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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, 2021

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

Cambridge, United 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, 2021, was $176.8 million.

The number of shares of Registrant’s Common Stock outstanding as of March 1, 2022 was 21,064,788.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant intends to file a definitive proxy statement pursuant to Regulation 14A relating to the 2022 Annual Meeting of Stockholders within 120 days of the end of the registrant’s fiscal year ended December 31, 2021. 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.

 

 

 

 


 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This report includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “targets,” “likely,” “will,” “would,” “could,” “should,” “continue,” and similar expressions or phrases, or the negative of those expressions or phrases, are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, we caution you that these statements are based on our projections of the future that are subject to known and unknown risks and uncertainties and other factors that may cause our actual results, level of activity, performance or achievements expressed or implied by these forward-looking statements, to differ. The description of our Business set forth in Item 1, the Risk Factors set forth in this Item 1A and our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 7 as well as other sections in this report, discuss some of the factors that could contribute to these differences. These forward-looking statements include, among other things, statements about:

 

the accuracy of our estimates regarding expenses, revenues, uses of cash, cash equivalents and investment securities, capital requirements and the need for additional financing;

 

our expectations regarding our research, development and commercialization of our product candidates, including FS118, FS222, FS120 and SB 11285;

 

the duration and severity of the COVID-19 pandemic and its impact on our business, including the impact of COVID-19 on the research, development and commercialization of our product candidates and our ability to adapt our approach as appropriate;

 

the supply and availability of and demand for our product candidates;

 

the initiation, cost, timing, progress and results of our development activities, non-clinical studies and clinical trials;

 

the timing of and our ability to obtain and maintain regulatory approval, or submit an application for regulatory approval, of our product candidates, including FS118, FS222, FS120 and SB 11285, and any product candidates that we may develop, and any related restrictions, limitations, and/or warnings in the label of any approved product candidates;

 

our plans to research, develop and commercialize our current and future product candidates, including FS118, FS222, FS120 and SB 11285;

 

the election by any collaborator to pursue research, development and commercialization activities;

 

our ability to obtain future reimbursement and/or milestone payments from our collaborators;

 

our ability to attract collaborators with development, regulatory and commercialization expertise;

 

our ability to obtain and maintain intellectual property protection for our product candidates;

 

the size and growth of the markets for our product candidates, including FS118, FS222, FS120 and SB 11285, and our ability to serve those markets;

 

the rate and degree of market acceptance of any future products;

 

the success of competing drugs that are or become available;

i


 

 

regulatory developments in the United States, European Union and other countries and regulatory bodies;

 

the performance of our third-party suppliers and manufacturers and our ability to obtain alternative sources of raw materials;

 

our ability to obtain additional financing;

 

our use of the proceeds from our securities offerings;

 

any restrictions on our ability to use our net operating loss carryforwards;

 

our exposure to investment risk, interest rate risk and capital market risk; and

 

our ability to attract and retain key scientific, management or sales and marketing personnel.

 

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important cautionary statements in this report, particularly in the Risk Factors set forth in Item 1A of this Annual Report on Form 10-K, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

 

You should read this report and the documents that we reference in this report and have filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this report are made as of the date of this report, and we do not assume, and specifically disclaim, any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

ii


 

 

Table of Contents

 

 

 

Page

 

Cautionary Statement Regarding Forward-Looking Statements

i

 

 

 

PART I

 

 

Item 1.

Business

1

Item 1A.

Risk Factors

48

Item 1B.

Unresolved Staff Comments

95

Item 2.

Properties

95

Item 3.

Legal Proceedings

96

Item 4.

Mine Safety Disclosures

96

 

 

 

PART II

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

97

Item 6.

Selected Financial Data

98

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

99

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

113

Item 8.

Financial Statements and Supplementary Data

113

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

113

Item 9A.

Controls and Procedures

113

Item 9B.

Other Information

113

Item 9C.

Not Applicable

113

 

 

 

PART III

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

115

Item 11.

Executive Compensation

115

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

115

Item 13.

Certain Relationships and Related Transactions, and Director Independence

115

Item 14.

Principal Accounting Fees and Services

115

 

 

 

PART IV

 

 

Item 15.

Exhibits, Financial Statement Schedules

116

Item 16

Form 10-K Summary

116

 

iii


 

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. We are pioneering the use of tetravalent (2+2) bispecific antibodies to create a paradigm shift in cancer therapy. We have four second generation immuno-oncology (also referred to as "IO") therapeutics in the clinic, each directed against some of the most promising IO targets in drug development, including LAG-3 and CD137. Our proprietary antibody discovery platform is protected by an extensive intellectual property estate. We have over 500 granted patents and pending patent applications relating to our platform technology and product pipeline. We have attracted multiple partnerships with biotechnology and pharmaceutical companies targeting significant unmet needs across several disease areas, including oncology, immunology, and indications affecting the central nervous system (“CNS”) with over 20 programs being developed by our partners using our technology. 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, including other bispecific formats, due to the strong pharmacology enabled by tetravalent bispecific binding.

 

Our most advanced product candidate, FS118, is currently being evaluated in proof-of-concept Phase 2 trials in PD-1/PD-L1 acquired resistance head and neck cancer patients and in checkpoint inhibitor (“CPI”) naïve non-small cell lung cancer (“NSCLC”) and diffuse large B-cell lymphoma (“DLBCL”) patients. FS118 is a tetravalent mAb2 bispecific antibody targeting two receptors, PD-L1 and LAG-3, both of which are clinically validated 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% (19 out of 39) was observed in patients receiving dose levels of FS118 of 1mg/kg or greater. In acquired resistance patients, DCR was 55 % (17 out of 31 patients) in patients receiving 1 mg/kg or greater and long term (more 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 mid-2022. Data reported during the first half of 2021, from a randomized Phase 3 trial conducted by another company in patients with previously untreated, locally advanced or metastatic melanoma provides clinical validation for the combination of LAG-3 and PD-1 inhibition. This clinical benefit in targeting PD-1 and LAG-3 gives us reason to believe that FS118 has potential to benefit patients not only with acquired resistance, but also in preventing resistance in patients receiving PD-1 monotherapy for the first time. With respect to the latter, we initiated a clinical trial of FS118 in CPI-naïve patients in biomarker enriched NSCLC and DLBCL populations in late 2021.

 

Our second product candidate, FS222, aims to improve outcomes particularly in patients with tumors that express low levels of PD-L1 and is a mAb2 bispecific antibody that is designed to target both the costimulatory CD137 receptor and the inhibitory PD-L1 ligand, which are co-expressed in many tumor types. The Phase 1 clinical trial evaluating FS222 in patients with advanced cancers is ongoing. We believe there is a strong rationale to combine FS222 with other anti-cancer agents, and this can be done within the Phase 1 trial. The accelerated dose titration was completed in the second half of 2021, and identification of optimal patient groups, dose and schedule is on-going. We expect to provide an update on the progress of the Phase 1 trial in mid-2022 and report safety, biomarker, and preliminary efficacy data in the second half of 2022.

 

Our third product candidate, FS120, aims to improve checkpoint inhibitor and chemotherapy outcomes and is a mAb2 bispecific antibody that is designed to bind to and stimulate OX40 and CD137, two proteins found on the surface of T cells that both function to enhance T cell activity. We are developing FS120 alone and in combination with PD-1 therapy for the treatment of tumors where PD-1 inhibitors are approved, and which have been associated with co-expression of OX40 and CD137 in the tumor microenvironment. The Phase 1 clinical trial in patients with advanced cancers is ongoing and we completed the accelerated dose titration phase during the second half of 2021. We are continuing further dose escalation to determine an optimal dosing regimen to initiate a combination of FS120 and the PD-1 inhibitor, pembrolizumab, in the

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second half of 2022. Pembrolizumab will be supplied under a clinical trial collaboration and supply agreement with Merck & Co.

 

SB 11285, which we acquired pursuant to a business combination with Spring Bank Pharmaceuticals, Inc. (“Spring Bank”), is a next generation cyclic dinucleotide STimulator of INterferon Gene (“STING”) agonist designed to improve checkpoint inhibition outcomes as an immunotherapeutic compound for the treatment of selected cancers. SB 11285 appeared to be well tolerated both alone and in combination with atezolizumab across all dose levels tested to-date, including five dose levels as monotherapy and three dose levels as a combination. Initial analysis showed that pharmacokinetics (“PK”) were in-line with the predicted profile for rapid cellular uptake, a characteristic of second generation STING agonists. We are continuing with further dose-escalation and pursuing strategic business development opportunities for SB 11285 in parallel. We expect to report an update on this trial in the second half of 2022.

 

The following table sets forth our product candidates and their current development stages. Our portfolio includes further preclinical and clinical programs that are being developed by our partners as described below under “Collaborations and License Agreements”.

 

https://cdn.kscope.io/b126fd3a8ba01cdd799244c1ec4c98cc-img72950008_0.jpg 

 

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

 

We leverage our proprietary mAb2 technology to build our portfolio of wholly owned immuno-oncology mAb2 product candidates and have generated a panel of early stage Fcab, Fc with antigen binding, building blocks against a range of targets with the potential to go beyond immuno-oncology. These Fcab building blocks have been used to generate not only bispecific antibodies, but also trispecific antibodies and fusion proteins. We have over 500 granted patents and pending applications relating to our mAb2 technology and our product pipeline. We believe we have a leading position in mAb2 bispecific antibody development, and third parties are prohibited from utilizing our mAb2 technology without obtaining a license from us.

 

We currently have collaborative partnerships with Ares Trading S.A., an affiliate of Merck KGaA, Darmstadt, Germany, Denali Therapeutics Inc. and Janssen Biotech, Inc. ("Janssen"), one of the Janssen Pharmaceutical Companies of Johnson & Johnson, which enable us to further validate our bispecific platform. In addition, we have a partnership with AstraZeneca AB ("AstraZeneca") to develop STING inhibitors. F-star's collaborations have generated payments of over $250 million since inception. We believe that these partnerships will provide both continued validation and ongoing revenue as we continue to advance our proprietary pipeline and platform technology. Though our collaborative partnerships we have the potential for a further $2.2 billion in revenue.

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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 mAb2technology into a robust drug discovery platform. Our team has collectively worked on the development of 25 marketed products and has worked at companies including AstraZeneca, Bristol-Myers Squibb Company ("BMS"), Celgene Corporation, Domantis, Eli Lilly and Company ("Eli Lilly"), GlaxoSmithKlein ("GSK"), Immunocore and Pfizer, Inc ("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 mAb2 product candidates and novel cyclic dinucleotide, SB 11285, to treat a range of advanced cancers. We believe our mAb2product candidates represent potentially best-in-class immuno-oncology therapies that may address a variety of patients with cancer inadequately treated with existing therapies. We believe FS118, which is being evaluated in proof-of-concept Phase 2 trials in PD-1/PD-L1 acquired resistance head and neck cancer patients and in CPI-naïve NSCLC and DLBCL 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 FS222, FS120 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 mAb2 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 may 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 mAb2 bispecific antibodies have a number of potential advantages, compared to other modalities, resulting from their novel tetravalent and natural human 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 mAb2 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 mAb2 bispecific antibodies and our STING agonist program. We have built an extensive patent portfolio around our mAb2 technology and associated mAb2 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 mAb2 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 mAb2 product candidates.

 

 

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The Immuno-oncology Challenge and our mAb2 Technology

 

Cancer Treatment Overview

 

The incidence of cancer is increasing due to the aging of the world population, as well as an increasing prevalence in individuals 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 NSCLC, 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 in addition to the substantial number of patients who do not benefit from these first generation antibodies at all.

 

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 mAb2 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 induce a differentiated biological response. Our current mAb2 product candidates are directed against targets that have already demonstrated some level of clinical activity in clinical trials using single traditional antibodies. The target pairings for our mAb2 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 mAb2 product candidates are progressed only if they demonstrated potential advantages in preclinical studies, such as safety and/or potency, beyond what would be achieved with the combination of two traditional antibodies and that in some instances differentiate from other bispecific antibody formats.

 

We believe our mAb2 bispecific antibodies may address the limitations of current immuno-oncology therapies through the following advantageous characteristics that differentiate our mAb2 product candidates:

Novel Tetravalent Format. We engineer our mAb2 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 mAb2 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 mAb2 bispecific antibodies to overcome tumor evasion pathways. These three key characteristics are described further below:
Crosslinking. Crosslinking is the act of bringing either two target-bearing cells, or two targets on the same cell, into close proximity. The dual binding sites for each target, within 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 mAb2 bispecific antibodies have F-star’s distinct binding sites, they can potentially induce more potent clustering than non-tetravalent bispecific antibody formats.
Conditionality. Conditionality occurs when immune activation is dependent on the bispecific antibody binding both targets simultaneously, often in the tumor microenvironment. We are able to leverage the prospectively engineered tetravalent format of our mAb2 bispecific antibodies so that targets are only activated when they are simultaneously bound.

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Natural Human Antibody Format. Our mAb2 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 mAb2 bispecific antibodies use a natural human antibody format, without synthetic linkers and domains, there is lower potential for systemic toxicity than traditional and bispecific antibodies.
Low immunogenicity risk. The natural human antibody format of our mAb2bispecific antibodies and the low number of modifications we engineer into our mAb2 bispecific antibodies is designed to help mitigate immunogenicity risk, or the risk that the immune system recognizes the mAb2bispecific antibody as foreign, potentially resulting in lower exposure and toxicity.
Ease of manufacturability. We are able to produce our mAb2 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.

 

We believe the novel tetravalent and natural human antibody formats of our mAb2 bispecific antibodies have the potential to focus immune activation to enhance efficacy and reduce systemic toxicities.

Our mAb2 Potential Advantages over Other Antibodies and Bispecific Antibodies

 

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FS118 – Our LAG-3 and PD-L1 mAb2 Bispecific Antibody

 

https://cdn.kscope.io/b126fd3a8ba01cdd799244c1ec4c98cc-img72950008_2.jpg 

Our most advanced product candidate, FS118, aims to rescue or prevent checkpoint inhibitor treatment failures and is a mAb2bispecific antibody targeting two receptors, PD-L1 and LAG-3, both of which are clinically validated pivotal targets in immuno-oncology. We are currently conducting proof-of-concept Phase 2 trials for FS118 in PD-1/PD-L1 acquired resistance head and neck cancer patients and checkpoint inhibitor naïve NSCLC and DLBCL patients. Phase 1 data demonstrated that FS118 is well tolerated with a disease control rate of 49% (19 out of 39) patients treated at 1 mg/kg and above 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.

 

Data reported in the first half of 2021, from a randomized phase 3 trial conducted by another company in patients with previously untreated, locally advanced or metastatic melanoma provided clinical validation for the combination of LAG-3 and PD-1 inhibition. This clinical benefit in targeting PD-1 and LAG-3 gives us reason to believe that FS118 has potential to benefit patients not only with acquired resistance, but also in preventing resistance in patients receiving PD-1 monotherapy for the first time.

 

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 trial of FS118 indicates that FS118 may have greater clinical activity in patients with acquired resistance compared to primary resistance. We also believe that FS118 has the potential to have clinical activity in checkpoint inhibitor (“CPI”) naïve cancer patients who have not previously been exposed to PD-1/PD-L1 therapy. Our trial in CPI naïve NSCLC and DLBCL patients aims to address the hypothesis that FS118 may have clinical activity in this population and may act to prevent the emergence of LAG-3 driven checkpoint resistance in these patients.

 

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, NSCLC, soft-tissue sarcoma, mesothelioma, ovarian, gastric cancer, anaplastic thyroid cancer, small cell lung cancer and hematological cancers such as DLBCL and Hodgkin’s Lymphoma. Globally, this cancer population represents over 4.5 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.

 

NSCLC is one of the most common cancers and is the number one cause of cancer death in men, representing 85% of all lung cancers, with approximately 1.85 million patients diagnosed globally in 2020. Checkpoint blockade has led to a paradigm shift in the treatment of NSCLC with significant improvements in long-term survival over recent years. However, a significant number of patients suffer from disease progression and are inherently resistant to PD-1 therapy or acquire resistance upon treatment. Understanding how to avoid or prevent resistance could enable the development of improved clinical therapies. We plan to develop FS118 as a treatment for NSCLC and to demonstrate that FS118 can improve patient outcome.

 

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DLBCL is the most common type of non-Hodgkin lymphoma (“NHL”) with an estimated 77,240 new cases in the US in 2020. Approximately 60% of DLBCL cases are cured with regimens such as rituximab, cyclophosphamide, hydroxydaunorubicin, oncovin and prednisone combination ("R-CHOP"), but many patients relapse following treatment, or are refractory to initial treatment. While developments in the fields of adoptive cell therapy have significantly improved the outcomes of patients, there is still a need for new therapies to treat patients with refractory disease. We plan to develop FS118 to provide patients with chemotherapy-free regimens, either alone or in combination with standard of care therapies in order to improve the outcome for patients with limited treatment options and whose tumors express LAG-3.

 

Our Solution to Overcoming and Preventing PD-1/PD-L1 Resistance: FS118

 

FS118 is a mAb2 bispecific antibody that can simultaneously bind to LAG-3 through its Fcab domain and PD-L1 via its Fv domain. FS118 has demonstrated the potential to provide clinical benefit through multiple mechanisms based on its tetravalency. These include: (1) blocking the PD-1/PD-L1 immunosuppressive pathway, (2) blocking the LAG-3/MHC class II molecules interactions and (3) PD-L1 dependent shedding of LAG-3 via a process dependent upon cleavage by metalloproteases.

Mechanism of Action of FS118

 

https://cdn.kscope.io/b126fd3a8ba01cdd799244c1ec4c98cc-img72950008_3.jpg 

 

Our preclinical data demonstrated that FS118 is a potent inhibitor of PD-L1 and LAG-3 and 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 mAb2bispecific 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, this LAG-3 downregulation was not observed in mice treated with PD-L1 or LAG-3 mAbs alone or in combination. Furthermore, our human in vitro assays have shown that FS118 can mediate PD-L1 dependent LAG-3 shedding via a process that is dependent upon proteases that are known to cleave LAG-3. We believe these mechanisms are important for potent disease control.

 

 

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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 three regimens (range 1-11) of therapy in the advanced/metastatic disease setting. In addition, patients were required to have received prior treatment with a PD-1/PD-L1 containing regimen for a minimum of 12 weeks and subsequently shown disease progression. This patient population derives infrequent benefits from any further PD-1 therapy, and disease worsening may occur within eight weeks without an effective therapy.

 

Under the 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

 

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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 (4.7%). No treatment related adverse events above grade 3 were reported and 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% of (19 out of 39) patients was observed in patients receiving dose levels of 1 mg/kg or above. 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 the DCR was 55 % of (17 out of 31) patients receiving 1 mg/kg or above.

 

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Overall, any observed immunogenicity, as defined by the presence of confirmed positive anti-drug antibodies ("ADAs"), was typically transient in nature (i.e. did not persist for longer than 3 consecutive cycles). Immunogenicity was observed in 49% of (21 of 43) patients treated with FS118. No effect on exposure was observed. FS118 exhibited dose-linear pharmacokinetics with a terminal half-life of four days, as determined by pharmacokinetic data fit to a two-compartment model. Pharmacodynamic exposure was maintained across the dosing interval, as measured by a dose-dependent increase in soluble LAG-3, with a maximal level of sLAG-3 being reached at 10mg/kg. Analysis of immune cell subsets in the periphery revealed an increase in the percentage of circulating lymphocytes in patients who demonstrated disease stabilization, compared to those with progressive disease. Furthermore, a significant increase in the percentage of proliferating CD4+, CD8+ and NK cells was observed following FS118 treatment.

FS118 Phase 1 Clinical Trial Data

 

Clinical efficacy of FS118. Swimmer plot showing time on therapy with FS118 and tumor response.

https://cdn.kscope.io/b126fd3a8ba01cdd799244c1ec4c98cc-img72950008_5.jpg 

Light grey diamonds indicate stable disease (SD) and dark grey circles indicate progressive disease (PD) as per RECIST 1.1.

 

 

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Levels of soluble LAG-3 detected in the serum of FS118-treated patients across four treatment cycles

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Clinical Development Strategy

 

The FS118 first-in-human clinical trial data support further clinical investigations for monotherapy FS118 in cancers with acquired resistance. Initial clinical trials will take place in the second/third line metastatic setting. In order to identify patients who may 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 2021. Squamous Cell Carcinoma of Head and Neck was chosen for the proof-of-concept trial based on both the existence of the targeted population of acquired resistance following the approval of a PD-1 inhibitor and the expression of both PD-L1 and LAG-3 in this patient set. If the trial meets its primary objective of efficacy in LAG-3+/PD-L1+ patients, we expect that 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 trial would subsequently be conducted.

 

In late 2021, to address the hypothesis that FS118 may prevent the emergence of resistance to checkpoint inhibitors, we initiated a Phase 2 basket trial in patients NSCLC and DLBCL who had not previously received checkpoint inhibitors. If the trial meets its primary objective of efficacy, we expect that additional trials in these tumor types will follow, with the potential to assess FS118 as a monotherapy or in combination with other agents. Subsequently, a registrational trial would be conducted.

 

Other tumor types of interest that co-express PD-L1 and LAG-3, such as small cell lung cancer, ovarian cancer, mesothelioma, Hodgkin’s lymphoma 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.

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FS222 – Our CD137 and PD-L1 mAb2 Bispecific Antibody

 

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FS222 aims to improve outcomes of patients with tumors that express low levels of PD-L1 by tumor proportion score (“TPS”) and is a mAb2 bispecific antibody that is designed to target both the costimulatory CD137 receptor and the inhibitory PD-L1 ligand, which are co-expressed in many tumor types including, for example, NSCLC, ovarian cancer and gastrointestinal cancers such as colorectal cancer. The Phase 1 clinical trial in patients with advanced cancers for FS222 is ongoing. The accelerated dose titration of FS222 in the Phase 1 trial (Part A) was completed successfully in the second half 2021, and identification of optimal patient groups, dose and schedule is on-going. 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 trial.

 

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 within the tumor microenvironment. 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 cell activation. CD137-driven T cell activation results in interferon gamma cytokine release. This cytokine release causes increases in PD-L1 expression 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 selected advanced cancers. Tumor type such as NSCLC, soft tissue sarcoma, triple negative breast cancer, squamous cell carcinoma of the head and neck, ovarian cancer, colorectal cancer, and including biomarker subsets of these tumor types, 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. These cancer types are diagnosed in over 5 million patients globally every year and represent attractive indications for FS222. We plan to focus on defined clinical and biomarker segments of these cancers. For example, there is need for chemotherapy-free regimens in first-line PD-L1 low NSCLC. We believe there is a broad opportunity for FS222, either alone or in combination with other anti-cancer therapies, in treating these patient populations.

 

Our Solution: FS222

 

FS222 is a mAb2 bispecific antibody that binds to CD137 through its Fcab domain and PD-L1 via the Fv domain. FS222 simultaneously “releases the brake” on immune control of cancer by blocking the PD-1/PD-L1 pathway and “hits the gas” on immune cell 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 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.

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Mechanism of Action of FS222

 

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Our preclinical data demonstrated that FS222 is a potent stimulator of CD137, only when cross linked by PD-L1. 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. Co-expression of CD137 and PD-L1 has been observed in human tumors including NSCLC and our preclinical studies have shown that CD137 and PD-L1 are co-expressed at higher levels on TILs than in peripheral blood. Therefore, we believe this will make FS222 immune activation conditional within cancer tissue, limit potential systemic toxicities and lead to safety benefits.

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

 

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

 

 

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FS222 was observed to be well-tolerated in preclinical studies

 

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 mAb2 surrogate.

 

Clinical Plans

 

The Phase 1 open-label, dose-escalation clinical trial of FS222 in patients with advanced cancers is ongoing. This trial is divided into Part A, accelerated dose titration ("ADT") and 3+3 escalation, and Part B, tumor-specific efficacy expansion cohorts. The ADT component of Part A was completed in the second half of 2021. 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, NSCLC, triple negative breast cancer, squamous cell carcinoma of the head and neck, and ovarian cancer. We will also potentially explore biomarker subsets of these tumor types. 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 trial (Part B). This approach could potentially support expedited regulatory approval and/or the initiation of Phase 3 registrational trials.

 

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FS120 – Our OX40 and CD137 mAb2 Bispecific Antibody

 

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FS120 aims to improve checkpoint inhibitor and chemotherapy outcomes and is a mAb2 bispecific antibody that is designed to bind to and stimulate OX40 and CD137, two proteins found on the surface of T cells that both function to enhance T cell activity. 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 been associated with co-expression of OX40 and CD137 in the tumor microenvironment, such as NSCLC and bladder cancer. The Phase 1 clinical trial in patients with advanced cancers is ongoing and the accelerate dose titration phase was completed in the second half of 2021. Further dose escalation is ongoing.

 

Stimulatory Roles of OX40 and CD137 in Immuno-oncology

 

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

 

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

 

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

 

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.

 

Despite encouraging preclinical data, in clinical trials, monotherapy with traditional CD137 antibodies has not restored immune control of cancer in the majority of patients. 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.

 

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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 other agents such as 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 NSCLC.

 

NSCLC is one of the most common cancers, with approximately 1.85 million patients diagnosed globally in 2020. PD-1 and PD-L1 mAbs are approved as a monotherapy or in combination with chemotherapy. Patients with high levels of PD-L1 may receive PD-1/PD-L1 monotherapy while the combination with chemotherapy is a common option for patients with PD-L1 low cancers. There remains a significant need to identify chemotherapy free treatment regimens for these patients. FS120 potentially offers an opportunity of a chemotherapy-free treatment in combination with PD-1/PD-L1 therapy for patients with PD-L1 low tumors.

 

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. 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 believe there is an opportunity to bolster PD-1 clinical activity through combining with FS120 in first-line treatment. To address the need for treatment across these populations, we plan to explore pembrolizumab in combination with FS120 in these clinical settings.

 

Our Solution: FS120

 

FS120 is a mAb2 bispecific antibody that binds to OX40 through its Fcab domain, and CD137 via the Fv domain. FS120 is a dual costimulatory antibody or agonist that “hits the gas” on immune activation by activating both CD137 and OX40. 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).

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Mechanism of Action of FS120

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Our preclinical studies have shown superior anti-tumor activity of a mouse OX40/CD137 mAb2 compared to a combination of two traditional antibodies. Based on the results, 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 of immune cells 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 antibody dependent cellular cytotoxicity (“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.

 

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 mAb2 bispecific antibody equivalent of FS120, referred to as the mouse OX40/CD137 mAb2. When the mouse OX40/CD137 mAb2 was used in combination with a PD-1 antibody, we observed increased long-term survival and enhanced effector cell cytotoxicity compared to what was observed with the monotherapy of either PD-1 or the mouse OX40/CD137 mAb2.

 

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FS120 was observed to be 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 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 mAb2 surrogate.

 

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Clinical Plans

 

The Phase 1 open-label, dose-escalation clinical trial of FS120 in patients with advanced cancers is ongoing. The accelerated dose titration phase was completed in the second half of 2021. Further dose escalation is ongoing. Furthermore, 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 other agents such as 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.

 

SB 11285 – Our STING Agonist

 

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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 a PD-L1 antibody, in patients with advanced solid tumors. We are continuing dose-escalation and in pursuing partnering opportunities for SB 11285 in parallel.

 

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 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 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 cases 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 a PD-1/PD-L1 inhibitors and offer to the patients a chemotherapy free option.

 

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Our 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 SB 11285 combined with a fixed and therapeutic dose of aPD-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 SB 11285 in combination with atezolizumab in pre-specified tumor types such as head and neck cancer and melanoma.

 

SB 11285 appeared to be well tolerated both alone and in combination with atezolizumab across all dose levels tested to-date, including five dose levels as monotherapy and three dose levels as a combination. Initial analysis showed that PK were in-line with the predicted profile for rapid cellular uptake, a characteristic of second generation STING agonists. We are continuing with further dose-escalation and expects to provide a further update in the second half of 2022 and pursuing strategic business development opportunities for SB 11285 in parallel.

 

Collaborations and License Agreements

We have entered several collaborations and license agreements with an aim to discover and develop novel drug candidates across a variety of clinical indications.

 

2016 License and Collaboration Agreement with Denali Therapeutics Inc.

 

In August 2016, we and certain of our subsidiaries 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”).

 

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As a result of the Acquisition, F-star Gamma has become a wholly owned subsidiary of Denali and Denali changed the entity’s name to Denali BBB Holding Limited. In addition, Denali became a direct licensee of certain of 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 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 Good Manufacturing Practice ("GMP") Manufacturing milestone. Under the terms of the agreement the Company is entitled to receive contingent payments that relate to certain defined preclinical, clinical, regulatory, and commercial milestones with a maximum value of $49.5 million.

 

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 License and Collaboration Agreement, 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 fee of £0.2 million ($0.3 million) was paid by us to Iontas.

 

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 ($17.6 million) in the aggregate upon the achievement of certain development and regulatory milestones and up to £12.8 million ($17.2 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-L1 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 (which was acquired by Sanofi S.A. in April 2021) (“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.

 

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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 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 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 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.

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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 mAb2 antibody products that each contain a specific Fcab and a Fab target pair (each a licensed product), in the field of the treatment and prevention of diseases in humans.

 

Under the Ares Agreement, 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 mAb2 products (the “Third Program” and the “Fourth Program”) in the field of the treatment and prevention of diseases in humans. With respect to the Third Program and Fourth Program, we are not required to deliver data packages to Ares. In March 2021 Ares exercised its option for the Third Program and in January 2022, exercised its option for the Fourth Program. As a result, 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, €7.5 million ($8.5 million) in connection with the exercise of the option for the Second Program and €2.25 million ($2.52 million) for both the third and fourth programs. Additionally, Ares is obligated to pay us up to €408.5 million ($462.6 million) in the aggregate for the programs upon the achievement of certain development and regulatory milestones and up to €252 ($285.4 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 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.

 

2021 License Agreement with AstraZeneca AB

 

On July 7, 2021, we entered into an exclusive licensing agreement (the “AstraZeneca Agreement”) with AstraZeneca, under which we granted AstraZeneca global rights to research, develop and commercialize STING inhibitor compounds.

 

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Under the terms of the AstraZeneca Agreement, we granted AstraZeneca exclusive access to F-star’s novel preclinical STING inhibitors. AstraZeneca will be responsible for all future research, development and commercialization of the STING inhibitor compounds, and we will retain rights to all STING agonists, currently in clinical development for patients with cancer.

 

We have received or are eligible to receive upfront and near-term payments under the AstraZeneca Agreement of up to $12 million. In addition, We will be eligible for development and sales milestone payments of over $300 million, as well as single-digit percentage royalty payments. Payments received by us are subject to a contingent value rights agreement, under which a percentage will be payable to stockholders of F-star that were previously stockholders of Spring Bank prior to the business combination between F-star and Spring Bank.

 

2021 License and Collaboration Agreement with Janssen Biotech, Inc.

 

On October 19, 2021, we entered into a license and collaboration agreement (the “Janssen Agreement”) with Janssen Biotech, Inc., one of the Janssen Pharmaceutical Companies of Johnson & Johnson.

 

Under the Janssen Agreement, Janssen received a worldwide exclusive license to research, develop and the option to commercialize up to five novel bispecific antibodies directed to Janssen therapeutic targets using our proprietary Fcab and mAb2 platforms. Janssen is responsible for all research, development, and commercialization activities.

 

We have received or are entitled to receive upfront fees of $17.5 million, and near-term fees and potential further milestones of up to $1.35 billion. We are also eligible to receive potential tiered mid-single digit royalties on annual net sales of any products that receive regulatory approval and are commercialized using the licensed technology.

 

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 mAb2 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 mAb2 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 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 commercialize 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, Eli Lilly, MSD, Novartis, Pfizer, and Sanofi. Several companies, not limited to those above, are attempting to combine immuno-oncology antibody therapies to modulate two cancer pathways simultaneously. Others have

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developed bispecific antibodies that maximize the co-targeting effect of a combination of single-target traditional antibodies into a single molecule.

 

With respect to our mAb2 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-LaRoche, Shattuck Labs, and Xencor, Inc.

With respect to our lead mAb2 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, Hoffmann-La Roche, I-mab/ABLBio, Innovent, and MacroGenics. We are also aware of other companies pursuing a combination of two traditional antibodies in different phases of clinical development, with the first one targeting PD-1/PD-L1, and the second one targeting LAG-3, which include but are not limited to: BMS, C.H. Boehringer Sohn AG & Co. KG, Nanjing Leads Biolabs/Beigene, and MSD, Novartis, and Regeneron.

 

With respect to our second mAb2 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: ABL Bio, Antegene, Biotheus, Genmab/BioNTech SE, Inhibrx/Elpiscience, Merus, Numab Therapeutics AG/CStone Pharmaceuticals, Pieris/Servier, and Qilu Pharmaceutical Co. We are also aware of other companies that are pursuing a combination of two traditional antibodies in clinical development, with the first one targeting PD-1/PD-L1, and the second one targeting CD137, which include but are not limited to: Adagene, BMS, Eucure Biopharma, Hoffmann-La Roche, Lyvgen Biopharma (Suzhou)/MSD and, Pfizer.

 

With respect to our third mAb2 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 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 Stingthera, Inc. Additionally, several other companies are developing a first generation and/or an intratumorally administered STING agonist in the clinic.

 

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, 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 efficacious, have fewer or less severe side effects, are easier to administer, 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.

 

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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.

 

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.

 

We have developed or in-licensed numerous patents and patent applications and possess substantial know-how and trade secrets relating to the development and commercialization of our mAb2 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 500 granted patents and pending patent applications generally directed to, for example, compositions and methods related to our Fcabs, our modular antibody technology platform, our lead mAb2 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 mAb2 product candidates as of the date of this Annual Report are summarized below.

 

FS118 (LAG-3/PD-L1 mAb2)

 

Our patent portfolio related to FS118 includes eight owned or licensed patent families, which relate variously to the FS118 mAb2 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 mAb2 bispecific antibody in the treatment of cancer.

 

Specifically, we solely own two FS118-focused patent families which relate to the FS118 mAb2 bispecific antibody composition of matter and the LAG-3 Fcab included in FS118, respectively, as well as methods of producing these molecules and use of the FS118 mAb2 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. With respect to our patent family relating to the FS118 mAb2 bispecific antibody composition of matter, a United States patent and a European patent, each protecting the composition of matter of the FS118 mAb2 bispecific antibody, have been granted and are expected to expire in August 2038 and June 2037, respectively, absent any patent term extensions and subject to the timely payment of patent maintenance and renewal fees.

 

We also solely own a third FS118-focused patent family directed to FS118 dosing schedules. 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 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 mAb2 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.

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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.

 

FS222 (CD137/PD-L1 mAb2)

 

Our patent portfolio related to FS222 includes seven patent families, solely owned by us, which relate generally to the FS222 mAb2 bispecific antibody composition of matter, the CD137 Fcab and PD-L1 antibody included in FS222, methods of making the mAb2 bispecific antibody and use of the FS222 mAb2 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 mAb2 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.

 

We also solely own one patent family related to FS222 which relates to mAb2 bispecific antibodies that bind both a tumor antigen and a tumor necrosis factor receptor superfamily (TNFRSF) receptor on the surface of an immune cell and methods of producing and use of the same in the treatment of cancer. This patent family contains pending patent application in Australia, Canada, China, Europe, Japan, and South Korea. 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 mAb2 technologies utilized in FS222.

 

FS120 (OX40/CD137 mAb2)

 

Our patent portfolio related to FS120 includes six patent families, solely owned by us, which relate generally to the FS120 mAb2 bispecific antibody composition of matter, the OX40 Fcab and CD137 antibody included in FS120, methods of producing the mAb2 bispecific antibody and use of the FS120 mAb2 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 mAb2 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 mAb2 technologies utilized in FS120.

 

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 mAb2 technology and the Fcab technology, and one family that relates to improved methods for selecting functional Fcabs. Seven issued U.S. patents, three pending U.S. patent applications, more than 200 issued ex-U.S. patents, and eight pending ex-U.S. patent applications are included in these four patent families . 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.

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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. Also included in this family is a granted United States patent, which protects the composition of matter of the SB 11285 compound and is expected to expire in July 2037, absent any patent term extensions and subject to the timely payment of patent maintenance fees.

 

Government Regulation and Product Approval

 

In the United States, the Food and Drug Administration ("FDA") regulates therapeutics like our mAb2 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 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 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 and biologics under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and in the case of biologics, also under the Public Health Service Act, or the PHSA, and their implementing regulations. While our mAb2 product candidates are considered biologics our SB 11285 is a drug. 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 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, GLP, and applicable requirements for the humane use of laboratory animals or other applicable regulations;

 

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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 “GCP”, 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;

 

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

 

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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 form 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, 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. Some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data safety monitoring board, or DSMB. This group provides authorization as to whether or not a trial may move forward at designated check points based on access that only the group maintains to available data from the study.

 

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 the government recently began 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 geographically dispersed clinical trial sites. Phase 3 clinical trials are performed after preliminary evidence suggesting effectiveness of the drug or biologic product candidate has been obtained, and they are intended to further evaluate dosage, effectiveness and safety, to establish the overall benefit-risk relationship of the investigational product, 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

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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.

 

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 the 2022 fiscal year this application fee exceeds $3.1 million), and the sponsor of an approved NDA or BLA is also subject to an annual program fee, currently more than $369,000 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. 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 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 has agreed to specified performance goals in the review process of BLAs and NDAs. Under such goals, 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

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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.

The FDA may refer applications for novel biological products, drug 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. 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 is required to submit an initial Pediatric Study Plan (“PSP”), within sixty days of an end-of-Phase 2 meeting or, if there is no such meeting, as early as practicable before the initiation of the Phase 3 or Phase 2/3 clinical trial. The initial PSP must include an outline of the pediatric study or studies that the sponsor plans to conduct, including trial objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information. The FDA and the sponsor must reach an agreement on the PSP. A sponsor can submit amendments to an agreed upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from pre-clinical studies, early phase clinical trials or other clinical development programs.

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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 a 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, we cannot predict what adverse governmental regulations may arise from future U.S. or foreign governmental action.

Accelerated Approval Pathway

Products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval from the FDA and may be approved on the basis of adequate and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a drug or biologic when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, or ("IMM"), and that is reasonably likely to predict an effect on IMM or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform post-marketing clinical trials to verify and describe the predicted effect on IMM or other clinical endpoint, and the product may be subject to expedited withdrawal procedures. Drugs and biologics granted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.

 

For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a drug, such as an effect on IMM. The FDA has limited experience with accelerated approvals based on intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval when the therapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect is reasonably likely to predict the ultimate long-term clinical benefit of a drug.

The accelerated approval pathway is most often used in settings in which the course of a disease is long and an extended period of time is required to measure the intended clinical benefit of a drug, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. For example, accelerated approval has been used extensively in the development and approval of drugs for treatment of a variety of cancers in which the goal of therapy is generally to improve survival or decrease morbidity and the duration of the typical disease course requires lengthy and sometimes large clinical trials to demonstrate a clinical or survival benefit.

 

The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’s clinical benefit. As a result, a product or therapeutic candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or to confirm the predicted clinical benefit of the product during post-marketing studies, would allow the FDA to withdraw approval of the drug. All promotional materials for product and therapeutic candidates being considered

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and approved under the accelerated approval program are subject to prior review by the FDA. Lawmakers, FDA officials, and other stakeholders have recently been evaluating the accelerated approval program and have proposed potential reforms to improve certain aspects. In addition, over the past year several oncology sponsors have voluntarily withdrawn specific indications for their drug products that were being marketed pursuant to accelerated approval, and the FDA’s Oncology Center of Excellence launched an initiative called Project Confirm, aimed at promoting transparency in the area of accelerated approvals for oncology indications. Scrutiny of the accelerated approval pathway is likely to continue and may lead to legislative and/or administrative changes in the future.

 

U.S. Post-Approval Requirements

Any therapeutic products manufactured or distributed by us 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 pre-scheduled or 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 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.

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. For example, the FDA released proposed regulations in February 2022 to amend the national standards for licensing of wholesale drug distributors by the states;

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establish new minimum standards for state licensing third-party logistics providers; and create a federal system for licensure for use in the absence of a State program, each of which is mandated by the DSCSA. 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 assesses whether the proposed device is comparable to the predicate device(s) with respect to intended use, technology, design and other features which could affect safety and effectiveness. If the FDA determines that the proposed device is substantially equivalent to the predicate device or predicate devices, the proposed device may be cleared for marketing. The 510(k) premarket notification pathway generally takes from three to 12 months from the date the application is completed but can take significantly longer.

In contrast, PMA applications must be supported by valid scientific evidence, which typically requires extensive data, including technical, preclinical, clinical and manufacturing data, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device. For diagnostic tests, a PMA application typically includes data regarding analytical and clinical validation studies. As part of its review of the PMA, the FDA will conduct a pre-approval inspection of the manufacturing facility or facilities to ensure compliance with the Quality System Regulation, which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures 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

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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 pre-scheduled or unannounced FDA inspections at any time, during which the FDA will conduct an audit of the product(s) and our 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 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

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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 (“PIP”), in order to initiate pivotal clinical investigation and seek marketing authorization in the European Union, unless the particular product is eligible for a deferral or waiver of the requirement to submit a PIP. The requirement to submit a PIP is waived for specific medicines or classes of medicines that are likely to be ineffective or unsafe in part or all of the pediatric population, are intended for conditions that occur only in adults or do not represent a significant therapeutic benefit over existing treatments for pediatric patients.

Designated orphan medicinal products are entitled to a range of incentives during the development and regulatory review process, including scientific assistance for study protocols, a partial or total reduction in fees and eligibility for conditional marketing authorization. Once authorized, orphan medicinal products are entitled to ten years of market exclusivity in all European Union 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 European Union 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.

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 a competitor's application for the same product and indication(s).

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.

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Under the BPCIA, a manufacturer may submit an abbreviated application for licensure of a biologic that is biosimilar to or interchangeable with an FDA-licensed reference biological product. This abbreviated approval pathway is intended to permit a biosimilar to come to market more quickly and less expensively than if a “full” BLA were submitted, by relying to some extent on the FDA’s previous review and approval of the reference biologic to which the proposed product is similar. Additionally, under the BPCIA, a biosimilar may be licensed as an interchangeable product upon a demonstration that the proposed product can be expected to produce the same clinical results as the reference product in any given patient, and, for products administered multiple times to an individual, that the product and the reference product may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biological product without such alternation or switch. Upon licensure by the FDA, an interchangeable biosimilar may be substituted for the reference product without the intervention of the healthcare provider who prescribed the reference product. The FDA approved the first interchangeable biosimilars, including an interchangeable monoclonal antibody biosimilar, in 2021.

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 is still being interpreted and implemented by the FDA. 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.

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

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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) 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

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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 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.

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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 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 priced 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

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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 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.

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

The Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and its implementing regulations (“HIPAA”), created new federal, civil and criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a criminal violation of these laws. HIPAA also imposes obligations on certain covered entity healthcare providers, health plans and healthcare clearinghouses as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information. The 2009 amendments to HIPAA 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 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 annually 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 laws 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 or civil 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. However, following several years of litigation in the federal courts, in June 2021, the U.S. Supreme Court upheld the ACA when it dismissed a legal challenge to the ACA’s constitutionality. Further legislative and regulatory changes under the ACA remain possible, although the new federal administration under President Biden has signaled that it plans to build on the ACA and expand the number of people who are eligible for health insurance subsidies under it. It is unknown what form any such changes or any law would take, and how or whether it may affect the biopharmaceutical industry as a whole or our business in the future. We expect that changes or additions to the ACA, the Medicare and Medicaid programs, such as changes allowing the federal government to directly negotiate drug prices, and changes stemming from other healthcare reform measures, especially with regard to healthcare access, financing or other legislation in individual states, could have a material adverse effect on the health care industry in the United States.

The Biden Administration has indicated that lowering prescription drug prices is a priority. For example, in July 2021, President Biden issued a sweeping executive order on promoting competition in the American economy that includes several mandates pertaining to the pharmaceutical and health care insurance industries. Among other things, the executive order directs the FDA to work towards implementing a system for importing drugs from Canada (following on a Trump administration notice-and-comment rulemaking on Canadian drug importation that was finalized in October 2020). The

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Biden order also called on HHS to release a comprehensive plan to combat high prescription drug prices, and it includes several directives regarding the Federal Trade Commission’s oversight of potentially anticompetitive practices within the pharmaceutical industry. The drug pricing plan released by HHS in September 2021 in response to the executive order makes clear that the Biden Administration supports aggressive action to address rising drug prices, including allowing HHS to negotiate the cost of Medicare Part B and D drugs, but such significant changes will require either new legislation to be passed by Congress or time-consuming administrative actions.

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. Congress subsequently extended the sequester suspension period to June 30, 2022, with a 1% sequester in effect from April 1, 2022 to June 30, 2022.

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. For example, 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 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 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. However, 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, and the agency plans to publish the final rule in March 2022.

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

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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 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 to obtain approval in foreign jurisdictions may be longer or shorter than that required for FDA approval.

 

In the European Union, for example, under the new Clinical Trials Regulation, which became effective in January 2022, a sponsor submits a clinical trial application (“CTA”) through a centralized application procedure where one European Union Member State’s competent authority takes the lead in reviewing part I of the application, which contains scientific and medicinal product documentation, and the other national authorities only have limited involvement. Part II of the application, which contains the national and patient-level documentation, is assessed individually by each European Union Member State. Any substantial changes to the trial protocol or other information submitted with the CTA must be notified to or approved by the relevant competent authorities and ethics committees. In all cases, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. Medicines used in clinical trials must be manufactured in accordance with good manufacturing practices. Other national and European Union-wide regulatory requirements may also apply.

 

To obtain regulatory approval of an investigational drug or biological product under European Union 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 European Union 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 European Union, or which contain a new active substance for indications other than those specified to be compulsory.

 

The national authorization, or decentralized, procedure is available to applicants who wish to market a product in specific European Union member states where such product has not received marketing approval in any European Union member states before. The decentralized procedure provides for an applicant to apply to one-member state to assess the application (the reference member state) and specifically list other member states in which it wishes to obtain approval (concerned member states). Under this procedure, an applicant submits an application based on identical dossiers and related materials, including a draft summary of product characteristics, and draft labelling and package leaflet, to the reference member state and each concerned member state. The reference member state prepares a draft assessment report and drafts of the related materials within 210 days after receipt of a valid application which is then reviewed and approved commented on by the concerned member states. Within 90 days of receiving the reference member state’s assessment report and related materials, each concerned member state must decide whether to approve the assessment report and related materials.

 

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Following its departure from the European Union and the expiration of the transitional period, the United Kingdom adopted a decentralized and mutual recognition reliance procedure for marketing authorizations that allows the United Kingdom’s clinical trial regulator, the Medicines and Healthcare products Regulatory Agency ("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 GCP 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 European Union-based subsidiaries are subject to Regulation (EU) 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 European Union or where the individuals who are being monitored are based in the European Union. 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 European Union member state, however, it provides that European Union 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; 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 European Union 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 European Union 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 March 1, 2022, F-star had eighty four full-time employees and four part-time employees, eighty are located in the United Kingdom and six in the United States and two in France. None of F-star’s United States and United Kingdom employees is subject to a collective bargaining agreement or represented by a trade or labor union. Our employees in France, are covered by a collective agreement applicable to our industry as required by applicable local law. We consider our relationship with our 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

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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.

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 two 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 2022. 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 drug development 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:

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 will need substantial additional funding 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 have identified conditions and events that raise substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
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.
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.
Our product candidates may have serious adverse, undesirable, or unacceptable side effects that may delay or prevent marketing approval.
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.
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 rely, and expect to continue to rely, on third parties, including independent clinical investigators, contracted laboratories and CROs, to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed
The regulatory approval processes of the FDA, the EMA, the MHRA, 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.
We may become exposed to costly and damaging liability claims, either when testing our product candidates in the clinic or at the commercial stage,

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Due to our limited resources and access to capital, we must, and have in the past decided to, prioritize development of certain product candidates over other potential product candidates.
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.
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.
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.
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 COVID-19 pandemic has adversely affected many companies in the biotechnology industry and may adversely affect our business.
The Ukraine conflict may adversely affect many companies in the biotechnology industry, in particular with respect to timely enrollment and data collection in planned and ongoing clinical trials and has adversely affected our business, in particular in relation to planned and ongoing clinical trials.
We rely on patents and other intellectual property rights to protect our product candidates and our modular antibody technology platform, the enforcement, defense and maintenance of which may be challenging and costly.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful, and issued patents relating to one or more of our product candidates or our modular antibody technology platform could be found invalid or unenforceable if challenged in court.
Intellectual property rights of third parties could adversely affect our ability to commercialize our product candidates,
We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property or claiming ownership of what we regard as our own intellectual property.
The manufacture of biotechnology products is complex, and manufacturers often encounter difficulties in production. We rely on third parties to supply and manufacture our product candidates, and we expect to continue to rely on third parties to manufacture our products, if approved. If we or any of our third-party manufacturers encounter such difficulties, or otherwise fail to comply with their contractual obligations, the development or commercialization of our product candidates could be delayed or stopped.
Our future growth and ability to compete depends on retaining our key personnel and recruiting additional qualified personnel.
Our business is subject to economic, political, regulatory, and other risks associated with international operations.
Our business and operations would suffer in the event of computer system failures, cyber-attacks or a deficiency in our, or our collaborators’ or third-party vendors’, cyber-security.
Our employees, independent contractors, vendors, principal investigators, CROs and consultants may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

 

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.

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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 $31.3 million for the year ended December 31, 2021 and $25.6 million for the year ended December 31, 2020. As of December 31, 2021, we had an accumulated loss $78.5 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 seek to obtain regulatory approval and commercialization of our tetravalent bispecific antibody (“mAb2”) product candidates, and SB 11285, and we do not know whether or when we will become profitable. Management believes that its existing cash and cash equivalents at December 31, 2021 will fund our current operating plan into February 2023. 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, FS222, FS120, and SB 11285;
continue the research and development of our product candidates, including completing preclinical studies;
discover and develop additional mAb2 product candidates and make further investments in our modular antibody technology platform;
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 public offering and 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 mAb2 product candidates and SB 11285 in immuno-oncology, building our intellectual property portfolio, developing our 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 have 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 product candidates supportive of product approval, discovering and developing additional mAb2 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 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

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beyond current expectations if we are required by the FDA, the EMA, the MHRA, 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 mAb2technology and mAb2 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 mAb2 product candidate, FS118, is currently being evaluated in proof-of-concept Phase 2 trials in PD-1/PD-L1 acquired resistance head and neck cancer patients and checkpoint inhibitor naive NSCLC and DLBCL. 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 trials of FS118 and Phase 1 trials for FS222, FS120, and SB 11285 and initiate later-stage clinical development, and continue 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 $78.5 million as of December 31, 2021. 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 $78.5 million of existing cash as of December 31, 2021 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, FS222, FS120 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 trials of FS118 and any later-stage clinical trials for this product candidate;
the cost, progress, and results of the Phase 1 clinical trials of FS222, FS120, and SB 11285 and any later-stage clinical trials for these product candidates;

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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;
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 potential additional expenses attributable to adjusting our development plans (including any supply related matters) to the Ukraine conflict;
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 our existing shareholders, 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.

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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 candidates, if approved, or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.

We have identified conditions and events that raise substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

We expect our costs and expenses to increase as we continue to develop our product candidates and progress our current clinical programs and costs associated with being a public company.

We had cash and cash equivalents of $78.5 million as of December 31, 2021, which we believe that should be sufficient to fund our operating plan into February 2023. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Pursuant to the requirements of Accounting Standards Codification (ASC) 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, and as a result of our financial condition and other factors described herein, there is substantial doubt about our ability to continue as a going concern for a period of at least twelve months from the date of the financial statements. Our ability to continue as a going concern will depend on our ability to obtain additional funding, as to which no assurances can be given. Our future success depends on our ability to raise capital and/or execute our current operating plan. However, we cannot be certain that these initiatives or raising additional capital, whether through selling additional debt or equity securities or obtaining a line of credit or other loan, will be available to us or, if available, will be on terms acceptable to us. If we issue additional securities to raise funds, these securities may have rights, preferences, or privileges senior to those of our common stock, and our current shareholders may experience dilution. If we are unable to obtain funds when needed or on acceptable terms, we may be required to curtail our current development programs, cut operating costs, forego future development and other opportunities or even terminate our operations, which may involve seeking bankruptcy protection.

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” is subject to limitations on its ability to utilize its pre-change net operating losses ("NOLs") and certain other tax assets (tax attributes) to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders increases by more than 50 percentage points over such stockholders' lowest percentage ownership during the testing period (generally three years). We have experienced such ownership changes both in October 2018, November 2020, and May 2021; we may also experience an ownership change in the future as a result of shifts in our stock ownership, some of which are outside our control. The Company underwent a 382 study in 2021 and, as a result to the three afformentioned ownership changes, were limited in their NOL realization. As of December 31, 2021, we had federal and state net operating loss carryforwards of approximately $80.9 million and $79.8 million, respectively, after applying the 382 limitation to the NOL carried forward from 2020. In addition, pursuant to the Tax Cuts and Jobs Act, we may not use U.S. federal net operating loss carryforwards 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 mAb2 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, the MHRA 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;
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.

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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 Phase 2 proof-of-concept trials and FS222, FS120, 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, the EMA, the MHRA, 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;
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

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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, the MHRA, 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, the MHRA, 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 FS118, FS222, FS120, 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 the MHRA, 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.

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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, the MHRA, 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, the MHRA, 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.

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,

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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, FS222, FS120, and SB 11285 to date, suggest that the candidates have 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 trials of FS118 and Phase 1 trials for FS222, FS120, 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 product-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 mAb2 technology, any adverse safety or efficacy findings related to any mAb2 product candidate or preclinical program may adversely impact the viability of our other mAb2 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

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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 mAb2 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 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

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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, BMS, Eli Lilly, MSD, Merck KGaA , Darmstadt, Germany (“EMD Serono”), Novartis, 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 mAb2 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-LaRoche, Shattuck Labs, and Xencor, Inc.

 

With respect to our lead mAb2 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, Hoffmann-La Roche, I-mab/ABLBio, Innovent, and MacroGenics. We are also aware of other companies pursuing a combination of two traditional antibodies in different phases of clinical development, with the first one targeting PD-1/PD-L1, and the second one targeting LAG-3, which include but are not limited to: BMS, C.H. Boehringer Sohn AG & Co. KG, Nanjing Leads Biolabs/Beigene, and MSD, Novartis, and Regeneron.

 

With respect to our second mAb2 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: ABL Bio, Antegene, Biotheus, Genmab/BioNTech SE, Inhibrx/Elpiscience, Merus, Numab Therapeutics AG/CStone Pharmaceuticals, Pieris/Servier, and Qilu Pharmaceutical Co.. We are also aware of other companies that are pursuing a combination of two traditional antibodies in clinical development, with the first one targeting PD-1/PD-L1, and the second one targeting CD137, which include but are not limited to: Adagene, BMS, Eucure Biopharma, Hoffmann-La Roche, Lyvgen Biopharma (Suzhou)/MSD and, Pfizer.

 

With respect to our third mAb2 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 fourth product candidate, SB 11285, we are aware of other companies pursuing a second generation, IV administered STING agonist, in clinical development. These companies include but are not limited to: GSK, Millennium Therapeutics/ Takeda and Stingthera, Inc. Additionally, several other companies are developing a first generation and/or an intratumorally administered STING agonist in the clinic.

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 mAb2 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.

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The regulatory approval processes of the FDA, the EMA, the MHRA, 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, the MHRA, and other comparable foreign regulatory authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, laws or regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. 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, the EMA, the MHRA, 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, the MHRA, or other comparable foreign regulatory authorities that a mAb2 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, the MHRA, 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, the MHRA, 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 BLA or NDA, to the FDA or other equivalent marketing authorization application submissions to obtain regulatory approval in the United States, the European Union, or elsewhere;
upon review of our clinical trial sites and data, the FDA, the EMA, the MHRA, 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, the MHRA, 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, the MHRA, 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, the MHRA, 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, the MHRA, 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 request, 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 approved product more difficult or costly to commercialize. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

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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 distributed. 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 we obtain 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 we or our 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, the MHRA, 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 cGMP by all facilities involved in the production of the approved therapeutic product and with compliance with GCP 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 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 us 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,

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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.

Although we believe we maintain 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 us 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 have 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 mAb2 bispecific antibodies, product candidates or therapeutic areas

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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 European Union, 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 European Union 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 European Union would be sufficient to justify the necessary investment in developing the drug. In the European Union, orphan designation entitles a party to a number of incentives, such as protocol assistance and scientific advice specifically for designated orphan medicines, and potential fee reductions depending on the status of the sponsor.

Generally, in the United States, if a drug 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 European Union 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 PIP.

Similarly, even if we obtain orphan drug exclusivity for a product candidate that is approved for marketing in the United States, 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

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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 United States 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 mAb2 product candidates using our modular antibody technology platform. We believe that mAb2 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, the MHRA, or other comparable foreign regulatory agencies may lack experience in evaluating the safety and efficacy of products based on our mAb2 technology, which could result in a longer than expected regulatory review process, increase our expected development costs and delay or prevent commercialization of our mAb2 product candidates.

We may not be successful in our efforts to utilize our modular antibody technology platform and mAb2 technology to build a pipeline of additional mAb2 product candidates. Failure to successfully identify, develop and commercialize additional products or mAb2 product candidates could impair 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 mAb2 product candidates in our current pipeline, a key element of our long-term growth strategy is to identify, develop and market additional products and mAb2 product candidates. Because we have limited financial and managerial resources, continuing to utilize our modular antibody technology platform and our mAb2 technology to generate mAb2 bispecific antibodies and identify mAb2 product candidates with certain advantages, such as safety and potency, beyond what would be achieved with a combination of two traditional antibodies or bispecific antibodies, will require substantial additional technical, financial and human resources, whether or not any mAb2 product candidates are ultimately identified. Our modular antibody technology platform may fail to generate mAb2 bispecific antibodies that are suitable for further development, and we may fail to correctly identify future mAb2 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 mAb2 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

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develop and commercialize our mAb2 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, mAb2 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 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 mAb2 product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity available to reference biological products. However, there is a risk that this exclusivity could be shortened due to Congressional action or otherwise, or that the FDA will not consider 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 mAb2 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

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(“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 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 our relevant 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 European Union 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 Medicare and Medicaid programs, play an important role in determining the extent to which new drugs and biologics will be covered. The Medicare and

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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 European Union, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than European Union, 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 European Union member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing European Union 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 European Union and other jurisdictions to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for 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