputation may suffer.
Any of these events could prevent us, our collaborators or our 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 us from generating significant revenue from the sale of our mAb
2
product candidates, if approved.
We may find it difficult to enroll subjects in our clinical trials, which could delay or prevent us from proceeding with clinical trials of our product candidates.
Identifying and qualifying study subjects to participate in clinical trials of our product candidates is critical to our success. The timing of our clinical trials depends on our ability to recruit eligible subjects to participate as well as the completion of required
follow-up
evaluations. Patients and healthy volunteers may be unwilling to participate in our 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
 
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other reasons including due to concerns posed by the
COVID-19
pandemic. Enrollment risks are heightened with respect to indications that we may target in the future that may be rare or orphan diseases, which may limit the pool of patients that may be enrolled in our planned clinical trials. Any delays related to subject enrollment could result in increased costs, delays in advancing our product candidates, delays in testing the effectiveness of our product candidates or termination of the clinical trials altogether. We may not be able to identify, recruit and enroll a sufficient number of subjects, or those with the required or desired characteristics, to complete our clinical trials in a timely manner. Enrollment and trial completion is affected by many factors, including the:
 
   
size and nature of the patient population and process for identifying potential study subjects;
 
   
proximity and availability of clinical trial sites for prospective participants;
 
   
the extent of we and our collaborators’ efforts to facilitate timely enrollment in clinical trials;
 
   
eligibility and exclusion criteria for the trial;
 
   
design of the clinical trial;
 
   
safety profile, to date, of the product candidate under study;
 
   
perceived risks and benefits of the product candidate under study;
 
   
perceived risks and benefits of our approach to treatment of diseases;
 
   
competition with other companies for clinical sites and qualified clinical investigators;
 
   
severity of the disease under investigation;
 
   
degree of progression of the subject’s disease at the time of enrollment;
 
   
ability to obtain and maintain the study subject’s informed consent;
 
   
risk that enrolled subjects will drop out before completion of the trial;
 
   
competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new products that may be approved for the indications we are investigating;
 
   
patient referral practices of physicians; and
 
   
ability to adequately monitor subjects during and after investigational treatment.
We face significant competition for our drug discovery and development efforts, and if we do not compete effectively, our commercial opportunities will be reduced or eliminated.
We compete 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. Our 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 us. 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 us 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 our
product candidates. The fields in which
we
operate 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
 
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(“AstraZeneca”), BMS, Eli Lilly and Company (“Eli Lilly”), MSD, Merck KGaA , Darmstadt, Germany (“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 we refer to as traditional antibodies, in a single molecule.
With respect to our mAb
2
bispecific antibody pipeline, we are aware of several competitors using other technology methods to create bispecific antibodies to treat a variety of cancer types, including, but not limited to: Genmab A/S, Inhibrx, MacroGenics, Merus, Pieris Pharmaceuticals,
Hoffmann-La
Roche, Shattuck Labs and Xencor, Inc.
With respect to our lead mAb
2
product candidate, FS118, we are aware of other competing molecules targeting
LAG-3
and
PD-1/PD-L1
receptors. Companies pursuing a bispecific molecule directed against
LAG-3
and
PD-1/PD-L1
in different phases of clinical development include, but are not limited to: Epimab, MacroGenics and
Hoffmann-La
Roche. We are also aware of other companies pursuing a combination of two traditional antibodies in different phases of clinical development, with one targeting
PD-1/PD-L1,
and one targeting
LAG-3,
which include but are not limited to: BMS, C.H. Boehringer Sohn AG & Co. KG and MSD.
With respect to our second mAb
2
product candidate, FS120, we are aware of other companies pursuing bispecific antibodies targeting OX40 and CD137, which include but are not limited to Aptevo Therapeutics. We are also aware that Pfizer has ongoing clinical studies evaluating a combination of CD137 plus OX40 traditional antibodies.
With respect to our third mAb
2
product candidate, FS222, we are aware of other companies pursuing bispecific antibodies targeting
PD-L1
and CD137 in clinical development, which include but are not limited to: Genmab/BioNTech SE, Inhibrx/Elpiscience, Merus/Incyte and Numab Therapeutics AG/CStone Pharmaceuticals. We are also aware of other companies that are pursuing a combination of two traditional antibodies in clinical development, with one targeting
PD-1/PD-L1,
and one targeting CD137, which include but are not limited to: Adagene, BMS, Lyvgen Biopharma (Suzhou)/MSD, Pfizer and
Hoffmann-La
Roche.
With respect to our fourth product candidate, SB 11285, we are aware of other companies pursuing a second generation, intravenously administered STING agonist, in clinical development, which include but are not limited to: GSK, Millennium Therapeutics/Takeda and Silicon Therapeutics.
We anticipate that we will continue to face increasing competition as new treatments enter the market and advanced technologies become available. There can be no assurance that our 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 our current or future product candidates, or platforms and technology that are superior to our modular antibody technology platform and our mAb
2
technology. Competing products or technology platforms may gain faster or greater approval or market acceptance than our products, if any, or modular antibody technology platform and medical advances or rapid technological development by competitors may result in our product candidates or modular antibody technology platform becoming
non-competitive
or obsolete before we are able to recover our research and development and commercialization expenses. If we, our product candidates or our modular antibody technology platform do not compete effectively, it may have a material adverse effect on our 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 we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
The time required to obtain marketing approval for a novel therapeutic product from the FDA, the EMA and other comparable foreign regulatory authorities is unpredictable but typically takes many years following the
 
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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. We have not obtained regulatory approval for commercialization, of any product candidate and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain that approval.
Our 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 our clinical trials;
 
   
we may be unable to demonstrate to the satisfaction of the FDA, the EMA or other comparable foreign regulatory authorities that a mAb
2
product candidate is safe, pure and potent or effective for its proposed indication(s) or that a small-molecule drug product candidate is safe and effective for its proposed indication(s);
 
   
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 in order to support approval;
 
   
we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
 
   
the FDA, the EMA or other comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
 
   
the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a Biologics License Application (“BLA”) or New Drug Application (“NDA”), to the FDA or other equivalent marketing authorization application submissions to obtain regulatory approval in the United States, the EU or elsewhere;
 
   
upon review of our clinical trial sites and data, the FDA, EMA or comparable foreign regulatory authorities may find our record keeping or the record keeping of our clinical trial sites or investigators 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 we contract for clinical and commercial supplies; and
 
   
the approval policies or regulations of the FDA, the EMA or other comparable foreign regulatory authorities or the laws they enforce may significantly change in a manner rendering our clinical data insufficient for approval.
This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market any of our product candidates, which would significantly harm our 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 our product candidates, and whether to impose any conditions on such marketing approvals as described below. Even if we believe the data collected from clinical trials of our 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 we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we requests, if any, they may grant approval contingent on the performance of costly post-marketing clinical trials, or they may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate or with restrictive risk mitigation measures or warning language or contraindications that make the
 
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approved product more difficult or costly to commercialize. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.
If we are required by the FDA to obtain approval of a companion diagnostic in connection with approval of a product candidate, and we do not obtain or face delays in obtaining FDA approval of a diagnostic device, we will not be able to commercialize the product candidate and our ability to generate revenue will be materially impaired.
According to current FDA policies, 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 receive Premarket Approval (“PMA”) before being commercially distribution. The PMA application process, including the gathering of analytical and prospective clinical data and the submission to and review by the FDA, is rigorous and requires the applicant to 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 we are required by the FDA to obtain approval of a companion diagnostic for a therapeutic product candidate, and we do not obtain or there are delays in obtaining FDA approval of such a diagnostic device, we may not be able to commercialize the product candidate on a timely basis or at all and our ability to generate revenue will be materially impaired.
Any product candidate for which
F-star
obtains marketing approval will be subject to extensive post-marketing regulatory requirements, which may result in significant additional expense, and could be subject to post-marketing restrictions or withdrawal from the market, and
F-star
or its partners may be subject to penalties for any failure to comply with regulatory requirements or if problems are discovered with a product after approval.
Our therapeutic
product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with ongoing regulatory requirements or experiences unanticipated problems with any such approved prescription drug or biological products.
If the FDA, the EMA or other comparable foreign regulatory authority approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the therapeutic 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 compliance with Good Clinical Practices (“GCPs”) by all collaborators in any clinical trials that we may conduct post-approval, each of which may result in significant expense. In addition, any regulatory approvals that we receive for our 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 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
 
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FDA as reflected in the product’s approved prescribing information and other
FDA-approved
product labeling. 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 for prescription medical products. 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/NDA or BLA/NDA supplement.
If there are changes in the application of legislation, regulations or regulatory policies, or if problems are discovered with a product or our manufacture of a product, or if we or one of our distributors, licensees or
co-marketers
fails to comply with regulatory requirements, regulatory authorities could take various actions against the therapeutic product or against
F-star
as the product’s sponsor. These include imposing fines on us, 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 our marketing authorizations, require us to conduct additional clinical trials or to submit additional applications for marketing authorization, or require safety updates to or otherwise change the product labeling for an approved therapeutic product. If any of these events occurs, our ability to sell such product may be impaired, and We may incur substantial additional expense to comply with regulatory requirements, which could materially adversely affect our business, financial condition and results of operations.
We may become exposed to costly and damaging liability claims, either when testing our product candidates in the clinic or at the commercial stage, and our product liability insurance may not cover all damages from such claims.
We are exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing, marketing and use of biopharmaceutical products. Currently, we have no products that have been approved for commercial sale; however, the current and future use of product candidates by us and our collaborators in clinical trials, and the potential sale of any approved products in the future, may expose us to liability claims. These claims might be made by patients who use the product, healthcare providers, pharmaceutical companies, our collaborators or others selling such products. Any claims against us, regardless of their merit, could be difficult and costly to defend and could materially adversely affect the market for our product candidates or any prospects for commercialization of our 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 our product candidates were to cause adverse side effects during clinical trials or after approval of the product candidate, we 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 our product candidates. Regardless of the merits or eventual outcome, liability claims may result in:
 
   
decreased demand for our products due to negative public perception;
 
   
injury to our 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 our 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 our product candidates, if approved.
 
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Although we believe it maintains adequate product liability insurance for our product candidates, it is possible that our liabilities could exceed our insurance coverage. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for any of our product candidates. However, we 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, our assets may not be sufficient to cover such claims and our business operations could be impaired.
Should any of the events described above occur, this could have a material adverse effect on our business, financial condition and results of operations.
Due to our limited resources and access to capital, we must, and has in the past decided to, prioritize development of certain product candidates over other potential product candidates. These decisions may prove to have been wrong and may adversely affect our ability to develop our own programs, our attractiveness as a commercial partner and may ultimately have an impact on our commercial success.
Because we have limited resources and access to capital to fund our operations, we must decide which product candidates to pursue and the amount of resources to allocate to each. Our decisions concerning the allocation of research, collaboration, management and financial resources toward particular mAb
2
bispecific antibodies, product candidates or therapeutic areas may not lead to the development of viable commercial products and may divert resources away from better opportunities. Similarly, our 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 us to miss valuable opportunities. If we make incorrect determinations regarding the market potential of our product candidates or misreads trends in the biopharmaceutical industry our business, financial condition and results of operations could be materially adversely affected.
We may seek orphan drug designation for product candidates we develop, and we 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 our business strategy, we may seek orphan drug designation for any product candidates we develop, and we may be unsuccessful in securing such a designation. 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 or a biological product 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.
 
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Generally, in the United States, if a drug or biologic 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. In addition, there is a potential to receive a
six-month
extension of orphan exclusivity if certain pediatric studies are conducted and the results are reported to the FDA in response to a Written Request for such studies under the Best Pharmaceuticals for Children Act.
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 we obtain orphan drug exclusivity for a product candidate that is approved for marketing in the U.S., such exclusivity may not effectively protect the 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 we may seek orphan drug designation for applicable indications for our current and any future product candidates, we may never receive such designations.
Accordingly, even if we do receive such designations in the U.S. and/or in Europe, there is no guarantee that we will enjoy the benefits of those designations.
Our approach to the discovery and development of our therapeutic treatments is based on novel technologies that are unproven and may not result in marketable products.
We plan to develop a pipeline of mAb
2
product candidates using our modular antibody technology platform. We believe that mAb
2
product candidates identified with our 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, we have not, nor to our knowledge has any other company, received regulatory approval for a therapeutic that uses tetravalent bispecific IgG1 antibody technology. We cannot be certain that our 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
 
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based on our mAb
2
technology, which could result in a longer than expected regulatory review process, increase our expected development costs and delay or prevent commercialization of our mAb
2
product candidates.
We may not be successful in our efforts to utilize our modular antibody technology platform and mAb
2
technology to build a pipeline of additional mAb
2
product candidates. Failure to successfully identify, develop and commercialize additional products or mAb
2
product candidates could impair our ability to grow.
Although a substantial amount of our efforts will continue to focus on the preclinical studies and clinical testing and potential approval of the mAb
2
product candidates in our current pipeline, a key element of our long-term growth strategy is to identify, develop and market additional products and mAb
2
product candidates. Because We have limited financial and managerial resources, continuing to utilize our modular antibody technology platform and our mAb
2
technology to generate mAb
2
bispecific antibodies and identify mAb
2
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 mAb
2
product candidates are ultimately identified. Our modular antibody technology platform may fail to generate mAb
2
bispecific antibodies that are suitable for further development, and we may fail to correctly identify future mAb
2
product candidates that have the potential to become successful products. We will need to continue to invest in improving and expanding our modular antibody technology platform and our mAb
2
technology, which will require scientific expertise and substantial resources.
We also have incorporated a novel technology of synthesizing cyclic dinucleotides for the generation of STING pathway targeting small-molecule drug product candidates, such as our current clinical candidate SB 11285. We cannot be certain that this 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 such products, which could result in a longer than expected regulatory review process, increase our expected development costs and delay or prevent commercialization of our product candidates. We may not be successful in our efforts to utilize our cyclic dinucleotide technology to build additional product candidates. Failure to successfully identify, develop and commercialize additional products or product candidates could impair our ability to grow.
All therapeutic 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 we do not successfully develop and commercialize our mAb
2
biological product candidates or small-molecule STING agonist drug product candidates based upon our current platforms and technological approaches, we may not be able to obtain product or collaboration revenues in future periods, which would adversely affect our business, financial condition and results of operations.
Our product candidates that are successful in achieving marketing approval may face generic or biosimilar competition sooner than anticipated.
Even if we are successful in achieving regulatory approval to commercialize a product candidate for a specific indication ahead of our competitors, such an approved therapeutic candidate may face competition from generic or biosimilar products, as applicable.
In the United States, mAb
2
product candidates are regulated by the FDA as biological products and we intend 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
 
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a BLA. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our product candidates.
We believe that any of our mAb
2
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 our 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 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 we 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 our products, if approved.
If competitors are able to obtain marketing approval for biosimilars referencing an approved our mAb
2
product candidates, if approved, our 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 us in each indication for which its product candidates may have received approval.
Further, our small-molecule drug product candidates such as SB 11285 are regulated by the FDA as drug products and would be subject to marketing approval by the FDA pursuant to an NDA submitted under Section 505(b)(1) of the FDCA. Even if we are successful in achieving regulatory approval to commercialize SB 11285 or a future drug product candidate, we may face competition from generic products earlier or more aggressively than anticipated, depending upon how well the future product performs in the United States prescription drug market. In addition to creating the 505(b)(2) NDA pathway that allows for
follow-on
applications relying on a reference drug product when some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference, the Hatch-Waxman Amendments to the FDCA authorized the FDA to approve generic drugs that are the same as drugs previously approved for marketing under the NDA provisions of the statute pursuant to abbreviated new drug applications, or ANDAs. An ANDA relies on the preclinical and clinical testing conducted for a previously approved reference listed drug (“RLD”) and must demonstrate to the FDA that the generic drug product is identical to the RLD with respect to the active ingredients, the route of administration, the dosage form, and the strength of the drug and also that it is “bioequivalent” to the RLD. The FDA is prohibited by statute from approving an ANDA when certain marketing or data exclusivity protections apply to the RLD.
If the FDA in the future were to approve an NDA for SB 11285 or another small-molecule drug product candidate, such a product would be expected to be designated as an RLD. Such a designation as an RLD would
 
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allow for a subsequent ANDA or 505(b)(2) NDA to rely in whole or in part on our RLD, as applicable. We cannot predict the interest of potential generic or
follow-on
competitors in the future market, whether someone will attempt to invalidate any period of
5-year
or
3-year
exclusivity that an approved small-molecule drug product candidate may receive or otherwise force the FDA to take other actions, or how quickly others may seek to come to market with competing products after any such marketing exclusivity period ends. In addition, should any such future generic or
follow-on
product be identified by the FDA as “therapeutically equivalent” to the relevant
F-star
small-molecule drug product candidate, if or when approved and listed in the Orange Book, physicians and pharmacists consider it to be fully substitutable for our relevant RLD. By operation of certain state laws and numerous health insurance programs, the FDA’s designation of therapeutic equivalence often results in substitution of the generic drug without the knowledge or consent of either the prescribing physician or patient. Such competitive products may be able to immediately compete with us in each indication for which its small-molecule drug product candidates may have received approval.
The successful commercialization of our 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 our product candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue.
The availability and adequacy of coverage and reimbursement by governmental healthcare programs such as Medicare and Medicaid, private health insurers and other third-party payors are essential for most patients to be able to afford products such as our product candidates, if approved. Even if we receive approval to market one or more of our product candidates in the future, our ability to achieve acceptable levels of coverage and reimbursement for such product candidates by governmental authorities, private health insurers and other organizations will have an effect on our ability to successfully commercialize and attract additional collaboration partners to invest in the development of, our product candidates. Assuming we obtain 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. We cannot be sure that coverage and reimbursement in the United States, the EU or elsewhere will be available for any product that we 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 us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases at short notice, and we believe 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
 
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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 our 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 our product candidate and other therapies as substitutable and only offer to reimburse patients for the less expensive product. Even if we show improved efficacy or improved convenience of administration with our product candidate over other available and comparable products, pricing of existing drugs may limit the amount we will be able to charge for its 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 our investment in product development. If coverage and reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize our product candidates and may not be able to obtain a satisfactory financial return on products that we 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 our products and patients may deliver to purchase such products. This, in turn, could affect our ability to commercialize our products successfully and impact our 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 we believe 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 our 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 we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.
The delivery of healthcare in the EU, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy. National governments and health service providers have different priorities and approaches to the delivery of healthcare and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing EU and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to commercialize any products for which we obtain 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
 
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for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our 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 our product candidates will depend on the degree of market acceptance of our potential therapeutic products among physicians, patients, third-party payors and the medical community.
To date, we have no products authorized for marketing and we do not expect to be able to commercialize any of our product candidates for a number of years, if ever. Even if one or more of our product candidates are approved for commercialization, they may not achieve an adequate level of acceptance by physicians, patients and the medical community, and we may not become profitable. In addition, efforts to educate the medical community and third-party payors on the benefits of our future approved products may require significant resources and may never be successful which would prevent us from generating significant revenues or becoming profitable.
Market acceptance of our future products by physicians, patients and third-party payors will depend on a number of factors, many of which are beyond our control, including, but not limited to:
 
   
the clinical indications for which our product candidates are approved for marketing;
 
   
physicians, hospitals, cancer treatment centers and patients considering our product candidates as a safe and effective treatment;
 
   
the potential and perceived advantages of our product candidates over alternative treatments;
 
   
the prevalence and severity of any side effects;
 
   
product labeling or prescribing information 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 product labeling approved by the FDA, the EMA or other comparable foreign regulatory authorities, including any restrictions on concomitant use of other medications;;
 
   
the timing of market introduction of our product candidates in relation to other potentially competitive products;
 
   
the cost and cost-effectiveness of our product candidates in relation to alternative treatments;
 
   
the amount of upfront costs or training required for physicians to administer our 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;
 
   
support from patient advocacy groups;
 
   
the effectiveness of our sales and marketing efforts and distribution support; and
 
   
the presence or perceived risk of potential product liability claims.
 
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If our product candidates fail to gain market acceptance after receiving regulatory approval, this will have a material adverse impact on our ability to generate revenues to provide a satisfactory, or any, return on our investments. Even if some products achieve market acceptance, the market may prove not to be large enough to allow us to generate significant revenues.
Healthcare legislative reform measures may have a negative impact on our 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 our ability to profitably sell any product candidates for which we obtain marketing approval. Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements, (ii) additions or modifications to product labeling, (iii) the recall or discontinuation of our products, (iv) restriction on coverage, reimbursement, and pricing for our 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 our business, financial condition and results of operations.
In March 2010, the Affordable Care Act (“ACA”) was enacted, which includes measures that have significantly changed the way healthcare is financed by both governmental and private insurers in the United States. It also included the Biologics Price Competition and Innovation Act of 2009 (the “BPCIA”), which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an
FDA-licensed
reference biological product. The ACA continues to significantly impact the United States’ pharmaceutical industry. Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, and as a result certain sections of the law have not been fully implemented or effectively repealed. In particular, in December of 2018, a Texas U.S. District Court ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Cuts and Jobs Act, effective January 1, 2019. On December 18, 2019, the Fifth Circuit U.S. Court of Appeals upheld the District Court ruling that the individual mandate was unconstitutional but remanded the case back to the lower court to determine whether other reforms enacted as part of the ACA but not specifically related to the individual mandate or health insurance, including the provisions comprising the BPCIA, could be severed from the rest of the ACA so as not to be declared invalid as well. On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case and allocated one hour for oral arguments, which occurred on November 10, 2020. A decision from the Supreme Court is expected to be issued in spring 2021. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results. We will continue to evaluate the effect that the ACA and its possible repeal and replacement has on our 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 our 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. The January 20, 2021 transition to a new
Democrat-led
presidential administration created new uncertainty for ongoing regulatory matters that were initiated during the Trump Administration’s final year in office, including several initiatives intended to lower drug prices and reduce the
out-of-pocket
costs of drugs. Following his inauguration, President Biden took immediate steps to order a regulatory freeze on all pending substantive executive actions in order to permit incoming department and agency heads to review whether questions of fact, policy, and law may be implicated and to determine how to proceed.
 
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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 our 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 December 2020, the U.S. Supreme Court held unanimously that federal law does not preempt the states’ ability to regulate pharmaceutical benefit managers (“PBMs”) and other members of the healthcare and pharmaceutical supply chain, an important decision that may lead to further and more aggressive efforts by states in this area. 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 our products, once approved, or put pressure on our product pricing.
We expect 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 we receive for any approved drug, which could have an adverse effect on customers for our product candidates. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.
In the EU, similar political, economic and regulatory developments may affect our 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 our 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 us from being able to generate revenue, attain profitability, or commercialize our products. Such reforms could have an adverse effect on anticipated revenue from product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates.
 
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Our 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 we are unable to comply, or has not fully complied, with such laws, we could face substantial penalties.
Although we do not currently have any products on the market, our current and future operations may be directly, or indirectly through our relationships with clinical investigators, healthcare professionals, customers and third-party payors, subject to broadly applicable healthcare laws U.S. federal and state fraud and abuse and other healthcare laws and regulations, including, without limitation, the Anti-Kickback Statute. Healthcare providers, physicians and others play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. These laws impact, among other things, our proposed sales, marketing and education programs and constrain our business and financial arrangements and relationships with third-party payors, healthcare professionals who participate in our clinical research program, healthcare professionals and others who recommend, purchase, or provide our approved products, and other parties through which we market, sell and distribute our products for which we obtain marketing approval. In addition, we may be subject to patient data privacy and security regulation by both the U.S. federal government and the states in which we conduct our business. Finally, our current and future operations are subject to additional healthcare-related statutory and regulatory requirements and enforcement by foreign regulatory authorities in jurisdictions in which we conduct our 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;
 
   
HIPAA, which created new federal criminal and civil statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual knowledge of the statute or specific intent to violate it;
 
   
HIPAA, as amended by HITECH, and their implementing regulations, which impose certain obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security
 
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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 our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws. If our operations are found to be in violation of any of these laws or any other laws that may apply to us, we 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 we become subject to a corporate integrity agreement or similar agreement to resolve allegations of
non-compliance
with these laws, reputational harm and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers
 
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or entities with whom we expect 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 us 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 our business arrangements with third parties will comply with applicable healthcare laws will involve substantial costs. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our 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 our current and future product candidates in one jurisdiction does not mean that we will be successful in obtaining marketing approval of our current and future therapeutic product candidates in other jurisdictions.
Obtaining and maintaining marketing approval of our current and future product candidates in one jurisdiction does not guarantee that we 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 product candidate, comparable foreign regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the 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 we intend to charge for our future products will also be subject to approval.
We 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 we 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 us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.
We have never commercialized a product candidate before and may lack the necessary expertise, personnel and resources to successfully commercialize our products on our own or together with suitable partners.
We do not have a sales or marketing infrastructure and have no experience in the sale or marketing of biopharmaceutical products. To achieve commercial success for any approved product, we must develop or acquire a sales and marketing organization, outsource these functions to third parties or enter into partnerships.
We may decide to establish our own sales and marketing capabilities and promote our product candidates if and when regulatory approval has been obtained in the United States and the major EU countries. There are risks
 
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involved if we decide to establish our own sales and marketing capabilities or enter into arrangements with third parties to perform these services. Even if we establish sales and marketing capabilities, we may fail to launch our products effectively or to market our products effectively since we have 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, we would have prematurely or unnecessarily incurred these commercialization expenses, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel. Factors that may inhibit our efforts to commercialize our products on our own include:
 
   
Our 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 our products;
 
   
the lack of complementary products to be offered by sales personnel, which may put us 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 us.
If we enter into arrangements with third parties to perform sales and marketing services, our product revenues or the profitability of these product revenues to us could be lower than if we were to market and sell any products that we develop ourselves. Such collaborative arrangements with partners may place the commercialization of our products outside of our control and would make us subject to a number of risks including that we may not be able to control the amount or timing of resources that our collaborative partner devotes to our products or that our collaborator’s willingness or ability to complete its obligations, and our obligations under our arrangements may be adversely affected by business combinations or significant changes in our collaborator’s business strategy. In addition, we may not be successful in entering into arrangements with third parties to sell and market our products or may be unable to do so on terms that are favorable to us. Acceptable third parties may fail to devote the necessary resources and attention to sell and market our products effectively.
If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we may not be successful in commercializing our products, which in turn would have a material adverse effect on our business, financial condition and results of operations.
Adverse events in the field of immuno-oncology could damage public perception of our current or future therapeutic product candidates and negatively affect our business.
The commercial success of our immuno-oncology 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 our 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 we may develop. If public perception is influenced by claims that the use of cancer immunotherapies is unsafe, whether related to our products or those of our competitors, our 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 our product candidates. Any increased scrutiny could delay or increase the costs of obtaining marketing approval for the product candidates we develop or prevent it from receiving marketing approval at all.
 
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The market opportunities for any current or future immuno-oncology product candidates we 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. We expect to initially seek approval of our current and future immuno-oncology 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, we would expect to seek approval potentially as a first-line therapy, but there is no guarantee that product candidates we develop, even if approved, would be approved for first-line therapy, and, prior to any such approvals, we may have to conduct additional clinical trials.
In addition, subsequent developments in cancer biomarkers may demonstrate that our product candidates are not suitable for the treatment of certain cancers or subpopulations, thereby reducing the market opportunity for those product candidates. Even if we obtain significant market share for any product candidate, if approved, if the potential target populations are small, we 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 our product candidates are smaller than we believe they are, even assuming approval of a product candidate, our business may suffer.
Our projections of both the number of people who are affected by disease within our potential target indications, as well as the subset of these people who have the potential to benefit from treatment with our product candidates, are based on our 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 our product candidates may be limited or may not be amenable to treatment with our product candidates, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our 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 our business and financial results and could cause a disruption to the development of our product candidates.
Public health crises such as pandemics or similar outbreaks could adversely impact our business. Recently,
COVID-19
has spread across the United States and in other countries, including specifically the U.K., where our 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 our operations or those of our third-party collaborators and partners, including our 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 c