20FR12B/A
Table of Contents

As filed with the Securities and Exchange Commission on November 9, 2020.

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

Amendment No. 1

to

FORM 20-F

 

 

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended                     

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                     

Commission file number     

 

 

PURETECH HEALTH PLC

(Exact name of registrant as specified in its charter and translation of Registrant’s name into English)

 

 

England and Wales

(Jurisdiction of incorporation or organization)

20 Farringdon Street, 8th Floor

London, EC4A 4AB, United Kingdom

(Address of principal executive offices)

Daphne Zohar

Chief Executive Officer

6 Tide Street, Suite 400

Boston, Massachusetts 02210

Tel: (617) 482-2333

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class:

 

Name of each exchange

on which registered:

American Depositary Shares, each representing 10 ordinary shares, par value £0.01 per share   The Nasdaq Global Market
Ordinary shares, par value £0.01 per share*  

 

*

Listed not for trading, but only in connection with the registration of the American Depositary Shares, pursuant to the requirements of the Securities & Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: N/A.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer     Non-accelerated filer     Emerging growth company  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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.  ☐

 

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

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 which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  ☐           International Financial Reporting Standards as issued         Other  ☐
          by the International Accounting Standards Board        

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    Item 17  ☐     Item 18  ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐     No  ☐

 

 

 


Table of Contents

TABLE OF CONTENTS

 

         Page  
  PART I      1  

ITEM 1.

  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS      1  

ITEM 2.

  OFFER STATISTICS AND EXPECTED TIMETABLE      4  

ITEM 3.

  KEY INFORMATION      5  

ITEM 4.

  INFORMATION ON THE COMPANY      88  

ITEM 4A.

  UNRESOLVED STAFF COMMENTS      196  

ITEM 5.

  OPERATING AND FINANCIAL REVIEW AND PROSPECTS      197  

ITEM 6.

  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES      223  

ITEM 7.

  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS      231  

ITEM 8.

  FINANCIAL INFORMATION      239  

ITEM 9.

  THE OFFER AND LISTING      239  

ITEM 10.

  ADDITIONAL INFORMATION      240  

ITEM 11.

  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      260  

ITEM 12.

  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES      260  
  PART II      273  

ITEM 13.

  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES      273  

ITEM 14.

  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS      273  

ITEM 15.

  CONTROLS AND PROCEDURES      273  

ITEM 16.

  RESERVED      273  

ITEM 16A.

  AUDIT COMMITTEE FINANCIAL EXPERT      273  

ITEM 16B.

  CODE OF ETHICS      273  

ITEM 16C.

  PRINCIPAL ACCOUNTANT FEES AND SERVICES      273  

ITEM 16D.

  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES      273  

ITEM 16E.

  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS      273  

ITEM 16F.

  CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT      273  

ITEM 16G.

  CORPORATE GOVERNANCE      273  

ITEM 16H.

  MINE SAFETY DISCLOSURE      273  
  PART III      274  

ITEM 17.

  FINANCIAL STATEMENTS      274  

ITEM 18.

  FINANCIAL STATEMENTS      274  

ITEM 19.

  EXHIBITS      274  

 

  i  


Table of Contents

Special Note Regarding Forward-Looking Statements

This registration statement contains forward-looking statements that involve substantial risks and uncertainties. All statements contained in this registration statement, other than statements of historical fact, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. The forward-looking statements in this registration statement include, among other things, statements about:

 

   

our ability to realize value from our Founded Entities, which may be impacted if we reduce our ownership to a minority interest or otherwise cede control to other investors through contractual agreements or otherwise;

 

   

the success, cost and timing of our clinical development of our Wholly Owned Programs, including the progress of, and results from, our preclinical and clinical trials of LYT-100, LYT-200, LYT-210, LYT-300, our discovery programs (Glyph, Orasome and our meningeal lymphatics discovery research program) and other potential product candidates within our Wholly Owned Programs;

 

   

our ability to obtain and maintain regulatory approval of our Wholly Owned product candidates, and any related restrictions, limitations or warnings in the label of any of our Wholly Owned product candidates, if approved;

 

   

our ability to compete with companies currently marketing or engaged in the development of treatments for indications that our Wholly Owned product candidates or those of our Founded Entities are designed to target;

 

   

our plans to pursue research and development of other future product candidates;

 

   

the potential advantages of our Wholly Owned product candidates and those being developed by our Founded Entities;

 

   

the rate and degree of market acceptance and clinical utility of our product candidates;

 

   

the success of our collaborations and partnerships with third parties;

 

   

our estimates regarding the potential market opportunity for our Wholly Owned product candidates and those being developed by our Founded Entities;

 

   

our sales, marketing and distribution capabilities and strategy;

 

   

our ability to establish and maintain arrangements for manufacture of our Wholly Owned product candidates and those being developed by our Founded Entities;

 

   

our intellectual property position;

 

   

our expectations related to the use of capital;

 

   

the effect of the COVID-19 pandemic, including mitigation efforts and economic effects, on any of the foregoing or other aspects of our business operations, including but not limited to our preclinical studies and future clinical trials;

 

   

our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;

 

   

the impact of government laws and regulations; and

 

   

our competitive position.

 

  ii  


Table of Contents

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. You should refer to the section of this registration statement titled “Item 3.D.—Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. 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 registration statement and the documents that we have filed as exhibits to the registration statement completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

This registration statement includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.

 

  iii  


Table of Contents

EXPLANATORY NOTE

We are a clinical-stage biotherapeutics company dedicated to discovering, developing and commercializing highly differentiated medicines for devastating diseases, including inflammatory and immunological conditions, intractable cancers, lymphatic and gastrointestinal diseases and neurological and neuropsychological disorders, among others. The product candidates within our Wholly Owned Pipeline and the products and product candidates being developed by our Founded Entities were initiated by our experienced research and development team and our extensive network of scientists, clinicians and industry leaders and consist of 24 products and product candidates, of which 12 are clinical-stage and two have been cleared by the U.S. Food and Drug Administration and granted marketing authorization in the European Economic Area.

Our Founded Entities are comprised of our Controlled Founded Entities and our Non-Controlled Founded Entities. References in this registration statement to our “Controlled Founded Entities” refer to Follica, Incorporated, Vedanta Biosciences, Inc., Sonde Health, Inc. Alivio Therapeutics, Inc. and Entrega, Inc. References in this registration statement to our “Non-Controlled Founded Entities” refer to Gelesis, Inc., Akili Interactive Labs, Inc., Karuna Therapeutics, Inc. and Vor Biopharma Inc., and, for all periods prior to December 18, 2019, resTORbio, Inc. We formed each of our Founded Entities and have been involved in development efforts in varying degrees. In the case of each of our Controlled Founded Entities, we continue to maintain majority voting control. With respect to our Non-Controlled Founded Entities, we may benefit from appreciation in our investment as a shareholder of such companies.


Table of Contents

PART I

 

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.

 

A.

Directors and Senior Management

The following table sets forth the names, ages as of October 27, 2020 and positions of our senior management and directors:

 

NAME

  

AGE

    

POSITION

Senior Management

     

Joseph Bolen, Ph.D.

     67      Chief Scientific Officer

Bharatt Chowrira, J.D., Ph.D.

     55      President and Chief of Business and Strategy

Eric Elenko, Ph.D.

     48      Chief Innovation Officer

Joep Muijrers, Ph.D.

     48      Chief of Portfolio Strategy

Stephen Muniz, J.D.

     50      Chief Operating Officer, Company Secretary, Director

Daphne Zohar

     50      Chief Executive Officer, Director

Non-Employee Directors

     

Raju Kucherlapati, Ph.D.(1)(2)

     77      Director

John LaMattina, Ph.D.(2)

     70      Director

Robert Langer, Sc.D.(3)

     72      Director

Kiran Mazumdar-Shaw(2)(3)

     67      Director

Dame Marjorie Scardino(1)(3)

     73      Director

Christopher Viehbacher(1)

     60      Chairman

 

(1)

Member of the Audit Committee.

(2)

Member of the Remuneration Committee.

(3)

Member of the Nomination Committee.

Executive Officers

Joseph Bolen, Ph.D. has served as our chief scientific officer since October 2015. Prior to his appointment as chief scientific officer, Dr. Bolen oversaw all aspects of research and development, or R&D, for Moderna, Inc. as president and chief scientific officer from July 2013 to October 2015. Previously, he was chief scientific officer and global head of oncology research at Millennium: The Takeda Oncology Company. Prior to joining Millennium in 1999, Dr. Bolen held senior positions at Hoechst Marion Roussel, Schering-Plough and Bristol-Myers Squibb. Dr. Bolen began his career at the National Institutes of Health, where he contributed to the discovery of a class of proteins known as tyrosine kinase oncogenes as key regulators of the immune system. Dr. Bolen received a B.S. degree in Microbiology & Chemistry and a Ph.D. in Immunology from the University of Nebraska and conducted his postdoctoral training in Molecular Virology at the Kansas State University Cancer Center.

Bharatt Chowrira, J.D., Ph.D. has served as our president and chief of business and strategy since March 2017. Prior to joining PureTech, Dr. Chowrira was the president of Synlogic, Inc., a biopharmaceutical company focused on developing synthetic microbiome-based therapeutics, from September 2015 to February 2017, where he oversaw and managed corporate and business development, alliance management, financial, human resources, intellectual property and legal operations. Prior to that, Dr. Chowrira was the chief operating officer of Auspex Pharmaceuticals, Inc. from October 2013 to July 2015, which was acquired by Teva Pharmaceuticals Ltd. in the spring of 2015. Previously, he was president and chief executive officer of Addex Therapeutics Ltd., a biotechnology company publicly-traded on the SIX Swiss Exchange, from August 2011 to July 2013. Prior to that Dr. Chowrira held various leadership and management positions at Nektar Therapeutics (chief operating officer), Merck & Co, or Merck (vice president), Sirna Therapeutics (general counsel; acquired by Merck) and Ribozyme Pharmaceuticals (chief patent counsel). Dr. Chowrira is currently a member of the board of directors of Vedanta Biosciences, Inc., or Vedanta. Dr. Chowrira received a J.D. from the University of Denver’s Sturm

 

1


Table of Contents

College of Law, a Ph.D. in Molecular Biology from the University of Vermont College of Medicine, an M.S. in Molecular Biology from Illinois State University and a B.S. in Microbiology from the UAS, Bangalore, India.

Eric Elenko, Ph.D. has served as our chief innovation officer since June 2015 and held various other positions at PureTech prior thereto. While at PureTech, Dr. Elenko has led the development of a number of programs, including Akili Interactive Labs, Gelesis, Karuna Therapeutics and Sonde Health. Dr. Elenko serves on the board of directors of Sonde and Alivio. Prior to joining PureTech, Dr. Elenko was a consultant with McKinsey and Company from February 2002 to September 2005, where he advised senior executives of both Fortune 500 and specialty pharmaceutical companies on a range of issues such as product licensing, mergers and acquisitions, research and development strategy and marketing. Dr. Elenko received a B.A. in Biology from Swarthmore College and his Ph.D. in Biomedical Sciences from University of California, San Diego.

Joep Muijrers, Ph.D. has served as our chief portfolio strategy since May 2020, and previously served as our chief financial officer from April 2018 to May 2020. Prior to joining PureTech, he was a portfolio manager and partner at Life Science Partners, or LSP, a specialist investor group with sole focus on investing in healthcare and life sciences, in The Netherlands and in Boston for 11 years. Prior to joining LSP, he held the position of director corporate finance and capital markets at Fortis Bank, currently part of ABN AMRO. Dr. Muijrers is currently a member of the board of directors of Alivio, Entrega, Follica and Sonde. Dr. Muijrers received a M.S. degree from the University of Nijmegen and a Ph.D. from EMBL Heidelberg.

Stephen Muniz, J.D. has served as our chief operating officer and a member of our board of directors since June 2015, and previously served as executive vice president of legal, finance and operations since 2007. Prior to joining PureTech, Mr. Muniz was a partner in the Corporate Department of Locke Lord LLP, where he practiced law for 10 years. Mr. Muniz’s practice at Locke Lord LLP focused on the representation of life science venture funds as well as their portfolio companies in general corporate matters and in investment and liquidity transactions. He was also a Kauffman entrepreneur fellow, a program sponsored by the Kauffman Foundation. Mr. Muniz also sits on the board of directors of Entrega, Follica and Alivio. Mr. Muniz received a B.A. in Economics and Accounting from The College of the Holy Cross and a J.D. from the New England School of Law where he graduated summa cum laude.

Daphne Zohar has served as our chief executive officer and a member of our board of directors since our formation and UK main market listing in 2015 and served as the founding chief executive officer of a number of our Founded Entities. A successful entrepreneur, Ms. Zohar created PureTech, assembling a leading team and scientific network to help implement her vision for the company, and was a key participant in fundraising, business development and establishing the underlying programs and platforms that have resulted in PureTech’s substantial pipeline of 24 products and product candidates to date, including two products that have been cleared by the U.S. Food and Drug Administration and granted marketing authorization in the European Economic Area, or EEA. Ms. Zohar has been recognized as a top leader and innovator in biotechnology by a number of sources, including BioWorld, MIT’s Technology Review, the Boston Globe, and Scientific American. She is an editorial advisor to Xconomy, a U.S. news company, and is a founding faculty member of The BioPharma Hub. Previously, Ms. Zohar has served on a number of private company boards. Ms. Zohar received a Bachelor of Science degree from Northeastern University.

Non-Employee Directors

Raju Kucherlapati, Ph.D. has served as a member of our board of directors since 2014. He has been the Paul C. Cabot professor of Genetics and a professor of medicine at Harvard Medical School since 2001. Dr. Kucherlapati currently serves on the board of directors of Gelesis, Inc. and KEW Inc. He was a founder and former board member of Abgenix, Cell Genesys and Millennium Pharmaceuticals. He is a fellow of the American Association for the Advancement of Science and a member of the Institute of Medicine of NAS. Dr. Kucherlapati received his Ph.D. from the University of Illinois. He trained at Yale and has held faculty positions at Princeton University, University of Illinois College of Medicine and the Albert Einstein College of Medicine. He served on the editorial board of the New England Journal of Medicine and was Editor in Chief of the journal Genomics. His

 

2


Table of Contents

laboratory at Harvard Medical School is involved in cloning and characterization of human disease genes with a focus on human syndromes with a significant cardiovascular involvement, use of genetic/genomic approaches to understand the biology of cancer and the generation and characterization of genetically modified mouse models for cancer and other human disorders.

John LaMattina, Ph.D. has served as a member of our board of directors since 2009. Dr. LaMattina previously worked at Pfizer in different roles from 1977 to 2007, including vice president of U.S. Discovery Operations in 1993, senior vice president of worldwide discovery operations in 1998, senior vice president of worldwide development in 1999, and president of global research and development from 2003 to 2007. Dr. LaMattina serves on the board of directors of Ligand Pharmaceuticals, Immunome Inc. and Vedanta and is chairman of the board of directors of Alivio. Dr. LaMattina previously served on the board of Zafgen, Inc. until April 2020. He also serves on the Scientific Advisory Board of Frequency Therapeutics and is a trustee associate of Boston College. During Dr. LaMattina’s leadership tenure, Pfizer discovered and/or developed a number of important new medicines including Tarceva, Chantix, Zoloft, Selzentry and Lyrica, along with a number of other medicines currently in late stage development for cancer, rheumatoid arthritis and pain. He is the author of numerous scientific publications and U.S. patents. Dr. LaMattina received the 1998 Boston College Alumni Award of Excellence in Science and the 2004 American Diabetes Association Award for Leadership and Commitment in the Fight Against Diabetes. He was awarded an Honorary Doctor of Science degree from the University of New Hampshire in 2007. In 2010, he was the recipient of the American Chemical Society’s Earle B. Barnes Award for Leadership in Chemical Research Management. He is the author of “Devalued and Distrusted—Can the Pharmaceutical Industry Restore its Broken Image,” “Drug Truths: Dispelling the Myths About Pharma R&D” and an author of the Drug Truths blog at Forbes.com. Dr. LaMattina received a B.S. in Chemistry from Boston College and received a Ph.D. in Organic Chemistry from the University of New Hampshire. He then moved on to Princeton University as a National Institutes of Health postdoctoral fellow in the laboratory of professor E. C. Taylor.

Robert Langer, Sc.D. has served as a member of our board of directors since our founding and is our co-founder. Dr. Langer has served as the David H. Koch Institute professor at MIT since 2005. He served as a member of the FDA’s science board from 1995 to 2002 and as its chairman from 1999 to 2002. Dr. Langer serves on the board of directors of Seer Bio, Abpro Bio, Frequency Therapeutics, Alivio Therapeutics, Entrega, Inc. and Moderna, Inc. Dr. Langer has received over 220 major awards, including the 2006 U.S. National Medal of Science, the Charles Stark Draper Prize in 2002 and the 2012 Priestley Medal. He is also the first engineer to ever receive the Gairdner Foundation International Award. Dr. Langer has received the Dickson Prize for Science, Heinz Award, Harvey Prize, John Fritz Award, General Motors Kettering Prize for Cancer Research, Dan David Prize in Materials Science, Breakthough Prize in Life Sciences, National Medal of Science, National Medal of Technology and Innovation, Kyoto Prize, Wolf Prize, Albany Medical Center Prize in Medicine and Biomedical Research and the Lemelson-MIT prize. In 2006, he was inducted into the National Inventors Hall of Fame. In January 2015, Dr. Langer was awarded the 2015 Queen Elizabeth Prize for Engineering. Dr. Langer received his bachelor’s degree in Chemical Engineering from Cornell University and his Sc.D. in Chemical Engineering from MIT.

Kiran Mazumdar-Shaw has served as a member of our board of directors since September 2020. Ms. Mazumdar-Shaw has been the executive chairperson of Biocon Limited, which she founded in 1978, since April 2020 and she served as managing director of Biocon Limited from 1995 to 2020. Ms. Mazumdar-Shaw holds key positions in various industry, educational, government and professional bodies globally. She has been elected as a full-term member of the board of trustees of The Massachusetts Institute of Technology. She has been elected as a member of the prestigious U.S.-based National Academy of Engineering. She also serves as the lead independent member of the board of Infosys Ltd, a director on the board of United Breweries Limited, and non-executive director on the board of Narayana Health. Ms. Mazumdar-Shaw has received two of India’s highest civilian honors, the Padma Shri in 1989 and the Padma Bhushan in 2005. She was also honored with the Order of Australia, Australia’s highest civilian honor in January 2020. In 2016, she was conferred with the highest French distinction - Knight of the Legion of Honour - and in 2014 received the Othmer Gold Medal in 2014 from the U.S.-based Chemical Heritage Foundation for her pioneering efforts in biotechnology. Ms. Mazumdar-Shaw has been ranked

 

3


Table of Contents

as one of the world’s top 20 inspirational leaders in the field of biopharmaceuticals by The Medicine Maker Power List 2020 and she was the winner of EY World Entrepreneur of the Year 2020 Award. She was the first woman business leader from India to sign the Giving Pledge, an initiative of the Gates Foundation, committing to give the majority of her wealth to philanthropic causes. She received a bachelor’s degree in science, Zoology Hons., from Bangalore University and a master’s degree in malting and brewing from Ballarat College, Melbourne University. She has been awarded several honorary degrees from other universities globally.

Dame Marjorie Scardino has served as a member of our board of directors since 2015. She served as chairman of The MacArthur Foundation from 2012 to 2017. Dame Scardino previously served as chief executive officer of The Economist and as the chief executive officer of Pearson plc, the world’s leading education company and the owner of Penguin Books and The Financial Times Group. She is a member of the non-profit board of directors of Oxfam, The Royal College of Art, the MacArthur Foundation and The Carter Center. She was previously a member of the board of directors of Twitter and International Airlines Group. Dame Scardino has received a number of honorary degrees, and in 2003 was dubbed a dame of the British Empire. She is also a member of the Royal Society of the Arts in the UK and the American Association of Arts and Sciences.

Christopher Viehbacher has served as a member of our board of directors since 2015 and as chairman since September 2019. He has been the managing partner of Gurnet Point Capital since October 2014. Immediately prior to joining Gurnet Point Capital, Mr. Viehbacher served as the chief executive officer and member of the board of directors of Sanofi from December 2008 to October 2014. From 1993 to 2008, Mr. Viehbacher worked at GlaxoSmithKline in different roles, including ultimately President of its North American pharmaceutical division. Mr. Viehbacher began his career with PricewaterhouseCoopers LLP and qualified as a chartered accountant. Mr. Viehbacher currently serves on the board of directors of Vedanta Biosciences as chairman, BEFORE Brands, Crossover Health, Boston Pharmaceuticals, Zikani and Gurnet Point Capital LLC. Mr. Viehbacher previously served on the board of directors of Axcella Health Inc. and Corium International, Inc. Mr. Viehbacher also serves on the Board of Trustees of Northeastern University and the Board of Fellows of Stanford Medical School. Mr. Viehbacher has co-chaired the Chief Executive Officer Roundtable on Neglected Diseases with Bill Gates and formerly chaired the chief executive officer Roundtable on Cancer. He was the chairman of the board of the Pharmaceutical Research and Manufacturers of America as well as president of the European Federation of Pharmaceutical Industries and Associations. At the World Economic Forum at Davos, Mr. Viehbacher was a chair of the Health Governors and co-chaired an initiative to create a Global Charter for Healthy Living. He was also a member of the International Business Council. Mr. Viehbacher has received the Pasteur Foundation Award for outstanding commitment to safeguarding and improving health worldwide. He has also received France’s highest civilian honor, the L´egion d’Honneur. Mr. Viehbacher received his bachelor’s degree in Commerce from Queen’s University in Ontario, Canada in 1983.

 

B.

Advisers

Our principal United States, legal adviser is Goodwin Procter LLP, located at 100 Northern Avenue, Boston, Massachusetts 02210 and our principal United Kingdom legal adviser is DLA Piper LLP, located at 160 Aldersgate Street, London EC1A 4HT, United Kingdom.

 

C.

Auditors

KPMG LLP has been our auditor since 2015. The address for KPMG LLP is 15 Canada Square, London E14 5GL, United Kingdom.

 

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

 

4


Table of Contents
ITEM 3.

KEY INFORMATION

 

A.

SELECTED FINANCIAL DATA

We derived the selected consolidated financial data as of and for the years ended December 31, 2019, 2018 and 2017 from our audited consolidated financial statements included elsewhere in this registration statement. We have derived the selected consolidated financial data as of and for the six months ended June 30, 2020 and 2019 from our unaudited condensed consolidated financial statements included elsewhere in this registration statement. The unaudited condensed consolidated financial statements have been prepared on the same recognition and measurement basis as the audited financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly our financial position as of June 30, 2020 and the results of operations for the six months ended June 30, 2020 and 2019. We present our consolidated financial statements in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board.

The summary consolidated financial data below should be read together with those consolidated financial statements as well as the Item 5. “Operating and Financial Review and Prospects.” Our historical results for any prior period are not necessarily indicative of results to be expected in any future period, and our interim period results are not necessarily indicative of results to be expected for a full year or any other interim period.

Consolidated Income Statement Data

 

     December 31, December 31,     June 30, June 30,  
     2019     2018     2017     2020     2019  
(in thousands, except per share data)                               

Contract revenue

   $ 8,688   $ 16,371   $ 650   $ 5,465   $ 3,955

Grant revenue

     1,119     4,377     1,885     1,379     432
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenue

     9,807     20,748     2,535     6,844     4,387

Operating expenses:

          

General and administrative expenses

     (59,358     (47,365     (46,283     (21,376     (29,196

Research and development expenses

     (85,848     (77,402     (71,672     (38,250     (45,507
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income/(loss)

     (135,399     (104,019     (115,420     (52,782     (70,317

Other income/(expense):

          

Gain on deconsolidation

     264,409     41,730     85,016     —         108,395

Gain/(loss) on investments held at fair value

     (37,863     (34,615     57,334     276,910     52,375

Loss realized on sale of investment

     —         —         —         (44,539     —    

Loss on impairment of intangible asset

     —         (30     —         —         —    

Gain/(loss) on disposal of assets

     (82     4,060     —         —         —    

Gain on loss of significant influence

     445,582     10,287     —         —         —    

Other income/(expense)

     121     (278     14     482     (41
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income/(loss)

     672,167     21,154     142,364     232,852     160,729

Finance income/(costs):

          

Finance income

     4,362     3,358     1,750     1,032     2,383

Finance income/(costs) – subsidiary preferred shares

     (1,458     (106     (9,509     —         (1,425

Finance income/(costs) – contractual

     (2,576     34     (553     (1,213     (2,106

Finance income/(costs) – fair value accounting

     (46,475     22,631     (71,735     1,866     (32,978
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net finance income/(costs)

     (46,147     25,917     (80,047     1,685     (34,126

Share of net gain/(loss) of associates accounted for using the equity method

     30,791     (11,490     (17,608     (7,271     —    

Impairment of investment in associate

     (42,938     —         —         —         —    

Income/(loss) before income taxes

     478,474     (68,438     (70,711     174,483     56,287

Taxation

     (112,409     (2,221     (4,383     (50,775     (25,142

Net income/(loss) including non-controlling interest

     366,065     (70,659     (75,094     123,708     31,145
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss)/income attributable to the Company

   $ 421,144   $ (43,654   $ 26,472   $ 123,957   $ 73,506
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings/(loss) per share:

          

Basic earnings/(loss) per share

   $ 1.49   $ (0.16   $ 0.11   $ 0.43   $ 0.26

Diluted earnings/(loss) per share

   $ 1.44   $ (0.16   $ 0.11   $ 0.42   $ 0.26

 

5


Table of Contents

Consolidated Balance Sheet Data

 

     As of
December 31,
    As of
June 30,
 
(in thousands)    2019      2018     2017     2020  

Cash and cash equivalents

   $ 132,360    $ 117,051   $ 72,649   $ 340,120

Working capital (1)

     29,643      (5,978     (75,753     190,832

Total assets

     941,178      441,763     339,846     1,105,523

Retained earnings/(accumulated deficit)

     254,444      (167,692     (132,270     378,400

Total equity

     650,398      166,972     59,600     766,879

 

(1) 

We define working capital as current assets less current liabilities. We rely on working capital to fund future operations and advance our research and development activities. Our working capital as of December 31, 2019, 2018 and 2017 is calculated as follows (in thousands): December 31, 2019, $168,845-$139,201=$29,643; December 31, 2018, $259,786–$265,764=$(5,978); December 31, 2017, $198,109-$273,862=$(75,753). Our working capital as of June 30, 2020 is calculated as follows (in thousands): $346,871–$156,039=$190,832.

 

B.

CAPITALIZATION AND INDEBTEDNESS

The table below sets forth our cash and cash equivalents and shows our capitalization as of June 30, 2020. You should read this table in conjunction with our unaudited condensed consolidated financial statements included in this registration statement, together with the accompanying notes and the other information appearing under the heading “Item 5. Operating and Financial Review and Prospects”.

 

     As of June 30,
2020
 
(in thousands, except share and per share data)       

Cash and cash equivalents

   $ 340,120
  

 

 

 

Debt:

  

Notes payable

     1,455

Shareholders’ equity:

  

Share capital, nominal value £0.01 par value per ordinary share; 285,512,461 shares issued and outstanding

     5,411

Merger reserve

     138,506

Share premium

     288,225

Other reserve

     (26,776

(Accumulated deficit)/retained earnings

     378,400
  

 

 

 

Equity attributable to the owners of the Company

     783,766
  

 

 

 

Equity attributable to the non-controlling interests

     (16,887
  

 

 

 

Total Capitalization

     766,879
  

 

 

 

Total Capitalization and Indebtedness

   $ 768,334
  

 

 

 

 

C.

REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

 

D.

RISK FACTORS

Our business faces significant risks. You should carefully consider all of the information set forth in this registration statement, including the following risk factors which we face and which are faced by our industry. Our business, financial condition or results of operations could be materially and adversely affected if any of

 

6


Table of Contents

these risks occurs. This registration statement also contains forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors including the risks described below and elsewhere in this registration statement. See “Special Note Regarding Forward-Looking Statements.”

Risks Related to our Financial Position, Need for Additional Capital and Growth Strategy

We are a clinical-stage biopharmaceutical company and have incurred significant operating losses since our inception. We may continue to incur significant operating losses for the foreseeable future.

Investment in biotechnology product development, as well as medical device development, is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will be unable to demonstrate effectiveness or an acceptable safety profile, gain regulatory approval and become commercially viable. To date, only two of our Founded Entities’ products, Gelesis, Inc.’s Plenity and Akili Interactive Labs, Inc.’s EndeavorRx, have received marketing clearance from the U.S. Food and Drug Administration, or the FDA. All of our Wholly Owned Programs and the majority of our Founded Entities’ product candidates may require substantial additional development time, including extensive clinical research, and resources before we would be able to apply for or receive regulatory clearances or approvals and begin generating revenue from product sales.

Since our inception, we have invested most of our resources in developing our technology and product candidates, building our intellectual property portfolio, developing our supply chain, conducting business planning, raising capital and providing general and administrative support for these operations, including with respect to our Founded Entities. We are not operationally profitable and have incurred losses in each year since our inception. Our operating losses for the years ended December 31, 2017, 2018, and 2019 and the six months ended June 30, 2020 were $115.4 million, $104.0 million, $135.4 million, and $52.8 million, respectively. We have no products developed in our Wholly Owned Programs approved for commercial sale and have not generated any revenues from product sales, and we and our Founded Entities have financed operations solely through the sale of equity securities, revenue from strategic alliances and government funding and, with respect to certain of our Founded Entities, debt financings. We continue to incur significant research and development, or R&D, and other expenses related to ongoing operations and expect to incur losses for the foreseeable future. We anticipate continued losses for the foreseeable future.

Due to risks and uncertainties associated with the development of drugs, biologics and medical devices, we are unable to predict the timing or amount of our expenses, or when we will be able to generate any meaningful revenue or achieve or maintain profitability, if ever. In addition, our expenses could increase beyond our current expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other comparable foreign regulatory authorities to perform preclinical studies or clinical trials in addition to those that we currently anticipate, or if there are any delays in any of our or our future collaborators’ clinical trials or the development of our existing product candidates and any other product candidates that we may identify. Even if our existing product candidates or any future product candidates that we may identify are approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product and ongoing compliance efforts.

As of June 30, 2020, we had never generated revenue from our Wholly Owned Pipeline, and we may never be operationally profitable.

While Gelesis, Inc., or Gelesis, and Akili Interactive Labs, Inc., or Akili, have received marketing clearance for Plenity and EndeavorRx, respectively, from the FDA, we may never be able to develop or commercialize marketable products or achieve operational profitability. Revenue from the sale of any product candidate for which regulatory clearance or approval is obtained will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory clearance or approval, the accepted price for the product, the ability to

 

7


Table of Contents

obtain reimbursement at any price and whether we own the commercial rights for that territory. Our growth strategy depends on our ability to generate revenue. In addition, if the number of addressable patients is not as anticipated, the indication or intended use cleared or approved by regulatory authorities is narrower than expected, or the reasonably accepted population for treatment is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such products, even if cleared or approved. Even if we are able to generate revenue from the sale of any approved products, we may not become operationally profitable and may need to obtain additional funding to continue operations. Even if we achieve operational profitability in the future, we may not be able to sustain profitability in subsequent periods.

If we are unable to achieve sustained profitability would depress the value of our company and could impair our ability to raise capital, expand our business, diversify our R&D pipeline, market our Wholly Owned product candidates, if cleared or approved, and pursue or continue our operations. Our prior losses, combined with expected future losses, have had and may continue to have an adverse effect on our shareholders’ equity and working capital.

We may require substantial additional funding to achieve our business goals. If we are unable to obtain this funding when needed and on acceptable terms, we could be forced to delay, limit or terminate certain of our product development efforts. Certain of our Founded Entities will similarly require substantial additional funding to achieve their business goals.

We are currently advancing a pipeline of four Wholly Owned product candidates, three of which are in preclinical development and one of which is conducting a Phase 1 clinical trial. Our Controlled Founded Entities are advancing nine product candidates, including one that is expected to enter a Phase 3 study and three that are in Phase 2 development. Our Non-Controlled Founded Entities are advancing 10 products and product candidates, including two that are expected to enter Phase 3/Pivotal studies and two FDA-cleared products. Developing biopharmaceutical products is expensive and time-consuming, and with respect to our Wholly Owned Programs, we expect to require substantial additional capital to conduct research, preclinical studies and clinical trials for our current and future programs, establish pilot scale and commercial scale manufacturing processes and facilities, seek regulatory clearances and approvals for our Wholly Owned product candidates and launch and commercialize any products for which we receive regulatory clearance or approval, including building our own commercial sales, marketing and distribution organization. With respect to our Founded Entities’ programs, we anticipate that we will continue to fund a small portion of development costs by strategically participating in such companies’ financings when doing so would be in the interests of our shareholders. The form of any such participation may include investment in public or private financings, collaboration and partnership arrangements and licensing arrangements, among others. Our management and strategic decision makers have not made decisions regarding the future allocation of certain of our resources among our Founded Entities, but evaluate the needs and opportunities with respect to each of these Founded Entities routinely and on a case-by-case basis. In connection with any collaboration agreements relating to our Wholly Owned Programs, we are also responsible for the payments to third parties of expenses that may include milestone payments, license maintenance fees and royalties, including in the case of certain of our agreements with academic institutions or other companies from whom intellectual property rights underlying their respective programs have been in-licensed or acquired. Because the outcome of any preclinical or clinical development and regulatory approval process is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development, regulatory approval process and potential commercialization of our Wholly Owned product candidates and any future product candidates we may identify.

As of June 30, 2020, we had cash, cash equivalents and short-term investments of $340.1 million. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, sales of assets or programs, other sources, such as strategic collaborations or license and development agreements, or a combination of these approaches. Even if we believe we have sufficient funds for our current or future operating plans, we may opportunistically seek additional capital if market conditions are favorable or if we have specific

 

8


Table of Contents

strategic considerations. Our spending will vary based on new and ongoing product development and corporate activities. Any such additional fundraising efforts for us may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize product candidates that we may identify and pursue. Moreover, such financing may result in dilution to shareholders, imposition of debt covenants and repayment obligations, or other restrictions that may affect our business.

Our future funding requirements, both short-term and long-term, will depend on many factors, including, but not limited to:

 

   

the time and cost necessary to complete ongoing, planned and future unplanned clinical trials, including our planned Phase 2 trial in serious respiratory complications that persist following the resolution of COVID-19 and our proof-of-concept trial in breast cancer-related, upper limb secondary lymphedema for LYT-100, our anticipated Phase 1 clinical trial for LYT-200 and our anticipated first-in-human trial for LYT-300;

 

   

the outcome, timing and cost of meeting regulatory requirements established by the FDA, the EMA and other comparable foreign regulatory authorities;

 

   

the progress, timing, scope and costs of our preclinical studies, clinical trials and other related activities for our ongoing and planned clinical trials, and potential future clinical trials;

 

   

the costs of obtaining clinical and commercial supplies of raw materials and drug products for our Wholly Owned product candidates, as applicable, and any other product candidates we may identify and develop;

 

   

our ability to successfully identify and negotiate acceptable terms for third-party supply and contract manufacturing agreements with contract manufacturing organizations, or CMOs;

 

   

the costs of commercialization activities for any of our Wholly Owned product candidates that receive marketing approval, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities, or entering into strategic collaborations with third parties to leverage or access these capabilities;

 

   

the amount and timing of sales and other revenues from our Wholly Owned product candidates, if approved, including the sales price and the availability of coverage and adequate third-party reimbursement;

 

   

the cash requirements of our Founded Entities and our ability and willingness to provide them with financing;

 

   

the cash requirements of any future acquisitions or discovery of product candidates;

 

   

the time and cost necessary to respond to technological and market developments, including other products that may compete with one or more of our Wholly Owned product candidates;

 

   

the costs of acquiring, licensing or investing in intellectual property rights, products, product candidates and businesses;

 

   

our ability to attract, hire and retain qualified personnel as we expand R&D and establish a commercial infrastructure;

 

   

the costs of maintaining, expanding and protecting our intellectual property portfolio; and

 

   

the costs of operating as a public company in the United Kingdom and the United States and maintaining listings on both the London Stock Exchange, or the LSE, and The Nasdaq Global Market, or Nasdaq.

We cannot be certain that additional funding will be available on acceptable terms, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit or terminate one or more research or development programs or the potential commercialization of any approved products or be unable to expand

 

9


Table of Contents

operations or otherwise capitalize on business opportunities, as desired, which could materially affect our business, prospects, financial condition and results of operations.

Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to current product candidates or to any future product candidates on unfavorable terms.

We expect our expenses to increase in connection with our planned operations. Unless and until we can generate a substantial amount of revenue from our Wholly Owned product candidates or royalties and other monetization events related to our Founded Entities, we expect to finance our future cash needs through a combination of public and private equity offerings, debt financings, strategic partnerships, sales of assets and alliances and licensing arrangements. We, and indirectly, our shareholders, may bear the cost of issuing and servicing any such securities and of entering into and maintaining any such strategic partnerships or other arrangements. Because any decision by us to issue debt or equity securities in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any future financing transactions. To the extent that we or our Founded Entities raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a shareholder. The incurrence of additional indebtedness would result in increased fixed payment obligations and could involve additional restrictive covenants, 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 impact our ability to conduct our business. Additionally, any future collaborations we enter into with third parties may provide capital in the near term, but limit our potential cash flow and revenue in the future. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses or other rights on unfavorable terms.

In addition, if any of our Founded Entities raises funds through the issuance of equity securities, our shareholders’ indirect equity interest in such Founded Entity could be substantially diminished. If any of our Founded Entities raises additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our technologies or these product candidates or grant licenses on terms that are not favorable to us.

If we engage in acquisitions or strategic partnerships, this may increase our capital requirements, dilute our shareholders, cause us to incur debt or assume contingent liabilities and subject us to other risks.

We may engage in various acquisitions and strategic partnerships in the future, including licensing or acquiring complementary products, intellectual property rights, technologies or businesses. Any acquisition or strategic partnership may entail numerous risks, including:

 

   

increased operating expenses and cash requirements;

 

   

the assumption of indebtedness or contingent liabilities;

 

   

the issuance of our equity securities which would result in dilution to our shareholders;

 

   

assimilation of operations, intellectual property, products and product candidates of an acquired company, including difficulties associated with integrating new personnel;

 

   

the diversion of our management’s attention from our existing product programs and initiatives in pursuing such an acquisition or strategic partnership;

 

   

retention of key employees, the loss of key personnel and uncertainties in our ability to maintain key business relationships;

 

   

risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or product candidates and regulatory approvals; and

 

   

our inability to generate revenue from acquired intellectual property, technology and/or products sufficient to meet our objectives or even to offset the associated transaction and maintenance costs.

 

10


Table of Contents

In addition, if we undertake such a transaction, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense.

The failure to maintain our licenses and realize their benefits may harm our business.

We have acquired and in-licensed certain of our technologies from third parties. We may in the future acquire, in-license or invest in additional technology that we believe would be beneficial to our business. We are subject to a number of risks associated with our acquisition, in-license or investment in technology, including the following:

 

   

diversion of financial and managerial resources from existing operations;

 

   

successfully negotiating a proposed acquisition, in-license or investment in a timely manner and at a price or on terms and conditions favorable to us;

 

   

successfully combining and integrating a potential acquisition into our existing business to fully realize the benefits of such acquisition;

 

   

the impact of regulatory reviews on a proposed acquisition, in-license or investment; and

 

   

the outcome of any legal proceedings that may be instituted with respect to the proposed acquisition, in-license or investment.

If we fail to properly evaluate potential acquisitions, in-licenses, investments or other transactions associated with the creation of new R&D programs or the maintenance of existing ones, we might not achieve the anticipated benefits of any such transaction, we might incur costs in excess of what we anticipate, and management resources and attention might be diverted from other necessary or valuable activities.

Risks Related to Our Founded Entities

Our ability to realize value from our Founded Entities may be impacted if we reduce our ownership or otherwise cede control to other investors through contractual agreements or otherwise.

We do not have a majority interest in our Non-Controlled Founded Entities. Our interests may be further reduced as such companies raise capital from third-party investors. In addition, we may agree to contractual arrangements for the funding of further developments by one or more of our Founded Entities. As a result, with respect to our Non-Controlled Founded Entities, we may not be able to exercise control over the affairs of such Founded Entity, including that Founded Entity’s governance arrangements and access to management and financial information. We are also party to agreements with certain of our Founded Entities that contain provisions which could force us to exit from that Founded Entity at a time and/or price determined by other investor(s) (for example, by the exercise of drag-along rights). If we were forced to exit out of a Founded Entity, this could have a material adverse effect on our business, financial condition or results of operations and prospects. In addition, if the affairs of one or more Founded Entities in which we hold a minority stake were to be conducted in a manner detrimental to our interests or intentions, our business, reputation and prospects may be adversely affected.

As certain of our Founded Entities have completed equity financings, they have entered into certain agreements with the investors participating in such financings, including us. We are party to voting agreements with Entrega, Inc., or Entrega, Sonde Health, Inc., or Sonde, and Vor Biopharma, Inc., or Vor, investors’ rights agreements with Akili, Karuna Therapeutics, Inc., or Karuna, Follica, Incorporated, or Follica, Vedanta Biosciences, Inc., or Vedanta, Entrega, Sonde and Vor, and a stockholders’ agreement with Gelesis, pursuant to which we are subject to certain restrictions on the transfer or sale of shares (e.g., pre-emptive rights or drag-along, tag-along rights or lock up agreements), and we may not be able freely to transfer our interest in such Founded Entities or procure the sale of the entire issued share capital of one of such Founded Entities, similar to other investors who are party to these agreements. In addition, many of our Founded Entities have employee share plans which further dilute our interest in such business. If the affairs of one or more of our Founded Entities were to be conducted in a

 

11


Table of Contents

manner detrimental to our interests or intentions or if we were unable to realize our interest in a Founded Entity or suffer dilution of our shareholding, this could have a material adverse effect on our business, financial condition or results of operation and prospects.

Our overall value may be dominated by a single or limited number of our Founded Entities.

A large proportion of our overall value may at any time reside in a small proportion of our Founded Entities. Accordingly, there is a risk that if one or more of the intellectual property or commercial rights relevant to a valuable business were impaired, this would have a material adverse impact on our overall value. Furthermore, a large proportion of our overall revenue may at any time be the subject of one, or a small number of, licensed technologies. Should the relevant licenses be terminated or expire this would be likely to have a material adverse effect on the revenue received by us. Any material adverse impact on the value of the business of a Founded Entity could, in the situations described above, or otherwise, have a material adverse effect on our business, financial condition, trading performance and/or prospects.

We have limited information about and limited control or influence over our Non-Controlled Founded Entities.

While we maintain ownership of equity interests in our Non-Controlled Founded Entities, we do not maintain voting control or direct management and development efforts for these entities. Each of these entities are independently managed, and we do not control the clinical and regulatory development of these Non-Controlled Founded Entities’ product candidates. Any failure by our Non-Controlled Founded Entities to adhere to regulatory requirements, initiate preclinical studies and clinical trials on schedule or to obtain clearances or approvals for their product candidates could have an adverse effect on our business, financial condition, results of operation and prospects. The information included in this registration statement about our Non-Controlled Founded Entities is based on (i) our knowledge, which may in some cases be limited, (ii) information that is publicly available, including the public filings of SEC reporting companies, such as Karuna, (iii) information provided to us by our Non-Controlled Founded Entities. Where a date is provided, the information included in this registration statement about our Non-Controlled Founded Entities is as of that date and you should not assume that it is accurate as of any other date. As such, there may be developments at our Non-Controlled Founded Entities of which we are unaware that could have an adverse effect on our business, financial condition, results of operation and prospects.

Our Founded Entities are difficult to value given that many of their product candidates are in the development stage.

Investments in early-stage companies, particularly privately held entities, are inherently difficult to value since sales, cash flow and tangible asset values are very limited, which makes the valuation highly dependent on expectations of future development, and any future significant revenues would only arise in the medium to longer terms and are uncertain. Equally, investments in companies just commencing the commercial stage are also difficult to value since sales, cash flow and tangible assets are limited, they have only commenced initial receipts of revenues and valuations are still dependent on expectations of future development. There can be no guarantee that our valuation of our Founded Entities will be considered to be correct in light of the early stage of development for many of these entities and their future performance. As a result, we may not realize the full value of our ownership in such Founded Entities which could adversely affect our business and results of operations. For example, on November 15, 2019, resTORbio, Inc., or resTORbio, announced that its lead product candidate, RTB101, did not meet its primary endpoint in its Phase 3 study and ceased further development leading to a decline in resTORbio’s stock price from $9.27 to $1.09 and our sale of 7,680,700 common shares of resTORbio. As a result of the foregoing, we recognized a total cash loss of approximately $10 million.

 

12


Table of Contents

Certain of our and our Founded Entities’ products candidates represent novel therapeutic approaches and negative perception of any product candidate that we or they develop could adversely affect our ability to conduct our business, obtain regulatory approvals or identify alternate regulatory pathways to market for such product candidate.

Certain of our and our Founded Entities’ products candidates are considered relatively new and novel therapeutic approaches. Our and their success will depend upon physicians who specialize in the treatment of diseases targeted by our and their product candidates, biologics or medical devices prescribing potential treatments that involve the use of our and their product candidates in lieu of, or in addition to, existing treatments with which they are more familiar and for which greater clinical data may be available. Access will also depend on consumer acceptance and adoption of products that are commercialized. In addition, responses by the U.S., state or foreign governments to negative public perception or ethical concerns may result in new legislation or regulations that could limit our or our Founded Entities’ ability to develop or commercialize any product candidates, obtain or maintain regulatory approval, identify alternate regulatory pathways to market or otherwise achieve profitability. More restrictive statutory regimes, government regulations or negative public opinion would have an adverse effect on our business, financial condition, results of operations and prospects and may delay or impair the development and commercialization of our or our Founded Entities’ product candidates or demand for any products we or they may develop.

For example, in the United States and the European Union, no products to date have been approved specifically demonstrating an impact on the microbiome as part of their therapeutic effect. Vedanta is developing a pipeline of microbiome-derived modulators for immune and infectious disease. Microbiome therapies may not be successfully developed or commercialized or gain the acceptance of the public or the medical community. Additionally, adverse events, or AEs, in non-IND human clinical studies and clinical trials of Vedanta’s product candidates or in clinical trials of other companies developing similar products and the resulting publicity, as well as any other AEs in the field of the microbiome, could result in a decrease in demand for any product that Vedanta may develop. Finally, the FDA, the EMA or other comparable foreign regulatory authorities may lack experience in evaluating the safety and efficacy of product candidates based on microbiome therapeutics, which could result in a longer than expected regulatory review process, increase expected development costs and delay or prevent potential commercialization of product candidates.

Risks Related to the Clinical Development, Regulatory Review and Approval of our and our Founded Entities’ Product Candidates

Our Wholly Owned Programs and most of our Founded Entities’ product candidates are in preclinical or clinical development, which is a lengthy and expensive process with uncertain outcomes and the potential for substantial delays. We cannot give any assurance that any of our and our Founded Entities’ product candidates will receive regulatory approval, which is necessary before they can be commercialized.

Before obtaining marketing approval from regulatory authorities for the sale of our or our Founded Entities’ product candidates, we or our Founded Entities must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates in humans. To date, we have focused substantially all of our efforts and financial resources on identifying, acquiring, and developing product candidates, including conducting lead optimization, preclinical studies and clinical trials, and providing general and administrative support for these operations. To date, only two of our Founded Entities’ product candidates, Gelesis’ Plenity and Akili’s EndeavorRX, have received marketing clearance from the FDA, and we cannot be certain that any of our internal or our Founded Entities’ other product candidates will receive regulatory clearance or approval, the timing of such clearance or approval, if received, or that clinical trials will progress as planned. Our or our Founded Entities’ inability to successfully complete preclinical and clinical development could result in additional costs to us and negatively impact our ability to generate revenue. Our future success is dependent on our and our Founded Entities’ ability to successfully develop, obtain regulatory approval for, and then successfully commercialize product candidates. We and our Founded Entities, with the exceptions of Gelesis and Akili, currently have no drugs approved or devices cleared or approved for sale and have not generated any revenue from sales of drugs

 

13


Table of Contents

or devices. We cannot guarantee that we or our Founded Entities will be able in the future to develop or successfully commercialize any of our or their product candidates. Additionally, there is no FDA approved live biological therapeutic using a defined cocktail of microbes, which could result in regulatory complexity in Vedanta’s pipeline. There is also no approved drug therapy for lymphedema, which will require us to come to an agreement with the FDA on requirements for approval.

Other than Gelesis’ Plenity and Akili’s EndeavorRx, all of our Wholly Owned Programs and our Founded Entities’ product candidates require additional development; management of preclinical, clinical, and manufacturing activities; and/or regulatory clearances or approvals. In addition, we or our Founded Entities may need to obtain adequate manufacturing supply; build a commercial organization; commence marketing efforts; and obtain coverage and reimbursement before we generate any significant revenue from commercial product sales, if ever. Many of our Wholly Owned Programs and our Founded Entities’ product candidates are in early-stage research or translational phases of development, and the risk of failure for these programs is high. We cannot be certain that any of our Wholly Owned Programs or our Founded Entities’ product candidates will be successful in clinical trials or receive regulatory approval or clearance. Further, our Wholly Owned Programs or our Founded Entities’ product candidates may not receive regulatory clearance or approval even if we believe they are successful in clinical trials. If we or our Founded Entities do not receive regulatory approval for our or their product candidates, we may not be able to continue operations, which may result in dissolution, out-licensing the technology or pursuing an alternative strategy.

Preclinical development is uncertain. Our preclinical programs may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory approvals or commercialize these programs on a timely basis or at all, which would have an adverse effect on our business.

All but one of our Wholly Owned product candidates, LYT-100, are still in the preclinical stage, and their risk of failure is high. Before we can commence clinical trials for a product candidate, we must complete extensive preclinical testing and studies that support our planned investigational new drug applications, or INDs, in the United States, or similar applications in other jurisdictions. We cannot be certain of the timely completion or outcome of our preclinical testing and studies and cannot predict if the FDA or other regulatory authorities will accept our proposed clinical programs or if the outcome of our preclinical testing and studies will ultimately support the further development of our programs. As a result, we cannot be sure that we will be able to submit INDs or similar applications for our preclinical programs on the timelines we expect, if at all, and we cannot be sure that submission of INDs or similar applications will result in the FDA, the EMA or other regulatory authorities allowing clinical trials to begin.

Clinical trials of our or our Founded Entities’ product candidates may be delayed, and certain programs may never advance in the clinic or may be more costly to conduct than we anticipate, any of which can affect our ability to fund our company and would have a material adverse impact on our platform or our business.

Clinical testing is expensive, time-consuming, and subject to uncertainty. We cannot guarantee that any of our planned clinical trials will be conducted as planned or completed on schedule, if at all. Moreover, even if these trials are initiated or conducted on a timely basis, issues may arise that could result in the suspension or termination of such clinical trials. A failure of one or more clinical trials can occur at any stage of testing, and our clinical trials may not be successful. Events that may prevent successful or timely initiation or completion of clinical trials include:

 

   

inability to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation or continuation of clinical trials;

 

   

delays in confirming target engagement, patient selection or other relevant biomarkers to be utilized in preclinical and clinical product candidate development;

 

   

delays in reaching a consensus with regulatory agencies as to the design or implementation of our clinical studies;

 

14


Table of Contents
   

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

 

   

delays in identifying, recruiting and training suitable clinical investigators;

 

   

delays in obtaining required Institutional Review Board, or IRB, approval at each clinical trial site;

 

   

imposition of a temporary or permanent clinical hold by regulatory agencies for a number of reasons, including after review of an IND or amendment, clinical trial application, or CTA, or amendment, investigational device exemption, or IDE, or supplement, or equivalent application or amendment; as a result of a new safety finding that presents unreasonable risk to clinical trial participants; or a negative finding from an inspection of our clinical trial operations or study sites;

 

   

developments in trials for other product candidates with the same targets or related modalities as our or our Founded Entities’ product candidates conducted by competitors that raise regulatory or safety concerns about risk to patients of the treatment, or if the FDA finds that the investigational protocol or plan is clearly deficient to meet its stated objectives;

 

   

difficulties in securing access to materials for the comparator arm of certain of our clinical trials;

 

   

delays in identifying, recruiting and enrolling suitable patients to participate in clinical trials, and delays caused by patients withdrawing from clinical trials or failing to return for post-treatment follow-up;

 

   

difficulties in finding a sufficient number of trial sites, or trial sites deviating from trial protocol or dropping out of a trial;

 

   

difficulty collaborating with patient groups and investigators;

 

   

failure by CROs, other third parties, or us to adhere to clinical trial requirements;

 

   

failure to perform in accordance with the FDA’s or any other regulatory authority’s current good clinical practices, or GCP, requirements, or regulatory guidelines in other countries;

 

   

occurrence of AEs or undesirable side effects or other unexpected characteristics associated with the product candidate that are viewed to outweigh its potential benefits;

 

   

changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;

 

   

changes in the standard of care on which a clinical development plan was based, which may require new or additional trials;

 

   

the cost of clinical trials of any product candidates that we may identify and pursue being greater than we anticipate;

 

   

clinical trials of any product candidates that we may identify and pursue producing negative or inconclusive results, which may result in our deciding, or regulators requiring us, to conduct additional clinical trials or abandon product development programs;

 

   

transfer of manufacturing processes to larger-scale facilities operated by a CMO, or by us, and delays or failures by our CMOs or us to make any necessary changes to such manufacturing process; and

 

   

delays in manufacturing, testing, releasing, validating, or importing/exporting sufficient stable quantities of product candidates that we may identify for use in clinical trials or the inability to do any of the foregoing.

Any inability to successfully initiate or complete clinical trials could result in additional costs to us or impair our ability to generate revenue. In addition, if we make manufacturing or formulation changes to our Wholly Owned product candidates, we may be required to or we may elect to conduct additional preclinical studies or clinical trials

 

15


Table of Contents

to bridge data obtained from our modified product candidates to data obtained from preclinical and clinical research conducted using earlier versions. Clinical trial delays could also shorten any periods during which our products have patent protection and may allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize product candidates and may harm our business and results of operations.

We could also encounter delays if a clinical trial is suspended or terminated by us, by the data safety monitoring board, or DSMB, or by the FDA, the EMA or other comparable foreign regulatory authorities, or if the IRBs of the institutions in which such trials are being conducted suspend or terminate the participation of their clinical investigators and sites subject to their review. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA, the EMA or other comparable foreign regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, 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.

Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA, the EMA or comparable foreign regulatory authorities. The FDA, the EMA or comparable foreign regulatory authority may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA, the EMA or comparable foreign regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA, the EMA or comparable foreign regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of one or more of our Wholly Owned or our Founded Entities’ product candidates.

Delays in the initiation, conduct or completion of any clinical trial of our Wholly Owned product candidates will increase our costs, slow down the product candidate development and approval process and delay or potentially jeopardize our ability to commence product sales and generate revenue. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our Wholly Owned or our Founded Entities’ product candidates. In the event we identify any additional product candidates to pursue, we cannot be sure that submission of an IDE, IND, CTA, or equivalent application, as applicable, will result in the FDA, the EMA or comparable foreign regulatory authority allowing clinical trials to begin in a timely manner, if at all. Any of these events could have a material adverse effect on our business, prospects, financial condition and results of operations.

Our clinical trials may fail to demonstrate substantial evidence of the safety and effectiveness of product candidates that we may identify and pursue for their intended uses, which would prevent, delay or limit the scope of regulatory approval and potential commercialization.

Before obtaining regulatory approvals for the commercial sale of any of our drug or biological product candidates, we must demonstrate through lengthy, complex and expensive preclinical studies and clinical trials that the applicable product candidate is both safe and effective for use in each target indication, and in the case of our Wholly Owned and Founded Entities’ product candidates regulated as biological products, that the product candidate is safe, pure, and potent for use in its targeted indication. Each product candidate must demonstrate an adequate risk versus benefit profile in its intended patient population and for its intended use. Similarly, before obtaining regulatory clearances or approvals for the commercial sale of any of the device product candidates of our Founded Entities, our Founded Entities may be required to demonstrate through lengthy, complex and expensive preclinical studies and clinical trials that the applicable product candidate meets the regulatory standard of clearance or approval—for example, substantial equivalence or a reasonable assurance of safety or effectiveness, as applicable—for its intended use.

 

16


Table of Contents

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 development process. Most product candidates that begin clinical trials are never approved by regulatory authorities for commercialization. We may be unable to design and execute a clinical trial to support marketing approval.

We cannot be certain that our clinical trials will be successful. Additionally, any safety concerns observed in any one of our clinical trials in our targeted indications could limit the prospects for regulatory clearances or approval of our product candidates in those and other indications, which could have a material adverse effect on our business, financial condition and results of operations. In addition, even if such clinical trials are successfully completed, we cannot guarantee that the FDA, the EMA or comparable foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for clearance or approval. For example, the definition of clinical meaningfulness for outcome measures in lymphedema has not been firmly established by the FDA, introducing risk in evaluating and demonstrating the efficacy required to obtain FDA approval of LYT-100. As another example, while there is guidance regarding clinical meaningfulness for outcome measures in the context of acute COVID-19 treatments and potential vaccines, there is no such guidance for treatment of complications that persist following the resolution of COVID-19. Even if we believe that our and our Founded Entities’ clinical trials and preclinical studies demonstrate the safety and efficacy of our and their product candidates, only the FDA and other comparable regulatory agencies may ultimately make such determination. No regulatory agency has made any such determination that any of our Wholly Owned product candidates or those of our Founded Entities, except for Plenity and EndeavorRx, are safe or effective for use by the general public for any indication.

Additionally, we may utilize an “open-label” trial design for some of our future clinical trials. An open-label trial is one where both the patient and investigator know whether the patient is receiving the test article or either an existing approved drug or placebo. Open-label trials are subject to various limitations that may exaggerate any therapeutic effect as patients in open-label studies are aware that they are receiving treatment. Open-label 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. Patients selected for early clinical studies often include the most severe sufferers and their symptoms may have been bound to improve notwithstanding the new treatment. In addition, open-label 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. The opportunity for bias in clinical trials as a result of open-label design may not be adequately handled and may cause any of our trials that utilize such design to fail or to be considered inadequate and additional trials may be necessary to support future marketing applications. Moreover, results acceptable to support clearance or approval in one jurisdiction may be deemed inadequate by another regulatory authority to support regulatory clearance or approval in that other jurisdiction. To the extent that the results of the trials are not satisfactory to the FDA, the EMA or comparable foreign regulatory authorities for support of a marketing application, we may be required to expend significant resources, which may not be available to us, to conduct additional trials in support of potential clearance or approval of our Wholly Owned product candidates. Even if regulatory clearance or approval is secured for a product candidate, the terms of such approval may limit the scope and use of the specific product candidate, which may also limit its commercial potential.

The results of early-stage clinical trials and preclinical studies may not be predictive of future results. Initial data in clinical trials may not be indicative of results obtained when these trials are completed or in later stage trials.

The results of preclinical studies may not be predictive of the results of clinical trials, and the results of any early-stage clinical trials we commence may not be predictive of the results of the later-stage clinical trials. The results of preclinical studies and clinical trials in one set of patients or disease indications, or from preclinical studies or clinical trials that we did not lead, may not be predictive of those obtained in another. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the

 

17


Table of Contents

same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. In addition, preclinical and clinical data are often susceptible to various interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval. A number of companies in the pharmaceutical, biopharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even after achieving promising results in earlier studies, and any such setbacks in our clinical development could have a material adverse effect on our business and operating results. Even if early-stage clinical trials are successful, we may need to conduct additional clinical trials of our Wholly Owned product candidates in additional patient populations or under different treatment conditions before we are able to seek approvals or clearances from the FDA, the EMA or other comparable foreign regulatory authorities to market and sell these product candidates. Our failure to obtain marketing authorization for our Wholly Owned product candidates would substantially harm our business, prospects, financial condition and results of operations.

If we encounter difficulties enrolling patients in clinical trials, our clinical development activities could be delayed or otherwise adversely affected.

Identifying and qualifying trial participants to participate in clinical studies is critical to our success. The timing of our clinical studies depends on the speed at which we can recruit trial participants to participate in testing our Wholly Owned product candidates. Delays in enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our Wholly Owned product candidates. If trial participants are unwilling to participate in our studies because of negative publicity from AEs in our trials or other trials of similar products, or those related to specific therapeutic area, or for other reasons, including competitive clinical studies for similar patient populations, the timeline for recruiting trial participants, conducting studies, and obtaining regulatory approval of potential products may be delayed. We also may face delays as a result of unforeseen global circumstances, for example we have experienced temporary delays in certain of our clinical development activities, including enrolling participants in certain of our clinical trials, as a result of the COVID-19 pandemic. Any delays could result in increased costs, delays in advancing our product candidate development, delays in testing the effectiveness of our Wholly Owned product candidates, or termination of the clinical studies altogether.

We may not be able to identify, recruit and enroll a sufficient number of trial participants, or those with required or desired characteristics to achieve diversity in a study, to complete our clinical studies in a timely manner. Patient and subject enrollment is affected by factors including:

 

   

the size and nature of a patient population;

 

   

the patient eligibility criteria defined in the applicable clinical trial protocols, which may limit the patient populations eligible for clinical trials to a greater extent than competing clinical trials for the same indication;

 

   

the size of the study population required for analysis of the trial’s primary endpoints;

 

   

the severity of the disease under investigation;

 

   

the proximity of patients to a trial site;

 

   

the inclusion and exclusion criteria for the trial in question;

 

   

the design of the trial protocol;

 

   

the ability to recruit clinical trial investigators with the appropriate competencies and experience;

 

   

the availability and efficacy of approved medications or therapies for the disease or condition under investigation;

 

   

clinicians’ and patients’ perceptions as to the potential advantages and side effects of the product candidate being studied in relation to other available therapies and product candidates;

 

18


Table of Contents
   

the ability to obtain and maintain patient consents; and

 

   

the risk that patients enrolled in clinical trials will not complete such trials, for any reason.

Furthermore, our or our collaborators’ ability to successfully initiate, enroll and conduct a clinical trial outside the United States is subject to numerous additional risks, including:

 

   

difficulty in establishing or managing relationships with CROs and physicians;

 

   

differing standards for the conduct of clinical trials;

 

   

differing standards of care for patients with a particular disease;

 

   

an inability to locate qualified local consultants, physicians and partners; and

 

   

the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and biotechnology products and treatments.

If we have difficulty enrolling sufficient numbers of patients to conduct clinical trials as planned, we may need to delay or terminate clinical trials, either of which would have an adverse effect on our business.

Use of our Wholly Owned product candidates or those being developed by our Founded Entities could be associated with side effects, AEs or other properties or safety risks, which could delay or halt their clinical development, prevent their regulatory clearance or approval, cause us to suspend or discontinue clinical trials, abandon a product candidate, limit their commercial potential, if cleared or approved, or result in other significant negative consequences that could severely harm our business, prospects, operating results and financial condition.

As is the case with pharmaceuticals generally, it is likely that there may be side effects and AEs associated with our and our Founded Entities’ drugs or biologic product candidates’ use. Similarly, investigational devices may also be subject to side effects and AEs. Results of our clinical trials or those being conducted by Founded Entities could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. Undesirable side effects caused by these product candidates could cause us, our Founded Entities or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory clearance or approval by the FDA, the EMA or other comparable foreign regulatory authorities. The side effects related to the product candidate could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.

Moreover, if our Wholly Owned product candidates are associated with undesirable side effects in preclinical studies or clinical trials or have characteristics that are unexpected, we may elect to abandon their development or limit their development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective, which may limit the commercial expectations for the product candidate if approved. We may also be required to modify or terminate our study plans based on findings in our preclinical studies or clinical trials. Many product candidates that initially show promise in early-stage testing may later be found to cause side effects that prevent further development. As we work to advance existing product candidates and to identify new product candidates, we cannot be certain that later testing or trials of product candidates that initially showed promise in early testing will not be found to cause similar or different unacceptable side effects that prevent their further development.

It is possible that as we test our Wholly Owned product candidates in larger, longer and more extensive clinical trials, or as the use of these product candidates becomes more widespread if they receive regulatory clearance or approval, illnesses, injuries, discomforts and other AEs that were observed in earlier trials, as well as conditions that did not occur or went undetected in previous trials, will be reported by subjects. If such side effects become known later in development or upon approval, if any, such findings may harm our business, financial condition and prospects significantly.

 

19


Table of Contents

Additionally, adverse developments in clinical trials of pharmaceutical, biopharmaceutical or biotechnology products conducted by others may cause the FDA or other regulatory oversight bodies to suspend or terminate our clinical trials or to change the requirements for approval of any of our Wholly Owned product candidates.

In addition to side effects caused by the product candidate, the administration process or related procedures also can cause adverse side effects. If any such AEs occur, our clinical trials could be suspended or terminated. If we are unable to demonstrate that any AEs were caused by the administration process or related procedures, the FDA, the European Commission, the EMA, or other regulatory authorities could order us to cease further development of, or deny clearance or approval of, a product candidate for any or all targeted indications. Even if we can demonstrate that all future serious adverse events, or SAEs, are not product-related, such occurrences could affect patient recruitment or the ability of enrolled patients to complete the trial. Moreover, if we elect, or are required, to not initiate, delay, suspend or terminate any future clinical trial of any of our Wholly Owned product candidates, the commercial prospects of such product candidates may be harmed and our ability to generate product revenues from any of these product candidates may be delayed or eliminated. Any of these occurrences may harm our ability to develop other product candidates, and may harm our business, financial condition and prospects significantly.

Additionally, if any of our Wholly Owned product candidates receives marketing authorization, the FDA could impose contraindications or a boxed warning in the labeling of our product. For any of our drug or biologic product candidates receiving marketing authorization, the FDA could require us to adopt a risk evaluation and mitigation strategy, or REMS, and could apply elements to assure safe use to ensure that the benefits of the product outweigh its risks, which may include, among other things, a Medication Guide outlining the risks of the product for distribution to patients and a communication plan to health care practitioners. Furthermore, if we or others later identify undesirable side effects caused by our Wholly Owned product candidates once approved, several potentially significant negative consequences could result, including:

 

   

regulatory authorities may suspend or withdraw approvals of such product candidate, or seek an injunction against its manufacture or distribution;

 

   

regulatory authorities may require additional warnings on the label, including “boxed” warnings, or issue safety alerts, Deal Healthcare Provider letters, press releases or other communications containing warnings or other safety information about the product;

 

   

we may be required by the FDA to implement a REMS for a marketed drug or biologic;

 

   

we may be required to change the way a product candidate is administered or conduct additional clinical trials;

 

   

we may be subject to fines, injunctions or the imposition of civil or criminal penalties;

 

   

we could be sued and held liable for harm caused to patients; and

 

   

our reputation may suffer.

Any of these occurrences could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and may harm our business, financial condition and prospects significantly.

Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming and uncertain and may prevent us from obtaining approvals for the potential commercialization of product candidates.

Any product candidate we may develop and the activities associated with their development and potential commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA, the EMA and other comparable foreign regulatory authorities. Failure to obtain marketing authorization for a product candidate will prevent us from commercializing the product candidate in a given jurisdiction. For

 

20


Table of Contents

example, although Gelesis and Akili have received marketing clearance for Plenity and EndeavorRX, respectively, from the FDA, we and our Founded Entities have not received clearance or approval to market any of our or their other product candidates from regulatory authorities in any jurisdiction and it is possible that none of the other product candidates we and our Founded Entities may seek to develop in the future will ever obtain regulatory approval. We have no experience in filing and supporting the applications necessary to gain marketing authorizations and expect to rely on third-party CROs or regulatory consultants to assist us in this process. Securing regulatory clearance or approval requires the submission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the product candidate’s safety, purity, efficacy and potency. Securing regulatory clearance or approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Any product candidates we or our Founded Entities develop may not be effective, may be only moderately effective, or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing clearance or approval or prevent or limit commercial use, if cleared or approved.

The process of obtaining marketing authorizations, both in the United States and abroad, is expensive, may take many years if additional clinical trials are required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in marketing authorization policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit, or prevent marketing approval of a product candidate. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.

If we experience delays in obtaining clearance or approval or if we fail to obtain clearance or approval of any product candidates we may develop, the commercial prospects for those product candidates may be harmed, and our ability to generate revenues will be materially impaired.

Even if any current or future product candidate of ours receives regulatory clearance or approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success, in which case we may not generate significant revenues or become profitable.

We have never commercialized a product, and even if any current or future product candidate of ours is approved by the appropriate regulatory authorities for marketing and sale, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. Physicians may be reluctant to take their patients off their current medications and switch their treatment regimen. Further, patients often acclimate to the treatment regime that they are currently taking and do not want to switch unless their physicians recommend switching products or they are required to switch due to lack of coverage and adequate reimbursement. In addition, even if we are able to demonstrate our Wholly Owned product candidates’ safety and efficacy to the FDA and other regulators, safety or efficacy concerns in the medical community may hinder market acceptance.

Efforts to educate the medical community and third-party payors on the benefits of our Wholly Owned product candidates may require significant resources, including management time and financial resources, and may not be successful. The degree of market acceptance of our Wholly Owned product candidates, if approved for commercial sale, will depend on a number of factors, including:

 

   

the efficacy and safety of the product;

 

   

the potential advantages of the product compared to competitive therapies;

 

21


Table of Contents
   

the prevalence and severity of any side effects;

 

   

whether the product is designated under physician treatment guidelines as a first-, second- or third-line therapy;

 

   

our ability, or the ability of any future collaborators, to offer the product for sale at competitive prices;

 

   

the product’s convenience and ease of administration compared to alternative treatments;

 

   

the willingness of the target patient population to try, and of physicians to prescribe, the product;

 

   

limitations or warnings, including distribution or use restrictions contained in the product’s approved labeling;

 

   

the strength of sales, marketing and distribution support;

 

   

changes in the standard of care for the targeted indications for the product; and

 

   

availability and adequacy of coverage and reimbursement from government payors, managed care plans and other third-party payors.

Sales of medical products also depend on the willingness of physicians to prescribe the treatment, which is likely to be based on a determination by these physicians that the products are safe, therapeutically effective and cost effective. In addition, the inclusion or exclusion of products from treatment guidelines established by various physician groups and the viewpoints of influential physicians can affect the willingness of other physicians to prescribe the treatment. We cannot predict whether physicians, physicians’ organizations, hospitals, other healthcare providers, government agencies or private insurers will determine that our product is safe, therapeutically effective and cost effective as compared with competing treatments. If any product candidates we develop do not achieve an adequate level of acceptance, we may not generate significant product revenue, and we may not become profitable.

Any failure by any current or future product candidate of ours that obtains regulatory approval to achieve market acceptance or commercial success would adversely affect our business prospects. In addition, any negative perception of one of our Founded Entities or any product candidates marketed or commercialized by them may adversely affect our reputation in the marketplace or among industry participants and our business prospects.

We have conducted, and may continue to conduct in the future, clinical trials for product candidates outside the United States, and the FDA, the EMA and comparable foreign regulatory authorities may not accept data from such trials.

We have conducted clinical trials outside of the United States in the past, and may in the future choose to conduct one or more clinical trials outside the United States, including in Europe. For example, we have conducted clinical trials for LYT-100 in Australia and currently plan to conduct future clinical trials for LYT-100 in additional locations outside the United States, including without limitation Australia, Romania, Spain and the Phillipines. The acceptance of study data from clinical trials conducted outside the United States or another jurisdiction by the FDA, the EMA or any comparable foreign regulatory authority may be subject to certain conditions or may not be accepted at all. In cases where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the U.S. population and U.S. medical practice; (ii) the trials were performed by clinical investigators of recognized competence and pursuant to GCP regulations; and (iii) if necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. Additionally, the FDA’s clinical trial requirements, including sufficient size of patient populations and statistical powering, must be met. Many foreign regulatory authorities have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA, the EMA or any comparable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA, the EMA or any comparable foreign regulatory authority does not accept

 

22


Table of Contents

such data, it would result in the need for additional trials, which would be costly and time-consuming and delay aspects of our business plan, and which may result in product candidates that we may develop not receiving approval or clearance for commercialization in the applicable jurisdiction.

If we are unable to obtain regulatory clearance or approval in one or more jurisdictions for any product candidates that we may identify and develop, our business could be substantially harmed.

We cannot commercialize a product until the appropriate regulatory authorities have reviewed and cleared or approved the product candidate. Approval by the FDA, the EMA and comparable foreign regulatory authorities is lengthy and unpredictable, and depends upon numerous factors, including substantial discretion of the regulatory authorities. Approval policies, regulations, or the type and amount of preclinical or clinical data necessary to gain approval may change during the course of a product candidate’s development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application. Gelesis and Akili have obtained marketing clearance from the FDA for Plenity and EndeavorRx, respectively, but we and our Founded Entities have not obtained regulatory clearance or approval for any other product candidates, and it is possible that our current product candidates and any other product candidates which we and our Founded Entities may seek to develop in the future will not ever obtain regulatory clearance or approval. We cannot be certain that any of our Wholly Owned or our Founded Entities’ product candidates will receive regulatory clearance or approval or be successfully commercialized even if we or our Founded Entities receive regulatory clearance or approval.

Obtaining marketing approval is an extensive, lengthy, expensive and inherently uncertain process, and regulatory authorities may delay, limit or deny clearance or approval of our Wholly Owned or our Founded Entities’ product candidates for many reasons, including but not limited to:

 

   

the inability to demonstrate to the satisfaction of the FDA, the EMA or comparable foreign regulatory authorities that the applicable product candidate is safe and effective as a treatment for our targeted indications or otherwise meets the applicable regulatory standards for approval;

 

   

the FDA, the EMA or comparable foreign regulatory authorities may disagree with the design, endpoints or implementation of our or our Founded Entities’ clinical trials;

 

   

the population studied in the clinical program may not be sufficiently broad or representative to assure safety or efficacy in the full population for which we or our Founded Entities seek approval;

 

   

the FDA, the EMA or comparable foreign regulatory authorities may require additional preclinical studies or clinical trials beyond those that we or our Founded Entities currently anticipate;

 

   

the FDA, the EMA or comparable foreign regulatory authorities may disagree with our or our Founded Entities’ interpretation of data from preclinical studies or clinical trials;

 

   

the data collected from clinical trials of product candidates that we may identify and pursue may not be sufficient to support the submission of an NDA, biologics license application, or BLA, or other submission for regulatory approval in the United States or elsewhere;

 

   

as applicable, we or our Founded Entities may be unable to demonstrate to the FDA, the EMA or comparable foreign regulatory authorities that a product candidate’s risk-benefit ratio for its proposed indication is acceptable;

 

   

the FDA, the EMA or comparable foreign regulatory authorities may identify deficiencies in the manufacturing processes, test procedures and specifications, or facilities of third-party manufacturers with which we or our Founded Entities contract for clinical and commercial supplies; and

 

   

the clearance or approval policies or regulations of the FDA, the EMA or comparable foreign regulatory authorities may change in a manner that renders the clinical trial design or data insufficient for clearance or approval.

The lengthy approval process, as well as the unpredictability of the results of clinical trials and evolving regulatory requirements, may result in our or our Founded Entities’ failure to obtain regulatory approval to market product

 

23


Table of Contents

candidates that we or our Founded Entities may pursue in the United States or elsewhere, which would significantly harm our or our Founded Entities’ business, prospects, financial condition and results of operations.

Furthermore, clearance or approval by the FDA in the United States, if obtained, does not ensure approval by regulatory authorities in other countries or jurisdictions. In order to market any products outside of the United States, we or our Founded Entities must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and effectiveness. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional or different administrative review periods from those in the United States, including additional preclinical studies or clinical trials, as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval. Seeking foreign regulatory approval could result in difficulties and costs for us or our Founded Entities and require additional preclinical studies or clinical trials which could be costly and time-consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our or our Founded Entities’ products in those countries. The foreign regulatory approval process involves all of the risks associated with FDA approval. We do not have any product candidates approved for sale in international markets. If we or our Founded Entities fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of our products will be harmed.

Interim, “top-line,” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available or as additional analyses are conducted, and as the data 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, “top-line,” or preliminary data from our clinical studies. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or “top-line” data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Material adverse changes between preliminary, “top-line,” or interim data and final data could significantly harm 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 product and our company in general. In addition, the information we choose to publicly disclose regarding a particular 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. Any information we determine not to disclose may ultimately be deemed significant by you or others with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product candidate or our business.

Certain of the product candidates being developed by us or our Founded Entities are novel, complex and difficult to manufacture. We could experience manufacturing problems that result in delays in our development or commercialization programs or otherwise harm our business.

The manufacturing processes our CMOs use to produce our and our Founded Entities’ product candidates are complex and in certain cases novel. Several factors could cause production interruptions, including inability to develop novel manufacturing processes, equipment malfunctions, facility contamination, raw material shortages

 

24


Table of Contents

or contamination, natural disasters, disruption in utility services, human error or disruptions in the operations of our suppliers, including acquisition of the supplier by a third party or declaration of bankruptcy. For example, Vedanta has its own proprietary GMP manufacturing facilities for certain product candidates, including VE303, VE800 and VE416. Creating defined consortia of live microbial therapeutics for these product candidates is inherently complex, and therefore can be vulnerable to delays. The expertise required to manufacture these product candidates is unique to Vedanta, and as a result, it would be difficult and time consuming to find an alternative CMO. In addition, manufacturing of clinical supply for LYT-100, LYT-200, and LYT-300 are dependent on third party CMOs, and manufacturing such product candidates is inherently complex. As another example, we are advancing LYT-100 for potential treatment of complications that persist following the resolution of COVID-19 infection. COVID-19 has been widespread, and any approved treatments related to COVID-19 could face issues manufacturing sufficient quantities to meet demand.

Some of our and our Founded Entities’ product candidates include biologics, some of which have physical and chemical properties that cannot be fully characterized. As a result, assays of the finished product may not be sufficient to ensure that the product is consistent from lot-to-lot or will perform in the intended manner. Accordingly, our CMOs must employ multiple steps to control the manufacturing process to assure that the process is reproducible and the product candidate is made strictly and consistently in compliance with the process. Problems with the manufacturing process, even minor deviations from the normal process, could result in product defects or manufacturing failures that result in lot failures, product recalls, product liability claims or insufficient inventory to conduct clinical trials or supply commercial markets. We or our Founded Entities may encounter problems achieving adequate quantities and quality of clinical-grade materials that meet the FDA, the EMA or other applicable standards or specifications with consistent and acceptable production yields and costs.

In addition, the FDA, the EMA and other foreign regulatory authorities may require us or our Founded Entities to submit samples of any lot of any approved product together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA, the EMA or other foreign regulatory authorities may require that we or our Founded Entities not distribute a lot until the agency authorizes its release. Slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in the product that could result in lot failures or product recalls. Lot failures or product recalls could cause us or our Founded Entities to delay product launches or clinical trials, which could be costly to us and otherwise harm our business, financial condition, results of operations and prospects.

Our CMOs also may encounter problems hiring and retaining the experienced scientific, quality assurance, quality-control and manufacturing personnel needed to operate our manufacturing processes, which could result in delays in production or difficulties in maintaining compliance with applicable regulatory requirements.

Any problems in our CMOs’ manufacturing process or facilities could result in delays in planned clinical trials and increased costs, and could make us a less attractive collaborator for potential partners, including larger biotechnology companies and academic research institutions, which could limit access to additional attractive development programs. Problems in our manufacturing process could restrict our ability to meet potential future market demand for products.

We do not currently have nor do we plan to acquire the infrastructure or capability internally to manufacture our clinical drug supplies for use in the conduct of our clinical trials, and we lack the resources and the capability to manufacture our Wholly Owned product candidates on a clinical or commercial scale. Instead, we rely on our third-party manufacturing partners for the production of the active pharmaceutical ingredient, or API, and drug formulation. The facilities used by our third-party manufacturers to manufacture our product candidates that we may develop must be successfully inspected by the applicable regulatory authorities, including the FDA, after we submit our NDA to the FDA.

We are currently completely dependent on our third-party manufacturers for the production of LYT-100 and LYT-200 in accordance with cGMPs, which include, among other things, quality control, quality assurance and the maintenance of records and documentation.

 

25


Table of Contents

Although we have entered into agreements for the manufacture of clinical supplies of LYT-100 and LYT-200, our third-party manufacturers may not perform as agreed, may be unable to comply with these cGMP requirements and with FDA, state and foreign regulatory requirements or may terminate its agreement with us. If any of our third-party manufacturers cannot successfully manufacture material that conforms to our specifications and the applicable regulatory authorities’ strict regulatory requirements, or pass regulatory inspection, our NDA will not be approved. In addition, although we are ultimately responsible for ensuring product quality, we have no direct day-to-day control over our third-party manufacturers’ ability to maintain adequate quality control, quality assurance and qualified personnel. If our third-party manufacturers are unable to satisfy the regulatory requirements for the manufacture of our products, or if our suppliers or third-party manufacturers decide they no longer want to manufacture our products, we may need to find alternative manufacturing facilities, which would be time-consuming and significantly impact our ability to develop, obtain regulatory approval for or market our products. We might be unable to identify manufacturers for long-term clinical and commercial supply on acceptable terms or at all. Manufacturers are subject to ongoing periodic announced and unannounced inspection by the FDA and other governmental authorities to ensure compliance with government regulations. Currently, our contract manufacturer for the API for LYT-100 is located outside the United States and the FDA has recently increased the number of foreign drug manufacturers that it inspects as well as the frequency of such inspections. As a result, our third-party manufacturers may be subject to increased scrutiny.

If we were to experience an unexpected loss of supply for clinical development or commercialization, we could experience delays in our ongoing or planned clinical trials as our third-party manufacturers would need to manufacture additional quantities of our clinical and commercial supply and we may not be able to provide sufficient lead time to enable our third-party manufacturers to schedule a manufacturing slot, or to produce the necessary replacement quantities. This could result in delays in progressing our clinical development activities and achieving regulatory approval for our products, which could materially harm our business.

The manufacture of pharmaceutical products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. We and our contract manufacturers must comply with cGMP regulations and guidelines. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up and validating initial production. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if microbial, viral or other contaminations are discovered in our products or in the manufacturing facilities in which our products are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We cannot assure you that any stability or other issues relating to the manufacture of any of our products will not occur in the future. Additionally, our manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If our manufacturers were to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, our ability to provide any product candidates to patients in clinical trials would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials completely.

Any adverse developments affecting clinical or commercial manufacturing of our products may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products or product candidates. We may also have to take inventory write-offs and incur other charges and expenses for products or product candidates that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Accordingly, failures or difficulties faced at any level of our supply chain could materially adversely affect our business and delay or impede the development and commercialization of any of our products or product candidates and could have a material adverse effect on our business, prospects, financial condition and results of operations.

 

26


Table of Contents

The complexity of a combination product that includes a drug or biologic and a medical device presents additional, unique development and regulatory challenges, which may adversely impact our or our Founded Entities’ development plans and our or our Founded Entities’ ability to obtain regulatory approval of our Wholly Owned or our Founded Entities’ product candidates.

We or our Founded Entities, such as Follica, may decide to pursue marketing authorization of a combination product. A combination product includes, amongst other possibilities, any investigational drug, device, or biologic packaged separately that according to its proposed labeling is for use only with another individually specified investigational drug, device, or biologic where both are required to achieve the intended use, indication, or effect.

Developing and obtaining regulatory approval for combination products pose unique challenges because they involve components that are regulated under different types of regulatory requirements, and by different FDA centers. As a result, such products raise regulatory, policy and review management challenges. For example, because divisions from both FDA’s Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research and FDA’s Center for Devices and Radiological Health must review submissions concerning product candidates that are combination products comprised of drug or biologics and devices, the regulatory review and approval process for these products may be lengthened. In addition, differences in regulatory pathways for each component of a combination product can impact the regulatory processes for all aspects of product development and management, including clinical investigation, marketing applications, manufacturing and quality control, adverse event reporting, promotion and advertising, user fees and post-approval modifications. Similarly, the device components of our Founded Entities’ product candidates will require any necessary clearances or approvals or other marketing authorizations in other jurisdictions, which may prove challenging to obtain.

Certain modifications to our Founded Entities’ device products may require new 510(k) clearance or other marketing authorizations and may require our Founded Entities to recall or cease marketing their products.

Gelesis received marketing clearance for Plenity from the FDA. Once a medical device is permitted to be legally marketed in the United States pursuant to a 510(k) clearance, de novo classification, or a premarket approval, or PMA, a manufacturer may be required to notify the FDA of certain modifications to the device. Manufacturers determine in the first instance whether a change to a product requires a new premarket submission, but the FDA may review any manufacturer’s decision. The FDA may not agree with our Founded Entities’ decisions regarding whether new clearances or approvals are necessary. They may make modifications or add additional features in the future that they believe do not require a new 510(k) clearance, de novo classification, or approval of a PMA or PMA amendments or supplements. If the FDA disagrees with their determinations and requires them to submit new 510(k) notifications, requests for de novo classification, or PMAs (or PMA supplements or amendments) for modifications to their previously cleared or reclassified products for which they have concluded that new clearances or approvals are unnecessary, they may be required to cease marketing or to recall the modified product until they obtain clearance or approval, and they may be subject to significant regulatory fines or penalties.

The regulatory landscape that will apply to development of therapeutic product candidates by us or our Founded Entities or collaborators is rigorous, complex, uncertain and subject to change, which could result in delays or termination of development of such product candidates or unexpected costs in obtaining regulatory approvals.

We or our Founded Entities or collaborators may develop product candidates that use genome or cell editing technologies. Regulatory requirements governing products created with genome editing technology or involving gene therapy treatment have changed frequently and will likely continue to change in the future. Approvals by one regulatory agency may not be indicative of what any other regulatory agency may require for approval, and there is substantial, and sometimes uncoordinated, overlap in those responsible for regulation of gene therapy

 

27


Table of Contents

products, cell therapy products and other products created with genome editing technology. For example, the FDA established the Office of Tissues and Advanced Therapies within its Center for Biologics Evaluation and Research, or CBER, to consolidate the review of gene therapy and related products, and the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on its review. These and other regulatory review agencies, committees and advisory groups and the requirements and guidelines they promulgate may lengthen the regulatory review process, require us or our Founded Entities to perform additional preclinical studies or clinical trials, increase our or our Founded Entities’ development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these treatment candidates or lead to significant post-approval limitations or restrictions.

Additionally, under the National Institutes of Health, or NIH, Guidelines for Research Involving Recombinant DNA Molecules, or NIH Guidelines, supervision of human gene transfer trials includes evaluation and assessment by an institutional biosafety committee, or IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment, and such review may result in some delay before initiation of a clinical trial. While the NIH Guidelines are not mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH funding of recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them.

In the European Union, the EMA has a Committee for Advanced Therapies, or CAT, that is responsible for assessing the quality, safety and efficacy of advanced therapy medicinal products. Advanced-therapy medical products include gene therapy medicine, somatic-cell therapy medicines and tissue-engineered medicines. The role of the CAT is to prepare a draft opinion on an application for marketing authorization for a gene therapy medicinal candidate that is submitted to the EMA. In the European Union, the development and evaluation of a gene therapy medicinal product must be considered in the context of the relevant European Union guidelines. The EMA may issue new guidelines concerning the development and marketing authorization for gene therapy medicinal products and require that we or our Founded Entities comply with these new guidelines. Similarly complex regulatory environments exist in other jurisdictions in which we or our Founded Entities might consider seeking regulatory approvals for our Wholly Owned or our Founded Entities’ product candidates, further complicating the regulatory landscape. As a result, the procedures and standards applied to gene therapy products and cell therapy products may be applied to any of our or our Founded Entities’ gene therapy or genome editing product candidates, but that remains uncertain at this point.

Changes in applicable regulatory guidelines may lengthen the regulatory review process for our Wholly Owned or our Founded Entities’ product candidates, require additional studies or trials, increase development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of such product candidates, or lead to significant post-approval limitations or restrictions. Additionally, adverse developments in clinical trials conducted by others of gene therapy products or products created using genome editing technology, or adverse public perception of the field of genome editing, may cause the FDA, the EMA and other regulatory bodies to revise the requirements for approval of any product candidates we or our Founded Entities may develop or limit the use of products utilizing genome editing technologies, either of which could materially harm our or our Founded Entities’ business. Furthermore, regulatory action or private litigation could result in expenses, delays or other impediments to our research programs or the development or commercialization of current or future product candidates.

As we advance product candidates alone or with collaborators, we will be required to consult with these regulatory and advisory groups and comply with all applicable guidelines, rules and regulations. If we fail to do so, we or our collaborators may be required to delay or terminate development of such product candidates. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a product candidate to market could decrease our ability to generate sufficient product revenue to maintain our business.

 

28


Table of Contents

We may not elect or be able to take advantage of any expedited development or regulatory review and approval processes available to drug product candidates granted breakthrough therapy or fast track designation by the FDA.

We intend to evaluate and continue ongoing discussions with the FDA on regulatory strategies that could enable us or our Founded Entities to take advantage of expedited development pathways for certain of our Wholly Owned or our Founded Entities’ product candidates in the future, although we cannot be certain that our Wholly Owned or our Founded Entities’ product candidates will qualify for any expedited development pathways or that regulatory authorities will grant, or allow us or our Founded Entities to maintain, the relevant qualifying designations. Potential expedited development pathways that we could pursue include breakthrough therapy and fast track designation.

Breakthrough therapy designation is intended to expedite the development and review of drug product candidates that are designed to treat serious or life-threatening diseases when preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation of a product candidate as a breakthrough therapy provides potential benefits that include more frequent meetings with FDA to discuss the development plan for the product candidate and ensure collection of appropriate data needed to support approval; more frequent written correspondence from FDA about such things as the design of the proposed clinical trials and use of biomarkers; intensive guidance on an efficient drug development program, beginning as early as Phase 1; organizational commitment involving senior managers; and eligibility for rolling review and priority review.

Fast track designation is designed for drug product candidates intended for the treatment of a serious or life-threatening disease or condition, where preclinical or clinical data demonstrate the potential to address an unmet medical need for this disease or condition. Accordingly, even if we believe a particular product candidate is eligible for breakthrough therapy or fast track designation, we cannot assure you that the FDA would decide to grant it. Breakthrough therapy designation and fast track designation do not change the standards for product approval, and there is no assurance that such designation or eligibility will result in expedited review or approval or that the approved indication will not be narrower than the indication covered by the breakthrough therapy designation or fast track designation. Thus, even if we or our Founded Entities do receive breakthrough therapy or fast track designation, we or our Founded Entities may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw breakthrough therapy or fast track designation if it believes that the product no longer meets the qualifying criteria. Our business may be harmed if we are unable to avail ourselves of these or any other expedited development and regulatory pathways.

If we or our Founded Entities are unable to successfully validate, develop and obtain regulatory approval for companion diagnostic tests for any future drug candidates that require or would commercially benefit from such tests, or experience significant delays in doing so, we or our Founded Entities may not realize the full commercial potential of these drug candidates.

In connection with the clinical development of our Wholly Owned or Founded Entities’ product candidates for certain indications, we or our Founded Entities may work with collaborators to develop or obtain access to in vitro companion diagnostic tests to identify patient subsets within a disease category who may derive selective and meaningful benefit from our drug candidates. For example, we may elect to develop companion diagnostics for LYT-200 and LYT-210. To be successful, we, our Founded Entities or our collaborators will need to address a number of scientific, technical, regulatory and logistical challenges. The FDA, the EMA and comparable foreign regulatory authorities regulate in vitro companion diagnostics as medical devices and, under that regulatory framework, will likely require the conduct of clinical trials to demonstrate the safety and effectiveness of any diagnostics we or our Founded Entities may develop, which we expect will require separate regulatory clearance or approval prior to commercialization.

 

29


Table of Contents

We or our Founded Entities may rely on third parties for the design, development and manufacture of companion diagnostic tests for our Wholly Owned or our Founded Entities’ product candidates that may require such tests. If we or our Founded Entities enter into such collaborative agreements, we will be dependent on the sustained cooperation and effort of our future collaborators in developing and obtaining approval for these companion diagnostics. It may be necessary to resolve issues such as selectivity/specificity, analytical validation, reproducibility, or clinical validation of companion diagnostics during the development and regulatory approval processes. Moreover, even if data from preclinical studies and early clinical trials appear to support development of a companion diagnostic for a product candidate, data generated in later clinical trials may fail to support the analytical and clinical validation of the companion diagnostic. We, our Founded Entities and our future collaborators may encounter difficulties in developing, obtaining regulatory approval for, manufacturing and commercializing companion diagnostics similar to those we face with respect to our Wholly Owned product candidates themselves, including issues with achieving regulatory clearance or approval, production of sufficient quantities at commercial scale and with appropriate quality standards, and in gaining market acceptance. If we or our Founded Entities are unable to successfully develop companion diagnostics for these product candidates, or experience delays in doing so, the development of these product candidates may be adversely affected, these product candidates may not obtain marketing approval, and we may not realize the full commercial potential of any of these product candidates that obtain marketing approval. As a result, our business, results of operations and financial condition could be materially harmed. In addition, a diagnostic company with whom we or our Founded Entities contract may decide to discontinue selling or manufacturing the companion diagnostic test that we anticipate using in connection with development and commercialization of our Wholly Owned or our Founded Entities’ product candidates or our relationship with such diagnostic company may otherwise terminate. We or our Founded Entities may not be able to enter into arrangements with another diagnostic company to obtain supplies of an alternative diagnostic test for use in connection with the development and commercialization of our Wholly Owned or our Founded Entities’ product candidates or do so on commercially reasonable terms, which could adversely affect and/or delay the development or commercialization of our or our Founded Entities’ therapeutic candidates.

For any approved product, we or our Founded Entities will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we or our Founded Entities may be subject to penalties if we or our Founded Entities fail to comply with regulatory requirements or experience unanticipated problems with our Wholly Owned or our Founded Entities’ product candidates.

Gelesis’ Plenity and Akili’s EndeavorRx are, and any of our Wholly Owned or our Founded Entities’ product candidates that are cleared or approved will be, subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, and submission of safety, efficacy and other post-market information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities.

Manufacturers and manufacturers’ facilities are required to comply with extensive requirements imposed by the FDA, the EMA and other comparable foreign regulatory authorities, including ensuring that quality control and manufacturing procedures conform to current good manufacturing practices, or cGMP, regulations. As such, we and our CMOs are subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any marketing clearance, such as for Plenity, and any future 510(k), premarket approval, or PMA, application, NDA, BLA or marketing authorization application, or MAA, or equivalent application. We and our CMOs are also subject to requirements pertaining to the registration of our manufacturing facilities and the listing of our product and product candidates with the FDA; continued complaint, adverse event and malfunction reporting; corrections and removals reporting; and labeling and promotional requirements. Accordingly, we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production and quality control. Gelesis’ and Akili’s marketing clearance for Plenity and EndeavorRx, respectively, are and any regulatory clearances or approvals that we may receive for our Wholly Owned or our Founded Entities’ product candidates will be, subject to limitations on the cleared or approved indicated uses for which the product may be marketed and promoted or to the conditions of

 

30


Table of Contents

approval. Any regulatory clearances or approvals that we may receive for our Wholly Owned product candidates may contain requirements for potentially costly post-marketing testing, such as Phase 4 clinical trials and surveillance to monitor the safety and efficacy of a drug product. We are required to report certain adverse reactions and production problems, if any, to the FDA, the EMA and other comparable foreign regulatory authorities. Any new legislation addressing drug or medical safety issues could result in delays in product development or commercialization, or increased costs to assure compliance.

The FDA and other agencies, including the U.S. Department of Justice, and for certain products, the Federal Trade Commission, closely regulate and monitor the post-approval marketing, labeling, advertising and promotion of products to ensure that they are manufactured, marketed and distributed only for the cleared or approved indications and in accordance with the provisions of the approved label. We are, and will be, required to comply with requirements concerning advertising and promotion for our Wholly Owned product candidates, if approved. For example, promotional communications with respect to prescription drugs and medical devices are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s label or labeling. We may not promote our products for indications or uses for which they do not have approval or clearance.

The holder of a cleared 510(k) or an approved NDA, BLA, PMA, MAA or equivalent marketing authorization must submit new or supplemental applications and obtain approval for certain changes to the approved product, product labeling, or manufacturing process. For example, any modification to Plenity that would significantly affect its safety or effectiveness or that would constitute a major change in its intended use would require a new 510(k) clearance or approval of PMA application. Delays in obtaining required clearances or approvals would harm our ability to introduce new or enhanced product in a timely manner, which in turn would harm our or our Founded Entities’ future growth. Failure to submit a new or supplemental application and to obtain approval for certain changes prior to marketing the modified product may require a recall or to stop selling or distributing the marketed product as modified, and may lead to significant enforcement actions.

In the European Economic Area, or the EEA, any medical devices will need to comply with the Essential Requirements set forth in Medical Device Regulation. Compliance with these requirements is a prerequisite to be able to affix the CE mark to a product, without which a product cannot be marketed or sold in the EEA. To demonstrate compliance with the Essential Requirements and obtain the right to affix the CE mark, we or our Founded Entities must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification. The conformity assessment procedure requires the intervention of a Notified Body, which is an organization designated by a competent authority of an EEA country to conduct conformity assessments. The Notified Body issues a CE Certificate of Conformity following successful completion of a conformity assessment procedure and quality management system audit conducted in relation to the medical device and its manufacturer and their conformity with the Essential Requirements. This Certificate entitles the manufacturer to affix the CE mark to its medical products after having prepared and signed a related EC Declaration of Conformity. In June 2020, Gelesis received a CE Mark for Plenity as a class III medical device indicated for weight loss in overweight and obese adults with a Body Mass Index of 25-40 kg/m2, when used in conjunction with diet and exercise. Also in June 2020, Akili received a CE Mark for EndeavorRx as a prescription-only digital therapeutic software intended for the treatment of attention and inhibitory control deficits in paediatric patients with ADHD.

We or our Founded Entities could also be required to conduct post-marketing clinical trials to verify the safety and efficacy of our or our Founded Entities’ products in general or in specific patient subsets. If original marketing approval of a drug or biologic was obtained via an accelerated approval pathway, we or our Founded Entities could be required to conduct a successful post-marketing clinical trial to confirm clinical benefit for our or our Founded Entities’ products. An unsuccessful post-marketing study or failure to complete such a study could result in the withdrawal of marketing approval.

If a regulatory agency discovers previously unknown problems with a product, such as AEs of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the

 

31


Table of Contents

promotion, marketing or labeling of a product, such regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we or our Founded Entities fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:

 

   

issue warning letters that would result in adverse publicity;

 

   

impose civil or criminal penalties;

 

   

suspend or withdraw regulatory approvals;

 

   

suspend any of our or our Founded Entities’ ongoing clinical trials;

 

   

refuse to approve pending applications or supplements to approved applications submitted by us or our Founded Entities;

 

   

impose restrictions on our operations, including closing our CMOs’ facilities;

 

   

seize or detain products; or

 

   

require a product recall.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our products. If regulatory sanctions are applied or if regulatory clearance or approval is withdrawn, the value of our company and our operating results will be adversely affected.

The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory clearance or approval of our Wholly Owned or our Founded Entities’ product candidates. For example, following new guidance from the FDA recognizing the need for access to certain low-risk clinically-validated digital health devices for psychiatric conditions during the COVID-19 pandemic, in April 2020 Akili announded that EndeavorRx (AKL-T01) would be available for use by children with ADHD and their families

We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance and review and approval of marketing applications. If these executive actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.

The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.

If, for any of our Wholly Owned product candidates that are cleared or approved, we are found to have improperly promoted off-label uses of those products, we may become subject to significant liability. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, if approved. In particular, while the FDA permits the dissemination of truthful and non-misleading information about an approved product, a manufacturer may not promote a product for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. If we are found to have promoted such off-label uses, we may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion of off-label use and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees, corporate integrity agreements or permanent injunctions under which specified

 

32


Table of Contents

promotional conduct must be changed or curtailed. If we cannot successfully manage the promotion of our Wholly Owned product candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business and financial condition.

Our or our Founded Entities’ products must be manufactured in accordance with federal, state and international regulations, and we or our Founded Entities could be forced to recall our or our Founded Entities’ medical devices or terminate production if we or our Founded Entities fail to comply with these regulations.

The methods used in, and the facilities used for, the manufacture of medical device products of our Founded Entities, including Gelesis, Akili, Follica and Sonde, must comply with the FDA’s cGMPs for medical devices, known as Quality System Regulation, or QSR, which is a complex regulatory scheme that covers the procedures and documentation of, among other requirements, the design, testing, validation, verification, complaint handling, production, process controls, quality assurance, labeling, supplier evaluation, packaging, handling, storage, distribution, installation, servicing and shipping of medical devices. Furthermore, we and our Founded Entities are required to verify that our suppliers maintain facilities, procedures and operations that comply with our quality standards and applicable regulatory requirements. The FDA enforces the QSR through, among other oversight methods, periodic announced or unannounced inspections of medical device manufacturing facilities, which may include the facilities of subcontractors, suppliers or CMOs. Our and our Founded Entities’ products are also subject to similar state regulations and various laws and regulations of foreign countries governing manufacturing.

Our or our Founded Entities’ third-party manufacturers may not take the necessary steps to comply with applicable regulations or our or our Founded Entities’ specifications, which could cause delays in the delivery of our products. In addition, failure to comply with applicable FDA requirements or later discovery of previously unknown problems with our or our Founded Entities’ products or manufacturing processes could result in, among other things: warning letters or untitled letters; customer civil penalties; suspension or withdrawal of approvals or clearances; seizures or recalls of our or our Founded Entities’ products; total or partial suspension of production or distribution; administrative or judicially imposed sanctions; the FDA’s refusal to grant pending or future clearances or approvals for our or our Founded Entities’ products; clinical holds; refusal to permit the import or export of our or our Founded Entities’ products; and criminal prosecution of us or our employees. Any of these actions could significantly and negatively impact supply of our or our Founded Entities’ products. If any of these events occurs, our reputation could be harmed, we could be exposed to product liability claims and we or our Founded Entities could lose customers and suffer reduced revenue and increased costs.

Risks Related to Commercialization

If, in the future, we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market any product candidates we may develop, we may not be successful in commercializing those product candidates if and when they are approved.

We do not have a sales or marketing infrastructure or the capabilities for sale, marketing, or distribution of pharmaceutical products. To achieve commercial success for any approved product for which we retain sales and marketing responsibilities, we must either develop a sales and marketing organization or outsource these functions to third parties. In the future, we may choose to build a focused sales, marketing, and commercial support infrastructure to market and sell our Wholly Owned product candidates, if and when they are approved. We may also elect to enter into collaborations or strategic partnerships with third parties to engage in commercialization activities with respect to selected product candidates, indications or geographic territories, including territories outside the United States, although there is no guarantee we will be able to enter into these arrangements even if the intent is to do so.

There are risks involved with both establishing our own commercial capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force or reimbursement

 

33


Table of Contents

specialists is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing and other commercialization capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition commercialization personnel.

Factors that may inhibit our efforts to commercialize any approved product on our own include:

 

   

the inability to recruit and retain adequate numbers of effective sales, marketing, reimbursement, customer service, medical affairs, and other support personnel;

 

   

the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future approved products;

 

   

the inability of reimbursement professionals to negotiate arrangements for formulary access, reimbursement, and other acceptance by payors;

 

   

the inability to price products at a sufficient price point to ensure an adequate and attractive level of profitability;

 

   

restricted or closed distribution channels that make it difficult to distribute our products to segments of the patient population;

 

   

the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

 

   

unforeseen costs and expenses associated with creating an independent commercialization organization.

If we enter into arrangements with third parties to perform sales, marketing, commercial support, and distribution services, our product revenue or the profitability of product revenue may be lower than if we were to market and sell any products we may develop internally. In addition, we may not be successful in entering into arrangements with third parties to commercialize our Wholly Owned product candidates or may be unable to do so on terms that are favorable to us or them. We may have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively or may expose us to legal and regulatory risk by not adhering to regulatory requirements and restrictions governing the sale and promotion of prescription drug products, including those restricting off-label promotion. If we do not establish commercialization capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our Wholly Owned product candidates, if approved.

The insurance coverage and reimbursement status of newly-approved products is uncertain. Our Wholly Owned product candidates may become subject to unfavorable pricing regulations, third-party coverage and reimbursement practices, or healthcare reform initiatives, which would harm our business. Failure to obtain or maintain coverage and adequate reimbursement for new or current products could limit our ability to market those products and decrease our ability to generate revenue.

The regulations that govern marketing approvals, pricing, coverage, and reimbursement for new drugs and other medical products vary widely from country to country. In the United States, healthcare reform legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenue we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more products or product candidates, even if any product candidates we may develop obtain marketing approval.

 

34


Table of Contents

Our ability to successfully commercialize our products and product candidates also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers, and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. The availability of coverage and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford treatments such as gene therapy products. Sales of these or other product candidates that we may identify will depend substantially, both domestically and abroad, on the extent to which the costs of our Wholly Owned product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If coverage and adequate reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our products or product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. In general, the prices of medicines under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for medicines, 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 Wholly Owned product candidates. Accordingly, in markets outside the United States, the reimbursement for products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenues and profits.

There is also significant uncertainty related to the insurance coverage and reimbursement of newly approved products and coverage may be more limited than the purposes for which the medicine is approved by the FDA or comparable foreign regulatory authorities. In the United States, the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services. CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare and private payors tend to follow CMS to a substantial degree. No uniform policy of coverage and reimbursement for products exists among third-party payors and coverage and reimbursement levels for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time consuming and costly process that may 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. It is difficult to predict what CMS will decide with respect to reimbursement for fundamentally novel products such as ours, as there is no body of established practices and precedents for these new products. Reimbursement agencies in Europe may be more conservative than CMS. For example, a number of cancer drugs have been approved for reimbursement in the United States and have not been approved for reimbursement in certain European countries. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale, and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved products we may develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize product candidates, and our overall financial condition. Further, due to the COVID-19 pandemic, millions of individuals have lost/will be losing employer-based insurance coverage, which may adversely affect our ability to commercialize our products, As noted above, in the United States, we plan to have various programs to help patients afford our products, including patient assistance programs and co-pay coupon programs for eligible patients.

 

35


Table of Contents

Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Our inability to promptly obtain coverage and profitable reimbursement rates third-party payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

Increasingly, third-party payors are requiring that pharmaceutical companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any product candidate that we commercialize and, if reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any product or product candidate for which we obtain marketing approval. In order to obtain reimbursement, physicians may need to show that patients have superior treatment outcomes with our products compared to standard of care drugs, including lower-priced generic versions of standard of care drugs. We expect to experience pricing pressures in connection with the sale of any of our Wholly Owned product candidates, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. Additionally, we may develop companion diagnostic tests for use with our Wholly Owned or our Founded Entities’ product candidates. We, or our Founded Entities or our collaborators may be required to obtain coverage and reimbursement for these tests separate and apart from the coverage and reimbursement we seek for our Wholly Owned or our Founded Entities’ product candidates, once approved. Even if we or our Founded Entities obtain regulatory approval or clearance for such companion diagnostics, there is significant uncertainty regarding our ability to obtain coverage and adequate reimbursement for the same reasons applicable to our Wholly Owned or our Founded Entities’ product candidates. Medicare reimbursement methodologies, whether under Part A, Part B, or clinical laboratory fee schedule may be amended from time to time, and we cannot predict what effect any change to these methodologies would have on any product candidate or companion diagnostic for which we receive approval.

If we fail to comply with healthcare laws, we could face substantial penalties and our business, operations and financial conditions could be adversely affected.

Healthcare providers, physicians and third-party payors in the United States and elsewhere play a primary role in the recommendation and prescription of pharmaceutical products. Arrangements with healthcare providers, third-party payors and customers can expose pharmaceutical manufacturers to broadly applicable fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act, or the FCA, which may constrain the business or financial arrangements and relationships through which such companies sell, market and distribute pharmaceutical products. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of ownership, pricing, discounting, marketing and promotion, structuring and commission(s), certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials. The applicable federal and state healthcare laws and regulations laws that may affect our ability to operate include, but are not limited to:

 

   

the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs. A person or entity does not need to have actual

 

36


Table of Contents
 

knowledge of the statute or specific intent to violate it in order to have committed a violation. Violations are subject to civil and criminal fines and penalties for each violation, plus up to three times the remuneration involved, imprisonment of up to ten years, and exclusion from government healthcare programs. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers, on the one hand, and prescribers, purchasers and formulary managers, on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution;

 

   

federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claims Act, which impose criminal and civil penalties, including through civil “qui tam” or “whistleblower” actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid, or other federal health care programs that are false or fraudulent; knowingly making or causing a false statement material to a false or fraudulent claim or an obligation to pay money to the federal government; or knowingly concealing or knowingly and improperly avoiding or decreasing such an obligation. Manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The FCA also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery. When an entity is determined to have violated the federal civil False Claims Act, the government may impose civil fines and penalties for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs;

 

   

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual knowledge of the statute or specific intent to violate it;

 

   

the federal civil monetary penalties laws, which impose civil fines for, among other things, the offering or transfer or remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state healthcare program, unless an exception applies;

 

   

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, which impose, among other things, requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses as well as their respective business associates that perform services for them that involve the use, or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions;

 

   

the federal Physician Payments Sunshine Act, created under the ACA, and its implementing regulations, which require manufacturers of drugs, devices, biologicals and medical supplies for which

 

37


Table of Contents
 

payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the U.S. Department of Health and Human Services, or HHS, under the Open Payments Program, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Effective January 1, 2022, these reporting obligations will extend to include transfers of value made to certain non-physician providers such as physician assistants and nurse practitioners;

 

   

federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;

 

   

federal price reporting laws, which require manufacturers to calculate and report complex pricing metrics to government programs, where such reported prices may be used in the calculation of reimbursement and/or discounts on approved products; and

 

   

analogous state and foreign laws and regulations, such as state and foreign anti-kickback, false claims, consumer protection and unfair competition laws which may apply to pharmaceutical business practices, including but not limited to, research, distribution, sales and marketing arrangements as well as submitting claims involving healthcare items or services reimbursed by any third-party payer, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government that otherwise restricts payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to file reports with states regarding pricing and marketing information, such as the tracking and reporting of gifts, compensations and other remuneration and items of value provided to healthcare professionals and entities; state and local laws requiring the registration of pharmaceutical sales representatives; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and are often not pre-empted by HIPAA, thus complicating compliance efforts.

Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, it is possible that some of our business activities, including compensation of physicians with stock or stock options, could, despite efforts to comply, be subject to challenge under one or more of such laws. Additionally, FDA or foreign regulators may not agree that we have mitigated any risk of bias in our clinical trials due to payments or equity interests provided to investigators or institutions which could limit a regulator’s acceptance of those clinical trial data in support of a marketing application. Moreover, efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, damages, disgorgement, monetary fines, exclusion from participation in Medicare, Medicaid and other federal healthcare programs, integrity and oversight agreements to resolve allegations of non-compliance, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. In addition, the approval and commercialization of any of our Wholly Owned product candidates outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.

 

38


Table of Contents

Failure to comply with health and data protection laws and regulations could lead to government enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business.

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

Compliance with U.S. and international data protection laws and regulations, including the General Data Protection Regulation 2016/679, or GDPR, in the European Union, could require us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose data, or in some cases, impact our ability to operate in certain jurisdictions. Failure to comply with these laws and regulations could result in government enforcement actions (which could include civil, criminal and administrative penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business. Moreover, clinical trial subjects, employees and other individuals about whom we or our potential collaborators obtain personal information, as well as the providers who share this information with us, may limit our ability to collect, use and disclose the information. Claims that we have violated individuals’ privacy rights, failed to comply with data protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.

Healthcare legislative measures aimed at reducing healthcare costs may have a material adverse effect on our business and results of operations.

The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that could prevent or delay marketing approval of our Wholly Owned or our Founded Entities’ product candidates or any future product candidates, restrict or regulate post-approval activities and affect our or our Founded Entities’ ability to profitably sell any product for which we or our Founded Entities obtain marketing approval. Changes in regulations, statutes or the interpretation of existing regulations could impact our or our Founded Entities’ business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.

In the United States, there have been and continue to be a number of legislative initiatives and judicial challenges to contain healthcare costs. For example, in March 2010, the Affordable Care Act, or the ACA, was passed, which substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacted the U.S. pharmaceutical industry. The ACA, among other things, subjects biological products to potential competition by lower-cost biosimilars, addresses 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, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50 percent (increased to 70% as of 2019 pursuant to subsequent legislation) point-of-sale discounts off negotiated

 

39


Table of Contents

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.

Payment methodologies may be subject to changes in healthcare legislation and regulatory challenges. For example, in order for a drug product to receive federal reimbursement under the Medicaid or Medicare Part B programs or to be sold directly to U.S. government agencies, the manufacturer must extend discounts to entities eligible to participate in the 340B drug pricing program. For the 2018 and 2019 fiscal years, CMS altered the reimbursement formula from Average Sale Price (ASP) plus 6 percent to ASP minus 22.5 percent on specified covered outpatient drugs (“SCODs”), but did so without issuing a formal notice of proposed rulemaking. On December 27, 2018, the District Court for the District of Columbia invalidated that formula change, ruling the change was not an “adjustment” which was within the Secretary’s discretion to make, but was instead a fundamental change in the reimbursement calculation, and such a dramatic change was beyond the scope of the Secretary’s authority. On July 31, 2020, the Court of Appeals for the District of Columbia reversed the District Court’s decision, stating that HHS’s decision to lower drug reimbursement rates for 340B hosptials rests on a reasonable interpretation of the Medicare statute.

Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. The Tax Cuts and Jobs Act of 2017, or the Tax Act, includes a provision that repealed effective January 1, 2019 the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or the Texas District Court Judge, ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the ACA are invalid as well. The Trump Administration and CMS have both stated that the ruling will have no immediate effect, and on December 30, 2018 the Texas District Court Judge issued an order staying the judgment pending appeal. On December 18, 2019, the U.S. Court of Appeals for the 5th Circuit ruled that the individual mandate was unconstitutional but remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. On March 2, 2020, the U.S. Supreme Court granted the petitions for writs of certiorari to review the case, although it is unclear when a decision will be made or how the Supreme Court will rule. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results. We will continue to evaluate the effect that the ACA and its possible repeal and replacement has on our business. According to the Congressional Budget Office, the repeal of the individual mandate will cause 13 million fewer Americans to be insured in 2027 and premiums in insurance markets may rise.

Since January 2017, President Trump has signed various Executive Orders designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. On January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. On October 13, 2017, President Trump signed an Executive Order terminating the cost-sharing subsidies that reimburse insurers under the ACA. The Trump administration has concluded that cost-sharing reduction, or CSR, payments to insurance companies required under the ACA have not received necessary appropriations from Congress and announced that it will discontinue these payments immediately until those appropriations are made. The loss of the CSR payments is expected to increase premiums on certain policies issued by qualified health plans under the ACA. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. On June 14, 2018, U.S. Court of Appeals for the Federal Circuit ruled that the federal government was not required to pay more than $12 billion in ACA risk corridor payments to third-party payors who argued were owed to them. This decision was appealed to the U.S. Supreme Court, which on April 27, 2020, reversed the U.S. Court of Appeals for the Federal Circuit’s decision

 

40


Table of Contents

and remanded the case to the U.S. Court of Federal Claims, concluding the government has an obligation to pay these risk corridor payments under the relevant formula. The U.S. federal government has since started sending third-party payors owed payments. It is not clear what effect this result will have on our business, but we will continue to monitor any developments.

Moreover, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees, including the so called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. However, on December 20, 2019, the U.S. President signed into law the Further Consolidated Appropriations Act (H.R. 1865), which repeals the Cadillac tax, the health insurance provider tax, and the medical device excise tax. The Bipartisan Budget Act of 2018, also amended the ACA, effective January 1, 2019, by increasing the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and closing the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” In December 2018, CMS issued a final rule permitting further collections and payments to and from certain ACA qualified health plans and health insurance issuers under the ACA risk adjustment program. Since then, the ACA risk adjustment program payment parameters have been updated annually. In addition, CMS published a final rule on April 25, 2019 that gave states greater flexibility, starting in 2020, in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces.

In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, resulted in aggregate reductions of Medicare payments to providers of 2 percent per fiscal year, which went into effect in 2013, and, due to subsequent legislative amendments, will remain in effect through 2030 unless additional Congressional action is taken. However, pursuant to the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, these Medicare sequester reductions will be suspended from May 1, 2020 through December 31, 2020 due to the COVID-19 pandemic. The American Taxpayer Relief Act of 2012 further reduced Medicare payments to several types of providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

There has been increasing legislative and enforcement interest in the United States with respect to drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. At the federal level, the Trump administration’s budget for fiscal year 2021 includes a $135 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place limits on pharmaceutical price increases. Additionally, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. The U.S. Department of HHS, has already started the process of soliciting feedback on some of these measures and, at the same time, is immediately implementing others under its existing authority. For example, in May 2019, CMS issued a final rule to allow Medicare Advantage Plans the option of using step therapy for Part B drugs beginning January 1, 2020. This final rule codified CMS’s policy change that was effective January 1, 2019.

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 drug products that have completed a

 

41


Table of Contents

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 drug manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act, but the manufacturer must develop an internal policy and respond to patient requests according to that policy.

Lastly, on July 24, 2020, President Trump signed four Executive Orders aimed at lowering drug prices. The Executive Orders direct the Secretary of the Department of Health and Human Services to: (1) eliminate protection under an Anti-Kickback Statute safe harbor for certain retrospective price reductions provided by drug manufacturers to sponsors of Medicare Part D plans or pharmacy benefit managers that are not applied at the point-of-sale; (2) allow the importation of certain drugs from other countries through individual waivers, permit the re-importation of insulin products, and prioritize finalization of FDA’s December 2019 proposed rule to permit the importation of drugs from Canada; (3) ensure that payment by the Medicare program for certain Medicare Part B drugs is not higher than the payment by other comparable countries (depending on whether pharmaceutical manufacturers agree to other measures); and (4) allow certain low-income individuals receiving insulin and epinephrine purchased by a Federally Qualified Health Center, or FQHC, as part of the 340B drug program to purchase those drugs at the discounted price paid by the FQHC. On September 13, 2020, President Trump signed an Executive Order directing HHS to implement a rulemaking plan to test a payment model, pursuant to which Medicare would pay, for certain high-cost prescription drugs and biological products covered by Medicare Part B, no more than the most-favored-nation price (i.e., the lowest price) after adjustments, for a pharmaceutical product that the drug manufacturer sells in a member country of the Organization for Economic Cooperation and Development that has a comparable per-capita gross domestic product. Although a number of these, and other proposed measures will require authorization through additional legislation to become effective, Congress and the current administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs.

At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. Furthermore, there has been increased interest by third-party payors and governmental authorities in reference pricing systems and publication of discounts and list prices.

There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at 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 product. 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. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:

 

   

the demand for our Wholly Owned or our Founded Entities’ product candidates, if approved;

 

   

our ability to receive or set a price that we believe is fair for our products;

 

   

our ability to generate revenue and achieve or maintain profitability;

 

   

the amount of taxes that we are required to pay; and

 

   

the availability of capital.

 

42


Table of Contents

We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, lower reimbursement, and new payment methodologies. This could lower the price that we receive for any approved product. Any denial in coverage or reduction in reimbursement from Medicare or other government-funded programs may result in a similar denial or reduction in payments from private payors, which may prevent us from being able to generate sufficient revenue, attain profitability or commercialize our Wholly Owned or our Founded Entities’ product candidates, if approved. Litigation and legislative efforts to change or repeal the ACA are likely to continue, with unpredictable and uncertain results.

We face significant competition in an environment of rapid technological and scientific change, and there is a possibility that our competitors may achieve regulatory approval before us or develop therapies that are safer, more advanced or more effective than ours, which may negatively impact our ability to successfully market or commercialize any product candidates we may develop and ultimately harm our financial condition.

The development and commercialization of new drug products is highly competitive. We may face competition with respect to any product candidates that we seek to develop or commercialize in the future from major pharmaceutical companies, specialty pharmaceutical companies, and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies, and other public and private research organizations that conduct research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing, and commercialization.

There are a number of major pharmaceutical and biotechnology companies that are currently pursuing the development and commercialization of potential medicines targeting the Brain-Immune-Gut. If any of our competitors receive FDA approval before we do, our Wholly Owned product candidates would not be the first treatment on the market, and our market share may be limited. In addition to competition from other companies targeting our target indications, any products we may develop may also face competition from other types of therapies.

Many of our current or potential competitors, either alone or with their strategic partners, have:

 

   

greater financial, technical, and human resources than we have at every stage of the discovery, development, manufacture, and commercialization of products;

 

   

more extensive resources for preclinical testing, conducting clinical trials, obtaining regulatory approvals, and in manufacturing, marketing, and selling drug products;

 

   

products that have been approved or are in late stages of development; and

 

   

collaborative arrangements in our target markets with leading companies and research institutions.

Mergers and acquisitions in the pharmaceutical and biotechnology 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 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 patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any products that we may develop. Furthermore, currently approved products could be discovered to have application for treatment of our targeted disease indications or similar indications, which could give such products significant regulatory and market timing advantages over our Wholly Owned product candidates. Our competitors may also obtain FDA, EMA or other comparable foreign regulatory approval for their products more rapidly than we may obtain approval for ours and may obtain orphan product exclusivity from the FDA for indications that we are targeting, which could result in our competitors establishing a strong market position before we are able to enter the

 

43


Table of Contents

market. Additionally, products or technologies developed by our competitors may render our potential product candidates uneconomical or obsolete and we may not be successful in marketing any product candidates we may develop against competitors.

In addition, we could face litigation or other proceedings with respect to the scope, ownership, validity and/or enforceability of our patents relating to our competitors’ products and our competitors may allege that our products infringe, misappropriate or otherwise violate their intellectual property. The availability of our competitors’ products could limit the demand, and the price we are able to charge, for any products that we may develop and commercialize.

Our Wholly Owned or our Founded Entities’ product candidates for which we or our Founded Entities intend to seek approval as biologic products may face competition sooner than anticipated.

If we or our Founded Entities are successful in achieving regulatory approval to commercialize any biologic product candidate we or our Founded Entities develop alone or with collaborators, it may face competition from biosimilar products. In the United States, certain of our Wholly Owned and our Founded Entities’ product candidates are regulated by the FDA as biologic products subject to approval under the BLA pathway. The Biologics Price Competition and Innovation Act of 2009, or BPCIA, created an abbreviated pathway for the approval of biosimilar and interchangeable biologic products following the approval of an original BLA. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand product. Under the BPCIA, an application for a biosimilar product may not be submitted until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years after the reference product was first licensed by the FDA. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. 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 biological product candidates.

We believe that any of our Wholly Owned or our Founded Entities’ product candidates that are approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider such product candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar product, once approved, will be substituted for any one of our, our Founded Entities’ or our collaborators’ reference products in a way that is similar to traditional generic substitution for non-biologic products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. If competitors are able to obtain marketing approval for biosimilars referencing any products that we or our Founded Entities develop alone or with collaborators that may be approved, such products may become subject to competition from such biosimilars, with the attendant competitive pressure and potential adverse consequences.

Risks Related to Reliance on Third Parties

We are currently party to and may seek to enter into additional collaborations, licenses and other similar arrangements and may not be successful in maintaining existing arrangements or entering into new ones, and even if we are, we may not realize the benefits of such relationships.

We are currently parties to license and collaboration agreements with a number of universities and pharmaceutical companies and expect to enter into additional agreements as part of our business strategy. The

 

44


Table of Contents

success of our current and any future collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborations are subject to numerous risks, which may include risks that:

 

   

collaborators may have significant discretion in determining the efforts and resources that they will apply to collaborations;

 

   

collaborators may not pursue development and commercialization of our Wholly Owned product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in their strategic focus due to their acquisition of competitive products or their internal development of competitive products, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities;

 

   

collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial, abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

 

   

collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates;

 

   

a collaborator with marketing, manufacturing and distribution rights to one or more products may not commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities;

 

   

we could grant exclusive rights to our collaborators that would prevent us from collaborating with others;

 

   

collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability;

 

   

disputes may arise between us and a collaborator that cause the delay or termination of the research, development or commercialization of our current or future product candidates or that results in costly litigation or arbitration that diverts management attention and resources;

 

   

collaborations may be terminated, which may result in a need for additional capital to pursue further development or commercialization of the applicable current or future product candidates;

 

   

collaborators may own or co-own intellectual property covering products that result from our collaboration with them, and in such cases, we would not have the exclusive right to develop or commercialize such intellectual property;

 

   

disputes may arise with respect to the ownership of any intellectual property developed pursuant to our collaborations; and

 

   

a collaborator’s sales and marketing activities or other operations may not be in compliance with applicable laws resulting in civil or criminal proceedings.

Additionally, we may seek to enter into additional collaborations, joint ventures, licenses and other similar arrangements for the development or commercialization of our Wholly Owned product candidates, due to capital costs required to develop or commercialize the product candidate or manufacturing constraints. We may not be successful in our efforts to establish such collaborations for our Wholly Owned product candidates because our R&D pipeline may be insufficient, our Wholly Owned product candidates may be deemed to be at too early of a stage of development for collaborative effort or third parties may not view our Wholly Owned product candidates as having the requisite potential to demonstrate safety and efficacy or significant commercial opportunity. In addition, we face significant competition in seeking appropriate strategic partners, and the negotiation process can be time consuming and complex. Further, any future collaboration agreements may restrict us from entering into additional agreements with potential collaborators. We cannot be certain that, following a strategic transaction or license, we will achieve an economic benefit that justifies such transaction.

 

45


Table of Contents

Even if we are successful in our efforts to establish such collaborations, the terms that we agree upon may not be favorable to us, and we may not be able to maintain such collaborations if, for example, development or approval of a product candidate is delayed, the safety of a product candidate is questioned or sales of an approved product candidate are unsatisfactory.

In addition, any potential future collaborations may be terminable by our strategic partners, and we may not be able to adequately protect our rights under these agreements. Furthermore, strategic partners may negotiate for certain rights to control decisions regarding the development and commercialization of our Wholly Owned product candidates, if approved, and may not conduct those activities in the same manner as we do. Any termination of collaborations we enter into in the future, or any delay in entering into collaborations related to our Wholly Owned product candidates, could delay the development and commercialization of our Wholly Owned product candidates and reduce their competitiveness if they reach the market, which could have a material adverse effect on our business, financial condition and results of operations.

Collaborative relationships with third parties could cause us to expend significant resources and give rise to substantial business risk with no assurance of financial return.

We anticipate relying upon strategic collaborations for marketing and commercializing our existing product candidates, and we may rely even more on strategic collaborations for R&D of other product candidates or discoveries. We may sell product offerings through strategic partnerships with pharmaceutical and biotechnology companies. If we are unable to establish or manage such strategic collaborations on terms favorable to us in the future, our R&D efforts and potential to generate revenue may be limited.

If we enter into R&D collaborations during the early phases of product development, success will in part depend on the performance of research collaborators. We will not directly control the amount or timing of resources devoted by research collaborators to activities related to product candidates. Research collaborators may not commit sufficient resources to our R&D programs. If any research collaborator fails to commit sufficient resources, the preclinical or clinical development programs related to the collaboration could be delayed or terminated. Also, collaborators may pursue existing or other development-stage products or alternative technologies in preference to those being developed in collaboration with us. Finally, if we fail to make required milestone or royalty payments to collaborators or to observe other obligations in agreements with them, the collaborators may have the right to terminate or stop performance of those agreements.

Establishing strategic collaborations is difficult and time-consuming. Our discussions with potential collaborators may not lead to the establishment of collaborations on favorable terms, if at all. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory or intellectual property position. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. Even if we successfully establish new collaborations, these relationships may never result in the successful development or commercialization of product candidates or the generation of sales revenue. To the extent that we enter into collaborative arrangements, the related product revenues are likely to be lower than if we directly marketed and sold products. Such collaborators may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for any future product candidate.

Management of our relationships with collaborators will require:

 

   

significant time and effort from our management team;

 

   

coordination of our marketing and R&D programs with the marketing and R&D priorities of our collaborators; and

 

   

effective allocation of our resources to multiple projects.

 

46


Table of Contents

We rely on third parties to assist in conducting our clinical trials and some aspects of our research and preclinical testing, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research, or testing.

We currently rely and expect to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions, and clinical investigators, to conduct some aspects of research and preclinical testing and clinical trials. Any of these third parties may terminate their engagements with us or be unable to fulfill their contractual obligations. If any of our relationships with these third parties terminate, we may not be able to enter into arrangements with alternative third parties on commercially reasonable terms, or at all. If we need to enter into alternative arrangements, it would delay product development activities.

Further, although our reliance on these third parties for clinical development activities limits our control over these activities, we remain responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards. For example, notwithstanding the obligations of a CRO for a trial of one of our Wholly Owned product candidates, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with requirements, commonly referred to as Good Clinical Practices, or GCPs, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. The FDA enforces these GCPs through periodic inspections of trial sponsors, principal investigators, clinical trial sites and IRBs. If we or our third-party contractors fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our Wholly Owned product candidates, which would delay the regulatory approval process. We cannot be certain that, upon inspection, the FDA will determine that any of our clinical trials comply with GCPs. We are also required to register certain clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. NIH and FDA recently signaled the government’s willingness to begin enforcing those requirements against non-compliant clinical trial sponsors. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

Furthermore, the third parties conducting clinical trials on our behalf are not our employees, and except for remedies available to us under our agreements with such contractors, we cannot control whether or not they devote sufficient time, skill and resources to our ongoing development programs. These contractors may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other drug or medical device development activities, which could impede their ability to devote appropriate time to our clinical programs. If these third parties, including clinical investigators, do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we may not be able to obtain, or may be delayed in obtaining, regulatory approvals for our Wholly Owned product candidates. If that occurs, we will not be able to, or may be delayed in our efforts to, successfully commercialize our Wholly Owned product candidates. In such an event, our financial results and the commercial prospects for any product candidates that we seek to develop could be harmed, our costs could increase and our ability to generate revenues could be delayed, impaired or foreclosed.

Our or our Founded Entities’ use of third parties to manufacture our Wholly Owned or our Founded Entities’ product candidates and other product candidates that we or our Founded Entities may develop for preclinical studies and clinical trials may increase the risk that we or our Founded Entities will not have sufficient quantities of our or our Founded Entities’ product candidates, products, or necessary quantities of such materials on time or at an acceptable cost.

With respect to certain of our Wholly Owned or our Founded Entities’ product candidates, we and certain of our Founded Entities do not currently have, nor do we plan to acquire, the infrastructure or capability internally to

 

47


Table of Contents

manufacture drug supplies for our ongoing clinical trials or any future clinical trials that we or our Founded Entities may conduct, and we and our Funded Entities lack the resources to manufacture any product candidates on a commercial scale. We rely, and expect to continue to rely, on third-party manufacturers to produce our and certain of our Founded Entities’ product candidates or other product candidates that we or our Founded Entities may identify for clinical trials, as well as for commercial manufacture if any product candidates receive marketing authorization. Although we and our Founded Entities generally do not begin a clinical trial unless we or our Founded Entities believe we have a sufficient supply of a product candidate to complete the trial, any significant delay or discontinuity in the supply of a product candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to replace a third-party manufacturer could considerably delay the clinical development and potential regulatory authorization of our Wholly Owned or our Founded Entities’ product candidates, which could harm our business and results of operations.

We or our Founded Entities may be unable to identify and appropriately qualify third-party manufacturers or establish agreements with third-party manufacturers or do so on acceptable terms. Even if we or our Founded Entities are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:

 

   

reliance on the third party for sourcing of raw materials, components, and such other goods as may be required for execution of its manufacturing processes and the oversight by the third party of its suppliers;

 

   

reliance on the third party for regulatory compliance and quality assurance for the manufacturing activities each performs;

 

   

the possible breach of the manufacturing agreement by the third party;

 

   

the possible misappropriation of proprietary information, including trade secrets and know-how; and

 

   

the possible termination or non-renewal of the agreement by the third party at a time that is costly or inconvenient for us or our Founded Entities.

Furthermore, all of our CMOs are engaged with other companies to supply and/or manufacture materials or products for such companies, which exposes our manufacturers to regulatory risks for the production of such materials and products. The facilities used by our contract manufacturers to manufacture our drug, or medical device product candidates are subject to review by the FDA pursuant to inspections that will be conducted after we submit an NDA, BLA, PMA application or other marketing application to the FDA. We do not control the manufacturing process of, and are to some extent dependent on, our contract manufacturing partners for compliance with the regulatory requirements, known as cGMP requirements for manufacture of drug, biologic and device products. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, we will not be able to secure or maintain regulatory authorization for our Wholly Owned or our Founded Entities’ product candidates manufactured at these manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA, the EMA or another comparable foreign regulatory agency does not approve these facilities for the manufacture of our Wholly Owned or our Founded Entities’ product candidates or if any agency withdraws its approval in the future, we or our Founded Entities may need to find alternative manufacturing facilities, which would negatively impact our or our Founded Entities’ ability to develop, obtain regulatory authorization for or market our Wholly Owned or our Founded Entities’ product candidates, if cleared or approved.

Our Wholly Owned or our Founded Entities’ product candidates may compete with other product candidates and marketed products for access to manufacturing facilities. Any performance failure on the part of our or our Founded Entities’ existing or future manufacturers could delay clinical development, marketing approval or commercialization. Our and certain of our Founded Entities’ current and anticipated future dependence upon others for the manufacturing of our Wholly Owned or our Founded Entities’ product candidates may adversely

 

48


Table of Contents

affect our future profit margins and our ability to commercialize any product candidates that receive marketing clearance or approval on a timely and competitive basis.

If the contract manufacturing facilities on which we and certain of our Founded Entities’ rely do not continue to meet regulatory requirements or are unable to meet our or our Founded Entities’ supply demands, our business will be harmed.

All entities involved in the preparation of product candidates for clinical trials or commercial sale, including our and certain of our Founded Entities’ existing CMOs for our Wholly Owned or our Founded Entities’ product candidates, are subject to extensive regulation. Components of a finished drug or biologic product approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with cGMP, or similar regulatory requirements outside the United States. These regulations govern manufacturing processes and procedures, including recordkeeping, and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Similarly, medical devices manufactured under an IDE must be manufactured in accordance with select provisions the FDA QSR requirements, and devices cleared or approved by FDA for commercial sale must be manufactured in accordance with QSR. Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of Gelesis’ Plenity, Akili’s EndeavorRx, our Founded Entities’ other product candidates or our Wholly Owned product candidates. Our or our Founded Entities’ failure, or the failure of third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us or our Founded Entities, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, suspension of production, seizures or recalls of product candidates or marketed drugs or devices, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect clinical or commercial supplies of our Wholly Owned or our Founded Entities’ product candidates.

We or our CMOs must supply all necessary documentation, as applicable, in support of a marketing application, such as an NDA, BLA, PMA or MAA, on a timely basis and must adhere to regulations enforced by the FDA and other regulatory agencies through their facilities inspection program. Some of our CMOs have never produced a commercially approved pharmaceutical product and therefore have not obtained the requisite regulatory authority approvals to do so. The facilities and quality systems of some or all of our third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our Wholly Owned or our Founded Entities’ product candidates or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our Wholly Owned or our Founded Entities’ product candidates or our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. Although we oversee the CMOs, we cannot control the manufacturing process of, and are completely dependent on, our CMO partners for compliance with the regulatory requirements. If these facilities do not pass a pre-approval plant inspection, regulatory approval of the products may not be granted or may be substantially delayed until any violations are corrected to the satisfaction of the regulatory authority, if ever.

The regulatory authorities also may, at any time following clearance or approval of a product for sale, audit the manufacturing facilities of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time consuming for us or a third party to implement, and that may include the temporary or permanent suspension of a clinical study or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.

Additionally, if supply from one approved manufacturer is interrupted, an alternative manufacturer would need to be qualified. For drug and biologic products, as applicable, an NDA, BLA supplement or MAA variation, or

 

49


Table of Contents

equivalent foreign regulatory filing, is also required, which could result in further delay. Similarly, for medical device, a new marketing application or supplement may be required. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.

These factors could cause us or our Founded Entities to incur higher costs and could cause the delay or termination of clinical trials, regulatory submissions, required approvals, or commercialization of our Wholly Owned or our Founded Entities’ product candidates. Furthermore, if our or our Founded Entities’ suppliers fail to meet contractual requirements and we or our Founded Entities are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our or our Founded Entities’ clinical trials may be delayed or we or our Founded Entities could lose potential revenue.

We have no sales, distribution, or marketing capabilities, and may invest significant financial and management resources to establish these capabilities. If we are unable to establish such capabilities or enter into agreements with third parties to market and sell our future products, if approved, we may be unable to generate any revenues.

Given our stage of development, we have no sales, distribution, or marketing capabilities. To successfully commercialize any products that may result from our development programs, we will need to develop sales and marketing capabilities in the United States, Europe, and other regions, either on our own or with others. We may enter into strategic alliances with other entities to utilize their mature marketing and distribution capabilities, but we may be unable to enter into marketing agreements on favorable terms, if at all. If our future strategic collaborators do not commit sufficient resources to commercialize our future products, if any, and we are unable to develop the necessary marketing capabilities on our own, we may be unable to generate sufficient product revenue to sustain our business. We will be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without a significant internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.

Risks Related to Our Intellectual Property

If we or our Founded Entities are unable to obtain and maintain sufficient intellectual property protection for our or our Founded Entities’ existing product candidates or any other product candidates that we or they may identify, or if the scope of the intellectual property protection we or they currently have or obtain in the future is not sufficiently broad, our competitors could develop and commercialize product candidates similar or identical to ours, and our ability to successfully commercialize our existing product candidates and any other product candidates that we or they may pursue may be impaired.

As is the case with other pharmaceutical and biopharmaceutical companies, our success depends in large part on our ability to obtain and maintain protection of the intellectual property we may own solely and jointly with others, particularly patents, in the United States and other countries with respect to our Wholly Owned or our Founded Entities’ product candidates and technology. We and our Founded Entities seek to protect our proprietary position by filing patent applications in the United States and abroad related to our and our Founded Entities’ existing product candidates, our various proprietary technologies, and any other product candidates or technologies that we or they may identify.

Obtaining, maintaining and enforcing pharmaceutical and biopharmaceutical patents is costly, time consuming and complex, and we may not be able to file or prosecute all necessary or desirable patent applications, or maintain, enforce or license patents that may issue from such patent applications, at a reasonable cost or in a timely manner. It is also possible that we could fail to identify patentable aspects of our R&D output before it is too late to obtain patent protection. Although we take reasonable measures, we have systems in place to remind us of filing and prosecution deadlines, and we employ outside firms and rely on outside counsel to monitor patent

 

50


Table of Contents

deadlines, we may miss or fail to meet a patent deadline, including in a foreign country, which could negatively impact our patent rights and harm our competitive position, business, and prospects. We may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the rights to patents licensed to third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal, technological and factual questions and has in recent years been the subject of much litigation. The standards that the U.S. Patent and Trademark Office, or the USPTO, and its foreign counterparts use to grant patents are not always applied predictably or uniformly. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States, or vice versa. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, which can prevent a patent from issuing from a pending application or later invalidate or narrow the scope of an issued patent. For example, publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued that protect our Wholly Owned or our Founded Entities’ product candidates, in whole or in part, or which effectively prevent others from commercializing competitive product candidates. Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our patents by developing similar or alternative product candidates in a non-infringing manner.

In addition, the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical product candidates to ours, or limit the duration of the patent protection of our Wholly Owned or our Founded Entities’ product candidates. For example, we may be subject to a third-party preissuance submission of prior art to the USPTO, or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our owned or licensed patent rights. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our Wholly Owned or our Founded Entities’ product candidates and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize drugs without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

Furthermore, our and our Founded Entities’ intellectual property rights may be subject to a reservation of rights by one or more third parties. We are party to a license agreement with New York University related to certain intellectual property underlying our LYT-200 and LYT-210 product candidates which is subject to certain rights of the government, including march-in rights, to such intellectual property due to the fact that the research was funded at least in part by the U.S. government. Additionally, our Founded Entities Akili, Follica, Vedanta, Sonde, Alivio and Vor, are party to license agreements with academic institutions pursuant to which such Founded Entities have in-licensed certain intellectual property underlying the product candidates AKL-T01, AKL-T02, AKL-T03, AKL-T04, FOL-004, VE303, Sonde, ALV-306, ALV-304, ALV-107 and VOR33. While these license agreements are exclusive, they contain provisions pursuant to which the government has certain rights, including march-in rights, to such patents and technologies due to the fact that the research was funded at

 

51


Table of Contents

least in part by the U.S. government. When new technologies are developed with government funding, the government generally obtains certain rights in any resulting patents, including a non-exclusive license authorizing the government to use the invention or to have others use the invention on its behalf. These rights may permit the government to disclose our information to third parties and to exercise march-in rights to use or allow third parties to use our technology. The government can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of the government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference to U.S. industry. In addition, our rights in such inventions may be subject to certain requirements to manufacture products embodying such inventions in the United States. Any exercise by the government of such rights or by any third party of its reserved rights could harm our competitive position, business, financial condition, results of operations, and prospects.

Our or our Founded Entities’ rights to develop and commercialize our Wholly Owned or our Founded Entities’ product candidates are subject in part to the terms and conditions of licenses granted to us and our Founded Entities by others, and the patent protection, prosecution and enforcement for some of our Wholly Owned or our Founded Entities’ product candidates may be dependent on our and our Founded Entities’ licensors.

We and our Founded Entities currently are reliant upon licenses of certain intellectual property rights and proprietary technologies from third parties that are important or necessary to the development of our and our Founded Entities’ proprietary technologies, including technologies related to our Wholly Owned and our Founded Entities’ product candidates. These licenses, and other licenses we and they may enter into in the future, may not provide adequate rights to use such intellectual property and proprietary technologies in all relevant fields of use or in all territories in which we or our Founded Entities may wish to develop or commercialize technology and product candidates in the future. Licenses to additional third-party proprietary technology or intellectual property rights that may be required for our or our Founded Entities’ development programs may not be available in the future or may not be available on commercially reasonable terms. In that event, we or our Founded Entities may be required to expend significant time and resources to redesign our proprietary technology or product candidates or to develop or license replacement technology, which may not be feasible on a technical or commercial basis. If we and our Founded Entities are unable to do so, we may not be able to develop and commercialize technology and product candidates in fields of use and territories for which we are not granted rights pursuant to such licenses, which could harm our competitive position, business, financial condition, results of operations and prospects significantly.

In some circumstances, we and our Founded Entities may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain and enforce the patents, covering technology that we or our Founded Entities license from third parties. In addition, some of our or our Founded Entities’ agreements with our licensors require us to obtain consent from the licensor before we can enforce patent rights, and our licensor may withhold such consent or may not provide it on a timely basis. Therefore, we cannot be certain that our licensors or collaborators will prosecute, maintain, enforce and defend such intellectual property rights in a manner consistent with the best interests of our business, including by taking reasonable measures to protect the confidentiality of know-how and trade secrets, or by paying all applicable prosecution and maintenance fees related to intellectual property registrations for any of our Wholly Owned or our Founded Entities’ product candidates and proprietary technologies. We and our Founded Entities also cannot be certain that our licensors have drafted or prosecuted the patents and patent applications licensed to us in compliance with applicable laws and regulations, which may affect the validity and enforceability of such patents or any patents that may issue from such applications. This could cause us to lose rights in any applicable intellectual property that we in-license, and as a result our ability to develop and commercialize product candidates may be adversely affected and we may be unable to prevent competitors from making, using and selling competing products.

In addition, our or our Founded Entities’ licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or

 

52


Table of Contents

otherwise violating the licensor’s rights. In addition, while we cannot currently determine the amount of the royalty obligations we would be required to pay on sales of future products, if any, the amounts may be significant. The amount of our and our Founded Entities’ future royalty obligations will depend on the technology and intellectual property we and our Founded Entities use in product candidates that we successfully develop and commercialize, if any. Therefore, even if we or our Founded Entities successfully develop and commercialize product candidates, we may be unable to achieve or maintain profitability. In addition, we or our Founded Entities may seek to obtain additional licenses from our licensors and, in connection with obtaining such licenses, we may agree to amend our existing licenses in a manner that may be more favorable to the licensors, including by agreeing to terms that could enable third parties (potentially including our competitors) to receive licenses to a portion of the intellectual property rights that are subject to our or our Founded Entities’ existing licenses. Any of these events could have a material adverse effect on our or our Founded Entities’ competitive position, business, financial conditions, results of operations, and prospects.

If we or our Founded Entities fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or these agreements are terminated or we or our Founded Entities otherwise experience disruptions to our business relationships with our licensors, we could lose intellectual property rights that are important to our business.

We are party to various agreements that we depend on to develop our Wholly Owned or our Founded Entities’ product candidates and various proprietary technologies, and our rights to use currently licensed intellectual property, or intellectual property to be licensed in the future, are or will be subject to the continuation of and our and our Founded Entities’ compliance with the terms of these agreements. For example, under certain of our and our Founded Entities’ license agreements we and our Founded Entities are required to use commercially reasonable efforts to develop and commercialize product candidates covered by the licensed intellectual property rights, maintain the licensed intellectual property rights, and achieve certain development milestones, each of which could result in termination in the event we or our Founded Entities fail to comply.

In spite of our efforts, our or our Founded Entities’ licensors might conclude that we have materially breached our obligations under such license agreements and might therefore terminate the license agreements, thereby removing or limiting our or our Founded Entities’ ability to develop and commercialize products and technology covered by these license agreements.

Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including:

 

   

the scope of rights granted under the license agreement and other interpretation-related issues;

 

   

the extent to which our Wholly Owned or our Founded Entities’ product candidates, technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

 

   

the sublicensing of patent and other rights under our or our Founded Entities’ collaborative development relationships;

 

   

our and our Founded Entities’ diligence obligations under the license agreement and what activities satisfy those diligence obligations;

 

   

the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our and our Founded Entities’ licensors and us and our Founded Entities and our partners; and

 

   

the priority of invention of patented technology.

In addition, certain provisions in our and our Founded Entities’ license agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the agreement, either of which could have a material

 

53


Table of Contents

adverse effect on our or our Founded Entities’ business, financial condition, results of operations and prospects. Moreover, if disputes over intellectual property that we or our Founded Entities have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates, which could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.

Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.

Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. However, our research, development and commercialization activities may be subject to claims that we infringe or otherwise violate patents or other intellectual property rights owned or controlled by third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, derivation, oppositions, inter partes review and post-grant review before the USPTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. Our competitors in both the United States and abroad, many of which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in the future apply for or obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell, if approved, our Wholly Owned or our Founded Entities’ product candidates. In addition, many companies in the biotechnology and pharmaceutical industries have employed intellectual property litigation as a means to gain an advantage over their competitors. As the biotechnology and pharmaceutical industries expand and more patents are issued, and as we gain greater visibility and market exposure as a public company, the risk increases that our existing product candidates and any other product candidates that we or our Founded Entities may identify may be subject to claims of infringement of the patent rights of third parties.

There may be other third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our or our Founded Entities’ existing product candidates and any other product candidates that we or they may identify. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our or our Founded Entities’ existing product candidates and any other product candidates that we or they may identify may infringe. In addition, third parties may obtain patents in the future and claim that use of our or our Founded Entities’ technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of our or our Founded Entities’ existing product candidates and any other product candidates that we or they may identify, any molecules formed during the manufacturing process, or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire. Additionally, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our Wholly Owned or our Founded Entities’ product candidates. Furthermore, the scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history and can involve other factors such as expert opinion. Our analysis of these issues, including interpreting the relevance or the scope of claims in a patent or a pending application, determining applicability of such claims to our proprietary technologies or product candidates, predicting whether a third party’s pending patent application will issue with claims of relevant scope, and determining the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our or our Founded Entities’ ability to develop and market our Wholly Owned or our Founded Entities’ product candidates. We do not always conduct independent reviews of pending patent applications of and patents issued to third parties.

Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our or our Founded Entities’ formulations, processes for manufacture or methods of use, including any combination

 

54


Table of Contents

therapies, the holders of any such patents may be able to block our or our Founded Entities’ ability to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or at all, or it may be non-exclusive, which could result in our competitors gaining access to the same intellectual property.

Parties making claims against us or our Founded Entities may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our or our Founded Entities’ existing product candidates and any other product candidates that we may identify. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of management and employee resources from our business. In the event of a successful claim of infringement against us or our Founded Entities, we or our Founded Entities may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.

Parties making claims against us or our Founded Entities may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or administrative proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have material adverse effect on our ability to raise additional funds or otherwise have a material adverse effect on our business, results of operations, financial condition and prospects.

Patent terms may be inadequate to protect our competitive position on product candidates for an adequate amount of time.

Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional or international patent application filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our Wholly Owned or our Founded Entities’ product candidates are obtained, once the patent life has expired, we or our Founded Entities may be open to competition from competitive products, including generics or biosimilars. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our or our Founded Entities’ owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

If we or our Founded Entities are not able to obtain patent term extension or non-patent exclusivity in the United States under the Hatch-Waxman Act and in foreign countries under similar legislation, thereby potentially extending the marketing exclusivity term of our Wholly Owned or our Founded Entities’ product candidates, our business may be materially harmed.

Depending upon the timing, duration and specifics of FDA marketing approval of our Wholly Owned or our Founded Entities’ product candidates, one of the U.S. patents covering each of such product candidates or the use thereof may be eligible for up to five years of patent term extension under the Hatch-Waxman Act. The Hatch-Waxman Act allows a maximum of one patent to be extended per FDA approved product as compensation for the patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only those claims covering such approved drug product, a method for using it or a method for manufacturing it may be extended. Patent term extension also may be available in certain foreign countries upon regulatory approval of our Wholly Owned or our Founded Entities’ product candidates. Nevertheless, we or our Founded Entities may not be granted patent term extension either in the United States or in any foreign country because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy

 

55


Table of Contents

applicable requirements. Moreover, the term of extension, as well as the scope of patent protection during any such extension, afforded by the governmental authority could be less than we request.

If we or our Founded Entities are unable to obtain patent term extension or restoration, or the term of any such extension is less than our request, the period during which we will have the right to exclusively market our product may be shortened and our competitors may obtain approval of competing products following our patent expiration sooner, and our revenue could be reduced, possibly materially.

Further, for certain of our and our Founded Entities’ licensed patents, we and our Founded Entities do not have the right to control prosecution, including filing with the USPTO, a petition for patent term extension under the Hatch-Waxman Act. Thus, if one of our or our Founded Entities’ licensed patents is eligible for patent term extension under the Hatch-Waxman Act, we may not be able to control whether a petition to obtain a patent term extension is filed with, or whether a patent term extension is obtained from, the USPTO.

Also, there are detailed rules and requirements regarding the patents that may be submitted to the FDA for listing in the Approved Drug Products with Therapeutic Equivalence Evaluations, or the Orange Book. We or our Founded Entities may be unable to obtain patents covering our Wholly Owned or our Founded Entities’ product candidates that contain one or more claims that satisfy the requirements for listing in the Orange Book. Even if we or our Founded Entities submit a patent for listing in the Orange Book, the FDA may decline to list the patent, or a manufacturer of generic drugs may challenge the listing. If or when one of our Wholly Owned or our Founded Entities’ product candidates is approved and a patent covering that product candidate is not listed in the Orange Book, a manufacturer of generic drugs would not have to provide advance notice to us of any abbreviated new drug application, or ANDA, filed with the FDA to obtain permission to sell a generic version of such product candidate.

If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business would be harmed.

We and our Founded Entities consider proprietary trade secrets, confidential know-how and unpatented know-how to be important to our business. We and our Founded Entities may rely on trade secrets and confidential know-how to protect our technology, especially where patent protection is believed by us to be of limited value. However, trade secrets and confidential know-how are difficult to protect, and we have limited control over the protection of trade secrets and confidential know-how used by our licensors, collaborators and suppliers. Because we have relied in the past on third parties to manufacture our Wholly Owned or our Founded Entities’ product candidates, because we may continue to do so in the future, and because we expect to collaborate with third parties on the development of our current product candidates and any future product candidates we develop, we may, at times, share trade secrets with them. We also conduct joint R&D programs that may require us to share trade secrets under the terms of our R&D partnerships or similar agreements. Under such circumstances, trade secrets and confidential know-how can be difficult to maintain as confidential.

We and our Founded Entities seek to protect our confidential proprietary information, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and collaborators. These agreements are designed to protect our proprietary information. However, we cannot be certain that such agreements have been entered into with all relevant parties, and we cannot be certain that our and our Founded Entities’ trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. For example, any of these parties may breach the agreements and disclose proprietary information, including trade secrets, and we may not be able to obtain adequate remedies for such breaches. We and our Founded Entities also seek to preserve the integrity and confidentiality of our confidential proprietary information by maintaining physical security of our premises and physical and electronic security of our information technology systems, but it is possible that these security

 

56


Table of Contents

measures could be breached. If any of our or our Founded Entities’ confidential proprietary information were to be lawfully obtained or independently developed by a competitor, we or our Founded Entities would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position.

Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our or our Founded Entities’ products that we consider proprietary. We or our Founded Entities may not be able to obtain adequate remedies in the event of such unauthorized use. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. Trade secrets will also over time be disseminated within the industry through independent development, the publication of journal articles and the movement of personnel skilled in the art from company to company or academic to industry scientific positions. Though our or our Founded Entities’ agreements with third parties typically restrict the ability of our advisors, employees, collaborators, licensors, suppliers, third-party contractors and consultants to publish data potentially relating to our trade secrets, our agreements may contain certain limited publication rights. In addition, if any of our or our Founded Entities’ trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position. Despite employing the contractual and other security precautions described above, the need to share trade secrets increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. If any of these events occurs or if we otherwise lose protection for our trade secrets, the value of such information may be greatly reduced and our competitive position, business, financial condition, results of operations, and prospects would be harmed.

If our or our Founded Entities’ trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.

Our or our Founded Entities’ registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We and our Founded Entities may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential collaborators or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we and our Founded Entities are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. We and our Founded Entities may license our trademarks and trade names to third parties, such as distributors. Though these license agreements may provide guidelines for how our or our Founded Entities’ trademarks and trade names may be used, a breach of these agreements or misuse of our trademarks and tradenames by our licensees may jeopardize our rights in or diminish the goodwill associated with our trademarks and trade names. Our or our Founded Entities’ efforts to enforce or protect our proprietary rights related to trademarks, trade names, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our competitive position, business, financial condition, results of operations and prospects.

We may become involved in lawsuits to protect or enforce our or our Founded Entities’ patents or other intellectual property, which could be expensive, time consuming and unsuccessful.

Competitors may infringe our or our Founded Entities’ patents or other intellectual property. Our and our Founded Entities’ ability to enforce our patent or other intellectual property rights depends on our ability to detect infringement. It may be difficult to detect infringers who do not advertise the components or methods that are used in connection with their products and services. Moreover, it may be difficult or impossible to obtain

 

57


Table of Contents

evidence of infringement in a competitor’s or potential competitor’s product or service. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful. If we were to initiate legal proceedings against a third party to enforce a patent covering one or more of our Wholly Owned or our Founded Entities’ product candidates, the defendant could counterclaim that the patent covering our or our Founded Entities’ product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including subject matter eligibility, novelty, nonobviousness, written description or enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable. Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our or our Founded Entities’ patents or patent applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms or at all, or if a non-exclusive license is offered and our competitors gain access to the same technology. Our defense of litigation or interference or derivation proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue clinical trials, continue research programs, license necessary technology from third parties, or enter into development partnerships that would help us bring product candidates to market. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our or our Founded Entities’ confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could adversely impact the price of our ADSs. Furthermore, any of the foregoing could have a material adverse effect on our financial condition, results of operations, and prospects.

We and our Founded Entities may be subject to claims challenging the inventorship of our patents and other intellectual property.

Our and our Founded Entities’ agreements with employees and our personnel policies provide that any inventions conceived by an individual in the course of rendering services to us shall be our exclusive property. Although our policy is to have all such individuals complete these agreements, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. The assignment of intellectual property may not be automatic upon the creation of an invention and despite such agreement, such inventions may become assigned to third parties. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information.

We, our Founded Entities or our licensors may be subject to claims that former employees, collaborators or other third parties have an interest in our owned or in-licensed patents, trade secrets, or other intellectual property as an inventor or co-inventor. For example, we, our Founded Entities or our licensors may have inventorship disputes arising from conflicting obligations of employees, consultants or others who are involved in developing our Wholly Owned or our Founded Entities’ product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship of our, our Founded Entities’ or our licensors’ ownership of our owned or in-licensed patents, trade secrets or other intellectual property. If we, our Founded Entities or our licensors fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our Wholly Owned or our Founded Entities’ product candidates. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

 

58


Table of Contents

Any of the foregoing could have a material adverse effect on our competitive position, business, financial condition, results of operations and prospects.

Issued patents covering our Wholly Owned or our Founded Entities’ product candidates could be found invalid or unenforceable if challenged in courts or patent offices.

If we, our Founded Entities or one of our licensing partners initiated legal proceedings against a third party to enforce a patent covering one or more of our Wholly Owned or our Founded Entities’ product candidates, the defendant could counterclaim that the patent covering the relevant product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including subject matter eligibility, novelty, nonobviousness, written description or enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in revocation or amendment to our or our Founded Entities’ patents in such a way that they no longer cover our Wholly Owned or our Founded Entities’ product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our Wholly Owned or our Founded Entities’ product candidates. Such a loss of patent protection would have a material adverse impact on our business.

We or our Founded Entities may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

As is common in the biotechnology and pharmaceutical industries, we and our Founded Entities employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we and our Founded Entities try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work for us, we or our Founded Entities may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employee’s former employer or other third parties. Litigation may be necessary to defend against these claims. If we or our Founded Entities fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we or our Founded Entities are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. We and our Founded Entities have systems in place to remind us to pay these fees, and we and our Founded Entities employ outside firms and rely on outside counsel to pay these fees due to the USPTO and non-U.S. patent agencies. However, we and our Founded Entities cannot guarantee that our licensors have similar systems and procedures in place to pay such

 

59


Table of Contents

fees. In addition, the USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.

We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on our Wholly Owned or our Founded Entities’ product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect or enforce intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we and our Founded Entities may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our and our Founded Entities’ technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also export infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our or our Founded Entities’ products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology and pharmaceutical products, which could make it difficult for us to stop the infringement of our or our Founded Entities’ patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our or our Founded Entities’ patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our or our Founded Entities’ patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us or our Founded Entities. We may not prevail in any lawsuits that we or our Founded Entities initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

In some jurisdictions including European Union countries, compulsory licensing laws compel patent owners to grant licenses to third parties. In addition, some countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we, our Founded Entities or any of our licensors are forced to grant a license to third parties under patents relevant to our or our Founded Entities’ business, or if we, our Founded Entities or our licensors are prevented from enforcing patent rights against third parties, our competitive position may be substantially impaired in such jurisdictions.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our and our Founded Entities’ ability to protect our products.

Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Assuming that other requirements for patentability are met, prior to March 2013, in the United

 

60


Table of Contents

States, the first to invent the claimed invention was entitled to a patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act, or the America Invents Act, enacted in September 2011, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. A third party that files a patent application in the USPTO after March 2013, but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by such third party. This will require us and our Founded Entities to be cognizant of the time from invention to filing of a patent application and be diligent in filing patent applications, but circumstances could prevent us from promptly filing patent applications on our inventions. Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we, our Founded Entities or our licensors were the first to either (i) file any patent application related to our Wholly Owned or our Founded Entities’ product candidates or (ii) invent any of the inventions claimed in our, our Founded Entities or our licensor’s patents or patent applications.

The America Invents Act also includes a number of significant changes that affect the way patent applications are prosecuted and also may affect patent litigation. These include allowing third party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. Therefore, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our or our Founded Entities’ owned or in-licensed patent applications and the enforcement or defense of our or our Founded Entities’ owned or in-licensed issued patents, all of which could have a material adverse effect on our competitive position, business, financial condition, results of operations, and prospects.

In addition, the patent positions of companies in the development and commercialization of pharmaceuticals are particularly uncertain. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. This combination of events has created uncertainty with respect to the validity and enforceability of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on our existing patent portfolio and our ability to protect and enforce our intellectual property in the future.

Our or our Founded Entities’ proprietary rights may not adequately protect our technologies and product candidates, and do not necessarily address all potential threats to our competitive advantage.

The degree of future protection afforded by our or our Founded Entities’ intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our or our Founded Entities’ business, or permit us to maintain our competitive advantage. The following examples are illustrative:

 

   

others may be able to make products that are the same as or similar to our Wholly Owned or our Founded Entities’ product candidates but that are not covered by the claims of the patents that we or our Founded Entities own or have exclusively licensed;

 

   

others, including inventors or developers of our or our Founded Entities’ owned or in-licensed patented technologies who may become involved with competitors, may independently develop similar technologies that function as alternatives or replacements for any of our or our Founded Entities’ technologies without infringing our intellectual property rights;

 

61


Table of Contents
   

we, our Founded Entities or our licensors or our other collaboration partners might not have been the first to conceive and reduce to practice the inventions covered by the patents or patent applications that we or our Founded Entities own or license or will own or license;

 

   

we, our Founded Entities or our licensors or our other collaboration partners might not have been the first to file patent applications covering certain of the patents or patent applications that we or they own or have obtained a license, or will own or will have obtained a license;

 

   

we, our Founded Entities or our licensors may fail to meet obligations to the U.S. government with respect to in-licensed patents and patent applications funded by U.S. government grants, leading to the loss of patent rights;

 

   

it is possible that our or our Founded Entities’ pending patent applications will not result in issued patents;

 

   

it is possible that there are prior public disclosures that could invalidate our, our Founded Entities’ or our licensors’ patents;

 

   

issued patents that we or our Founded Entities own or exclusively license may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;

 

   

our or our Founded Entities’ competitors might conduct R&D activities in countries where we do not have patent rights, or in countries where R&D safe harbor laws exist, and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

 

   

ownership, validity or enforceability of our, our Founded Entities’ or our licensors’ patents or patent applications may be challenged by third parties; and

 

   

the patents of third parties or pending or future applications of third parties, if issued, may have an adverse effect on our business.

Risks Related to Our Business and Industry

The outbreak of, and the long term effects of the outbreak of, the novel strain of coronavirus, SARS-CoV-2, which causes COVID- 19, could adversely impact our business, including our clinical trials and preclinical studies.

Public health crises such as pandemics or other global emergencies could adversely impact our business. In December 2019, a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019, or COVID-19, surfaced in Wuhan, China. Since then, COVID-19 has spread globally. In response to the spread of COVID-19 and governmental shelter-in-place orders, we have encouraged our administrative employees to work outside of our offices and allowed staff in our laboratory facilities to operate under applicable government orders and protocols designed to protect their health and safety.

As a result of the COVID-19 outbreak or any future pandemics, we have experienced, and may in the future experience, disruptions that severely impact our business, clinical trials and preclinical studies, including:

 

   

delays or difficulties in enrolling patients in our clinical trials;

 

   

delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;

 

   

delays or disruptions in non-clinical experiments due to unforeseen circumstances at contract research organizations, or CROs, and vendors along their supply chain;

 

62


Table of Contents
   

increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19, being forced to quarantine, or not accepting home health visits;

 

   

diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

 

   

interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures (particularly any procedures that may be deemed non-essential), which may impact the integrity of subject data and clinical study endpoints;

 

   

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

 

   

interruption of, or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems; and

 

   

limitations on employee resources that would otherwise be focused on the conduct of our preclinical studies and clinical trials, including because of sickness of employees or their families, the desire of employees to avoid contact with large groups of people, an increased reliance on working from home or mass transit disruptions.

These and other factors arising from the COVID-19 pandemic could worsen in countries that are already afflicted with COVID-19, could continue to spread to additional countries, or could return to countries where the pandemic has been partially contained, each of which could further adversely impact our ability to conduct clinical trials and our business generally, and could have a material adverse impact on our operations and financial condition and results.

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

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those relating to our clinical development operations, the supply chain for our ongoing and planned clinical trials, and the availability of governmental and regulatory authorities to conduct inspections of our clinical trial sites, review materials submitted by us in support of our applications for regulatory approval and grant approval for our product candidates.

We may not be successful in our efforts to develop LYT-100 for the treatment of Long COVID respiratory complications and related sequelae.

We plan to conduct a global, randomized, placebo-controlled Phase 2 trial to evaluate the efficacy, safety and tolerability of LYT-100 in non-critical COVID-19 patients with respiratory complications. As currently designed, patients will receive treatment for up to three months and the trial is expected to enroll up to 168 patients.

The timing and success of this proposed clinical trial will depend on our ability to enroll patients in the trial. Many other companies are pursuing the development of product candidates for the treatment of COVID-19, and

 

63


Table of Contents

patient enrollment may be affected by availability of commercially available treatment. Our ability to enroll a sufficient number of patients could also be impacted by a decrease in COVID-19 hospitalization rates or a decrease in COVID-19 infection rate. Our inability to enroll a sufficient number of patients could result in significant delays or could require us to abandon the trial and development of LYT-100 for the treatment of these patients altogether.

Given the rapidity of the onset of the COVID-19 pandemic, scientific and medical research on the SARS-CoV-2 virus is ongoing and evolving. Results from ongoing clinical trials and discussions with regulatory authorities may raise new questions and require us to redesign proposed clinical trials, including revising proposed endpoints or adding new clinical trial sites or cohorts of subjects. Any such developments could delay the development timeline for and materially increase the cost of LYT-100. Furthermore, we cannot be certain that the evidence that we believe suggests that LYT-100 may be beneficial to these patients will be established in a clinical trial. The failure of LYT-100 to demonstrate safety and efficacy in these patients could negatively impact the perception of us and LYT-100 by investors and it is possible that unexpected safety issues could occur in these COVID-19 patients. Any such safety issues could affect our development plans for LYT-100 in other indications.

We attempt to distribute our scientific, execution and financing risks across a variety of therapeutic areas, indications, programs and modalities that relate to the brain, immune system and gastrointestinal system and the interface between them. However, our assessment of, and approach to, risk may not be comprehensive or effectively avoid delays or failures in one or more of our programs. Failures in one or more of our programs could adversely impact other programs and have a material adverse impact on our business, results of operations and ability to fund our business.

We are creating medicines for serious diseases involving the brain, immune system and gastrointestinal, or BIG, system and the interface between those systems, or the BIG Axis. We have made investments in our Founded Entities, R&D infrastructure, and clinical capabilities that have enabled us to establish the underlying programs and platforms that have resulted in 24 products and product candidates that are being advanced within our Wholly Owned Programs or by our Founded Entities. Of these products and product candidates, 12 are clinical-stage, and two have been cleared by the FDA and granted marketing authorization in the EEA. Our Non-Controlled Founded Entities are advancing eight of these product candidates, including two that are expected to enter Phase 3/Pivotal studies, as well as two FDA-cleared products. Our Controlled Founded Entities are advancing nine of these product candidates, including one that is expected to enter a Phase 3 study, and three that are in Phase 2 development, and we are advancing four of these product candidates within our Wholly Owned Pipeline. As our and certain of our Founded Entities’ product candidates progress through clinical development, we or others may determine that certain of our risk allocation decisions were incorrect or insufficient, that individual programs or our science in general has technology or biology risks that were unknown or underappreciated, or that we have allocated resources across our programs in such a way that did not maximize potential value creation. All of these risks may relate to our current and future programs sharing similar science and infrastructure, and in the event material decisions in any of these areas turn out to have been incorrect or under-optimized, we may experience a material adverse impact on our business and ability to fund our operations.

Our business is highly dependent on the clinical advancement of our programs and our success in identifying potential product candidates across the BIG Axis. Delay or failure to advance our programs could adversely impact our business.

We are developing new medicines based on the lymphatic system, the BIG systems and the BIG Axis. Over time, our and our Founded Entities’ preclinical and clinical work led us to identify potential synergies across target therapeutic indications in the BIG Axis, generating a broad portfolio of product candidates across multiple programs. Even if a particular program is successful in any phase of development, such program could fail at a later phase of development, and other programs within the same therapeutic area may still fail at any phase of development including at phases where earlier programs in that therapeutic area were successful. This may be a result of technical challenges unique to that program or due to biology risk, which is unique to every program. As

 

64


Table of Contents

we progress our programs through clinical development, there may be new technical challenges that arise that cause an entire program or a group of programs within an area of focus in the BIG Axis to fail. While we aim to segregate risk across programs, and in certain cases among our Founded Entities, there may be foreseen and unforeseen risks across our Wholly Owned Pipeline and programs being developed by our Founded Entities in whole or in part. In addition, if any one or more of our clinical programs encounter safety, tolerability, or efficacy problems, developmental delays, regulatory issues, or other problems, our business could be significantly harmed.

Our future success depends on our ability to retain key employees, directors, consultants and advisors and to attract, retain and motivate qualified personnel.

Our ability to compete in the highly competitive biotechnology industry depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on the management, R&D, clinical, financial and business development expertise of our executive officers, our directors, as well as the other members of our scientific and clinical teams, including Daphne Zohar, our chief executive officer, Bharatt Chowrira, our president and chief of business and strategy, Stephen Muniz, our chief operating officer, Joep Muijrers, our chief of portfolio strategy, Eric Elenko, our chief innovation officer, and Joseph Bolen, our chief scientific officer. The loss of the services of any of our executive officers and other key personnel, and our inability to find suitable replacements could result in delays in product development and our financial condition and results of operations could be materially adversely affected.

Furthermore, each of our executive officers may terminate their employment with us at any time. Recruiting and retaining qualified scientific and clinical personnel and, if we progress the development of our Wholly Owned Pipeline toward scaling up for commercialization, sales and marketing personnel, will also be critical to our success. The loss of the services of our executive officers or other key employees could impede the achievement of research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval for and commercialize our Wholly Owned product candidates. Competition to hire qualified personnel in our industry is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. Furthermore, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their research output. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions.

In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.

We will need to expand our organization and we may experience difficulties in managing this growth, which could disrupt our operations.

As we mature, we expect to expand our full-time employee base and to hire more consultants and contractors. Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time toward managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among

 

65


Table of Contents

remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenues could be reduced, and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth.

Because we are developing multiple programs and product candidates and are pursuing a variety of target indications and treatment modalities, we may expend our limited resources to pursue a particular product candidate and fail to capitalize on development opportunities or product candidates that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and personnel resources, we may forgo or delay pursuit of opportunities with potential target indications or product candidates that later prove to have greater commercial potential than our current and planned development programs and product candidates. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and other future product candidates for specific indications may not yield any commercially viable future product candidates. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may be required to relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such future product candidates.

Additionally, we may pursue additional in-licenses or acquisitions of development-stage assets or programs, which entails additional risk to us. For example, we recently acquired LYT-100, which is our most advanced product candidate and to which we are investing significant resources for its development. Identifying, selecting and acquiring promising product candidates requires substantial technical, financial and human resources expertise. Efforts to do so may not result in the actual acquisition or license of a successful product candidate, potentially resulting in a diversion of our management’s time and the expenditure of our resources with no resulting benefit. For example, if we are unable to identify programs that ultimately result in approved products, we may spend material amounts of our capital and other resources evaluating, acquiring and developing products that ultimately do not provide a return on our investment.

Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of any product candidates that we may develop.

We face an inherent risk of product liability exposure related to the testing of product candidates in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop. If we cannot successfully defend ourselves against claims that our Wholly Owned product candidates or medicines caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

 

   

decreased demand for any product candidates or medicines that we may develop;

 

   

injury to our reputation and significant negative media attention;

 

   

withdrawal of clinical trial participants;

 

   

significant costs to defend the related litigation;

 

   

substantial monetary awards to trial participants or patients;

 

   

loss of revenue; and

 

   

the inability to commercialize our Wholly Owned product candidates.

 

66


Table of Contents

Although we maintain product liability insurance, including coverage for clinical trials that we sponsor, it may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage as we commence additional clinical trials and if we successfully commercialize any product candidates. The market for insurance coverage is increasingly expensive, and the costs of insurance coverage will increase as our clinical programs increase in size. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

The increasing use of social media platforms presents new risks and challenges.

Social media is increasingly being used to communicate about our and our Founded Entities’ clinical development programs and the diseases our therapeutics are being developed to treat, and we intend to utilize appropriate social media in connection with our commercialization efforts following approval of our Wholly Owned product candidates. Social media practices in the biopharmaceutical industry continue to evolve and regulations relating to such use are not always clear. This evolution creates uncertainty and risk of noncompliance with regulations applicable to our business. For example, patients may use social media channels to comment on their experience in an ongoing blinded clinical study or to report an alleged adverse event. When such disclosures occur, there is a risk that we fail to monitor and comply with applicable adverse event reporting obligations or we may not be able to defend our business or the public’s legitimate interests in the face of the political and market pressures generated by social media due to restrictions on what we may say about our Wholly Owned product candidates. There is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate posts or comments about us on any social networking website. If any of these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face regulatory actions or incur other harm to our business.

Our and our Founded Entities’ employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk of fraud, misconduct or other illegal activity by our employees, independent contractors, consultants, commercial partners and vendors as well as the employees, independent contractors, consultants, commercial partners and vendors of our Founded Entities. Misconduct by these parties could include intentional, reckless and negligent conduct that fails to: comply with the laws of the FDA and comparable foreign regulatory authorities; provide true, complete and accurate information to the FDA and comparable foreign regulatory authorities; comply with manufacturing standards we have established; comply with healthcare fraud and abuse laws in the United States and similar foreign fraudulent misconduct laws; or report financial information or data accurately or to disclose unauthorized activities. If we or our Founded Entities obtain FDA approval of our Wholly Owned or our Founded Entities’ product candidates and begin commercializing those products in the United States, our potential exposure under such laws will increase significantly, and our costs associated with compliance with such laws are also likely to increase. In particular, research, sales, marketing, education and other business arrangements in the healthcare industry are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, educating, marketing and promotion, sales and commission, certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

 

67


Table of Contents

Employee litigation and unfavorable publicity could negatively affect our future business.

Our employees may, from time to time, bring lawsuits against us regarding injury, creating a hostile work place, discrimination, wage and hour disputes, sexual harassment, or other employment issues. In recent years, there has been an increase in the number of discrimination and harassment claims generally. Coupled with the expansion of social media platforms and similar devices that allow individuals access to a broad audience, these claims have had a significant negative impact on some businesses. Certain companies that have faced employment- or harassment-related lawsuits have had to terminate management or other key personnel, and have suffered reputational harm that has negatively impacted their business. If we were to face any employment-related claims, our business could be negatively affected.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.

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

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Unfavorable global economic conditions, including conditions resulting from the COVID-19 pandemic, could adversely affect our business, financial condition or results of operations.

Our ability to invest in and expand our business and meet our financial obligations, to attract and retain third-party contractors and collaboration partners and to raise additional capital depends on our operating and financial performance, which, in turn, is subject to numerous factors, including the prevailing economic and political conditions and financial, business and other factors beyond our control, such as the rate of unemployment, the number of uninsured persons in the United States, political influences and inflationary pressures. For example, an overall decrease in or loss of insurance coverage among individuals in the United States as a result of unemployment, underemployment or the repeal of certain provisions of the ACA, may decrease the demand for healthcare services and pharmaceuticals. If fewer patients are seeking medical care because they do not have insurance coverage, we and our Founded Entities may experience difficulties in any eventual commercialization of our Wholly Owned or our Founded Entities’ product candidates and our business, results of operations, financial condition and cash flows could be adversely affected.

In addition, our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets upon which pharmaceutical and biopharmaceutical companies such as us are dependent for sources of capital. In the past, global financial crises have caused extreme volatility and

 

68


Table of Contents

disruptions in the capital and credit markets. A severe or prolonged economic downturn could result in a variety of risks to our business, including a reduced ability to raise additional capital when needed on acceptable terms, if at all, and weakened demand for our Wholly Owned product candidates. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

The COVID-19 pandemic has had, and will continue to have, an unfavorable impact on global economic conditions, including a decrease in or loss of insurance coverage among individuals in the United States, an increase in unemployment, volatility in markets, and other negative impacts that have arisen or will arise over the course of the COVID-19 pandemic.

Cyber-attacks or other failures in our telecommunications or information technology systems, or those of our collaborators, contract research organizations, third-party logistics providers, distributors or other contractors or consultants, could result in information theft, data corruption and significant disruption of our business operations.

We, our collaborators, our CROs, third-party logistics providers, distributors and other contractors and consultants utilize information technology, or IT, systems and networks to process, transmit and store electronic information in connection with our business activities. As use of digital technologies has increased, cyber incidents, including third parties gaining access to employee accounts using stolen or inferred credentials, computer malware, viruses, spamming, phishing attacks or other means, and deliberate attacks and attempts to gain unauthorized access to computer systems and networks, have increased in frequency and sophistication. These threats pose a risk to the security of our, our collaborators’, our CROs’, third-party logistics providers’, distributors’ and other contractors’ and consultants’ systems and networks, and the confidentiality, availability and integrity of our data. There can be no assurance that we will be successful in preventing cyber-attacks or successfully mitigating their effects. Similarly, there can be no assurance that our collaborators, CROs, third-party logistics providers, distributors and other contractors and consultants will be successful in protecting our clinical and other data that is stored on their systems. Although to our knowledge we have not experienced any such material system failure or material security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of development programs and business operations.

Any cyber-attack, data breach or destruction or loss of data could result in a violation of applicable U.S. and international privacy, data protection and other laws, and subject us to litigation and governmental investigations and proceedings by federal, state and local regulatory entities in the United States and by international regulatory entities, resulting in exposure to material civil and/or criminal liability. Further, our general liability insurance and corporate risk program may not cover all potential claims to which we are exposed and may not be adequate to indemnify us for all liability that maybe imposed; and could have a material adverse effect on our business and prospects. For example, the loss of clinical trial data from completed or ongoing clinical trials for any of our Wholly Owned or our Founded Entities’ product candidates could result in delays in our development and regulatory approval efforts and significantly increase our costs to recover or reproduce the data. In addition, we may suffer reputational harm or face litigation or adverse regulatory action as a result of cyber-attacks or other data security breaches and may incur significant additional expense to implement further data protection measures.

Changes in funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal functions on which the operation of our business may rely, which could negatively impact our business.

The ability of the FDA to review and approve new products or take action with respect to other regulatory matters can be affected by a variety of factors, including government budget and funding levels, ability to hire

 

69


Table of Contents

and retain key personnel and accept payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. The priorities of the FDA may also influence the ability of the FDA to take action on regulatory matters, for example the FDA’s budget and funding levels and ability to hire and retain key personnel.

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved, or for other actions to be taken, by relevant government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Similarly, a prolonged government shutdown could prevent the timely review of our patent applications by the USPTO, which could delay the issuance of any U.S. patents to which we might otherwise be entitled. Further, in our operations as a public company, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

We or the third parties upon whom we depend may be adversely affected by a natural disaster and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

Natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects. If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as the manufacturing facilities of our third-party CMOs, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, could have a material adverse effect on our business, financial condition, results of operations and prospects.

Risks Related to Our International Operations

As a company based in the United Kingdom, we are subject to economic, political, regulatory and other risks associated with international operations.

As a company based in the United Kingdom, our business is subject to risks associated with being organized outside of the United States. While the majority of our operations are in the United States and our functional currency is the U.S. dollar, our future results could be harmed by a variety of international factors, including:

 

   

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

 

   

differing and changing regulatory requirements;

 

   

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

 

   

changes in a specific country’s or region’s political or economic environment, including, but not limited to, the implications of one or more of the following occurring the decision of the United Kingdom:

 

   

relating to the terms of the future trading arrangement between the United Kingdom and the European Union following the expiry of the Brexit transition period on December 31, 2020;

 

70


Table of Contents
   

a second referendum on Scottish independence from the United Kingdom; and/or

 

   

a snap general election; and

 

   

negative consequences from changes in tax laws;

Our international operations may expose us to business, regulatory, political, operational, financial, pricing and reimbursement and economic risks associated with doing business outside of the United States.

Our business strategy incorporates potential international expansion to target patient populations outside the United States. If we or our Founded Entities receive regulatory approval for and commercialize any of our Wholly Owned or our Founded Entities’ product candidates in patient populations outside the United States, we may hire sales representatives and conduct physician and patient association outreach activities outside of the United States. Doing business internationally involves a number of risks, including, but not limited to:

 

   

multiple, conflicting, and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, employment laws, regulatory requirements, and other governmental approvals, permits, and licenses;

 

   

failure by us to obtain and maintain regulatory approvals for the use of our products in various countries;

 

   

additional potentially relevant third-party patent rights;

 

   

complexities and difficulties in obtaining protection and enforcing our intellectual property;

 

   

difficulties in staffing and managing foreign operations;

 

   

complexities associated with managing multiple payor reimbursement regimes, government payors, or patient self-pay systems;

 

   

limits in our ability to penetrate international markets;

 

   

financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products, and exposure to foreign currency exchange rate fluctuations;

 

   

natural disasters, political and economic instability, including wars, terrorism, and political unrest, outbreak of disease, boycotts, curtailment of trade, and other business restrictions;

 

   

certain expenses including, among others, expenses for travel, translation, and insurance; and

 

   

regulatory and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, its books and records provisions, or its anti-bribery provisions.

Any of these factors could significantly harm our potential international expansion and operations and, consequently, our results of operations.

European data collection is governed by restrictive regulations governing the use, processing and cross-border transfer of personal information.

In the event we decide to conduct clinical trials or continue to enroll subjects in our ongoing or future clinical trials in the European Union, we may be subject to additional privacy restrictions. The collection and use of personal health data in the European Union is governed by the provisions of the General Data Protection Regulation (EU) 2016/679, or GDPR. This directive imposes several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, notification of data processing obligations to the competent national data protection authorities and the security and confidentiality of

 

71


Table of Contents

the personal data. The GDPR also imposes strict rules on the transfer of personal data out of the European Union to the United States. Failure to comply with the requirements of the Data Protection Directive, which governs the collection and use of personal health data in the European Union, the GDPR, and the related national data protection laws of the European Union Member States may result in fines and other administrative penalties. The GDPR introduced new data protection requirements in the European Union and substantial fines for breaches of the data protection rules. The GDPR regulations may impose additional responsibility and liability in relation to personal data that we process and we may be required to put in place additional mechanisms ensuring compliance with these and/or new data protection rules. This may be onerous and adversely affect our business, financial condition, prospects and results of operations.

We are subject to the U.K. Bribery Act 2010, or the Bribery Act, the FCPA and other anti-corruption laws, as well as export control laws, import and customs laws, trade and economic sanctions laws and other laws governing our operations.

Our operations are subject to anti-corruption laws, including the Bribery Act, the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. §201, the U.S. Travel Act, and other anti-corruption laws that apply in countries where we do business. The Bribery Act, the FCPA and these other laws generally prohibit us and our employees and intermediaries from authorizing, promising, offering, or providing, directly or indirectly, improper or prohibited payments, or anything else of value, to government officials or other persons to obtain or retain business or gain some other business advantage. Under the Bribery Act, we may also be liable for failing to prevent a person associated with us from committing a bribery offense. In the future, we and our strategic partners may operate in jurisdictions that pose a high risk of potential Bribery Act or FCPA violations, and we may participate in collaborations and relationships with third parties whose corrupt or illegal activities could potentially subject us to liability under the Bribery Act, FCPA or local anti-corruption laws, even if we do not explicitly authorize or have actual knowledge of such activities. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.

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

There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the Bribery Act, the FCPA or other legal requirements, including Trade Control laws. If we are not in compliance with the Bribery Act, the FCPA and other anti-corruption laws or Trade Control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any investigation of any potential violations of the Bribery Act, the FCPA, other anti-corruption laws or Trade Control laws by United Kingdom, United States or other authorities could also have an adverse impact on our reputation, our business, results of operations and financial condition.

The United Kingdom’s withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business, which could reduce the price of our ADSs.

On June 23, 2016, the United Kingdom held a referendum in which a majority of the eligible members of the electorate voted for the United Kingdom to leave the European Union. The United Kingdom’s withdrawal from the European Union is commonly referred to as Brexit. In October 2019, a withdrawal agreement, or the Withdrawal Agreement, setting out the terms of the United Kingdom’s exit from the European Union, and a political declaration on the framework for the future relationship between the United Kingdom and European Union was agreed between the UK and EU governments. Under the terms of the EU Withdrawal Agreement, the

 

72


Table of Contents

United Kingdom withdrew from membership of the European Union on 31 January 2020 and entered into a ‘transition period’ which is due to expire on 31 December 2020, or the Transition Period. During the Transition Period, the majority of rights and obligations associated with membership of the European Union continue to apply to the United Kingdom. The UK Government’s intention is to negotiate a trade agreement with the European Union during the Transition Period, but there is no guarantee that the terms of a trading agreement will be ratified by the UK Government or the European Union prior to the end of the transition period. On 12 June 2020, the UK Government announced that it would not seek to extend the transition period. As a result, the trading relationship between the United Kingdom and the European Union will be governed by WTO rules from 31 December 2020 unless a trading arrangement is agreed and ratified by both parties before that date.

These developments have had and may continue to have a significant adverse effect on global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. In particular, it could also lead to a period of considerable uncertainty in relation to the U.K. financial and banking markets, as well as on the regulatory process in the United Kingdom and Europe. As a result of this uncertainty, global financial markets could experience significant volatility, which could adversely affect the market price of our ADSs. Asset valuations, currency exchange rates and credit ratings may also be subject to increased market volatility.

We may also face new regulatory costs and challenges that could have an adverse effect on our operations. Depending on the terms of the trading agreement to be negotiated between the United Kingdom and the European Union, the United Kingdom could lose the benefits of global trade agreements negotiated by the European Union on behalf of its members, which may result in increased trade barriers that could make our doing business in Europe more difficult. In addition, currency exchange rates in the pound sterling and the euro with respect to each other and the U.S. dollar have already been adversely affected by Brexit. Furthermore, at present, there are no indications of the effect Brexit will have on the pathway to obtaining marketing approval for any of our Wholly Owned product candidates in the United Kingdom, or what, if any, role the EMA may have in the approval process.

Risks Related to Our Equity Securities and ADSs

We do not know whether an active, liquid and orderly trading market will develop for our ADSs or what the market price of our ADSs will be. As a result, it may be difficult for you to sell your ADSs.

While our ordinary shares have traded on the LSE since 2015, the ADSs registered hereunder constitute the first opportunity to purchase our ADSs in the United States, and no public market has previously existed for our ADSs or ordinary shares in the United States. We intend to apply to have our ADSs listed on Nasdaq, and we expect our ADSs to be quoted on Nasdaq, subject to completion of customary procedures in the United States. Any delay in the commencement of trading of the ADSs on Nasdaq would impair the liquidity of the market for the ADSs and make it more difficult for holders to sell the ADSs. If the ADSs are listed and quoted on Nasdaq, there can be no assurance that an active trading market for the ADSs will develop or be sustained after registration is completed.

The market price of our ADSs may be highly volatile, and you may not be able to resell your ADSs at or above the price that you pay for them.

The market price of our ADSs is likely to be volatile. The stock market in general, and the market for biopharmaceutical companies in particular, has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your ADSs at or above the purchase price. The market price for our ADSs may be influenced by many factors, including:

 

   

adverse results or delays in our preclinical studies or clinical trials;

 

73


Table of Contents
   

reports of AEs or other negative results in clinical trials of third parties’ product candidates that target our Wholly Owned or our Founded Entities’ product candidates’ target indications;

 

   

an inability for us to obtain additional funding on reasonable terms or at all;

 

   

any delay in filing an IND, BLA or NDA for our Wholly Owned or our Founded Entities’ product candidates and any adverse development or perceived adverse development with respect to the FDA’s review of that IND, BLA or NDA;

 

   

failure to develop successfully and commercialize our Wholly Owned or our Founded Entities’ product candidates;

 

   

announcements we make regarding our current product candidates, acquisition of potential new product candidates and companies and/or in-licensing;

 

   

failure to maintain our or our Founded Entities’ existing license arrangements or enter into new licensing and collaboration agreements;

 

   

failure by us, our Founded Entities or our licensors to prosecute, maintain or enforce our intellectual property rights;

 

   

changes in laws or regulations applicable to future products;

 

   

inability to obtain adequate clinical or commercial supply for our Wholly Owned or our Founded Entities’ product candidates or the inability to do so at acceptable prices;

 

   

adverse regulatory decisions, including failure to reach agreement with applicable regulatory authorities on the design or scope of our planned clinical trials;

 

   

failure to obtain and maintain regulatory exclusivity for our Wholly Owned or our Founded Entities’ product candidates;

 

   

regulatory approval or commercialization of new products or other methods of treating our target disease indications by our competitors;

 

   

failure to meet or exceed financial projections we may provide to the public or to the investment community;

 

   

publication of research reports or comments by securities or industry analysts;

 

   

the perception of the pharmaceutical and biotechnology industries by the public, legislatures, regulators and the investment community;

 

   

announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us, our Founded Entities our strategic collaboration partners or our competitors;

 

   

disputes or other developments relating to proprietary rights, including patents, litigation matters and our or our Founded Entities’ ability to obtain patent protection for our technologies;

 

   

additions or departures of our key scientific or management personnel;

 

   

significant lawsuits, including patent or shareholder litigation, against us;

 

   

changes in the market valuations of similar companies;

 

   

adverse developments relating to any of the above or additional factors with respect to our Founded Entities;

 

   

sales or potential sales of substantial amounts of our ADSs; and

 

   

trading volume of our ADSs.

In addition, companies trading in the stock market in general, and Nasdaq, in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating

 

74


Table of Contents

performance of these companies. Broad market and industry factors may negatively affect the market price of our ADSs, regardless of our actual operating performance.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our ADS price and trading volume could decline.

The trading market for our ADSs and ordinary shares depends in part on the research and reports that securities or industry analysts publish about us or our business. If no or few securities or industry analysts cover our company, the trading price for our ADSs and ordinary shares would be negatively impacted. If one or more of the analysts who covers us downgrades our equity securities or publishes incorrect or unfavorable research about our business, the price of our ordinary shares and ADSs would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, or downgrades our securities, demand for our ordinary shares and ADSs could decrease, which could cause the price of our ordinary shares and ADSs or their trading volume to decline.

Future sales, or the possibility of future sales, of a substantial number of our securities could adversely affect the price of the shares and dilute shareholders.

Sales of a substantial number of our ADSs in the public market could occur at any time, subject to certain restrictions described below. If our existing shareholders sell, or indicate an intent to sell, substantial amounts of our securities in the public market, the trading price of the ADSs could decline significantly and could decline below the original purchase price. As of June 30, 2020, we had 285,512,461 outstanding ordinary shares. Ordinary shares subject to outstanding options under our equity incentive plans and the ordinary shares reserved for future issuance under our equity incentive plans will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations.

Holders of ADSs are not treated as holders of our ordinary shares.

After purchasing an ADS, you will become a holder of ADSs with underlying ordinary shares in a company incorporated under English law. Holders of ADSs are not treated as holders of our ordinary shares, unless they withdraw the ordinary shares underlying their ADSs in accordance with the deposit agreement and applicable laws and regulations. The depositary is the holder of the ordinary shares underlying the ADSs. Holders of ADSs therefore do not have any rights as holders of our ordinary shares, other than the rights that they have pursuant to the deposit agreement. See “Description of American Depositary Shares.”

Holders of ADSs may be subject to limitations on the transfer of their ADSs and the withdrawal of the underlying ordinary shares.

ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary think it is advisable to do so because of any requirement of law, government or governmental body, or under any provision of the deposit agreement, or for any other reason, subject to the right of ADS holders to cancel their ADSs and withdraw the underlying ordinary shares. Temporary delays in the cancellation of your ADSs and withdrawal of the underlying ordinary shares may arise because the depositary has closed its transfer books or we have closed our transfer books, the transfer of ordinary shares is blocked to permit voting at a shareholders’ meeting or we are paying a dividend on our ordinary shares. In addition, ADS holders may not be able to cancel their ADSs and withdraw the underlying ordinary shares when they owe money for fees, taxes and similar charges and when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of ordinary shares or other deposited securities. See “Description of American Depositary Shares.”

 

75


Table of Contents

ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.

The deposit agreement governing the ADSs representing our ordinary shares provides that, to the fullest extent permitted by law, holders and beneficial owners of ADSs irrevocably waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to the ADSs or the deposit agreement.

If this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the U.S. Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the deposit agreement.

If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action, depending on, among other things, the nature of the claims, the judge or justice hearing such claims, and the venue of the hearing.

No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with the U.S. federal securities laws and the rules and regulations promulgated thereunder.

One of our principal shareholders has a significant holding in the company which may give them influence in certain matters requiring approval by shareholders, including approval of significant corporate transactions in certain circumstances.

As of June 30, 2020, Invesco Asset Management Limited, or Invesco, held approximately 29 percent of our ordinary shares. Accordingly, Invesco may, as a practical matter, be able to influence certain matters requiring approval by shareholders, including approval of significant corporate transactions in certain circumstances. Such concentration of ownership may also have the effect of delaying or preventing any future proposed change in control of the Company. The trading price of the ordinary shares could be adversely affected if potential new investors are disinclined to invest in the Company because they perceive disadvantages to a large shareholding being concentrated in the hands of a single shareholder. The interests of Invesco and the investors that acquire ADSs may not be aligned. Invesco may make acquisitions of, or investments in, other businesses in the same sectors as us or our Founded Entities. These businesses may be, or may become, competitors of us or our Founded Entities. In addition, funds or other entities managed or advised by Invesco may be in direct competition with us or our Founded Entities on potential acquisitions of, or investments in, certain businesses. In addition, Invesco holds equity interests in certain of our Founded Entities where they may exert direct influence.

 

76


Table of Contents

You will not have the same voting rights as the holders of our ordinary shares and may not receive voting materials in time to be able to exercise your right to vote.

Except as described in this registration statement and the deposit agreement, holders of the ADSs will not be able to exercise voting rights attaching to the ordinary shares represented by the ADSs. Under the terms of the deposit agreement, holders of the ADSs may instruct the depositary to vote the ordinary shares underlying their ADSs. Otherwise, holders of ADSs will not be able to exercise their right to vote unless they withdraw the ordinary shares underlying their ADSs to vote them in person or by proxy in accordance with applicable laws and regulations and our Articles of Association. Even so, ADS holders may not know about a meeting far enough in advance to withdraw those ordinary shares. If we ask for the instructions of holders of the ADSs, the depositary, upon timely notice from us, will notify ADS holders of the upcoming vote and arrange to deliver our voting materials to them. Upon our request, the depositary will mail to holders a shareholder meeting notice that contains, among other things, a statement as to the manner in which voting instructions may be given. We cannot guarantee that ADS holders will receive the voting materials in time to ensure that they can instruct the depositary to vote the ordinary shares underlying their ADSs. A shareholder is only entitled to participate in, and vote at, the meeting of shareholders, provided that it holds our ordinary shares as of the record date set for such meeting and otherwise complies with our Articles of Association. In addition, the depositary’s liability to ADS holders for failing to execute voting instructions or for the manner of executing voting instructions is limited by the deposit agreement. As a result, holders of ADSs may not be able to exercise their right to give voting instructions or to vote in person or by proxy and they may not have any recourse against the depositary or us if their ordinary shares are not voted as they have requested or if their shares cannot be voted.

You may not receive distributions on our ordinary shares represented by the ADSs or any value for them if it is illegal or impractical to make them available to holders of ADSs.

The depositary for the ADSs has agreed to pay to you any cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of our ordinary shares your ADSs represent. However, in accordance with the limitations set forth in the deposit agreement, it may be unlawful or impractical to make a distribution available to holders of ADSs. We have no obligation to take any other action to permit distribution on the ADSs, ordinary shares, rights or anything else to holders of the ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value from them if it is unlawful or impractical to make them available to you. These restrictions may have an adverse effect on the value of your ADSs.

Because we do not have immediate plans to pay any cash dividends on our ADSs, capital appreciation, if any, may be your sole source of gains and you may never receive a return on your investment.

Under current English law, a company’s accumulated realized profits must exceed its accumulated realized losses (on a non-consolidated basis) before dividends can be declared and paid. Therefore, we must have sufficient distributable profits before declaring and paying a dividend. We have not paid dividends in the past on our ordinary shares. We have not announced any immediate plans to pay any cash dividends. As a result, capital appreciation, if any, on our ADSs will be your sole source of gains for the foreseeable future, and you would suffer a loss on your investment if you were unable to sell your ADSs at or above the price that you initially paid for them. Investors seeking cash dividends should not purchase our ADSs.

We are an “emerging growth company,” and there are reduced disclosure requirements applicable to emerging growth companies.

We are an “emerging growth company” as defined in the SEC’s rules and regulations and we will remain an emerging growth company until the earlier to occur of (1) the last day of 2024, (2) the last day of the fiscal year in which we have total annual gross revenues of at least $1.07 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer,” under the rules of the U.S. Securities and Exchange Commission,

 

77


Table of Contents

or SEC, which means the market value of our equity securities that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (4) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

 

   

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, or Section 404;

 

   

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

 

   

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

 

   

reduced disclosure obligations regarding executive compensation; and

 

   

an exemption from the requirement to seek nonbinding advisory votes on executive compensation or golden parachute arrangements.

We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of reduced reporting burdens in this registration statement. In particular, we have not included all of the executive compensation information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our ADSs less attractive if we rely on certain or all of these exemptions. If some investors find our ADSs less attractive as a result, there may be a less active trading market for our ADSs and our ADS price may be more volatile.

In addition, the JOBS Act provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are considering whether we will take advantage of the extended transition period for complying with new or revised accounting standards. Since IFRS makes no distinction between public and private companies for purposes of compliance with new or revised accounting standards, the requirements for our compliance as a private company and as a public company are the same.

Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” if the market value of our ordinary shares held by non-affiliates is below $250 million (or $700 million if our annual revenue is less than $100 million) as of June 30 in any given year, which would allow us to take advantage of many of the same exemptions from disclosure requirements, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

We are not, and do not intend to become, regulated as an “investment company” under the Investment Company Act of 1940, as amended, or the 1940 Act and if we were deemed an “investment company” under the 1940 Act, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.

The 1940 Act and the rules thereunder contain detailed parameters for the organization and operation of investment companies. Among other things, the 1940 Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities and impose certain governance requirements. We have not been and do not intend to become regulated as an investment company, and we intend to conduct our activities so that we will not be deemed to be an investment company under the 1940 Act. In order

 

78


Table of Contents

to ensure that we are not deemed to be an investment company, we may be limited in the assets that we may continue to own and, further, may need to dispose of or acquire certain assets at such times or on such terms as may be less favorable to us than in the absence of such requirement. If anything were to happen which would cause us to be deemed to be an investment company under the 1940 Act (such as significant changes in the value of our Founded Entities or a change in circumstance that results in a reclassification of our interests in our Founded Entities for purposes of the 1940 Act), the requirements imposed by the 1940 Act could make it impractical for us to continue our business as currently conducted, which would materially adversely affect our business, results of operations and financial condition. In addition, if we were to become inadvertently subject to the 1940 Act, any violation of the 1940 Act could subject us to material adverse consequences, including potentially significant regulatory penalties and the possibility that certain of our contracts could be deemed unenforceable.

As a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and are permitted to file less information with the SEC than a U.S. company. This may limit the information available to holders of ADSs or our ordinary shares.

We are a “foreign private issuer,” as defined in the SEC’s rules and regulations and, consequently, we are not subject to all of the disclosure requirements applicable to public companies organized within the United States. For example, we are exempt from certain rules under the Exchange Act, that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act, including the U.S. proxy rules under Section 14 of the Exchange Act. In addition, our officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, while we currently make annual and semi-annual filings with respect to our listing on the LSE, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. domestic issuers and will not be required to file quarterly reports on Form 10-Q or current reports on Form 8-K under the Exchange Act. Accordingly, there will be less publicly available information concerning our company than there would be if we were not a foreign private issuer.

As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards.

As a foreign private issuer listed on Nasdaq, we will be subject to corporate governance listing standards. However, rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the United Kingdom, which is our home country, may differ significantly from corporate governance listing standards. For example, neither the corporate laws of the United Kingdom nor our articles of association require a majority of our directors to be independent and we could include non-independent directors as members of our nomination and remuneration committee, though a majority is required, and our independent directors would not necessarily hold regularly scheduled meetings at which only independent directors are present. Currently, we intend to follow home country practice to the maximum extent possible. Therefore, our shareholders may be afforded less protection than they otherwise would have under corporate governance listing standards applicable to U.S. domestic issuers. See “Management.”

We may lose our foreign private issuer status in the future, which could result in significant additional cost and expense.

While we currently qualify as a foreign private issuer, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on June 30, 2021.

 

79


Table of Contents

In the future, we would lose our foreign private issuer status if we to fail to meet the requirements necessary to maintain our foreign private issuer status as of the relevant determination date. For example, if more than 50 percent of our securities are held by U.S. residents and more than 50 percent of the members of our executive committee or members of our board of directors are residents or citizens of the United States, we could lose our foreign private issuer status.

The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly more than costs we incur as a foreign private issuer. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive in certain respects than the forms available to a foreign private issuer. We would be required under current SEC rules to prepare our financial statements in accordance with U.S. GAAP, rather than IFRS, and modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers. Such conversion of our financial statements to U.S. GAAP will involve significant time and cost. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers such as the ones described above and exemptions from procedural requirements related to the solicitation of proxies.

We will incur increased costs as a result of operating as a U.S.-listed public company, and our management will be required to devote substantial time to new compliance initiatives.

As a U.S. public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a public company listed on the LSE. In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and rules subsequently implemented by the SEC and Nasdaq have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance.

Pursuant to Section 404, we will be required to furnish a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk we will not be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

If we are unable to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our ADSs.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to

 

80


Table of Contents

implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our ADSs.

Our management will be required to assess the effectiveness of these controls annually. However, for as long as we are an emerging growth company, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. We could be an emerging growth company for up to five years. An independent assessment of the effectiveness of our internal controls over financial reporting could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation.

In connection with the audit of our consolidated financial statements in accordance with the standards of the PCAOB and U.S. securities laws, a material weakness in our internal control over financial reporting was found to exist. If we fail to implement and maintain effective internal control over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.

We have been a public company on the LSE with limited requirements to implement and test internal controls under a UK framework. As such, we have not been subject to the internal control over financial reporting requirements of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the standards of the PCAOB and furthermore our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting in accordance with such rules. As a U.S. public company, Section 404 of the Sarbanes-Oxley Act will require that our management assess our internal control over financial reporting and include a report of management on our internal control over financial reporting in our annual report on Form 20-F beginning with our second annual report. Although we have adhered to and will continue to adhere to all internal control requirements made relevant by the governance of the LSE, the requirements pertaining to the design and implementation of internal controls over financial reporting as contemplated under the Sarbanes-Oxley Act had not been considered in the production of financial statements for the years ended December 31, 2019, 2018 and 2017 for our annual report issued in the United Kingdom. In connection with the audits of our consolidated financial statements as of and for each of the years ended December 31, 2019, 2018 and 2017 conducted in connection with this registration statement, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness relates to several significant deficiencies that were identified which, in aggregate, rise to the level of a material weakness. These significant deficiencies relate to our process around accounting for costs attributed to individual projects, contract and consolidated review, segregation of duties, expense identification, allocation of employee stock compensation expense, and tax provision relating to underlying investments and related party identification. We have taken steps to remediate the material weakness, including increasing the depth and experience within our accounting and finance organization, designing and implementing improved processes and internal controls based on the COSO framework, and internally testing the effectiveness of our internal controls. As with any internal control framework, we cannot be certain that these efforts will be sufficient to remediate our material weaknesses, prevent future material weaknesses or significant deficiencies from occurring. If we are unable to successfully remediate our existing or any future material weaknesses in our internal control over financial reporting, or if we identify any additional material weaknesses, the accuracy and timing of our financial reporting may be adversely affected. In addition, investors could lose confidence in our reported financial information, and we could be subject to regulatory scrutiny and to litigation from shareholders, which could have a material adverse effect on our business and the price of our ADSs.

 

81


Table of Contents

Once we cease to be an “emerging growth company” as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is adverse if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company in the U.S., our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing for internal control over financial reporting and any required remediation.

If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our securities. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

Upon completion of this registration, we will become subject to certain reporting requirements of the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected.

Comprehensive tax reform legislation could adversely affect our business and financial condition.

On December 22, 2017, the Tax Act was signed into law. The Tax Act, among other things, contains significant changes to corporate taxation, including (i) reduction of the corporate tax rate from a top marginal rate of 35 percent to a flat rate of 21 percent, (ii) limitation of the tax deduction for interest expense to 30 percent of adjusted earnings (except for certain small businesses), (iii) limitation of the deduction for net operating losses to 80 percent of current year taxable income in respect of net operating losses generated during or after 2018 and elimination of net operating loss carrybacks, (iv) one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, (v) immediate deductions for certain new investments instead of deductions for depreciation expense over time, and (vi) modifying or repealing many business deductions and credits. Any federal net operating loss incurred in 2018 and in future years may now be carried forward indefinitely pursuant to the Tax Act. It is uncertain if and to what extent various states will conform to the newly enacted federal tax law. We will continue to examine the impact the Tax Act may have on our business.

On March 27, 2020, the “Coronavirus Aid, Relief, and Economic Security Act” or the CARES Act was singed into law, which included certain changes in tax law intended to stimulate the U.S. economy in light of the COVID-19 coronavirus outbreak, including temporary beneficial changes to the treatment of net operating losses, interest deductibility limitations and payroll tax matters.

 

82


Table of Contents

We are treated as a U.S. domestic corporation for U.S. federal income tax purposes.

We are treated as a U.S. domestic corporation for U.S. federal income tax purposes under Section 7874(b) of the Internal Revenue Code of 1986, as amended, or the Code. As a result, we are subject to U.S. income tax on our worldwide income and any dividends paid by us to non-U.S. holders (as defined in the discussion under “Taxation in the United States—Tax Considerations for Non-U.S. Holders”) will be subject to U.S. federal income tax withholding at a 30 percent rate or such lower rate as provided in an applicable treaty. Furthermore, PureTech Health plc is also resident for tax purposes in the U.K. and subject to U.K. corporation tax on its worldwide income and gains. Consequently, we may be liable for both U.S. and U.K. income tax, which could have a material adverse effect on our financial condition and results of operations.

This discussion of certain U.S. federal income tax risks is subject in its entirety to the summaries set forth in “Taxation in the United Kingdom” and “Taxation in the United States.”

Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.

As of December 31, 2019, we had U.S. federal and state net operating loss carryforwards, or NOLs, of approximately $243.0 million due to prior period losses, which, subject to the following discussion, are generally available to be carried forward to offset a portion of our future taxable income, if any, until such NOLs are used or expire. In general, under Section 382 of the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs to offset future taxable income. Similar rules may apply under state tax laws. Our existing NOLs may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change, our ability to utilize NOLs could be further limited by Section 382 of the Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code. Additionally, we may no longer be able to utilize losses of our Founded Entities that have been deconsolidated or that will deconsolidate in the future. Furthermore, our ability to utilize NOLs of companies that we have acquired or may acquire in the future may be subject to limitations. In addition, under the Tax Act, the amount of post 2017 NOLs that we are permitted to deduct in any taxable year is limited to 80 percent of our taxable income in such year, where taxable income is determined without regard to the NOL deduction itself. Federal NOLs generated after December 31, 2017 are not subject to expiration and generally may not be carried back to prior taxable years, except that under the CARES Act, NOLs generated in 2018, 2019 and 2020 may be carried back five taxable years. There is also a risk that due to changes under the Tax Act, regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could be unavailable to offset future income tax liabilities. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs.

We may be unable to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future U.K. tax liabilities.

As a U.K. incorporated and tax resident entity, PureTech Health plc is subject to U.K. corporate taxation on its tax-adjusted trading profits. Due to the nature of our business, PureTech Health plc has generated losses since inception and therefore we have not paid any U.K. corporation tax. Subject to numerous utilization criteria and restrictions (including those that limit the percentage of profits that can be reduced by carried forward losses and those that can restrict the use of carried forward losses where there is a change of ownership of more than half the ordinary shares of the company and a major change in the nature, conduct or scale of the trade), we expect these to be eligible for carry forward and utilization against future U.K. operating profits.

Future changes to tax laws could materially adversely affect our company and reduce net returns to our shareholders.

The tax treatment of the company is subject to changes in tax laws, regulations and treaties, or the interpretation thereof, tax policy initiatives and reforms under consideration and the practices of tax authorities in jurisdictions

 

83


Table of Contents

in which we operate, as well as tax policy initiatives and reforms related to the Organisation for Economic Co-Operation and Development’s, or OECD, Base Erosion and Profit Shifting, or BEPS, Project, the European Commission’s state aid investigations and other initiatives. Such changes may include (but are not limited to) the taxation of operating income, investment income, dividends received or (in the specific context of withholding tax) dividends paid. We are unable to predict what tax reform may be proposed or enacted in the future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices, could affect our financial position and overall or effective tax rates in the future in countries where we have operations, reduce post-tax returns to our shareholders, and increase the complexity, burden and cost of tax compliance.

Tax authorities may disagree with our positions and conclusions regarding certain tax positions, resulting in unanticipated costs, taxes or non-realization of expected benefits.

A tax authority may disagree with tax positions that we have taken, which could result in increased tax liabilities. For example, HM Revenue & Customs, or HMRC, the Internal Revenue Service or another tax authority could challenge our allocation of income by tax jurisdiction and the amounts paid between certain of our Founded Entities pursuant to our intercompany arrangements and transfer pricing policies, including amounts paid with respect to our intellectual property development. Similarly, a tax authority could assert that we are subject to tax in a jurisdiction where we believe we have not established a taxable connection, often referred to as a “permanent establishment” under international tax treaties, and such an assertion, if successful, could increase our expected tax liability in one or more jurisdictions. A tax authority may take the position that material income tax liabilities, interest and penalties are payable by us, in which case, we expect that we might contest such assessment. Contesting such an assessment may be lengthy and costly and if we were unsuccessful in disputing the assessment, the implications could increase our anticipated effective tax rate, where applicable.

Shareholder protections found in provisions under the U.K. City Code on Takeovers and Mergers, or the Takeover Code, will not apply if our securities are no longer admitted to trading on a regulated market or a multilateral trading facility in the United Kingdom or on any stock exchange in the Channel Islands or the Isle of Man and our place of management and control is considered to change to outside the United Kingdom.

We are registered as a public limited company incorporated in England and Wales and have our ordinary shares admitted to trading on a regulated market in the United Kingdom (being the main market of the LSE). Accordingly, we are currently subject to the Takeover Code and, as a result, our shareholders are entitled to the benefit of certain takeover offer protections provided under the Takeover Code. The Takeover Code provides a framework within which takeovers of companies are regulated and conducted. If, at the time of a takeover offer, we have de-listed from the main market of the LSE (and do not maintain a listing of securities on any other regulated market or a multilateral trading facility in the United Kingdom or on any stock exhanage in the Channel Islands or the Isle of Man) and the Panel on Takeovers and Mergers determine that we do not have our place of central management and control in the United Kingdom, then the Takeover Code may not apply to us and our shareholders would not be entitled to the benefit of the various protections that the Takeover Code affords. In particular, we would not be subject to the rules regarding mandatory takeover bids. The following is a brief summary of some of the most important rules of the Takeover Code:

 

   

when any person acquires, whether by a series of transactions over a period of time or not, an interest in shares which (taken together with shares already held by that person and an interest in shares held or acquired by persons acting in concert with him or her) carry 30 percent or more of the voting rights of a company that is subject to the Takeover Code, that person is generally required to make a mandatory offer to all the holders of any class of equity share capital or other class of transferable securities carrying voting rights in that company to acquire the balance of their interests in the company;

 

   

when any person who, together with persons acting in concert with him or her, is interested in shares representing not less than 30 percent but does not hold more than 50 percent of the voting rights of a company that is subject to the Takeover Code, and such person, or any person acting in concert with

 

84


Table of Contents
 

him or her, acquires an additional interest in shares which increases the percentage of shares carrying voting rights in which he or she is interested, then such person is generally required to make a mandatory offer to all the holders of any class of equity share capital or other class of transferable securities carrying voting rights of that company to acquire the balance of their interests in the company;

 

   

a mandatory offer triggered in the circumstances described in the two paragraphs above must be in cash (or be accompanied by a cash alternative) and at not less than the highest price paid within the preceding 12 months to acquire any interest in shares in the company by the person required to make the offer or any person acting in concert with him or her;

 

   

in relation to a voluntary offer (i.e. any offer which is not a mandatory offer), when interests in shares representing 10 percent or more of the shares of a class have been acquired for cash by an offeror (i.e., a bidder) and any person acting in concert with it in the offer period and the previous 12 months, the offer must be in cash or include a cash alternative for all shareholders of that class at not less than the highest price paid for any interest in shares of that class by the offeror and by any person acting in concert with it in that period. Further, if an offeror acquires for cash any interest in shares during the offer period, a cash alternative must be made available at not less than the highest price paid for any interest in the shares of that class;

 

   

if the offeror acquires an interest in shares in an offeree company (i.e., a target) at a price higher than the value of the offer, the offer must be increased to not less than the highest price paid for the interest in shares so acquired;

 

   

the offeree company must obtain competent advice as to whether the terms of any offer are fair and reasonable and the substance of such advice must be made known to all the shareholders, together with the opinion of the board of directors of the offeree company;

 

   

special or favorable deals for selected shareholders are not permitted, except in certain circumstances where independent shareholder approval is given and the arrangements are regarded as fair and reasonable in the opinion of the financial adviser to the offeree;

 

   

all shareholders must be given the same information;

 

   

each document published in connection with an offer by or on behalf of the offeror or offeree must state that the directors of the offeror or the offeree, as the case may be, accept responsibility for the information contained therein;

 

   

profit forecasts, quantified financial benefits statements and asset valuations must be made to specified standards and must be reported on by professional advisers;

 

   

misleading, inaccurate or unsubstantiated statements made in documents or to the media must be publicly corrected immediately;

 

   

actions during the course of an offer by the offeree company, which might frustrate the offer are generally prohibited unless shareholders approve these plans. Frustrating actions would include, for example, lengthening the notice period for directors under their service contract or agreeing to sell off material parts of the target group;

 

   

stringent and detailed requirements are laid down for the disclosure of dealings in relevant securities during an offer, including the prompt disclosure of positions and dealing in relevant securities by the parties to an offer and any person who is interested (directly or indirectly) in 1 percent or more of any class of relevant securities; and

 

   

employees of both the offeror and the offeree company and the trustees of the offeree company’s pension scheme must be informed about an offer. In addition, the offeree company’s employee representatives and pension scheme trustees have the right to have a separate opinion on the effects of the offer on employment appended to the offeree board of directors’ circular or published on a website.

 

85


Table of Contents

The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation.

We are incorporated under the laws of England and Wales. The rights of holders of ordinary shares and, therefore, certain of the rights of holders of ADSs, are governed by English law, including the provisions of the U.K. Companies Act, or the Companies Act, and by our Articles of Association. These rights differ in certain respects from the rights of shareholders in typical U.S. corporations. See “Description of Share Capital and Articles of Association—Differences in Corporate Law” in this registration statement for a description of the principal differences between the provisions of the Companies Act applicable to us and, for example, the Delaware General Corporation Law relating to shareholders’ rights and protections.

The principal differences include the following:

 

   

under English law and our articles of association, each shareholder present at a meeting has only one vote when voting by a show of hands unless demand is made for a vote on a poll, in which case each holder gets one vote per share owned. The Company usually conducts all of its shareholder votes on a poll. Under U.S. law, each shareholder typically is entitled to one vote per share at all meetings;

 

   

under English law, it is only on a poll that the number of shares determines the number of votes a holder may cast. You should be aware, however, that the voting rights of ADSs are also governed by the provisions of a deposit agreement with our depositary bank;

 

   

under English law, subject to certain exceptions and disapplications, each shareholder generally has preemptive rights to subscribe on a proportionate basis to any issuance of ordinary shares or rights to subscribe for, or to convert securities into, ordinary shares for cash. Under U.S. law, shareholders generally do not have preemptive rights unless specifically granted in the certificate of incorporation or otherwise;

 

   

under English law and our articles of association, certain matters require the approval of 75 percent of the shareholders who vote (in person or by proxy) on the relevant resolution (or on a poll of shareholders representing 75 percent of the ordinary shares voting (in person or by proxy)), including amendments to the articles of association. This may make it more difficult for us to complete certain corporate transactions deemed advisable by our board of directors. Under U.S. law, generally only majority shareholder approval is required to amend the certificate of incorporation or to approve other significant transactions;

 

   

in the United Kingdom, takeovers may be structured as takeover offers or as schemes of arrangement. Under English law, for so long as we continue to be subject to the Takeover Code, a bidder seeking to acquire us by means of a takeover offer would need to make an offer for all of our outstanding ordinary shares/ADSs. If acceptances are not received for 90 percent or more of the ordinary shares/ADSs under the offer, under English law, the bidder cannot complete a “squeeze out” to obtain 100 percent control of us. Accordingly, acceptances of 90 percent of our outstanding ordinary shares/ADSs will likely be a condition in any takeover offer to acquire us, not 50 percent as is more common in tender offers for corporations organized under Delaware law. By contrast, a scheme of arrangement, the successful completion of which would result in a bidder obtaining 100 percent control of us, requires the approval of a majority of shareholders voting at the meeting and representing 75 percent of the ordinary shares voting for approval;

 

   

under English law and our articles of association, shareholders and other persons whom we know or have reasonable cause to believe are, or have been, interested in our shares may be required to disclose information regarding their interests in our shares upon our request, and the failure to provide the required information could result in the loss or restriction of rights attaching to the shares, including prohibitions on certain transfers of the shares, withholding of dividends and loss of voting rights. Comparable provisions generally do not exist under U.S. law; and

 

   

the quorum requirement for a shareholders’ meeting is a minimum of two shareholders entitled to vote at the meeting and present in person or by proxy or, in the case of a shareholder which is a corporation,

 

86


Table of Contents
 

represented by a duly authorized officer. Under U.S. law, a majority of the shares eligible to vote must generally be present (in person or by proxy) at a shareholders’ meeting in order to constitute a quorum. The minimum number of shares required for a quorum can be reduced pursuant to a provision in a company’s certificate of incorporation or bylaws, but typically not below one-third of the shares entitled to vote at the meeting.

 

87


Table of Contents
ITEM 4.

INFORMATION ON THE COMPANY

 

A.

HISTORY AND DEVELOPMENT OF THE COMPANY

We were incorporated and registered under the laws of England and Wales with the Registrar of Companies of England and Wales, United Kingdom in May 2015 as “PureTech Health plc.” Our predecessor entity, PureTech Health LLC, or our Predecessor Entity, commenced formal operations and began engaging in initial sourcing activities in 2004, raising its first financing round greater than $5 million in the same year. The Predecessor Entity was acquired by PureTech Health plc on June 18, 2015 in a reorganization completed in connection with our initial public offering on the London Stock Exchange. The Predecessor Entity is now a wholly-owned subsidiary of PureTech Health plc. Our registered office is situated at 8th Floor, 20 Farringdon Street, London EC4A 4AB, United Kingdom, and our telephone number is +(1) 617 482 2333. Our U.S. operations are conducted by our wholly-owned subsidiary PureTech Health LLC, a Delaware limited liability company. Our ordinary shares have traded on the main market of the London Stock Exchange, since June 2015. Our agent for service of process in the United States is PureTech Health LLC located at 6 Tide Street, Suite 400, Boston, Massachusetts 02210 where our corporate headquarters and laboratories are located. Our website address is http://puretechhealth.com. The reference to our website is an inactive textual reference only and information contained in, or that can be accessed through, our website or any other website cited in this registration statement is not part of hereof.

Unless the context specifically indicates otherwise, references in this to our “Wholly Owned Programs” refer to LYT-100, LYT-200, LYT-210 and LYT-300 as well as our three discovery platforms, and “Wholly Owned product candidates” and “Wholly Owned Pipeline” refer to LYT-100, LYT-200, LYT-210 and LYT-300. References in this registration statement to our “Founded Entities” refer to the entities that we founded and in which we continue to hold equity. Our Founded Entities are comprised of our Controlled Founded Entities and our Non-Controlled Founded Entities. Anywhere our Founded Entities (or subsets thereof) are listed in this registration statement, we have ordered them by stage of development. References in this registration statement to our “Controlled Founded Entities” refer to Follica, Incorporated, Vedanta Biosciences, Inc., Sonde Health, Inc., Alivio Therapeutics, Inc. and Entrega, Inc. References in this registration statement to our “Non-Controlled Founded Entities” refer to Gelesis, Inc., Karuna Therapeutics, Inc., Akili Interactive Labs, Inc., Vor Biopharma Inc., and, for all periods prior to December 18, 2019, resTORbio, Inc. We formed each of our Founded Entities and have been involved in development efforts in varying degrees. In the case of each of our Controlled Founded Entities, we continue to maintain majority voting control. With respect to our Non-Controlled Founded Entities, we may benefit from appreciation in our investment as a shareholder of such companies. Additional information regarding the accounting treatment of our Founded Entities is included under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our consolidated financial statements included in this registration statement. All references to our parent entity refer to PureTech Health plc.

 

B.

BUSINESS OVERVIEW

Overview

We are a clinical-stage biotherapeutics company dedicated to discovering, developing and commercializing highly differentiated medicines for devastating diseases, including inflammatory and immunological conditions, intractable cancers, lymphatic and gastrointestinal diseases and neurological and neuropsychological disorders, among others. The product candidates within our Wholly Owned Pipeline and the products and product candidates being developed by our Founded Entities were initiated by our experienced research and development team and our extensive network of scientists, clinicians and industry leaders. These products and product candidates are protected by a growing intellectual property portfolio of more than 600 patents and patent applications, of which more than 200 are issued.

We established the underlying programs and platforms that have resulted in 24 products and product candidates that are being advanced within our Wholly Owned Programs or by our Founded Entities. Of these products and product candidates, 12 are clinical-stage and two have been cleared by the U.S. Food and Drug Administration, or FDA, and granted marketing authorization in the European Economic Area, or EEA, and in other countries that recognize the CE Mark. Our Non-Controlled Founded Entities are advancing eight of these product

 

88


Table of Contents

candidates, including two that are expected to enter Phase 3/Pivotal studies, as well as two FDA-cleared products. Our Controlled Founded Entities are advancing nine of these product candidates, including one that is expected to enter a Phase 3 study and three that are in Phase 2 development, and we are advancing four of these product candidates within our Wholly Owned Pipeline. We and our Founded Entities have relationships with several pharmaceutical companies or their investment arms to advance some of the underlying programs and platforms.

All of these underlying programs and platforms were initially identified or discovered and then advanced by our team through key validation points based on our unique insights into the biology of the Brain, Immune and Gut, or BIG, systems and the interface between those systems, which we refer to as the BIG Axis. The architectural framework supporting BIG Axis cross-talk is built on evidence highlighting the presence of 70 percent of the entire immune cell population in the gut, approximately 500 million neurons innervating the gastrointestinal, or GI, tract, enteric neurons as part of the autonomic nervous system and key components such as the gut epithelial barrier, microbiome, metabolites and neurotransmitters that play key roles in protecting and influencing the immune system and central nervous system, or CNS.

We are led by a proven and seasoned management team of business leaders with significant experience in discovering and developing important new medicines, delivering them to market and maximizing shareholder value. Collectively, the members of our management team have overseen research and development of products supporting 23 regulatory approvals and have been in the C-suite of companies acquired for more than $13 billion in the aggregate.

Our team, network and expertise in the BIG Axis enable us to identify and advance the latest scientific discoveries at the interface of the BIG systems. We begin by collaborating with a cross-disciplinary group of experienced clinicians and the world’s leading experts in brain, immune and gut biology in a discovery process that breaks down specific diseases and comprehensively identifies, reviews and empirically tests unpublished scientific discoveries in a modality agnostic and unbiased way. Our model, which employs (1) this collaborative process leveraging our biological expertise in the BIG axis and our scientific network, (2) a disciplined approach to program advancement, and (3) a capital efficient approach to driving clinical developments and value creation, has enabled us to rapidly convert these findings into valuable therapeutic product candidates.

Historically, we have developed these programs and product candidates with strategic allies, including equity partners who helped us to advance those programs via our Founded Entities. As these programs have succeeded and our resources have grown, we have increasingly focused on our Wholly Owned Programs. Our Wholly Owned Programs are designed to harness key immunological and lymphatic system mechanisms. They currently consist of LYT-100, a clinical-stage product candidate we are pursuing for conditions involving inflammation and fibrosis and disorders of lymphatic flow, LYT-200 and LYT-210, two preclinical product candidates targeting foundational immunomodulatory mechanisms we are developing to treat cancer and other immunological disorders, and LYT-300, a preclinical product candidate we are developing for a range of neurological and neuropsychological conditions. Our Wholly Owned Programs also include three discovery programs: GlyphTM—our synthetic lymphatic targeting chemistry platform—and OrasomeTM—our oral biotherapeutics platform—both of which leverage absorption of dietary lipids to traffic therapeutics via the lymphatic system, and our meningeal lymphatics discovery research program for treating neurodegenerative diseases.

Components of our Value

The table below depicts the four components of our value: (1) our Wholly Owned Pipeline, (2) Founded Entities that we have a controlling interest in or from which we are entitled to receive royalty payments, (3) Founded Entities where our interest is limited to our equity ownership and (4) our available cash, cash equivalents and short-term investments at the parent level.

 

89


Table of Contents

We hold majority voting control of our Controlled Founded Entities and continue to play a role in the development of their product candidates through representation on their board of directors, with respect to Follica, Vedanta, Alivio and Sonde. Our board designees represent a majority of the members of the board of directors of Follica, Vedanta and Alivio and a minority of the members of the board of directors of Sonde. With respect to our Non-Controlled Founded Entities, we do not hold majority equity ownership and are not responsible for the development or commercialization of their product candidates and FDA-cleared products. Our Non-Controlled Founded Entities have independent management teams, and we do not control the day-to-day development of their respective product candidates.

(1) Our Wholly Owned Pipeline. We are focused on the advancement of our Wholly Owned Pipeline and delivering value to our shareholders by driving our Wholly Owned Programs to key clinical and commercial milestones, while continuing cutting edge research and development efforts to discover and advance new product candidates. The table below includes a summary of our Wholly Owned Programs and their development status.

(2) Founded Entities with Controlling Interest or Right to Receive Royalties. The table below summarizes, in order of development stage, the product candidates being developed by our Founded Entities in which we either have a controlling interest or the right to receive royalty payments. We established the underlying programs and platforms that have resulted in the product candidates noted in the table and advanced them through key validation points. Each of these product candidates targets indications related to one or more of the BIG systems, and any value we realize from these product candidates will be through the potential growth and realization of equity and royalty stakes highlighted in the table below.

(3) Founded Entities Limited to Equity Interest. We also hold equity ownership in our Non-Controlled Founded Entities, Akili and Vor. The table below describes these entities, in order of development stage. Our interest in the product candidates of these entities is limited to the potential appreciation of our equity interest in these entities.

(4) Cash, Cash Equivalents and Short-Term Investments. At the parent level, PureTech Health plc had cash, cash equivalents and short-term investments of $387.2 million as of September 30, 2020.

 

90


Table of Contents

 

LOGO

 

91


Table of Contents
*

Relevant ownership interests for Founded Entities were calculated on a diluted basis (as opposed to a voting basis) as of June 30, 2020, including outstanding shares, options and warrants, but excluding unallocated shares authorized to be issued pursuant to equity incentive plans. Ownership of Vor is based on the assumption that all future tranches of the most recent financing round are funded. Karuna ownership is calculated on an outstanding voting share basis as of August 26, 2020.

 

**

The letters next to the product candidates denote whether the product candidate is a pharmaceutical product (P), biologic (B), or device (D).

 

***

These product candidates are regulated as devices and their development has been approximately equated to phases of clinical development.

 

R

PureTech Health has a right to royalty payments as a percentage of net sales. For a description of these agreements, see “Business—Overview.”

 

Important Safety Information: Plenity is contraindicated in patients who are pregnant or are allergic to cellulose, citric acid, sodium stearyl fumarate, gelatine, or titanium dioxide. Plenity may alter the absorption of medications. Read Sections 6 and 8.3 of the Instructions for Use carefully. Avoid use in patients with the following conditions: esophageal anatomic anomalies, including webs, diverticuli, and rings; suspected strictures (such as patients with Crohn’s disease); or complications from prior gastrointestinal (GI) surgery that could affect GI transit and motility. Use with caution in patients with active GI conditions such as gastro-esophageal reflux disease (GERD), ulcers or heartburn. The overall incidence of adverse events (AEs) in the Plenity group was no different than the placebo group. The most common side effects were diarrhea, distended abdomen, infrequent bowel movements, and flatulence. For the safe and proper use of Plenity, U.S. Instructions for Use or the EU Instructions for Use.

 

Contingent on FDA review of the research plan.

 

Long COVID is a term being used to describe the emerging and persistent complications following the resolution of COVID-19 infection.

 

‡‡

PureTech Level Cash Reserves at September 30, 2020 represent cash balances and short-term investments held at PureTech Health LLC, PureTech Management, Inc., PureTech Health PLC, PureTech Securities Corporation of $372.0 million and held at PureTech LYT Inc., our internal pipeline, of $15.2 million, all of which are wholly owned entities of PureTech, excluding cash balances and short-term investments of $38.3 million held at Controlled Founded Entities which are not wholly owned.

Key Pipeline Components and Expected Milestones Through 2021

Through 2021, we anticipate many significant potential milestones across our Wholly Owned Programs and Founded Entities, including at least nine clinical readouts, at least 12 clinical study initiations and the full commercial rollout of two products. Of these, four clinical readouts and four clinical study initiations are anticipated within our Wholly Owned Programs. Additionally, we expect the continued progress of discovery and preclinical programs, as well as the potential for additional strategic partnerships and transactions and the growth of value through our equity and royalty holdings in our Founded Entities. Our Wholly Owned Programs and certain of our Founded Entities’ programs that contribute to our value are as follows:

Our Wholly Owned Programs Harnessing Immunological and Lymphatic System Mechanisms:

 

   

LYT-100, Our Lead Clinical-Stage Product Candidate Targeting a Range of Inflammatory, Fibrotic, Lymphatic Flow Disorders, and Other Related Indications: We are advancing our wholly-owned product candidate LYT-100 for the potential treatment of conditions involving inflammation and fibrosis and disorders of lymphatic flow, including lung dysfunction conditions (e.g., idiopathic pulmonary fibrosis, or IPF, unclassifiable interstitial lung diseases, or uILDs, and Long COVID respiratory complications and related sequelae) and lymphedema. LYT-100 is currently being evaluated in a multiple ascending dose Phase 1 clinical trial, which we expect data to readout in the second half of 2020. We intend to commence a proof-of-concept, or POC, study in patients with breast cancer related, upper limb secondary lymphedema in the second half of 2020, with topline results

 

92


Table of Contents
 

anticipated in the second half of 2021. We also intend to commence a Phase 2 study in Long COVID respiratory complications and related sequelae in the second half of 2020, with a potential readout in the second half of 2021. We also intend to explore the application of other potential new product candidates from our meningeal lymphatics platform for a range of neurodegenerative diseases. We are conducting a Phase 1 trial and plan to conduct Phase 2 and POC trials for LYT-100 outside of the United States and are following the applicable regulatory requirements in this jurisdiction. We intend to file an Investigational New Drug Application, or IND, with the FDA for LYT-100 prior to initiating a trial in the United States.

 

   

LYT-200 and LYT-210, Two Preclinical Immuno-Oncology, or IO, Product Candidates Harnessing Key Immune Cell Trafficking and Programming Mechanisms: The lymphatic system plays a crucial role in programming immune cells for precise functions and trafficking them to specific tissues. By modulating immune cell trafficking and programming, we are developing product candidates for the potential treatment of cancer and other immunological disorders. We are advancing LYT-200, targeting galectin-9, for a range of cancer indications, and LYT-210, targeting immunomodulatory gamma delta-1, or gd1, T cells, for a range of cancer indications and autoimmune disorders. We intend to file an IND for LYT-200 and initiate a Phase 1 clinical trial in solid tumors in the second half of 2020, with results anticipated in 2021. We also intend to advance additional preclinical and biomarker studies for LYT-210 in 2021.

 

   

LYT-300, Preclinical Product Candidate Developed Using our GlyphTM Technology Platform, Targeting Neurological and Neuropsychological Conditions: The most advanced product candidate from our Glyph technology platform is LYT-300 (oral allopregnanolone), which is being evaluated in a preclinical setting for a range of neurological and neuropsychological conditions. We expect to initiate a first-in-human clinical trial with LYT-300 by the end of 2021.

 

   

Our Discovery Platforms – Glyph (Lymphatic Targeting Chemistry Platform) and OrasomeTM (Oral Biotherapeutics Platform) – Leveraging Absorption of Dietary Lipids to Traffic Therapeutics via the Lymphatic System: We are harnessing the role of the lymphatic system in the absorption of dietary lipids to orally administer and traffic therapeutics via the lymphatic system. Our Glyph and Orasome technology platforms are based on this key function of the lymphatic system. We expect preclinical proof-of-concept data in 2021 and results from an additional preclinical non-human primate proof-of-concept study in 2021 for our Orasome technology platform. We also expect to advance additional product candidates from these platforms internally, and to potentially continue to broaden the platforms through strategic collaborations around non-core applications, beyond our existing discovery collaboration with a large pharmaceutical company.

Certain of Our Controlled Founded Entities:

 

   

Follica: Follica, Incorporated, or Follica, which is developing a regenerative biology platform designed to treat androgenetic alopecia, epithelial aging and other medical conditions, is advancing FOL-004 for the treatment of hair loss in male androgenetic alopecia. In December 2019, Follica announced topline results from a safety and efficacy optimization study. Follica announced the completion of an End-of-Phase 2 meeting with the FDA in June 2020, which supports the progression into Phase 3 development. The initiation of a Phase 3 registration program is expected in 2021. We are party to a royalty agreement with Follica pursuant to which we are entitled to low single-digit royalties on worldwide net sales of certain commercialized products and a percentage of any sublicense income for certain of its technologies within the range of mid single-digit and mid teen percentages. Our interest in Follica also includes our equity ownership of 78.3 percent at June 30, 2020.

 

 

93


Table of Contents
   

Vedanta: Vedanta Biosciences, Inc., or Vedanta, which is developing a new category of therapies for immune-mediated diseases based on a rationally-defined consortia of human microbiome-derived bacteria, expects topline data from a Phase 2 clinical trial for VE303 in high-risk C. difficile infection, or CDI, in 2021; topline data from a first-in-patient clinical trial of VE800 in combination with Bristol-Myers Squibb’s checkpoint inhibitor Opdivo® (nivolumab) in patients with selected types of advanced or metastatic cancer in 2021; and topline data from a Phase 1/2 clinical trial for VE416 in food allergy in 2021. Vedanta announced topline data from two Phase 1 studies in healthy volunteers of VE202, a product candidate being developed for inflammatory bowel disease, or IBD, in June 2020 and expects to advance VE202 into a Phase 2 study for IBD in 2021. Our interest in Vedanta is limited to our equity ownership of 50.4 percent at June 30, 2020.

Certain of Our Non-Controlled Founded Entities:

 

   

Gelesis: Gelesis, Inc., or Gelesis, which is developing oral therapeutics based on a novel, superabsorbent hydrogel technology platform to treat obesity and other chronic diseases related to the GI pathway, received clearance from the FDA in April 2019 and European marketing authorization in June 2020 to market and sell its lead product Plenity® (formerly known as Gelesis100) as an aid for weight management in adults with a Body Mass Index, or BMI, of 25-40 kg/m2, when used in conjunction with diet and exercise. Gelesis plans to bring Plenity to the U.S. first, where it is now available to a limited extent while Gelesis ramps up commercial operations and inventory for a full launch in 2021. Gelesis plans to seek FDA input on the requirements for expanding the Plenity label for treating adolescents. Gelesis is also advancing a pipeline of product candidates focused on treating GI disorders. Gelesis expects topline results from a Phase 2 study of GS200 for weight management and glycemic control in adults with type 2 diabetes or pre-diabetes in 2021, to initiate a Phase 2 study of GS300 in non-alcoholic steatohepatitis and non-alcoholic fatty liver disease, or NASH/NAFLD, in the second half of 2020 and to initiate a Phase 3 study for GS500 in functional constipation in the second half of 2020. We have entered into a royalty and sublicense income agreement with Gelesis, pursuant to which we are entitled to low single-digit royalties on the worldwide net sales of certain commercialized products, as well as a low teen percentage of any income Gelesis receives from sublicensing certain of its technology. Our interest in Gelesis also includes our equity ownership of 21.0 percent at June 30, 2020.

 

   

Akili: Akili Interactive Labs, Inc., or Akili, is pioneering the development of treatments designed to have direct therapeutic activity, delivered not through a traditional pill but via a high-quality video game experience. Akili has a broad pipeline of programs to target cognitive dysfunction associated with medical conditions across neurology and psychiatry. Akili received clearance from the FDA and European marketing authorization in June 2020 for EndeavorRxTM (formerly known as AKL-T01) as a prescription treatment for children with ADHD. Delivered through a captivating video game experience, EndeavorRx is indicated to improve attention function as measured by computer-based testing in children ages 8-12 years old with primarily inattentive or combined-type ADHD, who have a demonstrated attention issue. Akili expects that the EndeavorRx treatment will be available with a prescription to families soon. Our interest in Akili is limited to our equity ownership of 34.0 percent at June 30, 2020.

 

   

Karuna: Karuna Therapeutics, Inc., or Karuna, which is developing novel therapies with the potential to transform the lives of people with disabling and potentially fatal neuropsychiatric disorders, including schizophrenia and dementia-related psychosis, is developing KarXT, an investigational product candidate designed to selectively activate muscarinic acetylcholine receptors in the brain. KarXT is Karuna’s proprietary product candidate, which combines xanomeline, a muscarinic receptor agonist, with trospium chloride, an FDA-approved and well established muscarinic receptor antagonist that has been shown not to measurably cross the blood-brain barrier, to preferentially stimulate M1/M4 muscarinic receptors in the brain without stimulating muscarinic receptors in peripheral tissues in order to achieve meaningful therapeutic benefit in patients with psychotic and cognitive disorders. In

 

94


Table of Contents
 

November 2019, Karuna announced topline results from EMERGENT-1, its Phase 2 clinical trial of KarXT for the treatment of acute psychosis in patients with schizophrenia, in which KarXT met the trial’s primary endpoint with a statistically significant (p<0.0001) and clinically meaningful 11.6 point mean reduction in total Positive and Negative Syndrome Scale, or PANSS, over placebo at week five (-17.4 KarXT vs. -5.9 placebo), with similar discontinuation rates between KarXT (20 percent) and placebo (21 percent). The study enrolled 182 schizophrenia patients with acute psychosis, 90 of whom received KarXT. The number of discontinuations due to treatment emergent AEs were equal in the KarXT and placebo arms (n=2 in each group). One SAE was observed in the KarXT treatment group, in which the patient discontinued treatment and subsequently sought hospital care for worsening psychosis, meeting the regulatory definition of an SAE. Karuna held an End-of-Phase 2 meeting with the FDA in June 2020, the outcome of which supports the progression of KarXT into Phase 3 development. Karuna plans to initiate two five-week inpatient trials evaluating the efficacy and safety of KarXT for the treatment of acute psychosis in adults with schizophrenia. The first Phase 3 trial, EMERGENT-2, is expected to commence by the end of 2020. Additionally, Karuna anticipates topline results from a Phase 1b clinical trial in healthy volunteers to assess the safety and tolerability of KarXT early in the second quarter of 2021. This Phase 1b trial is designed to demonstrate safety and tolerability of KarXT in healthy elderly volunteers in order to select the most appropriate dose to carry forward into future studies in patients with dementia-related psychosis. We have entered into an exclusive license agreement with Karuna pursuant to which we are entitled to receive low single-digit royalties and up to $10.0 million in milestone payments on worldwide net sales of any commercialized product covered by the granted license. Our interest in Karuna also includes our equity ownership of 12.8 percent at August 26, 2020.

 

95


Table of Contents

The chart below depicts milestones that are anticipated to be achieved by our Wholly Owned Programs and our Founded Entities’ products and product candidates through 2021 and our progress on previously declared milestones for 2020:

Upcoming milestones

 

LOGO

 

*

Relevant ownership interests for Founded Entities were calculated on a diluted basis (as opposed to a voting basis) as of June 30, 2020, including outstanding shares, options and warrants, but excluding unallocated shares authorized to be issued pursuant to equity incentive plans. Ownership of Vor is based on the

 

96


Table of Contents
  assumption that all future tranches of the most recent financing round are funded. Karuna ownership is calculated on an outstanding voting share basis as of August 26, 2020.
**

Long COVID is a term being used to describe the emerging and persistent complications following the resolution of COVID-19 infection.

Our Scientific Focus: The Brain-Immune-Gut (BIG) Axis

The product candidates being advanced within our Wholly Owned Programs and by our Founded Entities, and our work in these areas, in close collaboration with leading academic and clinical experts, has led us to focus on the biological interplay among these three systems, which we refer to as the BIG Axis. The architectural framework supporting BIG Axis cross-talk is built on evidence highlighting the presence of 70 percent of the entire immune cell population in the gut, approximately 500 million neurons innervating the GI tract, enteric neurons as part of the autonomic nervous system and key components such as the gut epithelial barrier, microbiome, metabolites and neurotransmitters that play key roles in protecting and influencing the immune system and CNS.

The brain, immune system and gut lymphatic system form an interconnected adaptive network to respond to acute and chronic environmental change. Using the immune system to act as a bridge, the body relies on the bidirectional relationship between the gut and brain to maintain normal homoeostasis. Dysregulation of immune signaling through gut inflammation, microbiome changes and a compromised intestinal barrier all contribute to a range of immunological, GI and neurology and neuropsychological disorders. We have been at the forefront of research and development in the BIG Axis, including the role of gut-immune transport, immune-microbial signaling, gut barrier dysfunction and repair and gut and inflammation selective targeting strategies. In our Wholly Owned Programs, we are pursuing strategies to directly reach the immune system via the mesenteric lymph nodes, addressing lymphatic flow and vessel restoration disorders and targeting immunosuppressive and pathogenic lymphocytes.

Recent scientific advances, including the work of our network of scientific collaborators, have uncovered the lymphatic system as one of the most critical players in the BIG Axis. In addition to maintaining the balance of interstitial fluid that surrounds the body’s cells, the lymphatic system plays a key role in conducting surveillance of the immune system through an intricate network of vessels connecting the over 300 lymph nodes, serving as a “superhighway” for programming immune cells for specific functions and trafficking them to specific tissues. The mesenteric lymph node group around the intestines serves as the primary interface between the gut and the immune system and for programming circulating adaptive immune cells. The recent discovery of meningeal lymphatics in the brain, an area once thought to have immune privilege, has shed new light on neurodegenerative diseases and lymphatic vessel aging.

Through our scientific leadership in the BIG systems and the BIG Axis, we have created the underlying programs and product candidates that have the potential to treat inflammatory and immunological conditions, intractable cancers, lymphatic and GI diseases and neurological and neuropsychological disorders, among others.

Our Model

We employ the following process to identify and develop product candidates:

 

   

Step 1: A Collaborative Discovery Process Leveraging our Biological Expertise in the BIG Axis and our Scientific Network: We collaborate with the world’s leading domain experts on a disease-specific discovery theme through the lens of BIG Axis biology. All of our Wholly Owned Programs target one or more of the BIG systems and we prioritize programs that have the potential to reduce early development risk based on preliminary signals of activity in humans and promising tolerability profiles. We have proven our ability to efficiently leverage our cross-disciplinary research and discovery efforts across multiple indications and potential therapeutic areas. Our program collaborators

 

97


Table of Contents
 

and co-inventors across our Wholly Owned Programs and Founded Entities’ programs include leading academic minds; recipients of major awards such as the Nobel Prize, the U.S. National Medal of Science, the Charles Stark Draper Prize and the Priestley Medal; members of prestigious institutions such as the Howard Hughes Medical Institute, all three of the National Academies and world renowned academic institutions such as Harvard, MIT, Yale, Columbia, Johns Hopkins, Imperial College of London and Cornell, among others; and former senior executives and board members at some of the world’s largest pharmaceutical companies.

 

   

Step 2: A Disciplined Approach to Program Advancement: We employ a rigorous and disciplined approach to research and development. The breadth and depth of our Wholly Owned Pipeline and our Founded Entities’ programs allow us to quickly pivot resources to the more promising therapeutic opportunities, strategically reallocate capital across programs and terminate Wholly Owned Programs we choose not to pursue without adversely impacting the development of other programs. We, through our internal resources and with our extensive expert network and collaboration partners, repeat key academic work and conduct focused experiments both internally and externally to rapidly advance those that we believe hold the greatest promise and deprioritize less attractive programs. Collectively, these activities decrease the risk of any individual program event negatively impacting our Wholly Owned Pipeline and enable us to preserve capital for the programs across our Wholly Owned Pipeline and Founded Entities that we believe have the greatest opportunity for value creation in alignment with our shareholders.

 

   

Step 3: A Capital Efficient Approach to Driving Clinical Development and Value Creation: Our management team has successfully driven these product candidates from early stage research and development, through POC and into clinical trials and has supported dedicated teams at our Non-Controlled Founded Entities through pivotal trials and FDA clearance. We have financed our development efforts through strategic collaborations, pharmaceutical partnerships, non-dilutive funding mechanisms, including through the sale of our Founded Entities’ equity and through grants, and public and private equity financings. We leverage shared resources, institutional knowledge and infrastructure between our earlier-stage Founded Entities and development efforts within our Wholly Owned Programs to advance our programs efficiently prior to POC. This approach has enabled the discovery and development of 24 products and product candidates to date, including two that have been cleared by the U.S. FDA and granted marketing authorization in the EEA, between our Wholly Owned Programs and our Founded Entities, in which we retain equity ownership ranging from 78.6 percent to 11.8 percent. At the parent level, PureTech Health plc had cash equivalents and short-term investments of $387.2 million as of September 30, 2020. From January 1, 2017 to June 30, 2020, our Founded Entities strengthened their collective balance sheets by attracting $1.084 billion in investments and non-dilutive funding, including $997.6 million from third parties. As part of our disciplined capital management, we have been able to generate $359.9 million in non-dilutive funding, as of August 26, 2020, through the sales of portions of Founded Entity shares.

 

98


Table of Contents

Our Strategy

Driving Development of Potential New Medicines and Accretion of Value Via Three Paths

 

 

LOGO

Our goal is to identify, invent, develop and commercialize innovative new categories of therapeutics that are derived from our deep understanding of the BIG Axis to address significant unmet medical needs. To achieve this goal, key components of our strategy include:

 

   

Advancing Wholly Owned Programs Through Development and Commercialization, Including Pipeline Expansion:

 

   

Progressing LYT-100, LYT-200, LYT-210 and LYT-300 through clinical studies: We are developing novel classes of immunomodulatory drugs to treat serious diseases, including lung dysfunction, oncology, lymphatic, neurological and neuropsychological disorders. In July 2019, we acquired LYT-100, a small molecule product candidate that was well-tolerated in a Phase 1 clinical trial in healthy volunteers and showed a desirable pharmacokinetic, or PK, profile suitable for oral administration. Due to LYT-100’s observed potent anti-fibrotic and anti-inflammatory activity in preclinical models and encouraging Phase 1 clinical trial data, we are advancing our wholly-owned product candidate LYT-100 for the potential treatment of conditions involving inflammation and fibrosis and disorders of lymphatic flow, including lung dysfunction conditions (e.g., IPF, uILDs and Long COVID respiratory complications and related sequelae) and lymphedema. LYT-100 is currently being evaluated in a multiple ascending dose Phase 1 clinical trial, which we expect data to readout in the second half of 2020. We intend to commence a POC study in patients with breast cancer-related, upper limb secondary lymphedema in the second half of 2020, with topline results expected in the second half of 2021. We also plan to commence a Phase 2 study in Long COVID respiratory complications and related sequelae in the second half of 2020, with topline results expected in the second half of 2021. We are developing LYT-200, an investigational, fully human, monoclonal antibody, or mAb, that is designed to target galectin-9, a protein that regulates immunosuppression and is prominently expressed in hard-to-treat cancers such as colorectal cancer, or CRC, cholangiocarcinoma, or CCA, and pancreatic cancer. We believe LYT-200 has shown preliminary POC in both preclinical human and mouse cancer

 

99


Table of Contents
 

models. We plan to file an IND for LYT-200 and to initiate a Phase 1 study in solid tumors in the second half of 2020. LYT-210 is an investigational, fully human, mAb targeting immunosuppressive or pathogenic gd1 T cells. We are also developing LYT-300, oral allopregnanolone, and evaluating its potential to address a range of neurological and neuropsychological conditions. We expect to initiate a first-in-human clinical study with LYT-300 by the end of 2021.

 

   

Harnessing our proprietary drug discovery and development capabilities to drive pipeline maturation and expansion: We are pioneering the development of therapeutic candidates by leveraging our unique insights into the lymphatic system and the BIG Axis. Our Wholly Owned Programs currently comprise four proprietary product candidates and three innovative technology platforms. We intend to leverage our proprietary technology platforms, as well as our extensive network with world-leading scientists in immunology and lymphatics and major pharmaceutical companies, to generate and acquire additional novel product candidates. To do so, we will rely on the track record of our team, which has been instrumental in the generation of 24 products and product candidates to date between our Wholly Owned Programs and our Founded Entities, including two that have been cleared by the U.S. FDA and granted marketing authorization in the EEA, as well as our established internal identification and prioritization approach. We will continue to take advantage of our differentiated model to manage the risk of any single program and quickly redeploy resources towards performing assets.

 

   

Maximizing the impact of our Wholly Owned product candidates by expanding development across multiple indications: We aim to focus our development efforts on product candidates that have the potential to treat multiple diseases and plan to develop them in additional indications where warranted. For example, we believe that our product candidate LYT-100 has the potential to be evaluated in multiple fibrotic indications beyond our initial target indication of lymphedema, such as Long COVID respiratory complications and related sequelae, IPF, uILD, and focal segmental glomerulosclerosis, or FSGS. We are initially developing our other internal product candidates, LYT-200 and LYT-210, for the treatment of certain cancers, including CCA, CRC and pancreatic cancers, among others, and we are evaluating LYT-210 for the potential treatment of GI autoimmune diseases. Lastly, we are evaluating LYT-300 for a range of neurological and neuropsychological conditions.

 

   

Deriving Value from Equity Growth of Our Founded Entities: Historically, we have pursued a variety of strategic options to fund and drive the development of our Founded Entities’ product candidates, including private and public financings and multiple partnerships and collaborations with selected partners. In the preliminary stages of our growth, we partnered with equity investors, pharmaceutical and biotechnology companies and government and non-governmental organizations for certain of our Founded Entities which are now in advanced stages and have the potential for near-term value creation with significant upside potential. Going forward, we intend to participate in private and public financings, enter into partnerships and collaborations, partner with equity investors, pharmaceutical and biotechnology companies and government and non-governmental organizations for certain of our Founded Entities and strategically monetize certain of our our equity holdings in our Founded Entities after significant value creation has occurred, generating non-dilutive financing. For example, in 2020, PureTech generated cash proceeds of $347.5 million from the sale of equity in one of our Founded Entities, which we intend to use to fund our operations and growth and to further expand and advance our clinical-stage Wholly Owned Pipeline, while still maintaining significant equity ownership to derive value from future growth of that entity. We may create additional entities opportunistically based on future strategic imperatives.

 

   

Advancing Discovery Programs by Partnering Non-Core Applications via Non-Dilutive Funding Sources, Including Partnerships and Grants, to Enable Retention of Value: As we further develop our Wholly Owned Programs through key value inflection points, we may opportunistically enter into strategic partnerships when we believe that such partnerships could add value to the development or

 

100


Table of Contents
 

potential commercialization of our Wholly Owned product candidates. We will also continue to pursue government grant funding and discovery partnerships that allow us to maintain most of the value of our platforms while offsetting operational costs.

We believe this combination of development of our Wholly Owned Programs, Founded Entity advancement and non-dilutive partnerships and funding provides us with a unique and multi-pronged engine fueling potential future growth.

Our Focus on the Lymphatic System

The lymphatic system is a network of tissues and organs in the body that fulfills three essential functions: (1) maintaining the balance of the fluid that surrounds the body’s cells, or interstitial fluid, (2) conducting surveillance of the immune system and serving as a “superhighway” for immune cell trafficking and (3) absorbing dietary lipids through an intricate network of vessels in the intestinal tract.

Dysfunction of the lymphatic system is associated with numerous disease states, and we believe that restoring lymphatic function in various disease settings can yield meaningful patient benefit. Our proprietary Wholly Owned Programs leverage these critical functions of the lymphatic system to produce product candidates with the potential to treat serious diseases:

 

   

Maintaining balance of fluids: We are leveraging insights into the lymphatic system by developing clinical-stage product candidate LYT-100 and several discovery-stage programs to address disorders involving impaired lymphatic flow and other conditions involving inflammation and fibrosis, such as lymphedema and certain neurological disorders.

 

   

Immune modulation: The lymphatic system plays a crucial role in programming immune cells for precise functions and trafficking them to specific tissues. By modulating immune cell trafficking and programming, we are developing product candidates for the treatment of cancer and immunological disorders. We are advancing LYT-200, our product candidate targeting galectin-9 in solid tumors and LYT-210, our product candidate targeting immunosuppressive gd1 T cells in solid tumors and autoimmune disorders, for a range of cancer indications and autoimmune disorders.

 

   

Driving therapeutics through lymphatics: We are harnessing the role of the lymphatic system in the absorption of dietary lipids to orally administer and traffic therapeutics via the lymphatic system where immune cells are programmed. LYT-300 and our Glyph (lymphatic targeting) and Orasome (oral biotherapeutics) platforms are based on this key function of the lymphatic system.

 

101


Table of Contents

Our Wholly Owned Programs

We are advancing our Wholly Owned Programs that are designed to harness immunological and lymphatic system mechanisms for the treatment of lung dysfunction, oncology, lymphatic, neurological and neuropsychological disorders. Our Wholly Owned Programs consist of the programs within our Wholly Owned Pipeline and our three discovery platforms. The following chart summarizes the programs in our Wholly Owned Pipeline and their current status:

 

 

LOGO

 

*

Long COVID is a term being used to describe the emerging and persistent complications following the resolution of COVID-19 infection.

LYT-100: Deupirfenidone, Our Most Advanced Wholly Owned Product Candidate for the Potential Treatment of Conditions Involving Inflammation and Fibrosis and Disorders of Lymphatic Flow

Our lead wholly-owned product candidate, LYT-100, is being advanced for the potential treatment of conditions involving inflammation and fibrosis and disorders of lymphatic flow, including lung dysfunction conditions (e.g., IPF, uILDs and Long COVID respiratory complications and related sequelae) and lymphedema. LYT-100 (deupirfenidone) is a selectively deuterated form of pirfenidone, with anti-inflammatory, antioxidant and antifibrotic properties and superior PK properties and activity compared to pirfenidone. LYT-100 shares pirfenidone’s beneficial mechanism of action but is expected to be metabolized slower and with less variability between patients compared with pirfenidone.

There are approximately 130,000 people living with IPF or uILD in the United States. Pirfenidone is effective in slowing fibrotic pulmonary decline in IPF, has been granted “breakthrough” status in uILD, has shown activity in investigational clinical studies in patients with FSGS as well as other indications and has demonstrated activity in a preclinical model of lymphedema and radiation-induced fibrosis. Deuteration of pirfenidone involves substitution of specific hydrogens in a chemical structure for deuterium, a non-toxic, naturally occurring form of hydrogen. A similar modification was determined by the FDA to create a new chemical entity. Deuteration of pirfenidone improves the stability of the resulting drug, attenuates the breakdown of the drug’s active metabolite and has shown a differentiated PK profile compared to non-deuterated pirfenidone in clinical studies. We believe this differentiated PK profile could enable potentially improved efficacy, less frequent dosing, improved tolerability, reduced interpatient variability in drug metabolism and reduced drug-drug interactions. LYT-100 is

 

102


Table of Contents

extensively protected by composition of matter patents, as well as patents covering methods of use and process of manufacture for deupirfenidone as well as other claims.

LYT-100 was originally developed by Auspex Pharmaceuticals, Inc., or Auspex, for the treatment of IPF. We selected and acquired LYT-100 in July 2019 based on insights into the lymphatic system gained internally and via unpublished findings through our network of collaborators, coupled with the relationships of our team members and their insights into the program previously developed at Auspex. These insights led us to an initial target indication of lymphedema, and we also believe that LYT-100 has the potential to be evaluated in multiple fibrotic and inflammatory indications beyond our initial target indication of lymphedema, such as Long COVID respiratory complications and related sequelae, IPF, interstitial lung diseases, and FSGS. Auspex was a leader in deuteration chemistry and was acquired by Teva Pharmaceutical Industries in 2015. Pursuant to an Asset Purchase Agreement by and between Auspex and PureTech Health LLC, dated July 15, 2019, Auspex assigned and transferred all patent claims, inventory, technology, contracts and related rights relating to LYT-100 to us. As consideration, we paid an upfront payment, which we do not deem material. In addition, Auspex is eligible to receive milestone payments of approximately $84 million in the aggregate depending upon specified developmental, regulatory and commercial achievements. In addition, for ten years following the first commercial sale of any commercialized product containing LYT-100, Auspex is eligible to receive low to middle single-digit royalties on the worldwide net sales of such product.

Following our acquisition of LYT-100, we have conducted preclinical studies to validate the unpublished findings in a lymphedema model and initiated a multiple ascending dose and food effect Phase 1 clinical trial, data from which we expect to readout in the second half of 2020. We intend to progress LYT-100 for the potential treatment of respiratory conditions and secondary lymphedema, followed by other inflammatory, fibrotic and lymphatic disorders.

 

103


Table of Contents

LYT-100 for Long Covid Respiratory Complications and Related Sequelae

COVID-19 (SARS-CoV-2 infection)

The COVID-19 pandemic has affected tens of millions of people around the world. The virus can be deadly and there are a number of therapeutic approaches that target the acute phase of the disease. There is increasing data around the longer-term complications of COVID-19, referred to as Long COVID, including preliminary data regarding respiratory issues that persist. Survivors of the virus can have lung fibrosis that causes shortness of breath and other problems that could potentially last for years. In survivors, disease and invasive treatment both create fibrosis and the risk of persistently diminished lung function. Lung fibrosis can reduce the function of the lung, as observed by changes in pulmonary function tests, and can cause difficulties with activities of daily living. Clinicians are already documenting rapid progression to lung fibrosis in patients with COVID-19.

 

 

LOGO

 

 

Figure X. Lung CT of a COVID-19 patient. (A) Ground glass opacities (GGO) in the left lower lobe (arrow). (B) Three weeks later, in the same lung zones, the disease has rapidly progressed and fibrotic changes are now evident (arrows). Figure from Spagnolo et al., 2020

The potential for fibrosis-mediated lung damage and the unprecedented scale of the current pandemic creates an enormous public health challenge: some patients who have recovered from the acute symptoms of COVID-19 have persistent pulmonary dysfunction. New therapeutic options are needed to address the underlying inflammation and fibrotic mechanisms that lead to respiratory complications that persist following the resolution of COVID-19 infection.

The Role of Fibrosis and Inflammation in Respiratory Complications and Related Sequelae that Persist Following the Resolution of COVID-19 Infection

In COVID-19, as currently understood, the acute disease course can be modeled in three stages: first, an initial response mounted by the immune system to the virus; second, a secondary interferon-driven immune response

 

104


Table of Contents

leading to lung tissue damage; and third, a final hyperinflammation in which an inflammatory macrophage response leads to aberrant lung tissue repair and ultimately fibrosis. As the disease progresses, patients with more severe disease have an imbalanced macrophage population in lung tissue tilted toward inflammation and fibrosis. The immune system transitions from repelling the initial insult to repair, but inflammation can lead instead to fibrosis (Figure X). Similar disease progression has been observed in patients with acute respiratory distress syndrome, or ARDS, undergoing mechanical ventilation.

COVID-19 post-acute injuries appear to mimic respiratory complications of other viral pneumonias like Severe Acute Respiratory Syndrome, or SARS, and Middle East Respiratory Syndrome, or MERS. Up to one third of SARS and MERS survivors had abnormal pulmonary testing and lung imaging that persists for years. Post-acute injuries are hypothesized to be due to a cascade of inflammation and fibrosis that begins during the acute phase of COVID-19 and continues after the infection resolves the post-acute sequelae of the disease. A high proportion of mild, moderate and severe COVID-19 patients (up to 53 percent) already show signs of lung fibrosis at three weeks post symptom onset. Clinicians are also reporting lung fibrosis that persists beyond the acute infection, and of COVID-19 patients with pneumonia, 44 percent had fibrosis on CT imaging at 9 days post-discharge.

Fibrosis in the lungs can impair lung capacity, pulmonary function, and gas exchange. In early studies of COVID-19 patients with lung fibrosis had higher rates of shortness of breath, or dyspnea, than those without fibrosis. Emerging data from pulmonary function testing also suggest quantitative changes in COVID-19 survivors who were hospitalized. After discharge, COVID-19 patients had reduced diffusing capacity of the lung for carbon monoxide percent predicted (DLCO percent), as well as other abnormal pulmonary function tests. The observed clinical time course of COVID-19 and its similarity to SARS may suggest a limited window of recovery for the lungs, with no additional healing of fibrotic lesions or diffusing capacity after a year. Similarly, patients who survive the acute phase of ARDS may either suffer from lingering long-term pulmonary complications or even develop progressive forms of pulmonary fibrosis. We believe resolving fibrosis is important for preventing post-acute complications, and there is likely a critical window of intervention in COVID-19 and other viral pneumonias. There are no approved therapies for post-acute respiratory complications of pneumonia driven by this process, and given the scale of the ongoing pandemic, novel therapies are urgently needed.

Unmet Need in Long COVID

COVID-19 is causing a global crisis driven by acute illness and mortality. After the acute infection resolves, the persistent suffering by COVID-19 “long-haulers,” referred to as Long COVID, could lead to an unprecedented public health burden. Therapeutic options are needed for COVID-19 and subsequent respiratory viral outbreaks to blunt the inflammatory and fibrotic damage and prevent disability related to lung injury. Hundreds of clinical trials of anti-viral, anti-inflammatory and immuno-modulatory and other drugs, such as hydroxychloroquine, anti-coagulants, vasodilators, anti-angiogenics and others, are under way in COVID-19 patients. Very few, if any, of these trials are designed to test interventions for longer-term respiratory complications and sequelae of COVID-19 using anti-inflammatory and antifibrotic agents. The inflammatory excess in COVID-19 patients has prompted investigations of anti-inflammatory drugs, but outside of dexamethasone in severe patients, there has been limited success. Remdesivir, an anti-viral agent previously used for Ebola and other viral infections, has been shown to be effective in reducing the time of hospitalization from COVID-19. Whether remdesivir can prevent post-acute complications is unclear.

Pharmacologic interventions are needed that targets both inflammation and fibrosis to disrupt the molecular cascade that leads to lung fibrosis and potentially permanent loss of lung function.

LYT-100 for Long Covid Respiratory Complications and Related Sequelae

LYT-100 is designed to employ a multimodal mechanism of action that could potentially treat or prevent the respiratory complications and related sequelae of Long COVID. Our preclinical data suggest that LYT-100 has anti-fibrotic and anti-inflammatory activity. LYT-100 has been observed in preclinical studies to reduce pro-inflammatory cytokines and suppresse TGF-ß, which is associated with downstream signaling related to fibrosis.

 

105


Table of Contents

LYT-100 (deupirfenidone) is a selectively deuterated form of pirfenidone. Pirfenidone has anti-inflammatory and anti-fibrotic properties. In animal models, it treats acute and prevents long-term lung injury, and pirfenidone slows the progression of idiopathic pulmonary fibrosis (IPF) and has been approved for the treatment of IPF in the United States and other countries. LYT-100 may have differentiated pharmacokinetic properties and activity compared to pirfenidone. LYT-100 is expected to be metabolized slower and with less variability between patients compared with pirfenidone. These unique pharmacokinetic properties may improve the tolerability and activity of pirfenidone, while retaining the proven antifibrotic and anti-inflammatory properties that could have the potential to treat COVID-19.

Relevant Data

We believe LYT-100’s potential clinical pharmacokinetics and mechanism of action make LYT-100 an attractive product candidate for addressing Long COVID respiratory complications and related sequelae. In preclinical studies, LYT-100 was observed to suppress IL-6 and TNF-α in rodent lipopolysaccharide (LPS) pretreatment models, which we believe are relevant to the acute inflammation and cytokine release triggered by COVID-19 infection.

LYT-100 anti-fibrotic activity was also observed in preclinical studies, which could be relevant to the lung fibrosis that can affect COVID-19 survivors. COVID-19 patients can progress to respiratory distress and lung damage driven by pro-inflammatory and pro-fibrotic cytokines like TGF-ß. TGF-ß is considered a master regulator of fibrosis (Meng et al., 2016). It is a pluripotent mediator of extracellular matrix production, which in excess can replace normal tissue with non-functioning scar tissue. The figure below illustrates results from an in vitro model of fibrosis with primary mouse lung fibroblasts measuring TGF-ß induced soluble collagen, on the primary components of fibrotic tissue. In this study, which predated the pandemic and did not relate to COVID-19, TGF-ß increased the level of soluble collagen by 20 percent (p=0.0185). LYT-100 inhibited this TGF-ß-dependent increase by 36 percent (p=0.0001).

In Vitro Reduction of TGF-ß1 Induced Soluble Collagen Production

 

 

LOGO

Our Planned Continued Development

In May 2020, we announced plans for a global, randomized, placebo-controlled Phase 2 trial to evaluate the efficacy, safety and tolerability of LYT-100 in non-critical COVID-19 patients with respiratory complications. The trial will initially be conducted outside of the United States, and will require appropriate notifications and authorizations in those jurisdictions. We will also submit an IND to FDA, which, if approved, would allow us to enroll subjects in the United States. As currently designed and subject to review by regulatory authorities, patients will receive treatment for up to three months. The trial is expected to enroll up to 168 patients, with a

 

106


Table of Contents

primary endpoint measuring cardiopulmonary function. The trial is also currently planned to assess secondary endpoints of dyspnea and exploratory endpoints including pharmacokinetics, acute inflammatory biomarkers, imaging and patient-reported outcomes. Subject to regulatory approval, this trial is expected to begin in the second half of 2020, with topline results expected in second half of 2021.

LYT-100 for Lymphedema

Lymphatic Disorders

Dysfunctions of the lymphatic system have remained largely untreated or poorly addressed by current therapeutics. Diseases of the lymphatics include lymphedema, lymphatic and vascular malformations, GI lymphangiectasia and others. Impaired lymphatic drainage in the tumor microenvironment can promote immune escape and considerably contribute towards lymphatic metastatic spread of cancer. Additionally, we believe that neurodegenerative diseases, such as Alzheimer’s disease, or AD, and Parkinson’s disease, may be treated by correcting aging and inflammation related brain lymphatic dysfunction. There has been little progress toward the development of meaningful treatments for lymphatic diseases, and there are currently no approved drug therapies that can treat disorders such as lymphedema. We are developing LYT-100 to target the underlying fibrosis and inflammation affecting the lymphatic system to potentially improve lymphatic function and treat lymphedema.

Lymphedema is a chronic condition that afflicts millions of people globally and is characterized by severe swelling in parts of the body, typically the arms or legs, due to the build-up of lymph fluid and inflammation, fibrosis and adipose deposition. By conservative estimates, lymphedema afflicts approximately one million people in the United States. Lymph is a clear fluid collected from body tissues that transports fats and proteins from the small intestine, removes bacteria, viruses, toxins and certain proteins from tissues and supplies white blood cells, specifically lymphocytes, to the bloodstream to help fight infections and other diseases. Secondary lymphedema is the most prevalent form of lymphedema. Secondary lymphedema can develop after surgery, infection or trauma, and is frequently caused by cancer, cancer treatments such as radiation and chemotherapy, trauma or infections resulting in damage to or the removal of lymph nodes.

Lymphedema is a serious disease with significant health consequences, including disfigurement. Lymphedema typically progresses through multiple stages, with increased fibrosis, limb volume and tissue changes. Approximately one million people in the United States have lymphedema, including approximately 500,000 breast cancer survivors with secondary lymphedema. Each year, up to one in five of the more than 250,000 Americans estimated to be diagnosed with breast cancer and that undergo surgery will develop secondary lymphedema. Beyond breast cancer, lymphedema can occur in up to 15 percent of cancer survivors with malignancies ranging from melanoma and sarcoma. A subset of lymphedema patients will also experience cellulitis, a bacterial skin infection that can enter through wounds in lymphedematous skin. Cellulitis often requires hospitalization and intravenous antibiotics to treat, and approximately half of patients with cellulitis will have recurrent episodes. Rarely, patients with chronic lymphedema may develop lymphangiosarcoma, a rare malignant tumor.

 

107


Table of Contents

The International Society of Lymphology classifies a lymphedematos limb based on staging that describes the condition of the limb, as illustrated in the table below. Within each clinical stage, clinicians use a measurement of limb swelling to capture disease severity described as mild, moderate or severe lymphedema.

 

CLINICAL STAGES OF LYMPHEDEMA

    

STAGE I

  

STAGE II

  

STAGE III

Symptoms

   Limb swelling, pitting edema, limb heaviness and discomfort    Limb swelling, skin thickening, dermal fibrosis, fat deposition, non-pitting edema    Disfiguring limb swelling, hyperkeratosis, loss of skin elasticity, skin lesions and overgrowths, massive fibrosis and fat deposition, elephantiasis
Additional clinical concerns    Lifelong need for compression therapy, chronic progression, repeated infections (cellulitis, lymphangitis), elephantine skin changes, development of lymphangiosarcoma

As lymphedema progresses into later stages, the affected limb can acquire a “woody texture” due to fibrosis. In addition to clinical staging, clinicians use a measurement of limb swelling to capture disease severity. For upper limb lymphedema, a relative limb volume of five to 20 percent is considered mild, a relative limb volume of 20 to 40 percent is considered moderate and a relative limb volume greater than 40 percent is considered severe. Cancer treatments lead to new lymphedema patients each year, the majority of which will have mild lymphedema: over 70 percent of patients with breast cancer related upper limb lymphedema have mild to moderate lymphedema, while the remainder have moderate to severe lymphedema. We intend to initially evaluate LYT-100 in the more common mild to moderate lymphedema patient population.

The natural history of lymphedema is a chronic and progressive disorder, reflected in the increasing severity of limb swelling. The relative increase of limb volume in the affected limb compared to the unaffected limb worsens over time. It has been observed in patients with mild lymphedema that approximately 48 percent will progress to more severe stages during the first five years of follow-up. Because of the progressive nature of the disease, many patients will progress to the point where bandaging and compression are incapable of reducing limb volume. The potential loss of limb range of motion and function, the risk of secondary infections and complications and the disfigurement result in physical and emotional suffering in patients. Secondary lymphedema is a lifelong disease and the affected population is increasing each year due to improved survival of cancer patients, changes in patient and disease factors, including obesity, an aging population and increased use of radiation treatment.

Current Standard of Care

The current standard of care for lymphedema is management, primarily with compression and physical therapy to control swelling. These approaches are cumbersome, uncomfortable and non-curative, and they do not address the underlying disease, especially in patients with more severe lymphedema. Even with management, some patients will progress from mild-to-moderate lymphedema to more severe forms. Referral to current treatment regimens does not predict reversal or stabilization of lymphedema. In later stages, patients may also seek ablative surgeries, including liposuction or debulking. These surgeries reduce volume but do not restore lymphatic flow, and compression is still required to control swelling. There are currently no approved drug therapies that can treat the underlying causes of lymphedema. We believe the lack of treatments for lymphedema represents a major unmet medical need.

 

108


Table of Contents

The Role of Fibrosis and Inflammation in Lymphedema

Inflammation and fibrosis play important roles in the pathophysiology of secondary lymphedema. Lymphatic injury activates chronic immune responses that promote fibrosis, reduce lymphatic flow and impair lymphatic formation. Targeting fibrosis in addition to inflammation may be a potentially effective way of ameliorating established lymphedema in patients.

The figure below depicts the feedback loop between inflammation and fibrosis driven lymphedema. The accumulation of TGF-ß1 results in increased fibrosis in tissue from patients with lymphedema. TGF-ß1 is a secreted protein that performs many cellular functions, including the control of cell growth, cell proliferation, cell differentiation and apoptosis. TGF- ß1 is a critical regulator of fibrosis, and lymphedematous tissue has increased TGF-ß1 staining. Inflammation is also present in lymphedematous limbs. Tissue samples from patients with lymphedema have increased presence of inflammatory cells. These cells can produce pro-inflammatory and pro-fibrotic cytokines, including TGF-ß1, to further the progression of lymphedema. The middle panel below shows lymphedema skin biopsy samples from lymphedematous and normal limbs of patients. Lymphedema skin samples showed increased immune infiltrate as evidenced by elevated levels of CD45+ immune cells in immunohistochemical staining. As shown in the right panel below, lymphedema skin biopsy samples from lymphedematous and normal limbs of patients show increased intracellular TGF-ß1 staining in immunohistochemical staining.

Feedback Loop Driving Lymphedema

 

 

LOGO

Accumulation of collagen and fibrosis is seen in swelling associated with lymphedema. The figure below depicts the accumulation of CD45+ cells in the mouse tail model of lymphedema on the left, and the increase in total tissue volume and accumulation of collagen on the right.

Accumulation of Collagen and Fibrosis in Mouse Lymphedema Model

 

 

LOGO

We believe targeting the chronic inflammation and fibrosis associated with lymphedema with an oral therapy could potentially treat secondary lymphedema.

 

109


Table of Contents

Preclinical Results

In preclinical studies, LYT-100 showed greater anti-fibrotic and anti-inflammatory activity when compared to pirfenidone.

Inflammation was also monitored in an LPS induced preclinical rodent model. The figure below illustrates the plasma concentrations of TNF-α, a pro-inflammatory cytokine and biomarker of inflammation, 90 minutes post-LPS injection. When 100 mg/kg doses of LYT-100 were administered one hour prior to LPS, TNF-α levels were 70 percent lower than those obtained using equivalent oral volumes of the vehicle control in this study.

Preclinical Plasma Concentrations of TNF-α with LYT-100 versus Pirfenidone and Control

 

 

LOGO

Additionally, LYT-100 was tested by one of our academic collaborators in a rodent tail model of lymphedema. In this model, the lymphatics draining the tail are surgically damaged, resulting in tail swelling, inflammation and fibrosis mimicking human limb lymphedema. In the figures shown below, a control vehicle substance of LYT-100 was administered daily at a dose of 400 mg/kg orally starting two weeks after surgery, when the tail has already begun the process of lymphedema (n=7 per group). LYT-100 treatment halted progression of lymphedema and reduced the overall volume of the lymphedematous tail. Control animals continued to have increases in tail volumes and have double the tail volume by Week 4. In contrast, the LYT-100 group had a 71 percent decrease in tail volume compared to control by Week 6, nearly returning the tail volume back to the presurgical baseline. Representative tail images from both groups at 2 weeks and 6 weeks are shown below.

 

110


Table of Contents

LYT-100 versus Control in Lymphedema Mouse Model

 

 

LOGO

Clinical Results

LYT-100 was previously studied in a single dose crossover Phase 1 clinical trial of 24 healthy volunteers to assess safety and PK. The figure below illustrates single-dose PK at a 801 mg dose of LYT-100 and 801 mg dose of pirfenidone over 24 hours. LYT-100 has an approximately 35 percent increase in area under the curve systemic exposure and a 25 percent increase in CMax relative to pirfenidone in this study. These results demonstrate that LYT-100 displays improved PK relative to pirfenidone and suggest the possibility of twice-daily dosing of LYT-100 in patients with lymphedema. In addition, LYT-100 was well-tolerated and there were no SAEs observed in the Phase 1 clinical trial of healthy volunteers.

 

111


Table of Contents

24 Hour Single-Dose PK Profile of 801 mg of LYT-100 versus 801 mg of Pirfenidone

 

 

LOGO

 

112


Table of Contents

Our Planned Continued Development

In March 2020, we announced the initiation of a multiple ascending dose study of LYT-100 to evaluate the safety, tolerability and PK profile of LYT-100 in healthy volunteers. Results from this trial are anticipated the second half of 2020, and a subsequent POC trial in people with breast cancer-related, upper limb secondary lymphedema is expected to begin in the second half of 2020 with topline results expected in the second half of 2021. For this POC study, we plan to recruit patients with mild-to-moderate lymphedema of the arm. The primary endpoint of the patient study will be safety of LYT-100. As secondary endpoints, we will also study outcome measures of lymphedema, including relative limb volume, bioimpedance spectroscopy – a measure of extracellular fluid change, tonometry, a measure of fibrosis, and serum levels of inflammatory and fibrotic biomarkers. The study may also examine patient reported outcomes using validated self-report instruments specific to upper-arm lymphedema. The study will not evaluate statistical significance versus placebo, as we expect to use data from the study to inform future clinical protocols, including future efficacy endpoints.

We plan to pursue the foreign regulatory approvals needed to conduct the anticipated studies. We may seek FDA approval of LYT-100 using Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, which allows the submission of an NDA that relies in part on the FDA’s prior findings regarding the safety and effectiveness of approved drugs, which, if we are able to use this pathway, could expedite the development program for LYT-100 by potentially decreasing the overall scope of clinical data that we are required to present to support our application for the approval of LYT-100 in secondary lymphedema.

LYT-100 and the Treatment of Other Fibrosis and Inflammation-Related Diseases

Fibrosis and inflammation are a common mechanism across several lung diseases. There are acute diseases with high mortality or that lead to long-term fibrosis; chronic diseases linked to a specific cause, like a virus or autoimmune disease; and diseases like IPF, where the cause is less clear. In a large percentage of these various lung conditions, there are no approved treatments that address inflammation and fibrosis of the lungs. Many of these diseases can increase the risk for worsening of lung fibrosis, and there is a clear unmet need to stop inflammation and fibrosis and to preserve lung function. Even in IPF, for which pirfenidone is approved, high unmet need exists given pirfenidone’s dosing schedule and unfavorable tolerability profile which often leads to dose reduction or treatment discontinuation. Despite these unmet needs, pirfenidone sales peaked above $1 billion in 2018 and 2019.

We plan to explore applications of LYT-100 where the anti-inflammatory and anti-fibrotic activity of pirfenidone has demonstrated clinical and preclinical activity, including IPF where pirfenidone is already approved for use, and other ILDs. There are serious limitations in the clinical use of pirfenidone in IPF and interstitial lung disease. Pirfenidone requires frequent dosing, which results in high peak to trough fluctuations in plasma concentrations, and side-effects leading to a >25 percent treatment discontinuation rate. In Phase 3 studies, 77 percent of patients taking pirfenidone had dose interruptions or reductions because of AEs. The real-world evidence of pirfenidone use also highlights tolerability issues: in a large, multinational post-marketing study, 73 percent of patients experienced an AE, including 38 percent with GI symptoms, leading to a high discontinuation rate. The most common AEs of pirfenidone included GI symptoms (nausea, diarrhea, dyspepsia, vomiting), fatigue, rash, and photosensitivity reactions. Additionally, reversible elevations in liver enzymes were seen in a small proportion of patients, as were dizziness and weight loss. Thus, despite an intriguing mechanism of action, pirfenidone has PK shortcomings that may limit its use in IPF and other ILDs. A therapeutic compound which improves upon metabolism and dose exposure of pirfenidone, while retaining or exceeding its efficacy, would be an attractive therapeutic option for interstitial lung diseases. LYT-100 has demonstrated anti-fibrotic and anti-inflammatory activity with superior PK that has the potential for improved dosing, safety, and efficacy compared to pirfenidone.

Because of our insight into how inflammation and fibrosis affect lymphatic flow, we also plan to explore the application of LYT-100 in other lymphatic flow conditions. Millions of patients have lymphedema beyond breast cancer-related arm lymphedema and we believe LYT-100 may have potential to target the underlying mechanisms of other forms of secondary or primary lymphedema. We may also explore the potential use of

 

113


Table of Contents

LYT-100 in other inflammatory and fibrotic diseases including FSGS, a rare, progressive kidney disease that can lead to kidney failure and dialysis. An estimated more than 4,500 individuals in the United States develop FSGS every year, and there are no specific treatments designed to reduce fibrosis and inflammation in this disease. Treatment with immunosuppression is symptomatic and often does not prevent relapse and progression to end-stage renal disease. In a proof-of-concept study conducted by NIH that enrolled 21 adult patients with FSGS, pirfenidone prolonged renal survival by approximately 55 percent and a median improvement of 25 percent in the rate of decline of glomerular filtration rate. LYT-100’s anti-fibrotic activity suggests the potential to target kidney fibrosis in FSGS and provide a novel treatment for this disorder.

LYT-100 and the Treatment of Brain and CNS Lymphatic-Related Disease

The lymphatic system is an important part of the immune system, GI system and CNS. Loss of lymphatic flow can play a critical role in diseases of these systems. We believe LYT-100, if successfully developed and approved, has the potential to address serious diseases of lymphatic flow.

One of our academic collaborators discovered a functional lymphatic system in the meninges of the brain that forms the basis of our meningeal lymphatics discovery research program. These meningeal lymphatics have been described as the “brain drain,” a route through which macromolecules are flushed from the brain in cerebrospinal fluid. Among the macromolecules that are drained via the lymphatics are pathogenic macromolecules such as amyloid-beta and tau, which are both associated with AD pathology, as well as alpha-synuclein, which is associated with Parkinson’s disease. Blocking the lymphatic flow increases levels of these molecules in the brain. In animal models of AD, AD-associated tauopathies and Parkinson’s disease, blockade of meningeal lymphatic flow significantly exacerbated disease progression and severity and improving flow through aged meningeal lymphatics improved cognitive brain function in these animal models. With aging, the lymphatic vessels that drain the brain become dysfunctional and no longer drain as efficiently. The “lymphedematous characteristics” of meningeal lymphatic vessels in aged animals might be leading to inefficient clearance of pathologic macromolecules and potentially increase risk for neurodegenerative diseases. Restoration of lymphatic flow may then be a novel class of therapies for neurodegeneration, and we believe that augmenting meningeal lymphatic vasculature function may potentially improve outcomes for a range of neurodegenerative and neuroinflammatory conditions that are not currently effectively treated.

We are exploring multiple ways of altering lymphatic flow, both in the CNS and other parts of the body. Starting with LYT-100, we will continue to develop novel therapeutic candidates that target inflammation, fibrosis and other mechanisms that impair lymphatic flow. We also have ongoing discovery efforts to explore new mechanisms with the goal to advance, in-license and/or acquire assets that we can develop for diseases of lymphatic flow. We will use our network of collaborators and internal expertise in lymphatics to actively discover and develop novel solutions for diseases of the lymphatic system, including rare lymphatic diseases.

The FDA and corresponding regulatory authorities will ultimately review our clinical results and determine whether our Wholly Owned product candidates are safe and effective. No regulatory agency has made any such determination that LYT-100 is safe or effective for use by the general public for any indication.

LYT-200 & LYT-210: Targeting Immunosuppressive and Pathogenic Lymphocytes to Treat Intractable Cancers and Immunological Disorders

Hallmarks of cancer include dysregulated growth driven by both cellular oncogenes as well as the intratumoral microenvironment and local and systemic failures of the immune system to recognize cancer and mount an anti-tumor response. In cancer, a complex interaction of the tumor, tumor microenvironment and immune cells creates an immunosuppressive state, allowing cancer to evade the effects of many therapies as well as the attack of cytotoxic immune cells. Tumors can often express immunosuppressive factors, such as cell surface checkpoint molecules. For example, programmed death-ligand 1, or PD-L1, is a type of checkpoint overexpressed by cancer cells that suppress T cells, an important type of immune cell that normally responds to infections or cancer.

A class of therapies known as checkpoint inhibitors has been developed to counteract tumor defenses against the immune system and includes therapies that target programmed cell death protein 1, or PD-1, PD-L1 and

 

114


Table of Contents

cytotoxic T-lymphocyte-associated antigen 4, or CTLA-4. These marketed drugs have demonstrated encouraging clinical responses and durable benefit across a number of cancers and according to EvaluatePharma had sales exceeding $16 billion in 2018. Unfortunately, a great proportion of patients still do not respond or respond suboptimally to approved checkpoint inhibitors. In immunologically silent tumors such as pancreatic cancer, CRC and CCA, little, if any, efficacy has been seen to date with any of these agents. In the United States, there are approximately 57,000 new pancreatic cancer patients, of which 50 percent present with metastatic disease, approximately 146,000 new CRC patients, of which 35 percent present with metastatic disease, and approximately 8,000 new CCA patients, of which 50 percent present with metastatic disease, per year, representing a significant patient population that has yet to receive benefit from any immuno-therapy agents.

In order to identify assets with the potential to provide significant therapeutic benefit to cancer patients, we undertook a global, proactive search to discover important new scientific insights and technologies that could address the challenge of multiple mechanisms of immunosuppression in current therapeutics. During this search, we employed the following criteria:

 

   

Aim to avoid targets where others were developing drugs;

 

   

Address multiple pathways of immunosuppression via key immunological nodes;

 

   

Attempt to develop therapies for solid tumors where existing treatments are limited, including solid tumors where checkpoint inhibitors have failed;

 

   

Identify targets where therapeutic intervention has the potential for both single-agent activity and the potential to be used in combination with other immuno-oncology, and more broadly, other anti-cancer agents;

 

   

Represent targets whose underlying biology enables them to have a favorable therapeutic window and a favorable safety margin;

 

   

Achieve significant preclinical validation;

 

   

Focus on targets whose higher levels are associated with aggressive diseases and poorer outcomes in people; and

 

   

Focus on targets where mAbs could be effective.

Based on these criteria, and through our extensive network of advisors and collaborators, we identified two foundational immunosuppressive mechanisms involving galectin-9 and immunosuppressive gd1 T cells, which are the basis of developing LYT-200 and LYT-210, respectively, and which fulfill the above criteria for a potentially clinically beneficial, novel immuno-oncology agent.

LYT-200: Our Immuno-Oncology Product Candidate Targeting Galectin-9, in Development for the Treatment of Solid Tumors

LYT-200 is a fully human IgG4 mAb that is designed to block galectin-9, which we are developing for the treatment of solid tumors, including pancreatic ductal adenocarcinoma, or PDAC, CRC and CCA, that do not respond to approved checkpoint inhibitors and have poor survival rates. We anticipate filing an IND for LYT-200 and initiating a Phase 1 study in solid tumors in 2020, with results anticipated in 2021.

We believe LYT-200 could meet the criteria that we set out in defining a potential immuno-oncology therapeutic because:

 

   

Galectin-9 promotes and facilitates multiple immunosuppressive pathways by, for example, expanding regulatory T cells, shifting macrophages from the M1 to M2 phenotype, and inducing apoptosis of activated CD4+ and CD8+ T cells;

 

   

High expression of galectin-9 is evident in tumors and in cancer patients’ blood, and correlates with poor survival outcomes and aggressive disease in multiple solid tumor types;

 

115


Table of Contents
   

In order to assess the effects of LYT-200 in murine models of cancer, a mouse monoclonal antibody, which we refer to as mIgGI-200, that targets the same epitope on galectin-9 was developed. A mouse IgG1 isotype has blocking function similar to the human IgG4 isotype. Preclinical evidence we generated has confirmed that mIgG1-200 is efficacious in inhibiting tumor growth in pancreatic cancer (KPC) and melanoma (B16F10) mouse models of cancer. We have used mIgG1-200 as single agent in both the pancreatic cancer (KPC) and the melanoma (B16F10) mouse models of cancer. In both of these models, compared to control, we saw a significant tumor growth reduction. Equally, in the KPC model we observed that administration of LYT-200 both as a single agent, and in combination with chemotherapy (gemcitabine/nab-paclitaxel), significantly prolonged survival of pancreatic tumor bearing mice, compared to control, while chemotherapy alone did not give a significant prolongation of survival compared to control animals;

 

   

LYT-200 also activated effector T cells in ex vivo models of patient derived tumor organoids (PDOTs) in multiple tumor types (pancreatic cancer, colon cancer, cholangiocarcinoma, etc.);

 

   

While elevated in the context of cancer, galectin-9 has low expression under normal physiological conditions which indicates a potential safety window which has been further supported by the lack of tolerability concerns to date in our good laboratory practice, or GLP, studies with LYT-200 even at extremely high doses, such as 300 mg/kg in non-human primates (~100 mg/kg human equivalent dose);

 

   

Other companies, to our knowledge, do not have clinical development programs around galectin-9 as a therapeutic target, and LYT-200 would represent a potentially innovative therapeutic. None of the other human galectins have been documented to play such a global role in immunosuppression in the context of cancer which galectin-9 plays; and

 

   

We believe that LYT-200 may be used as a single agent and safely in combination with checkpoint inhibitors and other systemic cancer treatments.

Galectin-9 has a unique capacity to switch off a multitude of immune mechanisms that would otherwise engage in fighting cancer; therefore, targeting this molecule has the potential to restore the immune system’s ability to attack cancer.

Galectin-9 functions through multiple pathways by binding to carbohydrate motifs on cell surface molecules and receptors. It plays a critical regulatory role in immune cell response and homeostasis, and mediates immunoregulatory activities in several ways. Binding of galectin-9 to T cell immunoglobulin and mucin-domain containing-3, or TIM-3 for example, induces cell death of terminally differentiated TIM-3+ T helper cell, or Th1 and cluster of differentiation, or CD, 8+ T cells, as well as apoptosis of CD4+ Th1 cells. Galectin-9 binds to CD44 and cooperates with transforming growth factor beta, or TGF-ß, to promote T regulatory, or Treg, cell differentiation. Galectin-9 also favors expansion of immunosuppressive myeloid derived suppressor cells, or MDSCs, in the overall promotion of Th2/M2 differentiation, which ultimately favors tumor progression. Galectin-9 also functions to reduce the development of Th17 cells, and is immunomodulatory on tumor associated macrophages. Taking all this into consideration, galectin-9 is considered a potent mediator of cancer-associated immunosuppression.

 

116


Table of Contents

Galectin-9 Proposed Mechanism of Action

 

 

LOGO

Image adapted from J Mol Biol; 428 (16): 3266-3281; 2016 Treg = T regulatory cell; MDSC = myeloid derived suppressor cell; M1/M2 = tumor associated macrophage (TAM)1 (immunoactive) and 2 (immunosuppressed) cell; Th1 = T helper1 cell

High levels of tissue and/or circulating galectin-9 correlate with aggressive tumor features and adverse survival outcome in many tumor types. For example, galectin-9 levels are significantly increased in metastatic melanoma patient plasma, correlating with Th2 systemic bias and less favorable two-year clinical survival outcome. Galectin-9 is also highly expressed in human PDAC compared with normal pancreas tissue and present on both tumor and intratumoral immune cells. Moreover, high serum concentration of galectin-9 may be able to discriminate PDAC from benign pancreatic disease and healthy individuals and is potentially prognostic for stage IV patients. Plasma levels of galectin-9 are associated with a worse overall and disease-free survival, as well as chemoresistance, in ovarian cancer patients. In gastric cancer, patients with galectin-9 positive tumors have significantly lower overall and gastric cancer-specific mortalities. In yet another gastrointestinal tumor type, CRC, galectin-9 markedly inhibits the cytotoxicity of the gamma delta T cells towards colon cancer cells, indicating its immune-suppressive mechanism of action. In muscle invasive bladder cancer, tumor-associated macrophages expressing galectin-9 are associated increasing numbers of Treg cells and decreasing numbers of CD8 T and dendritic cells, indicating an immunosuppressed microenvironment, that in turn translates to increased tumor grade/stage and galectin-9 positive tumors with poor prognosis.

In nasopharyngeal carcinoma, or NPC, significant increase in the expression of galectin-9 positive tumor cells, with concomitant increase in Treg cells and decrease in CD8 T cells, is observed in recurrent tumor tissues, indicating that galectin-9 confers immunologic escape in NPC.

High galectin-9 expression is highly correlated with expression of immune checkpoint molecules, M2 tumor-associated macrophages in the mesenchymal subtype of glioblastoma multiforme and in small cell lung cancer

 

117


Table of Contents

correlates with high levels of neuron specific enolase and shorter survival. In breast cancer, surface galectin-9 protects carcinoma cells against cytotoxic T cell-induced death, while in non-small cell lung cancer, or NSCLC, there is a co-expression between galectin-9 and PD-L1, with high galectin-9 expression on immune cells correlating with early disease relapse. Moreover, early accumulation of MDSCs expressing galectin-9 in NSCLC is associated with primary and secondary resistance to anti-PD-1 treatment.

Collectively, these data, across multiple solid tumor types, may support the use of LYT-200 in relapsed/refractory, metastatic solid tumors.

In basal physiological conditions, galectin-9 is weakly expressed in most tissues, with some abundance in the thymus and kidney.

For example, the figure below illustrates the correlation between galectin-9 messenger ribonucleic acid, or mRNA, levels and decreased overall survival in pancreatic cancer. As shown below, high mRNA levels of galectin-9 in pancreatic cancer correlate to significantly shorter overall survival at five years, as represented by the red curve, compared to lower mRNA levels of galectin-9.

mRNA Levels of Galectin-9 in Pancreatic Cancer

 

 

LOGO

The figure below shows immunohistochemistry, or IHC, expression of galectin-9 in primary CRC and CRC liver metastasis. In staining of CRC samples with a reagent galectin-9 antibody, we observed high galectin-9 expression at the cell membrane and in the cytoplasm, both at the site of the primary tumor and the metastatic deposit.

 

118


Table of Contents

Observed Galectin-9 Expression in CRC

 

 

LOGO

Additionally, data below represents staining patterns of galectin-9 in pancreatic cancer tissues, and we have observed the same IHC pattern in breast cancer and CCA as well. Namely, a variety of tumor types were assessed for the presence of galectin-9 using IHC of formalin-fixed, paraffin-embedded, or FFPE tissue samples. Over 1,000 samples of breast cancer, 141 samples of PDAC, and 99 samples of intrahepatic CCA, with available clinicopathologic information, were examined. Figures below show that strong and moderate tumor staining were associated with membranous expression of galectin-9 (p=0.004), and the tumors with strong expression correlated with worse outcomes. Strong galectin-9 expression conferred worse relapse free survival (p=0.052) and worse overall survival (p=0.044) in CCA.

 

119


Table of Contents

Representative IHC Staining of Galectin-9 in CCA

 

 

LOGO

 

120


Table of Contents

 

LOGO

Additionally, we can detect galectin-9 levels in cancer patient blood which are much higher than in healthy individuals. The figure below depicts blood serum samples from 14 healthy subjects, 14 CRC and five pancreatic cancer patients that were evaluated for galectin-9 levels. Serum galectin-9 levels were measured using commercially available ELISA kits specifically for detection of human galectin-9. The data show increased galectin-9 levels in the serum of cancer patients compared to healthy subject controls. This assay indicates that galectin-9 overexpression occurs not only in cancer tissues but also in the blood of cancer patients.

 

121


Table of Contents

Serum Galectin-9 Levels in Various Populations

 

 

LOGO

Preclinical Results

Specifically, the binding affinity of LYT-200 to the C-terminal carbohydrate domain 2, or CRD2 and the non-binding CRD1 domains of mouse, rat, cynomolgus monkey and human galectin-9 was determined utilizing the Dynabead system (Invitrogen, ThermoFisher Scientific). Studies were conducted to assess cross species affinity to the CRD2 domain of galectin-9. CRD 1 and 2 domains of galectin-9 are domains used for interaction with binding partners and hence are relevant for therapeutic targeting.

LYT-200 has been observed to have high specificity for its primary target galectin-9, as established in the protein array that assessed binding of LYT-200 to more than 5,000 cell bound and secreted human proteins.

KDapp (nM) of LYT-200 to Galectin-9 Carbohydrate Domains

 

Species

  

Galectin-9 Carbohydrate Domain

  

LYT-200

Human    CRD1    No binding
Human    CRD2    0.33 ± 0.07
Mouse    CRD2    0.42 ± 0.04
Rat    CRD2    1.28 ± 0.06
Cynomolgus Monkey    CRD2    0.31 ± 0.03

The binding affinity of LYT-200 to CRD2 domain was similar and in the low nanomolar range between human, mouse and monkey models and three to four times weaker in the rat model although still within low nanomolar range. LYT-200 and mIgG1-200 share the same antibody variable region, and as a result have comparable binding affinities for the CRD2 domain of galectin-9 across the four species tested. Furthermore, both monoclonal antibodies are specific for the CRD2 domain, as no binding was detected to the CRD1 domain of human galectin-9.

Binding affinity of LYT-200 to cell surface galectin-9 was determined using human colon cancer cells (left panel; CRL-2134 cells) and a galectin-9 negative cell line (right panel; HEK-293 cells). Secondary antibody only

 

122


Table of Contents

(2 only) condition was used as a control where no binding to galectin-9 is expected nor seen. Based on these saturation curves, a cell-based KD for LYT-200 was determined to be 0.41 ± 0.07 nM.

Comparison of LYT-200 Binding to CRL-2134 and HEK-293 Cells

 

 

LOGO

We next assessed the ability of LYT-200 to block interactions with galectin-9 specific binding protein, CD206. CD206 is a receptor found on the surface of macrophages, and is a known binding protein/receptor for galectin-9. An ELISA format was used to first demonstrate that CD206 and galectin-9 are a receptor-ligand pair and secondly to show that the addition of LYT-200 could inhibit this interaction.

LYT-200 Blocks CD206-Galectin-9 Interaction in a Dose Dependent Manner

 

 

LOGO

These data indicate that LYT-200 has the ability to block a functional activity of galectin-9, namely, interaction with a specific binding partner/receptor, CD206. This assay demonstrates the desired and expected blocking function of LYT-200 as the fully human IgG4 mAb.

We next observed that LYT-200 could protect T cells from galectin-9 induced apoptosis, as illustrated in the figure below. The presence of galectin-9 (red square) significantly increased cell death compared to culture in the absence of galectin-9 (black circle). The addition of LYT-200 to the culture of MOLM-13 cells in the presence of galectin-9 (blue circle) significantly reduced the observed percentage of cell death in a dose dependent manner.

 

123


Table of Contents

The IC50 for this assay is approximately 60 nM galectin-9. This assay supports the desired and expected functional activity of LYT-200 in blocking galectin-9 interactions on T cells which results in T cell apoptosis as well as a broad ability of LYT-200 to intercept galectin-9 - receptor interactions, since T cell death does not occur through interactions with CD206.

LYT-200 Protects MOLM-13 T Cells from Galectin-9-Mediate Apoptosis

 

 

LOGO

The ortothopic KPC mouse model is commonly used as a preclinical model for evaluating PDAC biology and therapeutic agent efficacy. Our academic collaborator previously showed that blocking galectin-9 with a murine galectin-9 antibody demonstrated significantly extended survival in a mouse KPC pancreatic cancer model. Anti-PD-1 checkpoint inhibitors have previously proven ineffective in this xenograft model. As noted previously, to further characterize the potential of LYT-200, we created a mouse LYT-200, or mIgG1-200, by cloning the antigen binding domain of LYT-200 into a murine antibody backbone. We confirmed this observation of single agent activity in the KPC mouse pancreatic cancer model illustrated in the figure below. We have also combined mIgG1-200 with the standard of care for pancreatic cancer, (e.g., chemotherapy, gemcitabine/nab-paclitaxel) in the KPC model and shown that both as a single agent and in combination, mIgG1-200 extends the life of mice bearing pancreatic cancer.

 

124


Table of Contents

LYT-200 Mouse mAb Activity in Orthotopic Pancreatic Cancer KPC Model

 

 

LOGO

We also observed clear improvement in survival of these animals treated with LYT-200 mouse mAb, indicated as anti-galectin-9, versus controls (p=0.005), as illustrated in the figure below.

Targeting Galectin-9 and Survival in KPC Pancreatic Cancer Mouse Model

 

 

LOGO

 

125


Table of Contents

Effect of LYT-200 on Survival of Mice Implanted with Orthotopic Pancreatic Tumors

Kaplan Meier Survival Curve

 

 

LOGO

Group 1: Untreated; Group 4: mIgG1-200 (200mg); Group 5: gemcitabine (50 mg/kg) plus Abraxane (15 mg/kg); Group 6: Combination of mIgG1-200 and gemicitabine+Abraxane at same doses. A significant survival benefit was delivered by treatment with mIgG1-200 alone, compared to the untreated controls (Group 4 versus Group 1: Hazard Ratio (HR)=0.348, 95%CI= (0.146, 0.83), p=0.017). The combination treatment provided an additional survival benefit over untreated animals (Group 6 vs Group 1: HR=0.336, 95% CI= (0.14, 0.806), p=0.015)

Cox Regression Analysis: Groups 4, 5 & 6 against Group 1

 

Group

  

P-value

  

HR

  

HR(95%CI)

4

   0.017    0.348    (0.146, 0.83)

5

   0.262    0.624    (0.274, 1.422)

6

   0.015    0.336    (0.14, 0.806)

We also explored the activity of mIgG1-200 in a B16F10 melanoma mouse model, a model commonly used to assess the activity of checkpoint inhibitors. mIgG1-200 reduced mean tumor weights by ~50 percent while an anti-PD-1 antibody reduced mean tumor weights by ~22 percent. We also observed that when an anti-PD-1 antibody was used in conjunction with mIgG1-200, there was doubling of cytotoxic T cells in the tumor in the melanoma model.

One of the major challenges in oncology research is the translation from mouse models to humans, particularly in the case of immuno-oncology. To address this concern, we tested LYT-200 in PDOT cultures that mimic human tumor physiology and tumor microenvironment content. PDOTs are tumor excisions from primary and metastatic sites from PDAC, CRC, CCA, hepatocellular carcinoma and neuroendocrine tumors of the GI tract. Since the

 

126


Table of Contents

immune system within the tumor microenvironment is suppressed, the aim of treating PDOTs was to assess LYT-200’s ability to induce T cell activation which would indicate that LYT-200 could show activity in humans. We observed that LYT-200 potently and reproducibly activated T cells in 56 percent of the samples tested (n=23), which we believe is indicative of a potential high response rate in cancer types which have currently been unresponsive to checkpoint blockade or where response rates do not surpass 20 percent. The figure below depicts a patient derived organoid system.

Illustration of PDOT System

 

 

LOGO

We established PDOTs from tumor tissues surgically excised from cancer patients. Organoids containing the tumor microenvironment were processed by flow cytometry to establish the percentage of galectin-9 positive cells. We treated organoids containing the tumor microenvironment with LYT-200 and measured biomarkers of T cell activation such as TNF-α, interferon g, or IFNg and CD44. The figure below is an example of data from 23 human tumor organoid samples. Positive response in the organoid model was defined as an increase of more than 20 percent in at least two of three measured T cell activation markers, TNFα, IFNg and CD44.

Examples of in vitro T Cell Activation with LYT-200

 

 

LOGO

GLP toxicology studies were carried out in Sprague Dawley rats and cynomolgus monkeys. No safety pharmacology findings attributed to LYT-200 at doses as high as 300 mg/kg/week were observed in either species.

 

127


Table of Contents

Our Planned Clinical Development

Our first-in-human study of LYT-200 is intended to evaluate the safety, tolerability, PK and pharmacodynamics, or PD, and identify the recommended Phase 2 dose, or RP2D, for LYT-200 further evaluation as a single agent. This trial is being designed to permit inclusion of relevant drug combinations with LYT-200 in an expansion cohort setting for the treatment of certain solid tumors, including CCA, CRC and pancreatic cancer. We expect to file an IND and initiate this trial in the second half of 2020, with results anticipated in 2021.

LYT-200 Clinical Trial Design

Our planned clinical trial of LYT-200 is a Phase 1 open label non-randomized clinical trial of LYT-200 alone or in combination with chemotherapy or an approved anti-PD-1 agent in relapsed/refractory metastatic patients.

We plan to initiate a clinical trial under a dose escalation with dose expansion protocol as per recent FDA guidelines. The dose finding part of the study will be open to all comers, metastatic cancer patients with solid tumors who have failed previous lines of treatment. We intend to identify an RP2D of LYT-200 for further evaluation as a single agent and evaluate the safety of the RP2D in combination with chemotherapy and an approved checkpoint inhibitor. After the tolerability and RP2D have been determined, we plan to proceed with expansion cohorts in pancreatic cancer, CRC and CCA as pre-planned expansion cohort tumor types. We also plan to allow subjects with other tumor types to enroll in expansion cohorts as well based on the results from the dose finding part of the trial. In the expansion cohort, we plan to assess progression free survival benefit in pancreatic cancer and effect of potential tumor shrinkage in CRC and CCA. Throughout the study we plan to collect tumor tissue samples through biopsies as well as patient blood samples. These will be used to measure galectin-9 levels as well as many other immunological and tumor biomarkers that could help us further tailor the clinical trial and identify patients that we believe have highest likelihood to benefit.

The FDA and corresponding regulatory authorities will ultimately review our clinical results and determine whether our Wholly Owned product candidates are safe and effective. No regulatory agency has made any such determination that LYT-200 is safe or effective for use by the general public for any indication.

LYT-210: Our gd1 T Cell Focused Product Candidate Targeting Immunosuppressive and Pathogenic gd1 T Cells for Immuno-Oncology

LYT-210 is a fully human IgG1 mAb directed against the d1 chain of T cells bearing gdT cell receptors, or TCRs, we are designing for antibody-dependent cell-mediated cytotoxicity and antibody-dependent cellular phagocytosis, or ADCP. Similar to LYT-200, we believe that gd1 T cells represent an important new immuno-oncology target because they:

 

   

Activate multiple immunosuppressive pathways;

 

   

Have expression correlated with poor outcomes for multiple solid tumor types;

 

   

Have preclinical evidence that showed improvement in survival in the KPC pancreatic cancer mouse model where approved checkpoint inhibitors are ineffective. We have since obtained data with anti-d1 antibodies in PDOT systems;

 

   

While elevated in the context of cancer, have low expression under normal physiological conditions which indicates a potential safety window;

 

   

Represent an attractive target; to our knowledge, there are no other companies developing a therapeutic candidate targeting immunosuppressive and pathogenic gd1 T cells; and

 

   

We believe are an amenable target against which to generate a mAb.

Different T Cell Subtypes With the Focus on gdT Cells

Under normal physiological conditions, most T cells express the gd TCR, whereas gd T cells express the gd TCR. gd T cells are further classified based on d chain class, either gd1, gd2 or gd3 T cells. In healthy individuals, the

 

128


Table of Contents

most abundant gd T cells are gd2, which are typically found in the blood and are cytotoxic by function. gd1 T cells can also be found in the blood but in much smaller numbers in healthy people. gd1 T cells are also present in mucosal membranes and skin in healthy people. In cancer patients, immunosuppressive gd1 T cells become more abundant in tumors and blood than gd2 T cells and create an immunosuppressive tumor microenvironment, as illustrated on the left side of the figure below. gd2 T cell cytotoxic functions are being evaluated by others as adoptive T cell therapeutics in early stage trials which is different from our approach of targeting immunosuppressive gd1 T cells.

We are targeting depletion of immunosuppressive, tumorigenic gd1 T cells rather than administration of cytotoxic gd2 T cells as a cell therapy. gd1 T cells execute potent immunosuppressive function via multiple mechanisms, as illustrated on the left side of the figure below, which facilitates cancer progression. We are designing LYT-210 to eliminate gd1 T cells, and thereby potentially relieve immunosuppression, which we believe could enable immune mediated cancer attack.

 

 

LOGO

 

129


Table of Contents

Elevated numbers of gd1 T cells have been observed in many cancer types, including but not limited to primary and metastatic breast, ovarian, colon and pancreatic cancers. This T cell population promotes tumor growth through active suppression of anti-tumor immune responses. gd1 T cells isolated from human tumors have been shown to suppress naive and memory T cell effector functions, quell cancer cell cytotoxic activity of gd2 T cells, recruit tumor infiltration of immune-suppressive macrophages, or tumor associated macrophages, or TAMS, and MDSCs, as well as inhibit antigen presentation activity of dendritic cells, or DCs. The figure below illustrates the impact of pro-tumorigenic gd1 T cells on tumor progression.

 

 

LOGO

Image adapted from CellPress: REVIEW: gd T Cells: Unexpected Regulators of Cancer Development and Progression. DC = dendritic cell; TAM = tumor associated macrophage; MDSC = myeloid derived suppressor cell; IL17 = interleukin 17

The figure below demonstrates the presence of immunosuppressive gd1 T cells in patients with pancreatic adenocarcinoma. These cells are enriched in peripheral blood and expression of immunosuppression-related molecules on the gd1 T cell surface is significantly increased, while the expression of killing function-related molecules and the activation of killing function-related signaling pathway in the gd2 T cells are significantly decreased. In human cancers, gd1 T cells infiltrate the tumor microenvironment and can be detected using IHC or flow cytometry as shown in the figure below. Frozen sections of human PDA and normal pancreas were stained using a mAb specific for TCR gd or isotype control. Representative images and quantitative data are shown. The figure demonstrates that pancreatic cancers are enriched intratumorally for gd1 T cells compared to normal pancreatic tissue.

 

130


Table of Contents

gd1 T Cell Infiltration of Tumor Microenvironment

 

 

LOGO

Preclinical Results for Immuno-Oncology Indications

Similar to LYT-200, to better assess the potential activity of the anti-d1 antibody, we employed PDOTs from primary and metastatic tumors spanning various checkpoint inhibitor insensitive solid tumor types such as pancreatic, colorectal, cholangiocarcinoma, hepatocellular cancer and neuroendocrine tumors of the GI tract in order to assess the prevalence of tumor-infiltrating gd1 T cells and the capacity of the antibodies to restore tumor-infiltrating immune cell effector activity. Positive response in the organoid model is measured by an increase of more than 20 percent in at least two out of three T cell activation markers. We observed positive response in approximately 60 percent of the PDOTs we analyzed, representing 19 patients, which we believe shows the potential of the approach to reactivate immunosuppressed T cells in the tumor microenvironment.

The figure below is illustrative of data collected from 19 human tumor organoid samples from CRC patients.

Examples of in vitro T Cell Activation with Antibodies Against gd1 T Cells

 

 

LOGO

In order to assess the relevance of gd T cells in the development and progression of pancreatic cancer, we assessed the survival of immunocompetent mice which have gd T cells (wild type) or mice which are knock outs for gd T cells in a KPC mouse pancreatic model. In addition, there was an additional group of wild type mice treated with an antibody, UC3-10A6, which functionally blocks immunosuppressive mouse gd T cells.

As shown in the figure below, when pancreatic cancers grow in the absence of gd T cells, represented by the red curve, or when mice with pancreatic cancer were treated with an antibody against immunosuppressive gd T cells, represented by the grey curve, survival was greatly increased.

 

131


Table of Contents

Pancreatic Cancer Mouse Survival with gd T Cell Depletion and Blockage

 

 

LOGO

In order to validate and expand these findings, we compared the growth of syngeneic subcutaneous melanoma, or B16F10, and lung cancers in mouse strains with gd T cells (wild type) or without gd T cells (gd null) and evaluated the activity of anti-PD-1 and anti-CTLA4 mAbs within these groups. The results of these experiments showed increased anti-tumor activity of checkpoint blockade therapy in the absence of gd T cells.

We plan to advance additional preclinical and biomarker studies for LYT-210 in 2021.

LYT-210 for Autoimmune Disease: Mucosa-infiltrating Pathogenic gd1 T cells

Intraepithelial lymphocytes expressing gd1 TCRs are tissue-resident T cells that play a key role in homeostasis of the intestinal epithelium. It has been recently observed that chronic inflammation can permanently reconfigure the tissue-resident T cell compartment resulting in the repopulation of the GI mucosa with pathogenic and cytotoxic gd1 T cells. Establishment of pathogenic gd1 T cells along the GI tract tilts the gut environment towards a chronic inflammatory state, contributing to the pathophysiology of GI tract and inflammatory diseases, such as refractory celiac disease. We plan to conduct preclinical studies in animal models of inflammatory diseases.

The FDA and corresponding regulatory authorities will ultimately review our clinical results and determine whether our Wholly Owned product candidates are safe and effective. No regulatory agency has made any such determination that LYT-210 is safe or effective for use by the general public for any indication.

LYT-300: Oral Allopregnanolone in Development to Treat a Range of Neurological and Neuropsychological Conditions

The CNS comprises an extensive and immensely complex framework made up of a multitude of cells that support its essential function of signaling and transmitting information—predominantly carried out by neurons. With billions of neurons within the CNS, this communication across the complex network is achieved by means of neurotransmitters that enable signals to be transferred at junctions between neurons, or synapses. These signals transmitted between neurons might be inhibitory, excitatory or modulatory as it relates to the desired function to be achieved. Neurotransmitters communicate information between neurons via receptors that are exquisitely designed for transmission of information.

The major inhibitory neurotransmitter in the brain is gamma aminobutyric acid, or GABA, which decreases activity in the nervous system and essential for maintaining normal physiological function. One of its modes of action is via the GABAA receptor that is found on the membrane of neurons. These receptors have also been

 

132


Table of Contents

found on the membranes of immune cells suggesting a role for this biology across the brain-immune interface. GABAA receptors play a critical role in biology and their modulation has been the subject of several therapeutic efforts with the goal of having an impact across a range of neurological disorders. However, concerns around safety, challenging dosing regimens, and PK limitations have hampered the development of meaningful drug candidates. Neurosteroids are a class of endogenous natural small molecules that play a crucial role in modulating neurotransmission. Importantly, as it relates to GABAA receptors, the neurosteroid allopregnanolone—a positive allosteric modulator, through its action via the synaptic and extra-synaptic receptors—is capable of having a profound impact on GABAA signaling. These compounds display significantly improved selectivity and capacity for modulation at these crucial sites, which might enable overcoming the challenges faced by approaches that have been developed to date.

Allopregnanolone, and neurosteroids in general as a class of potent endogenous natural small molecules, have been recognized over the past three decades for their therapeutic potential to treat a range of neurological and neuropsychological conditions such as epileptic disorders, fragile X syndrome, fragile X tremor-associated syndrome, anxiety, depression, essential tremor, and sleep disorders, among others. The major hurdles associated with the translation of these compounds have been:

 

   

The inability to create an oral formulation due to first pass metabolism by the liver; and

 

   

The inability to administer them chronically to patients – essential for treating CNS disorders.

The recent approval of Zulresso, a 60 hour IV infusion to treat post-partum depression, speaks to the challenges that limit the scope of translation of this class of compounds to treat neurological and neuropsychological disorders. An oral form of allopregnanolone and other neurosteroids would enable the development of these natural molecules for treating a range of neurological and neuropsychological conditions.

Inspired by the natural trafficking of fats via the lymphatics at the gut-immune interface, we have developed an oral lipid-prodrug version of allopregnanolone. By trafficking via the lymphatics, we are able to overcome the first pass metabolism by the liver and achieve significant oral bioavailability of endogenous allopregnanolone in preclinical models. By utilizing our versatile small molecule lymphatic trafficking chemistry platform, we designed a multitude of lipid-prodrug molecules to control lymphatic trafficking, systemic release, and hence oral bioavailability of the active endogenous compound. Importantly, by harnessing this approach we have developed a version of allopregnanolone that can be administered chronically to patients to treat a range of neurological and neuropsychological conditions and built a robust intellectual property portfolio that enables protection of our proprietary composition of matter.

Preclinical Results

We created a library of lipid prodrugs of allopregnanolone and showed that orally dosing these prodrugs achieved therapeutically relevant plasma levels in small and large animal models. These studies, coupled with our other preclinical studies, support the possible utility of this approach for converting natural allopregnanolone into an orally-dosed drug as well as for numerous other potential therapeutics with intrinsic hepatic metabolism liabilities and oral absorption limitations.

We measured plasma levels of allopregnanolone after oral administration of lymphatic targeting prodrug of allopregnanolone or unmodified allopregnanolone in preclinical models of dogs and non-human primates. Male cynomolgus monkeys (figure below on the left) or dogs (figure below on the right) were fed a standardized diet prior to drug administration. The figure below shows dose-normalized blood concentration of free allopregnanolone over time in monkeys (n = 6) and dogs (n = 4) after oral administration of lipid prodrug compound in comparison with orally-administered allopregnanolone (error bars represent standard error of measurement). Apparent bioavailability of free allopregnanolone versus intravenous, or IV, was calculated to be over 30 percent in both species.

 

133


Table of Contents

Allopregnanolone Oral Exposure

 

 

LOGO    LOGO

This plasma exposure increase was confirmed to be due to lymphatic uptake. In the figure below, total allopregnanolone concentration (including free and prodrug-associated) was measured in the mesenteric lymph duct of anaesthetized rodents following intraduodenal infusion of prodrug (n = 3) or parent allopregnanolone (n = 2).

Allopregnanolone Lymphatic Uptake

 

 

LOGO

No drug-related adverse effects have been noted in preclinical studies to date at therapeutically relevant doses. Formal safety studies are being pursued as a part of the first-in-human-enabling package of studies. To support these studies, dose escalation studies have been performed on rat and dog and dose proportionality has been observed in both species.

Our Planned Clinical Development

The initial objective of the LYT-300 clinical program is to characterize the safety, tolerability, and PK behavior of orally administered LYT-300 in a Phase 1 clinical trial in healthy volunteers. We expect to initiate a first-in-human clinical study by the end of 2021. These studies may include exploratory endpoints such as beta wave power electroencephalography, or ß-EEG, a marker of GABAA target engagement. Data from these initial studies will be used to define a range of future studies and planned indications, which could include those discussed in the above section on unmet needs.

 

134


Table of Contents

Discovery Platforms: Our Platforms Leveraging the Absorption of Dietary Lipids to Traffic Therapeutics Via the Lymphatic System

In addition to our internal product candidates described above, we have two platforms designed to harness the lymphatic system functions for immunology, oncology and CNS indications in discovery as discussed below.

Given our interest in the lymphatic system, we sought out different approaches that could be taken to selectively traffic therapeutic molecules through the lymphatic system to target immune cells in the lymph nodes.

GlyphTM: Lymphatic Targeting Chemistry Platform

We are developing a synthetic lymphatic-targeting chemistry platform called Glyph, which employs the body’s natural lipid absorption and transport process to orally administer drugs via the lymphatic system. Consumed nutrients and orally-administered pharmaceuticals are initially absorbed by the small intestine mucosa, distributed to the liver by the portal vein before entering systemic circulation. Importantly, many consumed dietary lipids, particularly triglycerides, enter systemic circulation by an alternate route. Triglycerides, which are composed of three fatty acid chains tethered to a 3-carbon glycerol molecule, are absorbed by small intestine mucosal enterocytes where they are incorporated into large lipid-protein complexes, or chylomicrons, and released into the submucosa. Chylomicrons are too large to enter blood vessels and are instead taken up by submucosal lymphatic vessels. Once in the lymphatic vessels, they are transported to mesenteric lymph nodes associated with the GI tract where they pass into larger lymphatic sinuses connected to the thoracic duct, then transition to systemic circulation as illustrated in the figure below. This is in contrast to conventional systemic circulation via the gut and liver as shown in the figure below on the left.

Conventional Drug Circulation versus Lymphatic Systemic Circulation

 

 

LOGO

We believe this platform provides the following capabilities:

 

   

Targeting the mesenteric lymph nodes. This lymphatic targeting technology has important features potentially offering meaningful advantages in the creation of orally-administered medicines, especially those that need to reach immune system drug targets present in the GI tract mucosa and submucosa, such as intestine-associated immune cells, or in the mesenteric lymphatic vasculature, such as circulating immune cells, and mesenteric lymph nodes, such as lymph node stromal cells, antigen-presenting DCs and lymph node-associated immune cells.

 

   

Enhancing oral bio-availability by bypassing first-pass metabolism. We believe this technology could provide a broadly applicable modular means to significantly enhance the bioavailability of orally-administered drugs that suffer from substantial first-pass liver metabolism or those drugs, especially

 

135


Table of Contents
 

those utilized in drug combination therapies, that act as modulators (inducers and/or inhibitors) of drug-metabolizing systems in the liver.

We have successfully extended our lymphatic targeting platform to encompass more than 20 molecules as well as a range of novel linker chemistries that have demonstrated promising lymphatic targeting in preclinical studies. We expect to select product candidates from this and ongoing discovery work. In April 2019, we announced an alliance with Boehringer Ingelheim, which is initially focused on evaluating the feasibility of applying our Glyph technology platform to one of its immuno-oncology product candidates. We retain all other applications of this technology.

Our proprietary Glyph technology platform takes advantage of the fact that one of the triglyceride-associated fatty acids remains bound to dietary lipids during intestinal absorption, chylomicron conversion, lymphatic vessel uptake and eventual transport into the circulatory system. Using a modular set of proprietary chemical entities, small molecule pharmaceutical compounds can be docked to triglycerides where, following oral administration, the small molecule is directed into the mesenteric lymphatic system and on to systemic circulation. The point of original small molecule release from the triglyceride is governed by self-cleaving chemical structures, with different release-timing features, that tether the small molecule to the module connected to the triglyceride. The figure below is a representation of the proprietary chemistry for the design of our lymphatic targeting technology. The active pharmaceutical ingredient, or API, is meant to indicate an example of a pharmaceutical small molecule that is attached to the triglyceride, or Glyceride in the figure below, group using proprietary linker chemistry, or Linker in the figure below, to create a prodrug of the API. The prodrug also includes a proprietary self-immolative or cleaving chemistry, or SI in the figure below, that can be tuned to release the API in its intact original form.

Schematic Representation of Our Lymphatic Targeting Prodrug Technology

 

 

LOGO

Earlier efforts by scientists to create lipid-like prodrugs used strategies that coupled the small molecule drug directly with a single fatty acid, which cannot be packaged by the GI into lymph-bound chylomicrons and therefore does not facilitate transport to the mesenteric lymph nodes. The figure below demonstrates our lymphatic targeting prodrugs, marked PTH Prodrug in the figure below, demonstrated five-fold improved lymph transport as compared to conventional single fatty acid prodrugs, marked prodrug A through C in the figure below, or unmodified mycophenolic acid, or MPA, an immune-suppressive agent widely used in solid organ transplant rejection therapy and the treatment of lupus autoimmunity.

 

136


Table of Contents

Lymphatic Uptake of Our Prodrug

 

 

LOGO

Targeting the Mesenteric Lymph Nodes

To demonstrate the mesenteric lymphatic targeting capability of the platform, prodrugs were created from MPA. Preclinical studies in rodent models conducted by our collaborator and co-inventor, which were independently repeated by us, demonstrated that lipid prodrugs of MPA were capable of achieving MPA concentrations in mesenteric lymph, mesenteric lymph nodes and in mesenteric lymph node immune cells that were ten to 100-fold higher than observed with unmodified MPA. The figures below show the level of released MPA measured in lymph nodes (left) or lymphocytes within mesenteric lymph fluid (right) at the time periods indicated following small intestine administration of MPA or MPA lipid prodrugs.

In the figure on the left below, dose-normalized MPA concentration in mesenteric lymph nodes following intraduodenal infusion (over two hours) of MPA or MPA prodrug to anaesthetized, mesenteric lymph-duct intact rats (n = 3 for each time point, each drug). Our modified prodrug had a ten-fold higher exposure as calculated by AUC over eight hours. The panel on the right depicts dose-normalized mass of MPA and MPA derivatives in lymphocyte pellets separated from hourly collected mesenteric lymph samples following intraduodenal infusion of formulations containing MPA or MPA prodrugs (PTH Prodrug). The measured prodrug was over 100-fold higher than free drug over the four-hour experiment.

 

137


Table of Contents

Drug Concentration With and Without Our Prodrug

Measured in Lymph Nodes and in Lymph Fluids

 

 

LOGO   LOGO

Enhancing Oral Bio-Availability

As noted above, we believe this platform provides a broadly-applicable modular approach to enhance the bioavailability of orally-administered drugs that suffer from substantial first-pass liver metabolism. To demonstrate the utility of our lipid prodrug platform in such cases, we chose allopregnanolone as the subject of our inquiry, which has resulted in the LYT-300 program. However, this benefit can potentially be widely applied to nearly any therapeutic compatible with the synthetic approach which suffers from hepatic first-pass metabolism as has been shown by us and our collaborators with compounds such as testosterone, buprenorphine and multiple cannabinoids.

OrasomeTM Technology Platform: Designing a Programmable and Scalable Approach for Oral Administration of Nucleic Acids and Other Biologics

We are developing a versatile and programmable oral biotherapeutics platform, OrasomeTM, to enable administration of macromolecule therapeutic payloads, including antisense oligonucleotides, short interfering RNA, mRNA, modular expression vector systems, peptides and nanoparticles that are otherwise administered exclusively by injection.

The figure below depicts the administration of oral biotherapeutics:

 

LOGO

 

138


Table of Contents

Our Orasome technology platform was inspired by the in vivo trafficking of ubiquitous, naturally occurring vesicles, which are often referred to as exosomes, and we have engineered them for transport through the gastro-intestinal tract. Exosomes are a type of extracellular vesicle approximately ranging from 50nm to 150nm in diameter that are produced in the endosomal compartment and secreted from most types of eukaryotic cells. We believe human cell-derived exosomes have attractive promise as vehicles for systemic drug delivery due to their likely observed tolerability over synthetic polymer-based delivery technologies. However, the fragile nature of exosomes derived from human cells limits their usage for oral administration and the type of post-isolation manipulations that can be applied in order to optimize such vesicles for exogenous drug cargo loading and storage.

Our Orasome technology platform utilizes multiple vesicle components, including those isolated from milk. We have engineered these vesicles, building on the naturally evolved architecture in mammals, to remain stable following oral consumption and transit through the upper GI tract. Orasome vesicles are readily amenable to manufacturing at scale and relatively low cost based on the easily accessible and engineerable components.

Our proprietary Orasome technology platform has the potential to transform the treatment paradigm for diseases, such as rheumatoid arthritis, other autoimmune diseases, diabetes and cancer for which the standard of care often requires intravenous infusion or subcutaneous injection of monoclonal antibodies (e.g., anti-programmed death-1, anti-tumor necrosis factor) or therapeutic proteins/peptides (e.g., glucagon-like peptide-1, insulin, granulocyte colony-stimulating factor GCSF, Factor VIII and IX, cytokines and erythropoietin, among others.

Our Orasome vesicles are currently constructed to transport macromolecular medicines to selected mucosal cell types of the intestinal tract where the therapeutics act either directly in the GI tract, transit through the mucosa to the underlying lymphatic vascular network or, in the case of cargos that yield mRNAs, enable the body to produce its own therapeutic proteins and peptides, such as antibodies within mucosal cells that are secreted into the mucosal lymphatic vascular network for subsequent systemic distribution. Using our Orasome technology platform, we believe it may be possible for a patient to take an oral drug product that will permit their own GI tract cells to make virtually any type of therapeutic protein. We believe this approach also has the potential to provide a more convenient and significantly less expensive means to deliver biological medicines.

Within the context of the current COVID-19 pandemic, we believe our Orasome technology platform has the potential to support oral administration of anti-SARS-CoV-2 monoclonal antibodies or antibody combinations and vaccines to supply passive immune therapies for infected individuals and passive immune protection for health care and first responder professionals. Thus, whether combating emerging epidemic/pandemic pathogens or other diseases where monoclonal antibody therapeutics or vaccines offer significant clinical benefit, we believe our Orasome technology platform has the potential to transform the treatment of a range of clinical indications, while also lowering costs and simplifying administration of such biotherapeutics.

We expect preclinical proof-of-concept data in 2021 and anticipate additional preclinical results from a non-human primate proof-of-concept study in 2021. The proof-of-concept studies are designed to document the presence of therapeutic serum levels of biotherapeutics (peptides and proteins, such as antibodies) produced by the body following the oral administration designer payloads.

This work could lay the foundation for IND-enabling clinical studies for one or more additional product candidates to be included in our Wholly Owned Pipeline. We intend to leverage our proprietary technology platforms, as well as our extensive network with major pharmaceutical companies and world-leading scientists in immunology and lymphatics, to generate additional novel product candidates.

Our Founded Entities’ Product Candidates

The table below summarizes the programs of our Founded Entities. We established the underlying programs and platforms that have resulted in the product candidates being developed by our Founded Entities and advanced them through key validation points. Each of their product candidates targets indications related to one or more of

 

139


Table of Contents

the BIG systems, and any value we realize from these product candidates will be through the potential growth and realization of equity and royalty stakes highlighted in the table below.

We hold majority voting control of our Controlled Founded Entities and continue to play a role in the development of their product candidates, through representation on their board of directors, with respect to Follica, Vedanta, Alivio and Sonde. Our board designees represent a majority of the members of the board of directors of Follica, Vedanta and Alivio and a minority of the members of the board of directors of Sonde. With respect to our Non-Controlled Founded Entities, we do not hold majority equity ownership and are not responsible for development or commercialization of their product candidates and FDA-cleared products. Our Non-Controlled Founded Entities have independent management teams, and we do not control the day-to-day development of their respective product candidates.

 

 

LOGO

 

*

Relevant ownership interests for Founded Entities were calculated on a diluted basis (as opposed to a voting basis) as of June 30, 2020, including outstanding shares, options and warrants, but excluding unallocated shares authorized to be issued pursuant to equity incentive plans. Ownership of Vor is based on the

 

140


Table of Contents
  assumption that all future tranches of the most recent financing round are funded. Karuna ownership is calculated on an outstanding voting share basis as of August 26, 2020.
R

PureTech Health has a right to royalty payments as a percentage of net sales. For a description of these agreements, see “Business—Overview.”

All of these underlying programs and platforms across our Founded Entities were initially identified or discovered and then advanced by our team through key validation points before being further developed by each respective Founded Entity.

Our Founded Entities are described below.

Founded Entities in which PureTech has a Controlling Interest or the Right to Receive Royalties, in Order of Development Stage

Gelesis

Gelesis is developing oral therapeutics based on a novel, superabsorbent hydrogel technology platform to treat obesity and other chronic diseases related to the GI pathway. Gelesis’ proprietary approach is designed to act mechanically in the GI pathway to potentially alter the course of chronic diseases. In April 2019, Gelesis received clearance from the FDA for its first product, Plenity® (Gelesis100), an aid for weight management in adults with a body mass index, or BMI, of 25-40 kg/m2, when used in conjunction with diet and exercise. In June 2020, Gelesis received a CE Mark for Plenity as a class III medical device indicated for weight loss in overweight and obese adults with a Body Mass Index, or BMI, of 25-40 kg/m2, when used in conjunction with diet and exercise, which allows Gelesis to market Plenity throughout the European Economic Area and in other countries that recognize the CE Mark.

Given challenges associated with pharmacological and invasive surgical treatments for obesity, Gelesis designed an approach with an oral, non-invasive, non-systemic mechanism of action and a highly favorable safety and efficacy profile. Gelesis’ product candidates work in the GI tract and pass through the body without being absorbed. They are synthesized from two naturally derived building blocks (citric acid and cellulose) that form a novel, patent-protected three-dimensional structural composition and occupies volume in the stomach and small intestine to promote satiety and fullness. Because Gelesis’ technology acts mechanically and is not systemically absorbed, the product candidates are treated as devices for regulatory approval purposes.

Gelesis was incorporated in February 2006. The following chart summarizes Gelesis’ product and product candidates:

 

 

LOGO

 

*

Important Safety Information: Plenity is contraindicated in patients who are pregnant or are allergic to cellulose, citric acid, sodium stearyl fumarate, gelatin, or titanium dioxide. Plenity may alter the absorption

 

141


Table of Contents
  of medications. Read Sections 6 and 8.3 of the Instructions for Use carefully. Avoid use in patients with the following conditions: esophageal anatomic anomalies, including webs, diverticuli, and rings; suspected strictures (such as patients with Crohn’s disease); or complications from prior gastrointestinal (GI) surgery that could affect GI transit and motility. Use with caution in patients with active GI conditions such as gastro-esophageal reflux disease (GERD), ulcers or heartburn. The overall incidence of adverse events (AEs) in the Plenity group was no different than the placebo group. The most common side effects were diarrhea, distended abdomen, infrequent bowel movements, and flatulence. For the safe and proper use of Plenity, refer to U.S. Instructions for Use or the EU Instructions for Use
**

Products are investigational and have not been cleared by the FDA for use in the United States.

***

Contingent of FDA review of the research plan.

Program Discovery Process by the PureTech Team

We were interested in creating an effective and safe therapy for obesity given the tremendous need, significant health implications and failure of prior approaches to effectively engage and serve the breadth of the population affected. We consulted with leading obesity experts to brainstorm on the characteristics of an ideal approach, which we decided was an orally-administered mechanically acting device, and we then conducted a worldwide search for compelling technologies meeting these criteria. We identified and in-licensed the core intellectual property from one of our academic collaborators in October 2008, and we subsequently co-invented additional intellectual property around a novel class of biocompatible, superabsorbent hydrogels. One of the core PureTech team members involved in the initial identification and development process subsequently assumed the role of chief executive officer of Gelesis, and successfully attracted financing and built a strong development and commercial leadership team.

The Gelesis advisory team is comprised of leading experts in obesity and its related comorbidities, clinical research and development and advanced biomaterials, including Caroline Apovian, M.D., professor of Medicine and Pediatrics at Boston University School of Medicine; Louis J. Aronne, M.D., FACP, director of the Comprehensive Weight Control Program at Weill Cornell Medicine; Arne Astrup, M.D., head of department of Nutrition, Exercise and Sports at University of Copenhagen; Ken Fujioka, M.D., director of the Nutrition and Metabolic Research Center and the Center for Weight Management at the Scripps Clinic; James Hill, Ph.D., chairman, Department of Nutrition Sciences, director, Nutrition Obesity Research Center, University of Alabama; professor of Medicine and Pediatrics, University of Colorado; Lee M. Kaplan, M.D., Ph.D., Director of the Obesity, Metabolism and Nutrition Institute at Massachusetts General Hospital; Bennett Shapiro, M.D., co-founder and non-executive director at PureTech and former Executive Vice President of Research for Merck; and Angelo Tremblay, Ph.D., professor at Laval University.

Patient Need and Market Potential

Excess weight is growing rapidly in prevalence worldwide, with approximately 70 percent of American adults struggling with overweight and obesity. Globally there are more than 1.9 billion adults 18 years of age or older who are overweight and 600 million who have obesity. Additionally, approximately 13.7 million American children and adolescents are estimated to have obesity. Obesity-related conditions, such as heart disease, stroke, type 2 diabetes, NASH/NAFLD and certain types of cancer, are some of the leading causes of preventable death. Functional constipation and NASH/NAFLD affect approximately 35 million and 80 to 100 million individuals, respectively, in the United States. Type 2 diabetes and prediabetes affect approximately 30 million and 84 million individuals, respectively, in the United States.

Current treatments for patients with overweight and obesity begin with lifestyle modification, such as diet and exercise. When healthy eating and physical activity fail to produce the desired results, physicians may consider pharmaceutical therapies, device implantation or surgical treatments, such as gastric bypass and gastric banding (for patients with more severe obesity). These approaches are associated with safety concerns, lifestyle impact, complexity of use, high cost and compliance issues that have limited their adoption. While indicated for adults

 

142


Table of Contents

with a BMI of 25-40 kg/m2 when used in conjunction with diet and exercise, an important market segment for Plenity® is adults with BMI <35 kg/m2 (approximately 130 million adults in the US). The consumer expectations of weight loss within this group and the desire for a strong safety profile provide a particularly differentiated opportunity for Plenity®.

Development Status

Gelesis received clearance from the FDA to market and sell its lead product Plenity as an aid for weight management in adults with a BMI of 25-40 kg/m2, when used in conjunction with diet and exercise. Plenity is FDA-cleared for the largest number of adults struggling with overweight and obesity of any prescription weight-management aid and the only prescription weight management product to be cleared for use by overweight adults with a BMI as low as 25 kg/m2, with or without comorbidities. Nearly 150 million adults with excess weight in the United States fall within the BMI range included in the Plenity label.

Gelesis also received a CE Mark for Plenity as a class III medical device indicated for weight loss in overweight and obese adults with a BMI of 25-40 kg/m2, when used in conjunction with diet and exercise. Gelesis will now be able to market Plenity throughout the European Economic Area and in other countries that recognize the CE Mark. Gelesis plans to bring Plenity to the U.S. first, where it has been available to a limited extent since the second half of 2019 through an early experience program and since 2020 via a limited launch while the company ramps up its commercial operations and inventory for a full launch in 2021. Gelesis also plans to seek FDA input on the requirements for expanding the Plenity label for treating adolescents.

Gelesis has a partnership with Ro, a leading U.S. telehealth provider, to support the U.S. commercialization of Plenity. Gelesis also has a partnership with China Medical Systems Holdings Ltd., or CMS, for the commercialization of Plenty in China. Through the terms of the deal, CMS will provide $35 million upfront in a combination of licensing fees and equity investment, with the potential for an additional $388 million in future milestone payments as well as royalties.

Plenity was evaluated in a multicenter, double-blind, placebo-controlled pivotal study designed to assess change in body weight in 436 adults with overweight or obesity (BMI ³ 27 and ³ 40 kg/m2) after six months of treatment. The study had two predefined co-primary endpoints: at least 35 percent of patients taking Plenity achieving more than five percent weight loss (categorical endpoint) and placebo-adjusted weight loss with a super-superiority margin of three percent. In addition, a prespecified analysis of simple superiority was also performed. The study met and exceeded the predefined categorical endpoint, with 59 percent of adults in the treatment group achieving weight loss of five percent or greater and losing on average 10 percent of their weight (22 pounds) and 3.5 inches from their waists within six months. The study did not meet the three percent super-superiority endpoint but demonstrated superiority of the Plenity treatment over the placebo group (–6.4 percent vs. –4.4 percent, P=0.0007). Plenity-treated individuals had twice the odds of achieving at least five percent weight loss as compared to placebo (adjusted odds ratio: 2.0, P=0.0008).

In addition, 26 percent of the adults who completed the treatment with Plenity were “super-responders,” defined as achieving at least ten percent weight loss. These super-responders achieved an average of about 14 percent weight loss or approximately 30 pounds.

The overall incidence of AEs in the Plenity treatment group was no different than placebo. The most common treatment related adverse events, or TRAEs, were GI disorders (158 TRAEs in 84 (38 percent) subjects in the Plenity arm, compared to 105 events in 58 (28 percent) subjects receiving placebo), infections and infestations (two events in two (one percent) subjects with Plenity and one events in one (one percent) subjects with placebo), and musculoskeletal and connective tissue disorders (three events in two (one percent) subjects with Plenity and 0 in 0 (0 percent) subjects with placebo). There were no SAEs in the Plenity treatment group, whereas there was one SAE in the placebo treatment group. For the safe and proper use of Plenity, refer to the Instructions for Use.

 

143


Table of Contents

In the second half of 2020, Gelesis expects to initiate a Phase 2 study of GS300 in NASH/NAFLD and a Phase 3 study of GS500 in functional constipation. A pilot study of 40 individuals showed that a prototype of GS500 demonstrated a significant reduction in colonic transit time, or CTT, in patients with functional constipation by approximately 16 hours (approximately 31 percent) compared to baseline (P=0.02 compared to placebo).

In 2021, Gelesis expects topline results from a Phase 2 study of GS200 in weight management and glycemic control in adults with type 2 diabetes and prediabetes. Data from a pilot study of GS200 demonstrated that administration of GS200 ten minutes prior to a meal increased fullness throughout the entire day (P=0.012).

Gelesis’ completed and ongoing studies have been approved by the applicable reviewing IRBs as nonsignificant risk device studies. Gelesis also has ongoing discovery efforts to expand its pipeline.

Our board designees represent a minority of the members of the board of directors of Gelesis, and we do not control the clinical or regulatory development or commercialization of Gelesis’ products and product candidates. We have an interest in Gelesis’ product candidates through our equity investment as well as our right to royalty payments as a percentage of net sales pursuant to a license agreement between us and Gelesis.

Karuna

Karuna is developing novel therapies with the potential to transform the lives of people with disabling and potentially fatal neuropsychiatric disorders, including schizophrenia and dementia-related psychosis.

KarXT combines xanomeline, a muscarinic receptor agonist that has demonstrated decreases in multiple psychotic symptoms and improvements in cognitive symptoms in placebo-controlled human trials in schizophrenia and AD, and trospium chloride as further described below, an FDA approved and well-established muscarinic receptor antagonist that has been shown not to measurably cross the blood-brain barrier. KarXT is designed to preferentially stimulate M1/M4 muscarinic receptors in the brain without stimulating muscarinic receptors in peripheral tissues in order to achieve meaningful therapeutic benefit in patients with psychotic and cognitive disorders.

Xanomeline was previously studied by Eli Lilly and Company, or Eli Lilly, in randomized, double-blind, placebo-controlled trials in schizophrenia with acute psychosis and AD, demonstrating dose-dependent decreases in multiple psychotic symptoms and related behaviors, including hallucinations, delusions and agitation, as compared to patients on placebo in the treatment of psychosis and improvements in symptoms as measured by both the Alzheimer’s Disease Assessment Scale-Cognitive Subscale and the Clinician Interview-Based Impression of Change plus caregiver interview standards. To our knowledge, xanomeline is the only muscarinic agonist that has demonstrated potential therapeutic benefit in humans in either schizophrenia or AD. Like all muscarinic receptor agonists studied to date, however, xanomeline’s tolerability has been limited by side effects arising from muscarinic receptor stimulation in peripheral tissues, leading to nausea, vomiting, diarrhea and increased salivation and sweating, collectively referred to as cholinergic AEs, or ChAEs, which led Eli Lilly to discontinue development of xanomeline. By pairing xanomeline with trospium chloride, Karuna believes KarXT could potentially maintain efficacy of xanomeline while ameliorating its ChAEs. In November 2019, Karuna announced topline results from EMERGENT-1, its Phase 2 clinical trial of KarXT for the treatment of acute psychosis in patients with schizophrenia, in which KarXT met the trial’s primary endpoint with a statistically significant (p<0.0001) and clinically meaningful 11.6 point mean reduction in total PANSS scores over placebo at week five (-17.4 KarXT vs. -5.9 placebo), with similar discontinuation rates between KarXT (20 percent) and placebo (21 percent). The study enrolled 182 schizophrenia patients with acute psychosis, 90 of whom received KarXT. The number of discontinuations due to treatment emergent AEs were equal in the KarXT and placebo arms (n=2 in each group). One SAE was observed in the KarXT treatment group, in which the patient discontinued treatment and subsequently sought hospital care for worsening psychosis, meeting the regulatory definition of an SAE. In Karuna’s Phase 1 tolerability POC study, KarXT was better tolerated than xanomeline plus placebo and no SAEs were reported. In June 2020, Karuna announced next steps in the EMERGENT program, the clinical program evaluating KarXT for the treatment of adults with schizophrenia, following the

 

144


Table of Contents

completion of a successful End-of-Phase 2 meeting with the FDA. The outcome of the meeting supports the progression of KarXT into Phase 3 development.

Karuna was incorporated in July 2009. The following chart summarizes Karuna’s product candidates:

 

 

LOGO

 

*

Trial to evaluate KarXT when added to standard of care

**

In collaboration with PsychoGenics