UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the fiscal year ended December 31, 20192022
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
Commission File Number 000-30347
CURIS, INC.
(Exact Name of Registrant as Specified in Its Charter)
| 04-3505116 | |||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
128 Spring Street, Building C - Suite 500, Lexington, Massachusetts, 02421
(Address of principal executive offices) (Zip Code)
617-503-6500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
| Common Stock, $0.01 par value per share | CRIS | Nasdaq Global Market | ||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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. x 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). x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ¨ | Non-accelerated filer ☒ | Smaller reporting company ☒ | ||||||||
Emerging growth company ☐ | |||||||||||
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. ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ¨
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b).¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨☐ No x
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) based on the last reported sale price of the common stock on June 28, 201930, 2022 was approximately $51.2$89.7 million. As of March 12, 2020,2, 2023, there were 36,582,30996,617,898 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the registrant’s proxy statement for the annual meeting of stockholders scheduled to be held on June 4, 2020,May 23, 2023, which are to be filed with the Commission not later than 120 days after the close of the Registrant’s fiscal year ended December 31, 20192022 pursuant to Regulation 14A, have been incorporated by reference in Items 10-14 of Part III of this Annual Report on Form 10-K.
CURIS, INC.
TABLE OF CONTENTS
Form 10-K
| PART I | ||||||||
| ITEM 1. | ||||||||
| ITEM 1A. | ||||||||
| ITEM 1B. | ||||||||
| ITEM 2. | ||||||||
| ITEM 3. | ||||||||
| ITEM 4. | ||||||||
| PART II | ||||||||
| ITEM 5. | ||||||||
| ITEM 6. | ||||||||
| ITEM 7. | ||||||||
| ITEM 7A. | ||||||||
| ITEM 8. | ||||||||
| ITEM 9. | ||||||||
| ITEM 9A. | ||||||||
| ITEM 9B. | ||||||||
| ITEM 9C. | ||||||||
| PART III | ||||||||
| ITEM 10. | ||||||||
| ITEM 11. | ||||||||
| ITEM 12. | ||||||||
| ITEM 13. | ||||||||
| ITEM 14. | ||||||||
| PART IV | ||||||||
| ITEM 15. | ||||||||
| ITEM 16. | ||||||||
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PART I
Cautionary Note Regarding Forward-Looking Statements and Industry Data
This annual report on Form 10-K contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. All statements other than statements of historical fact contained in this annual report are statements that could be deemed forward-looking statements, including without limitation any expectations of revenue, expenses, earnings or losses from operations, or other financial results; statements with respect to the plans, strategies and objectives of management for future operations; statements concerning product research, development and commercialization plans, timelines and anticipated results; statements of expectation or belief; statements with respect to clinical trials and studies; statements with respect to royalties and milestones; statements with respect to the therapeutic potential of drug candidates; expectations of revenue, expenses, earnings or losses from operations, or other financial results; and statements of assumptions underlying any of the foregoing. Without limiting the foregoing, the words “anticipates”“anticipate(s)”, “believes”“believe(s)”, “focus(es)”, “could”, “estimates”“estimate(s)”, “expects”“expect(s)”, “intends”“intend(s)”, “may”, “plans”“plan(s)”, “seeks”“seek(s)”, “will”, “strategy”, “mission”, “potential”, “should”, “would“would" and other similar language, whether in the negative or affirmative, are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements may include, but are not limited to, statements about:
•the initiation, timing, progress and results of future preclinical studies and clinical trials, and our research and development programs, including our lead asset emavusertib;
•our ability to successfully resolve the continuing partial clinical hold imposed by the U.S. Food and Drug Administration, or FDA, on our TakeAim Leukemia Phase 1/2 trial of emavusertib with respect to the monotherapy expansion phase (Phase 2a) and the combination therapy phase (Phase 1b), and the likelihood that such partial clinical hold will be lifted;
•our estimates of the period in which we anticipate that existing cash and cash equivalents will enable us to fund our current and planned operations;
•our ability to establish and maintain collaborations or obtain additional funding;
•our plans to develop and commercialize our drug candidates;
•the timing or likelihood of regulatory filings and approvals;
•the implementation of our business model, strategic plans for our business, drug candidates and technology;
•our estimates regarding expenses, future revenue, capital requirements and needs for additional financing.
•developments and projections relating to our competitors and our industry;
•our commercialization, marketing and manufacturing capabilities and strategy;
•the rate and degree of market acceptance and clinical utility of our products;
•our competitive position;
•our intellectual property position; and
•our ability to maintain our listing on the Nasdaq Global Market.
Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We therefore caution you against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from those in these forward-looking statements areinclude the factors discussed among other places, below under the heading “Risk Factor Summary,” and the risk factors detailed further
in Item 1A., “Risk Factors”1A, "Risk Factors" of Part I and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II of this annual report and in our Securities and Exchange Commission reports filed after this annual report.
This annual report includes statistical and other industry and market data that we obtained from industry publications and research, surveys, and studies conducted by third parties as well as our own estimates. All of the market data used in this annual report involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such data. 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. Our estimates of the potential market opportunities for our drug candidates include several key assumptions based on our industry knowledge, industry publications, third-party research, and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions.
The forward-looking statements included in this annual report represent our estimates as of the filing date of this annual report. We specifically disclaim any obligation to update these forward-looking statements in the future. These forward-looking statements should not be relied upon as representing our estimates or views as of any date subsequent to the date of this annual report.
Other Information
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Unless otherwise indicated, or unless the context of the discussion requires otherwise, we use the terms “we,” “us,” “our” and similar references to refer to Curis, Inc. and its subsidiaries, on a consolidated basis. We use the termsterm “Curis” to refer to Curis, Inc. on a stand-alone basis.
Risk Factor Summary
Investment in our securities involves risk.You should carefully consider the following summary of what we believe to be the principal risks facing our business, in addition to the risks described more fully in Item 1A., “Risk Factors” of Part I of this annual report on Form 10-K and other information included in this annual report. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations.
If any of the following risks occurs, our business, financial condition, and results of operations and future growth prospects could be materially and adversely affected, and the actual outcomes of matters as to which forward-looking statements are made in this annual report could be materially different from those anticipated in such forward-looking statements.
•We have incurred substantial losses, expect to incur substantial losses for the foreseeable future and may never generate significant revenue or achieve or maintain profitability.
•We will require substantial additional funding, and if we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our drug development programs or commercialization efforts.
•We depend heavily on the success of our most advanced drug candidate emavusertib, for which we are conducting the TakeAim Leukemia and TakeAim Lymphoma clinical trials. The monotherapy expansion phase (Phase 2a) and the combination therapy phase (Phase 1b) of our TakeAim Leukemia Phase 1/2 trial continue to be subject to a partial clinical hold. If we are unable to initiate or complete the clinical development of, obtain marketing approval for or successfully commercialize our drug candidates, either alone or with a collaborator, or if we experience significant delays in doing so, our business will be materially harmed.
•The U.S. Food and Drug Administration, or FDA, placed partial clinical holds on our TakeAim Leukemia Phase 1/2 trial and our TakeAim Lymphoma Phase 1/2 trial after we reported a serious adverse event in the TakeAim Leukemia Phase 1/2 trial. The continuing partial clinical hold on the monotherapy expansion phase (Phase 2a) and the combination therapy phase (Phase 1b) of emavusertib with azacitidine or venetoclax of the TakeAim Leukemia Phase 1/2 trial could take considerable time and expense to address and there can be no assurance that the FDA will remove the continuing partial clinical hold in a timely manner, or at all, in which case our business and prospects for development and approval of emavusertib would be materially harmed.
•If clinical trials of any drug candidates that we, or any collaborators, may develop fail to satisfactorily demonstrate safety and efficacy to the FDA and other regulators, we, or any collaborators, may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of these drug candidates.
•Adverse events or undesirable side effects caused by, or other unexpected properties of, drug candidates that we develop may be identified during development and could delay or prevent their marketing approval or limit their use.
•We rely in part on third parties to conduct clinical trials of our internally-developed and in-licensed product candidates and for the research, development and commercialization of certain programs, and those third parties may not perform satisfactorily, including by failing to meet deadlines for the completion of such trials, research or testing.
•We face substantial competition, and our competitors may discover, develop or commercialize drugs before or more successfully than we do.
•If we are unable to obtain and maintain sufficient patent protection for our technologies and drugs, or our licensors are not able to obtain and maintain sufficient patent protection for the technologies or drugs that we license from them, or if the scope of the patent protection is not sufficiently broad, our competitors could develop and commercialize drugs similar or identical to ours, and our ability to successfully commercialize our drug candidates may be adversely affected.
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•If we or our collaborators are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we or they will not be able to commercialize, or will be delayed in commercializing, our drug candidates, and our ability to generate revenue will be materially impaired.
•In the event of a default by us or Curis Royalty under the Oberland Purchase Agreement, we could, among other consequences, lose our retained rights to future royalty and royalty related payments on commercial sales of Erivedge, be required to repurchase the Purchased Receivables, as defined below, at a price that is a multiple of the payments we have received, and our ability to enter into future arrangements may be inhibited, all of which could have a material adverse effect on our business, financial condition and stock price. On March 3, 2023, Curis and Curis Royalty received a letter from counsel to Oberland Capital Management, LLC, the Purchasers, as defined below, and the Agent, as defined below, alleging defaults under Sections 4.04 and 6.04(b) of the Oberland Purchase Agreement and demanding cure of the asserted default under Section 6.04(b) of the Oberland Purchase Agreement. The letter further alleges that these alleged defaults are events of default under the Oberland Purchase Agreement and that each alleged default separately entitles the Purchasers to exercise the put option, which would require Curis Royalty to repurchase the Purchased Receivables at a price, referred to as the Put/Call Price, equal to 250% of the sum of the upfront purchase price and any portion of the milestone payments paid in a lump sum by the Purchasers, if any, minus certain payments previously received by the Purchasers with respect to the Purchased Receivables. As of the date of the filing of this annual report on Form 10-K, the estimated amount of the Put/Call Price is up to $72.5 million. Curis and Curis Royalty dispute these allegations. However, if Oberland elects to pursue these claims, and if Curis and Curis Royalty are unsuccessful in defending against these claims, it could have a material adverse impact on Curis and Curis Royalty, including their ability to continue as a going concern.
•If we are not able to attract and retain key management and scientific personnel and advisors, or our managerial resources are diverted by expanded operations, we may not successfully develop our drug candidates or achieve our other business objectives.
•If we fail to meet the requirements for continued listing on the Nasdaq Global Market, our common stock could be delisted from trading, which would decrease the liquidity of our common stock and our ability to raise additional capital.
ITEM 1.BUSINESS
Overview
We are a biotechnology company focused on the development of first-in-class and innovative therapeutics for the treatment of cancer. Our clinical stage drug candidates are:
Product Development Programs
We are seeking to develop and commercialize innovative drug candidates to treat cancer. Our product development initiatives, described in the table below, are being pursued using our internal resources or through our collaborations. We conduct our research and development programs both internally and through strategic collaborations. Our programs are discussed in more detail below.
active in in vivo xenograft models of human lymphoma, and demonstrates activity in ex-vivo models of acute myeloid leukemia, or AML, and high-risk myelodysplastic syndromes, or MDS.hrMDS. In January 2018 we initiatedApril 2021, emavusertib was granted Orphan Drug Designation for the treatment of AML and hrMDS by the U.S. Food and Drug Administration, or FDA.
Emavusertib is currently undergoing testing in a Phase 11/2 open-label, single arm dose escalating and expansion trial in patients with relapsed or refractory, or R/R, AML, and hrMDS, also known as the TakeAim Leukemia Phase 1/2 study. We are also conducting a separate Phase 1/2 open-label dose escalating clinical trial in patients with relapsed or refractory hematologic malignancies, such as non-Hodgkin lymphomas, or NHL, including those with Myeloid Differentiation Primary Response Protein 88, or MYD88, alterations. Wealterations, also known as the TakeAim Lymphoma Phase 1/2 study.
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In April 2022, the FDA placed partial clinical holds on our TakeAim Leukemia Phase 1/2 study and TakeAim Lymphoma Phase 1/2 study after we reported the death of a patient with R/R AML in the TakeAim Leukemia Phase 1/2 study. In August 2022, the FDA lifted the partial clinical hold on the TakeAim Lymphoma Phase 1/2 study. The partial clinical hold was lifted following agreement with the FDA on our strategy for rhabdomyolysis identification and management, as well as on the enrollment of at least nine additional patients at the 200mg dose level. In addition, we have agreed to enroll at least six additional patients at the 100mg dose level of emavusertib in combination with ibrutinib. In August 2022, the FDA notified us that we could resume enrollment of additional patients in the monotherapy dose finding phase (Phase 1a) of the TakeAim Leukemia Phase 1/2 study, in which we have agreed to enroll at least nine additional patients at the 200mg dose level. The partial clinical hold remains in place for the monotherapy expansion phase (Phase 2a) and the combination therapy phase (Phase 1b) of emavusertib with azacitidine or venetoclax of the study until Phase 1a is complete and the FDA approves proceeding to the next phases of the study.
In June 2022, we provided initial preliminary clinical data from the study in the fourth quarter of 2019. We are currently planning to initiate a separate Phase 1 trial for acute myeloid leukemia and myelodysplastic syndromes patients in the first halfcombination portion of 2020.the TakeAim Lymphoma Phase 1/2 study, and we presented initial clinical data for patients from the TakeAim Leukemia Phase 1/2 study in both January and December 2022.
Erivedge
Erivedge is an orally bioavailable small molecule which is designed to selectively inhibit the Hedgehog signaling pathway by targeting a protein called Smoothened. The Hedgehog signaling pathway is normally active during embryonic development and unregulated activation of the pathway is believed to play a central role in allowing the proliferation and survival of cancer cells and leading to formation and maintenance of certain cancers. Genetic mutations that lead to unregulated activation of Hedgehog signaling are found in advanced basal cell carcinoma, or BCC, and medulloblastoma. Aberrant signaling in the Hedgehog signaling pathway is implicated in over 90% of BCC cases.
Erivedge is FDA approved for treatment of adults with metastatic basal cell carcinoma, or with locally BCC that has recurred following surgery or who are not candidates for surgery, and who are not candidates for radiation and is being developed under a collaboration agreement with Genentech Inc., a member of the Roche Group. Genentech and F. Hoffmann-La Roche Ltd, or Roche, are responsible for the clinical development and global commercialization of Erivedge. Erivedge is currently marketed and sold in the U.S. by Genentech and in the European Union, Australia and several other countries by Roche.
For the years ended December 31, 2022 and 2021, milestone and royalty payments from Genentech accounted for $10.3 million and $10.7 million, respectively, or 100% of revenues, all of which was related to the development and commercialization of Erivedge. In connection with the Oberland Purchase Agreement, described below, for the years ended December 31, 2022 and 2021, 87% and 85%, respectively, of cash receipts associated with Erivedge reverted to the purchasers under the Oberland Purchase Agreement.
For a further discussion of our Hedgehog collaboration agreement with Genentech, see “Business—Our Collaborations and License Agreements — Genentech.”
Other programs
In November 2022, we announced that we are concentrating our resources to further advance the development of emavusertib. Resources have been reallocated to the emavusertib programs and resources dedicated to all other pipeline programs have been reduced. Deprioritization of other programs enabled a reduction of approximately 30% of our workforce and is expected to extend our cash runway into 2025. In connection with this reprioritization, the following programs have been deprioritized.
CI-8993
CI-8993 is a human IgG1 kappa monoclonal antibody directed against the VISTA protein. VISTA shares homology with other immune checkpoint proteins, including PD-1 and PD-L1, and is an important negative regulator in the immune suppression induced by cancer. Recent studies suggest VISTA is strongly upregulated in response to treatment with other cancer immunotherapy agents. VISTA is strongly expressed in several tumor types including pancreatic cancer, mesothelioma, and prostate cancer. VISTA creates an immune blocking signal that is independent of, and complementary to, PD-1 and CTLA-4.
CI-8993 was originally developed as part of a license and collaboration agreement between ImmuNext and Janssen Biotech, Inc., or Janssen. In 2016, Janssen initiated clinical development of CI-8993 in a Phase 1 study evaluating safety, pharmacokinetics and pharmacodynamics of ascending doses of CI-8993 in patients with advanced solid tumors. The study
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enrolled 12 patients, in which one patient experienced dose-limiting side effects related to cytokine release syndrome. Janssen opted to close the study and ImmuNext regained control of the asset.
In JanuarySeptember 2020, we announced plansbegan enrollment in our Phase 1 trial of CI-8993 in patients with R/R solid tumors. We have an option to developlicense CI-8993 leveragingfrom ImmuNext. To date, we have escalated the dose of CI-8993 to 1mg/kg in our clinicalPhase 1 study and non-clinical experience with a VISTA-focused program (CA-170).have not yet reached the maximum tolerated dose. We are continuing to monitor patients.
Fimepinostat
Fimepinostat was invented by our scientists and is an oral, dual inhibitor of HDAC and PI3K enzymes. Specifically, fimepinostat inhibits HDACs 1, 2, 3, 6 and 10 and PI3K-alpha, delta and beta isoforms. Inhibitors of HDAC enzymes can affect a number of cell functions and cancer cell viability by regulating the acetylation of both histone and non-histone substrates. Multiple inhibitors of HDACs have been approved by the FDA for treatment of hematologic malignancies. PI3 kinases are frequently activated through mutations or by receptor tyrosine kinases in many cancer types. Two PI3K inhibitors are currently approved by the FDA for treatment of patients with B cell malignancies. Fimepinostat has shown potent antitumor activity in a variety of hematologic tumor models such as non-Hodgkin’s lymphoma, including some with alterations in MYC oncogene, and multiple myeloma.
however, we did not see ana sufficient efficacy signal that would warrant continuation of the study. Accordingly, no further patients will be enrolled in this study. We are currently evaluating future studiesstrategic alternatives for fimepinostat.
We are party to an agreement with The Leukemia and Lymphoma Society, or LLS, dated November 2011, and as amended in August 2015. We agreed to make up to $1.7 million in future payments to LLS, which equals the aggregate payments previously received from LLS, under the November 2011 agreement, pursuant to the achievement of certain objectives, including a licensing, sale, or other similar transaction, as well as regulatory and commercial objectives, in each case related to the fimepinostat program in hematological malignancies. However,however, if fimepinostat does not continue to meet its clinical safety endpoints in ongoing and future clinical trials in the defined field, or fails to obtain necessary regulatory approvals, all funding provided to us by LLS will be considered a non-refundable grant.
CA-170
CA-170 is an oral small molecule drug candidate that is designed to selectively target VISTA and PDL1 immune checkpoint proteins, both of which independently function as negative regulators of immune activation. CA-170 is being developed by us under our collaboration with Aurigene.
Our collaboration partner, Aurigene initiated a Phase 2 trial for CA-170 in India in the first quarter of 2018. In 2019,Discovery Technologies Limited, or Aurigene, presented clinical data from a Phase 2a basket study of CA-170 in patients with multiple tumor types, including those with non-squamous non-small cell lung cancer, or nsNSCLC. In the study, CA-170 demonstrated promising signs of safety and activity in nsNSCLC patients compared to various anti-PD-1/PD-L1 antibodies. In February 2020 we amended our collaboration, license and option agreement with Aurigene. Under the terms of the amended agreement, Aurigene will fund and conductis conducting a Phase 2b/3 randomized study evaluating CA-170 in combination with chemoradiation, in approximately 240 patients with nsNSCLC. Aurigene has rights to develop and commercialize CA-170 in Asia, in addition to its existing rights in India and Russia, based on the terms of the original agreement. We are entitled to receive royalty payments on potential future sales of CA-170 in Asia, and we retain rights in the U.S., European Union and rest of the world.chemoradiation.
CA-327
For a further discussion of our collaboration agreement with Aurigene, see “Business—Our Collaborations and License Agreements—Aurigene.”
Our Collaborations and License Agreements
Aurigene
In January 2015, we entered into an exclusive collaboration agreement with Aurigene for the discovery, development and commercialization of small molecule compounds in the areas of immuno-oncology and selected precision oncology targets. Under the collaboration agreement, Aurigene granted us an option to obtain exclusive, royalty-bearing licenses to relevant Aurigene technology to develop, manufacture and commercialize products containing certain of such compounds anywhere in the world, except for India and Russia, which are territories retained by Aurigene.
In connection with the collaboration agreement, we issued to Aurigene 3,424,026 shares of our common stock valued at $24.3 million at the time of issuance in partial consideration for the rights granted to us under the collaboration agreement which we recognized as expense during the year ended December 31, 2015. The shares were issued pursuant to a stock purchase agreement with Aurigene dated January 18, 2015.
In February 2020, we and Aurigene further amended our collaboration agreement. Under the terms of the amended agreement, Aurigene will fund and conduct a Phase 2b/3 randomized study evaluating CA-170, in combination with chemoradiation, in approximately 240 patients with nsNSCLC. In turn, Aurigene has rights to a stock purchase agreement with Aurigene dated September develop and commercialize CA-170 in Asia, in addition to its existing rights in India and Russia, based on the terms of the original agreement. We retain
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U.S., European Union, and rest of world rights to CA-170, and are entitled to receive royalty payments on potential future sales of CA-170 in Asia.
As of December 31, 2019,2022, we have exercised our option to license the following four programs under the collaboration:
1.IRAK4 Program - a precision oncology program of small molecule inhibitors of IRAK4. The development candidate is emavusertib.
2.PD1/VISTA Program - an immuno-oncology program of small molecule antagonists of PD1 and VISTA immune checkpoint pathways. The development candidate is CA-170.
3.PD1/TIM3 Program - an immuno-oncology program of small molecule antagonists of PD1 and TIM3 immune checkpoint pathways. The development candidate is CA-327.
4.We exercised our option to license a fourth program, which is an immuno-oncology program.
For each of our licensed programs (as described above) we are obligated to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize at least one product in each of the U.S., specified countries in the European Union and Japan, and Aurigene is obligated to use commercially reasonable efforts to perform its obligations under the development plan for such licensed program in an expeditious manner.
We have agreed to pay Aurigene tiered royalties on our and our affiliates’ annual net sales of products at percentage rates ranging from the high single digits up to 10%, subject to specified reductions.
We have agreed to make certain payments to Aurigene upon our entry into sublicense agreements on any program(s), including:
•with respect to amounts that we and our affiliates receive from sublicensees under a licensed program in the U.S. or the European Union, a declining percentage of non-royalty sublicense revenues that is dependent on the stage of the most advanced product for such licensed program at the time the sublicense is granted, including, for example 25% of such amounts following ourthe earlier of (1) initiation of athe first Phase 2 clinical studytrial and (2) determination by us that human proof-of-concept has been established in any indication and 15% of such amounts after initiation of the first pivotal study. This sharing will also extend to royalties that we receive from sublicensees, subject to minimum royalty percentage rates that we are obligated to pay to Aurigene, which generally range from mid-to-high single-digit royalty percentage rates up to 10%;
•with respect to sublicensing revenues we and our affiliates receive from sublicensees under a licensed program in Asia, 50% of such sublicensing revenues, including both non-royalty sublicensee revenues and royalties that we receive from sublicensees; and
•with respect to non-royalty sublicensing revenues we and our affiliates receive from sublicensees under a licensed program outside of the U.S., the European Union and Asia, a percentage of such non-royalty sublicense revenues ranging from 30% to 50%. We are also obligated to share 50% of royalties that we receive from sublicensees that we receive in these territories.
Our royalty payment obligations (including those on sales by sublicensees) under the collaboration agreement with respect to a product in a country will expire on a product-by-product and country-by-country basis on the later of: (i) expiration of the last-to-expire valid claim of the Aurigene patents covering the manufacture, use or sale of such product in such country; and (ii) 10 years from the first commercial sale of such product in such country.
The term of the collaboration agreement beginsbegan upon signing and, unless earlier terminated, will expire upon either: (i) 90 days after the completion by Aurigene of its obligations under all research plans if we have not exercised the option with respect to at least one program by such time; or (ii) expiration of the last-to-expire royalty term for any and all products. Upon expiration (but not on earlier termination) of the collaboration agreement, all licenses granted by Aurigene to us that were in effect immediately prior to such expiration shall survive on a non-exclusive, royalty-free, fully paid, irrevocable, perpetual basis.
The collaboration agreement may be terminated, either in its entirety or with respect to a particular program, by either Aurigene or us for uncured material breach by the other party, other than an uncured material breach by the other party of its diligence obligations with respect to a program or licensed program. If an uncured material breach other than a diligence breach relates to a particular program or licensed program, the non-breaching party may terminate the collaboration agreement only with respect to that program or licensed program. However, after initiation of the first pivotal clinical trial of a product for a licensed program, Aurigene may not terminate the collaboration agreement with respect to such licensed program for an uncured non-diligence breach by us, except in the case of our uncured material breach of our payment obligations with respect to such licensed program, but Aurigene may pursue any and all remedies that may be available to it at law or in equity as a
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result of such breach. Similarly, after initiation of the first pivotal clinical trial of a product for a licensed program, we may not
terminate the collaboration agreement with respect to the license we have granted Aurigene for its territory of India and Russia for such licensed program for an uncured non-diligence breach by Aurigene, but we may pursue any and all remedies that may be available to us at law or in equity as a result of such breach.
On a program-by-program basis, we may terminate the collaboration agreement as it relates to a program or licensed program for an uncured breach by Aurigene with respect to such program or licensed program, and Aurigene may terminate the collaboration agreement as it relates to a licensed program for an uncured breach by us with respect to such licensed program.
In addition, we may terminate the collaboration agreement in its entirety or as it relates to a particular program or licensed program or on a country-by-country basis, for any reason or for no reason at any time upon 60 days’ prior written notice to Aurigene.
In the event of termination of the collaboration agreement in its entirety before we have exercised the option for any program, or termination of the collaboration agreement as it relates to any program prior to exercise of the option for such program, all rights and licenses granted by either Aurigene or us to the other party with respect to such program under the collaboration agreement (including the option for such program) will automatically terminate.
If the royalty term with respect to a product for any licensed program in any country has expired on or before any termination of the collaboration agreement in its entirety or as to such licensed program, the license granted by Aurigene to us with respect to such product in such country, as well as the corresponding license granted to Aurigene in its territory, shall survive such termination of the collaboration agreement.
Solely in the event of termination of the collaboration agreement by Aurigene for our uncured breach, or our termination of the collaboration agreement for convenience, the following will apply to any program that was a licensed program immediately prior to such termination:
•our license with respect to any licensed program that is not a terminated program (defined below), either in our entire territory or in countries within our territory outside of the terminated region (defined below), as applicable, shall continue in full force and effect, subject to all terms and conditions of the collaboration agreement, including our payment obligations;
•our license with respect to any terminated program, either in our entire territory or in the terminated region, as applicable, shall terminate and revert to Aurigene;
•we will grant Aurigene a perpetual, royalty-free (except for pass-through royalties and milestone payments payable by us under licenses to third-party patent rights with respect to products developed or commercialized by or on behalf of Aurigene) license, with the right to sublicense, under our relevant patent rights and other technology solely to develop, manufacture and commercialize compounds and products for any terminated program, either in our entire territory or in the terminated region, as applicable. The foregoing license will be non-exclusive with respect to our patent rights and exclusive with respect to our other technology;
•we will grant to Aurigene a right of first negotiation, exercisable within 90 days after termination, to obtain an exclusive, royalty-bearing license, with the right to sublicense, under our relevant patent rights solely to develop, manufacture and commercialize compounds and products for any terminated program, either in our entire territory or in the terminated region, as applicable, upon commercially reasonable terms and conditions to be negotiated in good faith by the parties;
•we will perform other specified activities and actions reasonably necessary for Aurigene to develop, manufacture and commercialize compounds and products for any terminated program, either in our entire territory or in the terminated region, as applicable; and
•the applicable license to Aurigene will survive termination.
For purposes of the foregoing, “terminated program” means: (i) in the case of termination of the collaboration agreement in its entirety by Aurigene for our uncured non-diligence breach, any program that was a licensed program immediately prior to such termination, but excluding, except in the case of our uncured material breach of our payment obligations with respect to such licensed program, any such licensed program for which initiation of the first pivotal clinical trial of a product has occurred prior to such termination; (ii) in the case of any termination of the collaboration agreement as to a particular licensed program by Aurigene either for our uncured non diligence breach (to the extent termination as to such licensed program is permitted) or our uncured diligence breach, such licensed program; (iii) in the case of our termination of the collaboration agreement in its entirety for convenience, any program that was a licensed program immediately prior to such termination; or (iv) in the case of our termination of the collaboration agreement as to a particular licensed program for convenience, such licensed program;
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provided, however, that, in the case of the preceding clauses (iii) and (iv), if our termination of the collaboration agreement in
its entirety or as to a particular licensed program for convenience was with respect only to a particular country or subset of countries within the entire territory as applicable, a terminated region, the applicable licensed program(s) shall be considered “terminated program(s)” only in the terminated region but shall remain licensed program(s) in the rest of our territory.
ImmuNext
In January 2020, we entered into an option and license agreement with ImmuNext, or the ImmuNext AgreementAgreement. Under the terms of the ImmuNext Agreement, we agreed to engage in a collaborative effort with ImmuNext, and to conduct a Phase 1a/1b1 clinical trial of CI-8993. In exchange, ImmuNext granted us an exclusive option, exercisable until the earlier of (a) four years after January 6, 20202024 and (b) 90 days after database lock for the first Phase 1a/1b1 trial in which the endpoints are satisfied, or the Option Period, to obtain an exclusive, worldwide license to develop and commercialize certain VISTA antagonizing compounds and products containing these compounds in the field of oncology.
During the Option Period, we will conduct the Phase 1a/1b1 trial and ImmuNext will conduct certain agreed upon non-clinical research activities to support the Phase 1a/1b1 trial. During the Option Period, we will assign to ImmuNext all right, title and interest in and to, inventions made by us alone or jointly with ImmuNext in conducting clinical and non-clinical activities under the ImmuNext Agreement during the Option Period and any patent rights covering those inventions. Effective as of the option exercise date (if any), ImmuNext will assign to us (i) all such inventions that were made solely by us and any patent rights covering those inventions that were assigned by us to ImmuNext during the Option Period and (ii) a joint ownership interest in all such inventions that were made jointly by us and ImmuNext and patent rights covering those inventions that we assigned to ImmuNext during the option period, except for any of those inventions that relates to compounds as to which ImmuNext has retained exclusive rights.
In January 2020, we paid $1.3 million in an upfront fee to ImmuNext. In addition, if we exercise the option, we will pay ImmuNext an option exercise fee of $20.0 million. ImmuNext will be eligible to receive up to $4.6 million in potential development milestones, up to $84.3 million in potential regulatory approval milestones, and up to $125.0 million in potential sales milestone payments from us. ImmuNext is also eligible to receive tiered royalties on annual net sales on a product-by-product and country-by-country basis, at percentage rates ranging from high single digits to low double digits, subject to specified adjustments.
Our royalty payment obligations under the ImmuNext Agreement with respect to a product in a country will expire on the later of (i) expiration of the last-to-expire valid claim of the ImmuNext patents or jointly owned patents covering the manufacture, use or sale of such product in such country, (ii) the expiration of all regulatory exclusivity for such product in such country, and (iii) 10 years from the first commercial sale of such product in such country.
In partial consideration for drug substance, technical advice, and maintenance of ImmuNext’s existing IND and access to ImmuNext’s technology during the Option Period, we will make semi-annual maintenance fee payments of $0.4 million to ImmuNext.ImmuNext, unless otherwise agreed to by both parties in writing. In addition, we will reimburse ImmuNext for certain documented external costs and expenses incurred by ImmuNext in carrying out non-clinical research activities approved by the joint steering committee, up to $0.3 million per calendar year, unless otherwise agreed to by both parties in writing.
We have agreed to pay ImmuNext a low double-digit percentage of sublicense revenue received by us or our Affiliates.affiliates.
The term of the ImmuNext Agreement began on January 6, 2020, and, unless earlier terminated, will expire upon either: (a) expiration of the Option Period if we have not exercised the Option;option; or (b) expiration of all royalty payment obligations for any and all products. Upon expiration (but not on earlier termination) of the ImmuNext Agreement after exercise of the option, the license granted by ImmuNext to us shall automatically become fully paid-up, royalty-free, irrevocable and perpetual.
The ImmuNext Agreement may be terminated by either us or ImmuNext for an uncured material breach by the other party or if the other party files for bankruptcy or insolvency. ImmuNext may terminate the ImmuNext Agreement if we or any of our affiliates or sublicensees challenges any ImmuNext patents licensed to us or if we cease all research, development, manufacturing and commercialization activities for the products for a specified continuous period of time. We may terminate the ImmuNext Agreement for convenience, in its entirety or on a product-by-product basis.
In the event we terminate the ImmuNext Agreement for convenience or ImmuNext terminates the ImmuNext Agreement for uncured material breach, patent challenge, cessation of product-related activities or filing of bankruptcy or insolvency by us, then all rights and licenses granted to us will terminate, and, subject to specified royalty payment obligations of ImmuNext, we will grant ImmuNext (i) an exclusive, perpetual, nontransferable, worldwide license under patents controlled by us and (ii) a non-exclusive license under any know-how controlled by us, in each case, that are necessary or reasonably useful for the
exploitation of the ImmuNext compounds antagonizing VISTA or products we were developing or commercializing under the ImmuNext Agreement, and solely to exploit such compounds and products.
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In the event we terminate the ImmuNext Agreement for uncured material breach or filing of bankruptcy or insolvency by ImmuNext after exercising the option, then the licenses granted by ImmuNext shall survive in perpetuity, subject to our obligation to pay milestone payments and royalties to ImmuNext in accordance with the ImmuNext Agreement.
Genentech
In 2003, we entered into a collaborative research, development and license agreement with Genentech, which we refer to as the collaboration agreement.
Under the terms of our collaboration agreement with Genentech, we granted Genentech an exclusive, global, royalty-bearing license, with the right to sublicense, to make, use, sell and import molecules capable of inhibiting the Hedgehog signaling pathway (including small molecules, proteins and antibodies) for human therapeutic applications, including cancer therapy. Genentech subsequently granted a sublicense to Roche for non-U.S. rights to Erivedge other than in Japan where such rights are held by Chugai. Genentech and Roche are responsible for worldwide clinical development, regulatory affairs, manufacturing and supply, formulation, and sales and marketing.
We are eligible to receive up to an aggregate of $115.0 million in contingent cash milestone payments, exclusive of royalty payments, in connection with the development of Erivedge or another small molecule Hedgehog pathway inhibitor, assuming the successful achievement by Genentech and Roche of specified clinical development and regulatory objectives. Of this amount, we have received $59.0 million to date.
In addition to the contingent cash milestone payments, our wholly owned subsidiary, Curis Royalty, LLC, or Curis Royalty, is entitled to a royalty on net sales of Erivedge that ranges from 5% to 7.5% based upon global Erivedge sales by Roche and Genentech. The royalty rate applicable to Erivedge may be decreased by 2% on a country-by-country basis in certain specified circumstances, including when a competing product that binds to the same molecular target as Erivedge is approved by the applicable country’s regulatory authority in another country and is being sold in such country by a third-party for use in the same indication as Erivedge, or, when there is no issued intellectual property covering Erivedge in a territory in which sales are recorded. During the third quarter of 2015, the FDA and the European Medicine Agency’s Committee for Medicinal Products for Human Use, or CHMP, approved another Hedgehog signaling pathway inhibitor, Odomzo® (sonidegib), which is marketed by Sun Pharmaceutical Industries Ltd., for use in locally advanced BCC. Accordingly, Genentech reduced royalties to Curis Royalty on its net sales in the United States of Erivedge by 2% since the fourth quarter of 2015, and we anticipate that Genentech will reduce by 2% royalties on net sales of Erivedge outside of the United States on a country-by-country basis to the extent that sonidegib is approved by the applicable country’s regulatory authority and is being sold in such country. However, pursuant to the Oberland Purchase Agreement described below, we have retained our rights with respect to the 2% of royalties that are subject to such reduction in countries where such reduction may or has occurred, subject to the terms and conditions of the Oberland Purchase Agreement, which we refer to as the “Retained Royalty Amounts”.
As a result of our licensing agreements with various universities, we are also obligated to make payments to university licensors on royalties that Curis Royalty earns in alleligible territories (other than Australia) in an amount that is equal to 5% of the royalty payments received from Genentech. This obligation endures on a country-by-country basis for a period of 10 years from the first commercial sale of Erivedge on a country-by-country basis, which occurred in February 2012 in the U.S. For royalties that we earn from Roche’s salesDuring the year ended December 31, 2022, our obligation to one of Erivedge in Australia, we were obligated to make payments to universitythe licensors of 2% of Roche’s direct netexpired for sales in Australia until the expiration of the Australian patent in April 2019, after which the amount has decreased to 5% of the royalty payments that we receive from GenentechU.S. and expired entirely for the remainder of the period ending 10 years from the first commercial sale of Erivedge.other licensor.
Unless terminated earlier, the collaboration agreement will expire six months after the later of the expiration of Genentech’s obligation to pay royalties to us under the collaboration agreement or such time as no activities have occurred under the collaboration agreement for a period of twelve months. The collaboration agreement may be terminated earlier by either party for cause upon sixty days prior written notice. In addition, Genentech may terminate the collaboration agreement, either in whole or in part, without cause, upon six months prior written notice. In the event of any termination where specific license grants survive, we will continue to have the right to receive clinical development and regulatory approval milestones and royalties on product sales for such licensed compound, if any.Erivedge. If we terminate the collaboration agreement for cause or Genentech terminates the collaboration agreement without cause, all licenses granted to Genentech automatically terminate and revert to us. In addition, Genentech has agreed that it will no longer conduct any development or commercialization activities on any compounds identified in the course of conducting activities under the research plan for the collaboration agreement for so long as such compounds continue to be covered by valid patent claims.
In March 2017, we and Curis Royalty entered into a new credit agreement with HealthCare Royalty Partners III, L.P., or HealthCare Royalty, for the purpose of refinancing and terminating the loan from BioPharma-II. HealthCare Royalty made a $45.0 million loan at an interest rate of 9.95% to Curis Royalty, which was used, in part, to pay off $18.4 million in remaining loan obligations to BioPharma-II under the prior loan, with the residual proceeds of $26.6 million distributed to us as sole equity member of Curis Royalty. On March 22, 2019 we terminated the loan with HealthCare Royalty, and repaid in full all amounts outstanding under the credit agreement.
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the purpose of providing operating cash flow and extinguishing thea previous credit agreement with HealthCare Royalty.agreement. In connection with entering in the Oberland Purchase Agreement, Curis Royalty and the Agent also entered into a security agreement, we and the Agent entered into a pledge agreement and we and Curis Royalty entered into a consent and payment direction letter agreement with Genentech.
Pursuant to the Oberland Purchase Agreement, the Purchasers acquired the rights to a portion of certain royalty and royalty-related payments excluding a portion of non-USnon-U.S. royalties retained by Curis Royalty, referred to as the Purchased Receivables, owed by Genentech under our collaboration agreement with Genentech. Upon closing of the Oberland Purchase Agreement, Curis Royalty received an upfront purchase price of $65.0 million from the Purchasers, approximately $33.8 million of which was used to pay off the remaining loan principal under the credit agreement with HealthCare Royalty Partners III, L.P., or HealthCare Royalty, and $3.7 million of which was used to pay transaction costs, including $3.4 million to HealthCare Royalty in accrued and unpaid interest and prepayment fees under the credit agreement, resulting in net proceeds of $27.5 million. Curis Royalty will also be entitled to receive milestone payments of (i) $17.2 million if the Purchasers and Curis Royalty receive aggregate royalty payments as described in clauses (4) and (5) of the following paragraph pursuant to the Oberland Purchase Agreement in excess of $18.0 million during the calendar year 2021 and (ii) $53.5 million if the Purchasers receive payments pursuant to the Oberland Purchase Agreement in excess of $117.0 million on or prior to December 31, 2026, which milestone payments may each be paid, at the option of the Purchasers, in a lump sum in cash or out of the Purchaser’s portion of future payments under the Oberland Purchase Agreement.
Pursuant to the terms of the Oberland Purchase Agreement, so long as an event of default by Curis Royalty has not occurred under the security agreement, royalty and royalty-related payments owed by Genentech under the Genentech collaboration agreement in each calendar year shall be allocated in the following order: (1) Curis Royalty shall receive payments reflecting the Retained Royalty Amounts (as defined above) to the extent actually paid by Genentech under the Genentech collaboration agreement, (2) Curis Royalty shall receive payments to satisfy Curis’ royalty obligations to certain academic institutions subject to a specified percentage cap and/or a specified period of time, (3) Curis Royalty shall receive a fixed amount of payments to reimburse intellectual property and other enforcement costs, whether or not actually incurred by us, (4) the Purchasers shall receive 100.0% of all payments up to $13.2 million in the aggregate in such calendar year, and (5) any additional payments in such calendar year shall be paid 65.0% to Curis Royalty and 35.0% to the Purchasers.
The Oberland Purchase Agreement also provides that, so long as an event of default by Curis Royalty has not occurred under the security agreement, if Curis Royalty recovers any monetary award or settlement or any other non-ordinary course lump sum payment made in respect of the royalty and royalty-related payments owed by Genentech under the Genentech collaboration agreement that does not specifically relate to any calendar period, then such payment or other recovery shall be allocated in the following order: (1) Curis Royalty shall receive payments to satisfy Curis’ royalty obligations to certain academic institutions up to a specified percentage cap, (2) the Purchasers shall receive 100.0% of all such payments up to an
amount equal to the product of $13.2 million and the number of full calendar years, and any fraction thereof, in the period beginning on the first day of the calendar quarter in which such payment or other recovery is received and ending on December 31, 2028, subject to certain exceptions, and (3) any additional payment shall be paid 65.0% to Curis Royalty and 35.0% to the Purchasers. Following an event of default under the security agreement, the Agent has the right to stop all allocations of payments that would have otherwise been allocated to Curis Royalty pursuant to the foregoing two paragraphs and instead retain all such payments.
In addition, the Oberland Purchase Agreement provides that after the occurrence of an event of default by Curis Royalty under the security agreement, as described below, the Purchasers shall have the option, for a period of 180 days, to require Curis Royalty to repurchase the Purchased Receivables at a price, referred to as the Put/Call Price, equal to a percentage, beginning at a low triple digit percentage and increasing over time up to a low-mid triple digit percentage250% of the sum of the upfront purchase price and any portion of the milestone payments paid in a lump sum by the Purchasers, if any, minus certain payments previously received by the Purchasers with respect to the Purchased Receivables. Additionally, Curis Royalty shall have the option at any time to repurchase the Purchased Receivables at the Put/Call Price as of the date of such repurchase.
The Oberland Purchase Agreement will terminate upon the earlier to occur of (i) the date on which Curis Royalty’s rights to receive the Purchased Receivables owed by Genentech under the Genentech collaboration agreement have terminated in their entirety andor (ii) the date on which payment in full of the Put/Call Price is received by the Purchasers pursuant to the Purchasers’ exercise of their put option or Curis Royalty’s exercise of its call right as described above.
Pursuant to the security agreement, Curis Royalty granted to the Agent a first priority lien and security interest in all of its assets and all real, intangible and personal property, including all of its right, title and interest in and to the Erivedge royalty payments pursuant to a security agreement.payments. The security interest secures the obligations of Curis Royalty arising under the Oberland Purchase Agreement, the security agreement or otherwise with respect to the due and prompt payment of (i) an amount equal to the Put/Call Price and (ii) all fees, costs, expenses, indemnities and other payments of Curis Royalty under or in respect of the Oberland Purchase Agreement and the security agreement. Additionally, in connection with the transaction, Curis granted to the Agent a first priority lien and security interest of Curis’ equity interest in Curis Royalty pursuant to a pledge agreement.
On March 3, 2023, Curis and Curis Royalty received a letter from counsel to Oberland Capital Management, LLC, the Purchasers and the Agent alleging defaults under Sections 4.04 and 6.04(b) of the Oberland Purchase Agreement and demanding cure of the asserted default under Section 6.04(b) of the Oberland Purchase Agreement. The asserted basis for the
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alleged defaults is that Curis and Curis Royalty were required to disclose, and failed to disclose, certain information prior to execution of the Oberland Purchase Agreement and that Curis and Curis Royalty have since failed to disclose certain information that has been requested by the Purchasers pursuant to Section 6.04(b) of the Oberland Purchase Agreement. The letter further alleges that these alleged defaults are events of default under the Oberland Purchase Agreement and that each alleged default separately entitles the Purchasers to exercise the put option described above, which would require Curis Royalty to repurchase the Purchased Receivables at the Put/Call Price. The Purchasers have not attempted to exercise that put option but have purported to reserve their alleged right to exercise it without further notice. As of the date of the filing of this annual report on Form 10-K, the estimated amount of the Put/Call Price is up to $72.5 million. The Purchasers have also reserved other asserted rights in respect of the alleged defaults, including the asserted right to seek judicial remedies, including for damages and rescission, and to assert alleged claims against Curis and Curis Royalty for indemnification on the basis of material breach and fraud in the inducement. Curis and Curis Royalty dispute these allegations. However, if Oberland elects to pursue these claims, and if Curis and Curis Royalty are unsuccessful in defending against these claims, it could have a material adverse impact on Curis and Curis Royalty, including their ability to continue as a going concern.
For a further discussion of risks related to the letter from Oberland Capital Management, LLC, the Purchasers and the Agent, please refer to “Risk Factors – Risks Related to our Financial Results and Need for Financing - In connection with the Oberland Purchase Agreement, we transferred and encumbered certain royalty and royalty related payments on commercial sales of Erivedge, Curis Royalty granted a first priority lien and security interest in all of its assets, including its rights to the Erivedge royalty payments, and we granted the Purchasers a first priority lien and security interest in our equity interest in Curis Royalty. As a result, in the event of a default by us or Curis Royalty we could lose all retained rights to future royalty and royalty related payments, we could be required to repurchase the Purchased Receivables at a price that is a multiple of the payments we have received, and our ability to enter into future arrangements may be inhibited, all of which could have a material adverse effect on our business, financial condition and stock price.”
Corporate Information
We were organized as a Delaware corporation in February 2000. We began our operations in July 2000 upon the completion of the merger of Creative BioMolecules, Inc., Ontogeny, Inc. and Reprogenesis, Inc. Our principal executive office is located at 4 Maguire Road,128 Spring Street, Building C – Suite 500, Lexington, MA 02421 and our telephone number is (617) 503-6500.
Curis® and the Curis logo are trademarks or registered trademarks of Curis, and Erivedge® is a trademark of Genentech. This annual report on Form 10-K may also contain trademarks and trade names of others.
Website Access to Reports
We maintain a website with the address www.curis.com. We are not including the information contained in our website as part of, or incorporating it by reference into, this annual report on Form 10-K. Our website address is included in this annual report on Form 10-K as an inactive textual reference only. We make available free of charge through our website our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any such amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission, or SEC. The SEC maintains a website, www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The public may read and copy any materials we file with the Securities and Exchange Commission at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the public reference room by calling 1-800-SEC-0330. In addition, we provide paper copies of our filings free of charge upon request. We also make available on our website our corporate governance guidelines, the charters for our audit committee, compensation committee and nominating and corporate governance committee, and our code of business conduct and ethics, and such information is available in print to any stockholder of Curis who requests it.
Intellectual Property
Our policy is to obtain and enforce the patents and proprietary technology rights that are key to our business. We intend to continue to file U.S. and foreign patent applications to protect technology, inventions and improvements that are considered important to the development of our business. We will be able to protect our proprietary technologies from unauthorized use by third-parties only to the extent that our proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets.
In the U.S., as of December 31, 2019,2022, we have 7170 issued or allowed patents expiring on various dates between 20202023 and 20362039 as well as numerous pending patent applications. We have foreign counterpart patent filings for most of our U.S. issued patents and patent applications. These patents and patent applications are directed to various inventions including compositions of matter, methods of making and using these compositions for multiple applications, methods for drug screening and discovery, developmental biological processes, and patents which relate to our proprietary technologies.
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Emavusertib, CA-170, CA-327 and other Aurigene Collaboration Programs. In conjunction with the October 2015 exercise of options to license the PD-L1/VISTA and IRAK-4 programs, the October 2016 exercise of our option to license the PD-L1/TIM3 program under our collaboration with Aurigene, and the March 2018 exercise of our option to the fourth program in immuno-oncology, we obtained world-wide (except for India and Russia) exclusive licenses to the Aurigene intellectual property relevant to the program. The portfolio consists of U.S. and foreign filings which cover various genera of compounds from each program and methods of use thereof. As of December 31, 2022, there are 15 issued or allowed U.S. patents expiring between 2033 and 2038 included in such filings.
CI-8993. Under our ImmuNext Agreement as of December 31, 2022, there are 13 issued or allowed U.S. patents expiring on various dates between 2025 and 2037, which relate to anti-VISTA antibodies including CI-8993. In addition, there are foreign patent applications filed corresponding to many of the aforementioned U.S. filings that could provide additional patent protection for anti-VISTA antibody products including CI-8993.
Fimepinostat and other Targeted Drug Candidates. As of December 31, 2019,2022, we have 2627 issued or allowed U.S. patents that expire on various dates between 2027 and 2032,2039, including patents covering the composition of matter for fimepinostat, which expires in 2032. We also have several U.S. and foreign utility patent applications directed to our novel small molecules. Our patents and patent applications cover compositions of matter, methods of manufacturing these molecules, formulations, and methods of using these molecules to treat a variety of therapeutic indications. We intend to continue to file additional U.S. and foreign applications as the programs progress.
Erivedge and the Hedgehog Signaling Pathway. As of December 31, 2019,2022, we have 3115 issued U.S. patents expiring on various dates between 20202023 and 2036, which relate to the Hedgehog signaling pathway, including patents covering Erivedge’s composition of matter, which expiresexpire in 2028. Our patents and patent applications cover proteins, and certain small molecule agonists and inhibitors of the Hedgehog signaling pathway, drug screening and discovery methods, as well as methods of using Hedgehog proteins, antibodies or small molecules to activate or inhibit the Hedgehog signaling pathway for a variety of therapeutic indications or diagnostic uses. In addition, we have filed foreign patent applications corresponding to many of the aforementioned U.S. filings that could provide additional patent protection for products that activate or inhibit the Hedgehog signaling pathway.
Our academic and research institution collaborators have certain rights to publish data and information regarding their discoveries to which we have rights. While we believe that the prepublication access to the data developed by our collaborators pursuant to our collaboration agreements will be sufficient to permit us to apply for patent protection in the areas in which we are interested in pursuing further research, there is considerable pressure on such institutions to rapidly publish discoveries arising from their efforts. This may affect our ability to obtain patent protection in the areas in which we may have an interest. In addition, these collaboration agreements typically contain provisions that provide us with, at a minimum, an option to license the institution’s rights to intellectual property arising from the collaboration.
We are party to various license agreements that give us rights to commercialize various technologies, particularly our Hedgehog signaling pathway technologies, and to use technologies in our research and development processes. The consideration payable in exchange for these licenses includes up-front fees, issuances of shares of common stock, annual royalties, milestone payments and royalties on net sales by our sub-licensees and us. The licensors may terminate these agreements if we fail to meet certain diligence requirements, fail to make payments or otherwise commit a material breach that is not cured after notice.
In addition, we depend upon trade secrets, know-how and continuing technological advances to develop and maintain our competitive position. To maintain the confidentiality of trade secrets and proprietary information, we require our employees, scientific advisors, consultants and collaborators, upon commencement of a relationship with us, to execute confidentiality agreements and, in the case of parties other than our research and development collaborators, to agree to assign their inventions to us. These agreements are designed to protect our proprietary information and to grant us ownership of technologies that are developed in connection with their relationship to us.
Government Regulation and Product ApprovalsApproval
Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European Union, or EU, extensively regulate, among other things, the research, development, testing, manufacture,
quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, sales, pricing, post approvalreimbursement, post-approval monitoring and reporting, and import and export of pharmaceutical products. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.
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Review and Approval of Drugs and Biologics in the United States
In the United States, the FDA approves and regulates drug products under the Federal Food, Drug, and Cosmetic Act, or FDCA, and implementingrelated regulations. The failure
Biological products, or biologics, are licensed for marketing under the Public Health Service Act, or PHSA, and subject to comply with applicable requirementsregulation under the FDCA and other applicable laws at any time duringrelated regulations. A company, institution, or organization which takes responsibility for the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pending applications, withdrawal of an approval, impositioninitiation and management of a clinical hold, issuance of warning letters and other types of letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by the FDA and the Department of Justice or other governmental entities.
•completion of preclinical laboratory tests animal studies and formulation studies in compliance with the FDA’s good laboratory practice, or GLP, regulations;
•design of a clinical protocol and submission to the FDA of an IND, which must take effect before human clinical trials may begin;
•approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated;
•performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP,GCPs, to establish the safety and efficacy of the proposed drug product for each proposed indication;
•review of the candidate productrequest for approval by an FDA advisory committee, where appropriate or if applicable;
•satisfactory completion of FDA audits of the sponsor, vendors, and/or clinical trial sites to assure compliance with GCPs and the integrity of the clinical data;
•payment of user fees and securing FDA approval of the NDA;NDA or BLA; and
•compliance with any post approvalpost-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy, or REMS, and the potential requirement to conduct post approval studies required by the FDA.post-approval studies.
Preclinical Studies
Before an applicanta sponsor begins testing a compound with potential therapeutic value in humans, the drugproduct candidate enters the preclinical testing stage. Preclinical studies include laboratory evaluation of product chemistry, toxicity and formulation, and the purity and stability of the drugmanufactured substance, or active pharmaceutical ingredient and the formulated product, as well as in vitro and animal studies to assess the potential safety and activity of the drugproduct candidate for initial testing in humans and to establish a rationale for therapeutic use. These studies are typically referred to as IND-enabling studies. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. The resultsregulations and standards and the United States Department of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, are submitted to the FDA as part of an IND.Agriculture’s Animal Welfare Act, if applicable. Some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, and long-term toxicity studies, may continue after the IND is submitted.
The IND and IRB Processes
An IND is an exemption from the FDCA that allows an unapproved drug to be shipped in interstate commerce for use in an investigational clinical trial and a request for FDA authorization to administer an investigational drugproduct candidate to humans. Such authorization must be secured prior to interstate shipment and administration of any new drug or biologic that is not the subject of an approved NDA.NDA or BLA. In support of a request for an IND, applicantssponsors must submit a protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, are submitted to the FDA as part of an IND. The FDA requires a 30-day waiting period after the filing of each IND before clinical trials may begin. This waiting period is designed to allow the FDA to review the IND to determine whether human research subjects will be exposed to unreasonable health risks. At any time during this 30-day period, or thereafter, the FDA may raise concerns or questions about the conduct of the trials as outlined in the IND and impose a clinical hold or partial clinical hold. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trials can begin.
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Following commencement of a clinical trial under an IND, the FDA may also place a clinical hold or partial clinical hold on that trial. Clinical holds are imposed by the FDA whenever there is concern for patient safety and may be a result of new data, findings, or developments in clinical, nonclinical, and/or chemistry, manufacturing and controls, or CMC. A clinical hold is an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial clinical hold is a delay or suspension of only part of the clinical work requested under the IND. For example, a specific protocol or part of a protocol is not allowed to proceed, while other protocols may do so. No more than 30 days after imposition of a clinical hold or partial clinical hold, the FDA will provide the sponsor a written explanation of the basis for the hold. Following issuance of a clinical hold or partial clinical hold, an investigation may only resume after the FDA has notified the sponsor that the investigation may proceed. The FDA will base that determination on information provided by the sponsor correcting the deficiencies previously cited or otherwise satisfying the FDA that the investigation can proceed.
A sponsor may choose, but is not required, to conduct a foreign clinical study under an IND. When a foreign clinical study is conducted under an IND, all FDA IND requirements must be met unless waived. When thea foreign clinical study is not conducted under an IND, the sponsor must ensure that the study complies with FDA certain regulatory requirements of the FDA in order to use the study as support for an IND or application for marketing approval. Specifically, on April 28, 2008, the FDA amended its regulations governing the acceptance of foreign clinical studies not conducted under an investigational new drug application as support for an IND or a new drug application. The final rule provides that such studies must be conducted in accordance with GCP, including undergoing review and receiving approval by an independent ethics committee, or IEC, and seeking and receiving informed consent from subjects. The GCP requirements in the final rule encompass both ethical and data integrity standards for clinical studies. The FDA’sGCP regulations are intended to help ensure the protection of human subjects enrolled in non-IND foreign clinical studies, as well as the quality and integrity of the resulting data. They further help ensure that non-IND foreign studies are conducted in a manner comparable to that required for IND studies.
In addition to the foregoing IND requirements, an IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct a continuing review and reapprove the studytrial at least annually. The IRB must review and approve, among other things, the studytrial protocol and informed consent information to be provided to studytrial subjects. An IRB must operate in compliance with FDA regulations. An IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected serious harm to patients.
The FDA’s primary objectives in reviewing an IND are to assure the safety and rights of patients and to help assure that the quality of the investigation will be adequate to permit an evaluation of the drug’s effectiveness and safety and of the product’s safety, purity and potency. Additionally, some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data safety monitoring board, or committeeDSMB, or DSMB.committee. This group provides authorization for whether or not a trial may move forward at designated check points based on access that only the group maintains to available data from the study.trial. Suspension or termination of development during any phase of clinical trials can occur if it is determined that the participants or patients are being exposed to an unacceptable health risk. Other reasons for suspension or termination may be made by us based on evolving business objectives and/or competitive climate.
Expanded Access to an Investigational Drug for Treatment Use
Expanded access, sometimes called “compassionate use,” is the use of investigational new drug products outside of clinical trials to treat patients with serious or immediately life-threatening diseases or conditions when there are no comparable or satisfactory alternative treatment options. The rules and regulations related to expanded access are intended to improve access to investigational drugs for patients who may benefit from investigational therapies. FDA regulations allow access to investigational drugs under an IND by the company or the treating physician for treatment purposes on a case-by-case basis for: individual patients (single-patient IND applications for treatment in emergency settings and non-emergency settings); intermediate-size patient populations; and larger populations for use of the drug under a treatment protocol, or Treatment IND Application.
When considering an IND application for expanded access to an investigational product with the purpose of treating a patient or a group of patients, the sponsor and treating physicians or investigators will determine suitability when all of the following criteria apply: patient(s) have a serious or immediately life-threatening disease or condition, and there is no comparable or satisfactory alternative therapy to diagnose, monitor, or treat the disease or condition; the potential patient benefit justifies the potential risks of the treatment and the potential risks are not unreasonable in the context or condition to be
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treated; and the expanded use of the investigational drug for the requested treatment will not interfere with the initiation, conduct, or completion of clinical investigations that could support marketing approval of the product or otherwise compromise the potential development of the product.
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 Phase I1 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.
Human Clinical TrialsStudies in Support of an NDA or BLA
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their voluntary informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written studytrial protocols detailing, among other things, the inclusion and exclusion criteria, the objectives of the study,trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each
The clinical trial and any subsequent protocol amendments must be submitted toinvestigation of an investigational drug or biological product is generally divided into four phases. Although the FDA as part of the IND.
•Phase 1. The Phase 1 studies include the initial introduction of an investigational new drug is initially introducedor biological product into a small number of healthy human subjects or, in certain indications such as cancer, patients withhumans. These studies are designed to evaluate the target disease or condition (e.g., cancer) and tested for safety, dosage tolerance, absorption, distribution, metabolism excretionand pharmacologic actions of the investigational drug or biological product in humans, the side effects associated with increasing doses, and if possible, to gain an early indication of its effectiveness and to determine optimal dosage.
evidence on effectiveness.•Phase 2. The drug is administered to a limited patient population to identify possible adverse effects and safety risks, Phase 2 includes clinical trials conducted to preliminarily or further evaluate the efficacyeffectiveness of the investigational drug or biological product for specific targeted diseases anda particular indication(s) in patients with the disease or condition under trial, to determine dosage tolerance and optimal dosage, and regimen.
to identify possible adverse side effects and safety risks associated with the drug or biological product. Phase 3. These2 clinical trials are commonly referred to as “pivotal” studies, which denotestypically closely monitored and conducted in a study which presents the data that the FDA or other relevant regulatory agency will use to determine whether or not to approve a drug. The drug is administered to an expandedlimited patient population, generallypopulation.
•Phase 3. Phase 3 clinical trials are often controlled clinical trials conducted at geographically dispersed clinical trial sites, in
•Phase 4. Post approval Post-approval studies may be requiredconducted after initial marketing approval. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication.
A clinical trial may combine the elements of more than one phase and the FDA often requires more than one Phase 3 trial to support marketing approval of a product candidate. A company’s designation of a clinical trial as being of a particular phase is not necessarily indicative that the study will be sufficient to satisfy the FDA requirements of that phase because this determination cannot be made until the protocol and data have been submitted to and reviewed by the FDA. Moreover, as noted above, a pivotal trial is a clinical trial that is believed to satisfy FDA requirements for the evaluation of a product candidate’s safety and efficacy such that it can be used, alone or with other pivotal or non-pivotal trials, to support regulatory approval. Generally, pivotal trials are Phase 3 trials, but they may be Phase 2 trials if the design provides a well-controlled and reliable assessment of clinical benefit, particularly in an area of unmet medical need.
In March 2022 the FDA released a final guidance entitled “Expansion Cohorts: Use in First-In-Human Clinical Trials to Expedite Development of Oncology Drugs and Biologics,” which outlines how developers can utilize an adaptive trial design commonly referred to as a seamless trial design in early stages of oncology product development (i.e., the first-in-human clinical trial) to compress the traditional three phases of trials into one continuous trial called an expansion cohort trial.
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Information to support the design of individual expansion cohorts are included in IND applications and assessed by the FDA. Expansion cohort trials can potentially bring efficiency to product development and reduce developmental costs and time.
In December 2022, with the passage of the Food and Drug Omnibus Reform Act, or FDORA, Congress required sponsors to develop and submit a diversity action plan for each Phase 3 clinical trial or any other “pivotal study” of a new drug or biological product. These plans are meant to encourage the enrollment of more diverse patient populations in late-stage clinical trials of FDA-regulated products. Specifically, action plans must include the sponsor’s goals for enrollment, the underlying rationale for those goals, and an explanation of how the sponsor intends to meet them. In addition to these requirements, the legislation directs the FDA to issue new guidance on diversity action plans.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. In addition, IND safety reports must be submitted to the FDA for any of the following: serious and unexpected suspected adverse reactions; findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the drug; and any clinically important increase in the caserate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.
In response to the COVID-19 pandemic, the FDA issued guidance on March 18, 2020, and has updated it periodically since that time to address the conduct of clinical trials during the pandemic. The guidance sets out a number of considerations for sponsors of clinical trials impacted by the pandemic, including the requirement to include in the clinical study report (or as a separate document) contingency measures implemented to manage the study, and any disruption of the study as a result of COVID-19; a list of all study participants affected by COVID-19-related study disruptions by a unique subject identifier and by investigational site, and a description of how the individual’s participation was altered; and analyses and corresponding discussions that address the impact of implemented contingency measures (e.g., participant discontinuation from investigational product and/or study, alternative procedures used to collect critical safety and/or efficacy data) on the safety and efficacy results reported for the study, among other things. The FDA orhas indicated that it will continue to provide any necessary guidance to sponsors, clinical investigators, and research institutions as the sponsor orpublic health emergency evolves. On January 30, 2023, the data monitoring committee may suspend or terminateBiden administration announced that it will end the public health emergency declarations related to COVID-19 on May 11, 2023. On January 31, 2023, the FDA indicated that it would soon issue a clinical trial at any time on various grounds,Federal Register notice describing how the termination of the public health emergency will impact the FDA’s COVID-19 related guidance, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. The FDA will typically inspect one or more clinical sites to assure compliance with GCPguidance and the integrity of the clinical data submitted.updates thereto.
Manufacturing and Other Regulatory Requirements
Concurrent with clinical trials, companies often complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things, must develop methods for testing the identity, strength, quality, purity, and potency of the final drug. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.
Inspections must follow a “risk-based schedule” that may result in certain establishments being inspected more frequently. Manufacturers may also have to provide, on request, electronic or physical records regarding their establishments. Delaying, denying, limiting, or refusing inspection by the FDA followingmay lead to a product being deemed to be adulterated. Changes to the original submission.manufacturing process, specifications or container closure system for an approved product are strictly regulated and often require prior FDA approval before being implemented. The FDA’s regulations also require, among other things, the investigation and correction of any deviations from cGMP and the imposition of reporting and documentation requirements upon the sponsor and any third-party manufacturers involved in producing the approved product.
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Under the Pediatric Research Equity Act of 2003, or PREA, an NDA,application or supplement thereto must contain data that are adequate to assess the FDA typically will inspectsafety and effectiveness of the facility or facilities whereproduct for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. Sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the sponsor plans to conduct, including study objectives and design, any deferral or waiver requests and other information required by regulation. The sponsor, the FDA, and the FDA’s internal review committee must then review the information submitted, consult with each other and agree upon a final plan. The FDA or the sponsor may request an amendment to the plan at any time.
A sponsor must submit an Initial Pediatric Study Plan, or iPSP, no later than either 60 calendar days after the date of the end-of-Phase 2 meeting or such other time as agreed upon between FDA and the sponsor. In the absence of an end-of-Phase 2 meeting, the sponsor should submit the iPSP as early as practicable but before the initiation of any Phase 3 studies, or any combined Phase 2 and Phase 3 studies, of the drug that is the subject of the iPSP. If a Phase 3 study, or a combined Phase 2 and Phase 3 study, will not be conducted or will be manufactured. These pre-approval inspections may cover all facilities associated with an NDA submission, including drug component manufacturing, such as active pharmaceutical ingredients), finished drug product manufacturing, and control testing laboratories. conducted but not under IND, the sponsor should submit the iPSP no later than 210 calendar days before it submits a marketing application or supplement.
The FDA will not approve an application unless it determines thatmay, on its own initiative or at the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent productionrequest of the sponsor, grant deferrals for submission of some or all pediatric data until after approval of the product withinfor use in adults, or full or partial waivers from the pediatric data requirements. A deferral may be granted for several reasons, including a finding that the product or therapeutic candidate is ready for approval for use in adults before pediatric trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric trials begin. The law now requires the FDA to send a PREA Non-Compliance letter to sponsors who have failed to submit their pediatric assessments required specifications. Additionally, before approvingunder PREA, have failed to seek or obtain a deferral or deferral extension or have failed to request approval for a required pediatric formulation. It further requires the FDA to publicly post the PREA Non-Compliance letter and sponsor’s response.
Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation, although FDA has recently taken steps to limit what it considers abuse of this statutory exemption in PREA by announcing that it does not intend to grant any additional orphan drug designations for rare pediatric subpopulations of what is otherwise a common disease. The FDA also maintains a list of diseases that are exempt from PREA requirements due to low prevalence of disease in the pediatric population. A notable exception is that early pediatric evaluations of certain molecularly targeted oncology drugs are required, regardless of orphan designation, by section 505B(a)(1)(B) of the FDCA.
Section 505(b)(2) NDAs
NDAs for most new drug products are based on two full clinical studies which must contain substantial evidence of the safety and efficacy of the proposed new product for the proposed use. These applications are submitted under Section 505(b)(1) of the FDCA. The FDA is, however, authorized to approve an alternative type of NDA under Section 505(b)(2) of the FDCA. This type of application allows the sponsor to rely, in part, on the FDA’s previous findings of safety and efficacy for a similar product, or published literature. Specifically, Section 505(b)(2) applies to NDAs for a drug for which the investigations made to show whether or not the drug is safe for use and effective in use and relied upon by the sponsor for approval of the application “were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted.”
Section 505(b)(2) thus authorizes the FDA to approve an NDA based on safety and effectiveness data that were not developed by the sponsor. NDAs filed under Section 505(b)(2) may provide an alternate and potentially more expeditious pathway to FDA will typically inspect oneapproval for new or more clinical sites to assure compliance with GCP. The FDA must implement a protocol to expedite reviewimproved formulations or new uses of responses to inspection reports
The FDA may refer an applicationthen approve the new drug candidate for a novel drug to an advisory committeeall or explain why such referral was not made. Typically, an advisory committee is a panelsome of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendationthe label indications for which the referenced product has been approved, as to whether the application should be approved and under what conditions. The FDA is not boundwell as for any new indication sought by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.Section 505(b)(2) sponsor.
Fast Track, Breakthrough Therapy, and Priority Review and Regenerative Advanced Therapy Designations
The FDA is authorized to designate certain products with special designations designed to expedite development and/orfor expedited review if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. These programs are referred to as fast track designation, breakthrough therapy designation, and priority review designation, and accelerated approval, collectively referred to as facilitated regulatory pathways, and regenerative advanced therapy designation. None of these expedited programs changes the standards for approval but they may help expedite the development or approval process for product candidates.
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Specifically, the FDA may designate a product for Fast Track review if it is intended, whether alone or in combination with one or more other products, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For Fast Track products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a Fast Track product’s marketing application before the application is complete. This rolling review may be available if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a Fast Track product may be effective. The sponsor must also provide, and the FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees. However, the FDA’s time period goal for reviewing a Fast Track application does not begin until the last section of the application is submitted. In addition, the Fast Track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
Second, a product may be designated as a Breakthrough Therapy if it is intended, either alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product 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 FDA may take certain actions with respect to Breakthrough Therapies, including holding meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to help the sponsor design the clinical trials in an efficient manner.
Finally, with passage of the Cures Act in December 2016, Congress authorized the FDA to accelerate review and approval of products designated as regenerative advanced therapies.A product is eligible for this designation if it is a regenerative medicine therapy that is intended to treat, modify, reverse or cure a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such disease or condition.The benefits of a regenerative advanced therapy designation include early interactions with FDA to expedite development and review, benefits available to breakthrough therapies, potential eligibility for priority review and accelerated approval based on surrogate or intermediate endpoints.
Accelerated Approval Pathway
The FDA may grant accelerated approval to a product for a serious or life-threatening condition that provides meaningful therapeutic advantage to patients over existing treatments based upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, or IMM, and that is reasonably likely to predict an effect on IMM or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Products granted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.
For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of
clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a product,drug, such as an effect on IMM. The FDA has limited experience with accelerated approvals based on intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval where the therapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect is reasonably likely to predict the ultimate clinical benefit of a product.
The accelerated approval pathway is most often used in settings in which the course of a disease is long and an extended period of time is required to measure the intended clinical benefit of a product, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. Thus, accelerated approval has been used extensively in the development and
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approval of products for treatment of a variety of cancers in which the goal of therapy is generally to improve survival or decrease morbidity and the duration of the typical disease course requires lengthy and sometimes large trials to demonstrate a clinical or survival benefit. Thus, the benefit of accelerated approval derives from the potential to receive approval based on surrogate endpoints sooner than possible for trials with clinical or survival endpoints, rather than deriving from any explicit shortening of the FDA approval timeline, as is the case with priority review.
The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post approval confirmatory studies to verify and describe the product’s clinical benefit. As a result, a drugproduct candidate approved on this basis is subject to rigorous post marketing compliance requirements, including the completion of Phase 4 or post approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post approval studies, or confirm a clinical benefit during post marketing studies, would allow the FDA to initiate expedited proceedings to withdraw the product fromapproval of the market on an expedited basis.product. All promotional materials for drugproduct candidates approved under accelerated regulations are subject to prior review by the FDA.
With passage of FDORA in December 2022, Congress modified certain provisions governing accelerated approval of drug and biologic products. Specifically, the new legislation authorized the FDA to: require a sponsor to have its confirmatory clinical trial underway before accelerated approval is awarded, require a sponsor of a product granted accelerated approval to submit progress reports on its post-approval studies to the FDA every six months (until the study is completed); and use expedited procedures to withdraw accelerated approval of an NDA or BLA after the confirmatory trial fails to verify the product’s clinical benefit. Further, FDORA requires the FDA to publish on its website “the rationale for why a post-approval study is not appropriate or necessary” whenever it decides not to require such a study upon granting accelerated approval.
Project Optimus
Project Optimus is an initiative of the Oncology Center of Excellence at the FDA. This project focuses on dose optimization and dose selection in oncology drug development, and whether the current paradigm based on cytotoxic chemotherapeutics leads to doses and schedules of molecularly targeted therapies that provide more toxicity without additional efficacy, among other things. In Project Optimus, drug developers have the opportunity to meet with the FDA’s Oncology Review Divisions early in their development programs, well before conducting trials intended for registration, to discuss dose-finding and dose optimization. The program thus allows sponsors to develop strategies for dose finding and dose optimization that leverages nonclinical and clinical data in dose selection, including randomized evaluations of a range of doses in trials, with the objective of performing these studies as early as possible in the development program to bring promising new therapies to patients.
Submission and Filing of an NDA or BLA
In order to obtain approval to market a drug or biological product in the United States, a marketing application must be submitted to the FDA that provides data establishing the safety and effectiveness of the proposed drug product for the proposed indication, and the safety, purity and potency of the biological product for its intended indication. The application includes all relevant data available from pertinent preclinical and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a product, or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and effectiveness of the investigational drug product and the safety, purity and potency of the biological product to the satisfaction of the FDA.
The application is the vehicle through which sponsors formally propose that the FDA approve a new product for marketing and sale in the United States for one or more indications. Every new product candidate must be the subject of an approved NDA or BLA before it may be commercialized in the United States. Under federal law, the submission of most applications is subject to an application user fee, which for federal fiscal year 2023 is $3.25 million for an application requiring clinical data. The sponsor of an approved application is also subject to an annual program fee, which for fiscal year 2023 is $394,000. Certain exceptions and waivers are available for some of these fees, such as an exception from the application fee for products with orphan designation and a waiver for certain small businesses. If an application is withdrawn prior to the FDA acceptance for filing, 75% of these fees may be refunded to the sponsor. If an application is withdrawn after filing, a lower portion of these fees may be refunded in certain circumstances.
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Following submission of an NDA or BLA, the FDA conducts a preliminary review of all applications within 60 days of receipt and must inform the sponsor at that time or before whether an application is sufficiently complete to permit substantive review. In pertinent part, FDA’s regulations state that an application “shall not be considered as filed until all pertinent information and data have been received” by the FDA. In the event that FDA determines that an application does not satisfy this standard, it will issue a Refuse to File, or RTF, determination to the sponsor. Typically, an RTF will be based on administrative incompleteness, such as clear omission of information or sections of required information; scientific incompleteness, such as omission of critical data, information or analyses needed to evaluate safety and efficacy or provide adequate directions for use; or inadequate content, presentation, or organization of information such that substantive and meaningful review is precluded. The FDA may request additional information rather than accept an application for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing.
Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed to specified performance goals in the review process of NDAs and BLAs. Under that agreement, 90% of applications seeking approval of New Molecular Entities, or NMEs, are meant to be reviewed within ten months from the date on which FDA accepts the NDA for filing, and 90% of applications for NMEs that have been designated for “priority review” are meant to be reviewed within six months of the filing date. The review process and the Prescription Drug User Fee Act goal date may be extended by the FDA for three additional months to consider new information or clarification provided by the sponsor to address an outstanding deficiency identified by the FDA following the original submission.
Before approving an application, the FDA typically will inspect the facility or facilities where the product is or will be manufactured. These pre-approval inspections may cover all facilities associated with an NDA or BLA submission, including drug component manufacturing, (e.g., active pharmaceutical ingredients), finished drug product manufacturing, and control testing laboratories. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications.
Additionally, before approving an NDA or BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. With passage of FDORA, Congress clarified FDA’s authority to conduct inspections by expressly permitting inspection of facilities involved in the preparation, conduct, or analysis of clinical and non-clinical studies submitted to FDA as well as other persons holding study records or involved in the study process.
In addition, as a condition of approval, the FDA may require a sponsor to develop a Risk Evaluation and Mitigation Strategy, or REMS. REMS use risk minimization strategies beyond the professional labeling to ensure that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will consider the size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected duration of treatment, seriousness of known or potential adverse events, and whether the product is a new molecular entity. Under the FDA Reauthorization Act of 2017, the FDA must implement a protocol to expedite review of responses to inspection reports pertaining to certain applications, including applications for products in shortage or those for which approval is dependent on remediation of conditions identified in the inspection report.
The FDA may refer an application to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
The FDA’s Decision on an NDA or BLA
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After evaluating the application and all related information, including the resultsadvisory committee recommendations, if any, and inspection reports of manufacturing facilities and clinical trial sites, the FDA will issue either a Complete Response Letter, or CRL, or an approval letter.To reach this determination, the FDA must determine that the drug is effective and that its expected benefits outweigh its potential risks to patients. This “benefit-risk” assessment is informed by the extensive body of evidence about the product’s safety and efficacy in the NDA or BLA. This assessment is also informed by other factors, including: the severity of the inspection ofunderlying condition and how well patients’ medical needs are addressed by currently available therapies; uncertainty about how the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketingpremarket clinical trial evidence will extrapolate to real-world use of the product within the post-market setting; and whether risk management tools are necessary to manage specific prescribing information for specific indications. risks.
A CRL indicates that the review cycle of the application is complete, response letterand the application will not be approved in its present form. A CRL generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. The CRL may require additional clinical or other data, additional pivotal Phase 3 clinical trial(s) and/or other significant and time- consuming requirements related to clinical trials, preclinical studies or manufacturing. If and when those deficienciesa CRL is issued, the sponsor will have been addressedone year to respond to the FDA’s satisfaction in a resubmission of the NDA,deficiencies identified by the FDA, will issueat which time the FDA can deem the application withdrawn or, in its discretion, grant the sponsor an approval letter.additional six-month extension to respond. The FDA has committed to reviewing such resubmissions in response to an issued CRL in either two or six months depending on the type of information included. Even with the submission of this additional information, however, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. The FDA has taken the position that a CRL is not final agency action making the determination subject to judicial review.
Post-Approval Regulation
Drugs and biologics manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.
In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugsproducts are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or
failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post marketpost-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:
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•restrictions on the marketing or manufacturing of the product, suspension of the approval, or complete withdrawal of the product from the market or product recalls;
•safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings or other safety information about a product;
•mandated modification of promotional materials and labeling and issuance of corrective information;
•fines, warning letters, untitled letters or other enforcement-related letters or clinical holds on post approvalpost-approval clinical trials;
•refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals;
•product seizure or detention, or refusal to permit the import or export of products; or
•injunctions or the imposition of civil or criminal penalties.penalties; and
•consent decrees, corporate integrity agreements, debarment, or exclusion from federal health care programs.
The FDA strictly regulates the marketing, labeling, advertising and promotion of prescription drug products that are placed on the market. This regulation includes, among other things, standardsProducts may be promoted only for the approved indications and in accordance with the provisions of the approved label. In September 2021, the FDA published final regulations for direct-to-consumer advertising, communications regarding unapproved uses, industry sponsored scientific and educational activities, and promotional activities involvingwhich describe the Internet and social media. Promotional claims about a drug’s safety or effectiveness are prohibited beforetypes of evidence that the drug is approved. After approval,agency will consider in determining the intended use of a drug product generally may not be promoted for uses that are not approved byor biologic. The FDA and other agencies actively enforce the FDA, as reflected in the product’s prescribing information. In the United States, healthcare professionals are generally permitted to prescribe drugs for such uses not described in the drug’s labeling, known as off label uses, because the FDA does not regulate the practice of medicine. However, FDAlaws and regulations impose rigorous restrictions on manufacturers’ communications, prohibiting the promotion of off label uses. off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.
It may be permissible, under very specific, narrow conditions, for a manufacturer to engage in nonpromotional, non-misleading communication regarding off labeloff-label information, such as distributing scientific or medical journal information. Moreover, with passage of the Pre-Approval Information Exchange Act, or PIE Act, in December 2022, sponsors of products that have not been approved may proactively communicate to payors certain information about products in development to help expedite patient access upon product approval. Previously, such communications were permitted under FDA guidance but the new legislation explicitly provides protection to sponsors who convey certain information about products in development to payors, including unapproved uses of approved products.
If a company is found to have promoted off labeloff-label uses, it may become subject to adverse public relations and administrative and judicial enforcement by the FDA, the Department of Justice, or the Office of the Inspector General of the Department of Health and Human Services, as well as state authorities. This could subject a company to a range of penalties that could have a significant commercial impact, including civil and criminal fines and agreements that materially restrict the manner in which a company promotes or distributes drug products. The federal government has levied large civil
Generic Drugs and criminal fines against companies for alleged improper promotion, and has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.Regulatory Exclusivity
In addition, the distribution1984, as part of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, and its implementation regulations, as well as the Drug Supply Chain Security Act, or DSCSA, which regulates the distribution of and tracing of prescription drugs and prescription drug samples at the federal level, and sets minimum standards for the regulation of drug distributors by the states. The PDMA, its implementing regulations and state laws limit the distribution of prescription pharmaceutical product samples, and the DSCSA imposes requirements to ensure accountability in distribution and to identify and remove counterfeit and other illegitimate products from the market.
Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, the route of administration, the dosage form, the strength of the drug and the conditions of use of the drug. At the same time, the FDA must also determine that the generic drug is “bioequivalent” to the innovator drug. Under the statute, a generic drug is bioequivalent to a RLD if “the rate and extent of absorption of the drug do not show a significant difference from the rate and extent of absorption of the listed drug...drug.”
Upon approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the RLD in its publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD. In addition, by operation of certain state laws and numerous health insurance programs, the FDA’s designation of therapeutic equivalence often results in substitution
Under provisions of the generic drug without the knowledge or consent of either the prescribing physician or patient.
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exclusivity has been granted, an ANDAa generic or follow-on drug application may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the applicantsponsor may submit its application four years following the original product approval.
The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicantsponsor and are essential to the approval of the application. This three-year exclusivity period often protects changes to a previously approved drug product, such as a new indications, dosage form,forms, route of administration or combination or indication.of ingredients. Three-year exclusivity would be available for a drug product that contains a previously approved active moiety, provided the statutory requirement for a new clinical investigation is satisfied. Unlike five-year NCE exclusivity, an award of three-year exclusivity does not block the FDA from accepting ANDAs or 505(b)(2) NDAs seeking approval for generic versions of the drug as of the date of approval of the original drug product. The FDA typically makes decisions about awardsproduct; rather, this three-year exclusivity covers only the conditions of data exclusivity shortly beforeuse associated with the new clinical investigations and, as a product is approved.
Five-year and three-year exclusivity also will not delay the submission or approval of a drug application within eight (8) months for a drug that has three (3) or fewer approved drugs listed in the Orange Book and is no longer protected by any patent or regulatory exclusivities, or is on the FDA’s drug shortage list. The new legislation also authorizes FDA to expedite review of ‘‘competitor generic therapies’’ or drugs with inadequate generic competition, including holding meetings with or providing advice to the drug sponsor prior to submissiontraditional NDA filed under Section 505(b)(1) of the application.FDCA; however, a sponsor submitting a traditional NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
(i) the required patent information has not been filed;
(ii) the listed patent has expired;
(iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or
(iv) the listed patent is invalid unenforceable or will not be infringed by the new product. Moreover, to the extent that the Section 505(b)(2) NDA applicant is relying on studies conducted for an already approved product, the applicant also is required to certify to the FDA concerning any patents listed for the NDA-approved product in the Orange Book to the same extent that an ANDA applicant would.
If the generic drug or follow-on drug applicant does not challenge the innovator’s listed patents, the FDA will not approve the ANDA or 505(b)(2) application until all the listed patents claiming the referenced product have expired. A certification that the new generic product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed patents or indicates that it is not seeking approval of a patented method of use, the application will not be approved until all the listed patents claiming the referenced product have expired (other than method of use patents involving indications for which the applicant is not seeking approval).
If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA owner and patent holders once the ANDA has been accepted for filing by the FDA. The NDA owner and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA or 505(b)(2) NDA until the earlierearliest of 30 months after the receipt of the Paragraph IV notice, expiration of the patent orand a decision in the infringement case that is favorable to the ANDA or 505(b)(2) NDA applicant.
Biosimilars and Regulatory Exclusivity
When a biological product is licensed for marketing by the FDA with approval of a BLA, the product may be entitled to certain types of market and data exclusivity barring the FDA from approving competing products for certain periods of time.In March 2010, the Patient Protection and Affordable Care Act was enacted in the United States and included the Biologics Price Competition and Innovation Act of 2009, or the BPCIA. The BPCIA amended the PHSA to create an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. To date, the extentFDA has approved a number of biosimilars. The first interchangeable biosimilar product was approved on July 30, 2021 and a second product previously approved as a biosimilar was designated as interchangeable in October 2021.The FDA has also issued numerous guidance documents outlining its approach to reviewing and licensing biosimilars and interchangeable biosimilars under the PHSA, including a draft guidance issued in November 2020 that seeks to provide additional clarity to manufacturers of interchangeable biosimilars.
Under the BPCIA, a manufacturer may submit an application for licensure of a biologic product that is “biosimilar to” or “interchangeable with” a previously approved biological product or “reference product.” In order for the FDA to approve a biosimilar product, it must find that there are no clinically meaningful differences between the reference product and proposed biosimilar product in terms of safety, purity, and potency. For the FDA to approve a biosimilar product as interchangeable with
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a reference product, the agency must find that the Section 505(b)(2) applicantbiosimilar product can be expected to produce the same clinical results as the reference product, and (for products administered multiple times) that the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. In December 2022, Congress clarified through FDORA that FDA may approve multiple first interchangeable biosimilar biological products so long as the products are all approved on the first day on which such a product is relying on studies conductedapproved as interchangeable with the reference product.
Under the BPCIA, an application for an already approveda biosimilar product the applicant is required to certifymay not be submitted to the FDA concerning any patents listeduntil four years following the date of approval of the reference product. The FDA may not approve a biosimilar product until 12 years from the date on which the reference product was approved. Even if a product is considered to be a reference product eligible for exclusivity, another company could market a competing version of that product if the FDA approves a full BLA for such 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 BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. There have been recent government proposals to reduce the 12-year reference product in the Orange Bookexclusivity period, but none has been enacted to date. At the same extent that an ANDA applicant would. As a result, approval of a Section 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlementtime, since passage of the lawsuitBPCIA, many states have passed laws or a decision in the infringement case that is favorableamendments to the Section 505(b)(2) applicant.laws, which address pharmacy practices involving biosimilar products.
Under the Pediatric Research EquityOrphan Drug Act, of 2003, an NDA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of theFDA may designate a drug product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the productas an “orphan drug” if it is safe and effective. With enactment of the Food and Drug Administration Safety and Innovation Act or FDASIA, in 2012, sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests, and other information required by regulation. The applicant, the FDA, and the FDA’s internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time. For drugs intended to treat a serious or life-threateningrare disease or condition generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost of developing and making a drug product available in the United States for treatment of the disease or condition will be recovered from sales of the product. A company must request orphan drug designation before submitting an NDA or BLA for the candidate product. If the request is granted, the FDA must, uponwill disclose the request of an applicant, meet to discuss preparationidentity of the initial pediatric study plantherapeutic agent and its potential use. Orphan drug designation does not shorten the Prescription Drug User Fee Act, or to discuss deferralPDUFA, goal dates for the regulatory review and approval process, although it does convey certain advantages such as tax benefits and exemption from the PDUFA application fee.
If a product with orphan designation receives the first FDA approval for the disease or waiver of pediatric assessments. In addition, FDAcondition for which it has such designation or for a select indication or use within the rare disease or condition for which it was designated, the product generally will meet early inreceive orphan drug exclusivity. Orphan drug exclusivity means that the development process to discuss pediatric study plans with drug sponsors. The legislation requires FDA to meet with drug sponsors by no later than the end-of-phase 1 meeting for serious or life-threatening diseases and by no later than ninety (90) days after FDA’s receipt of the study plan.
Orphan exclusivity will not bar approval of another product under certain circumstances, including if a subsequent product with the same drug or fullbiologic for the same indication is shown to be clinically superior to the approved product on the basis of greater efficacy or partial waivers fromsafety, or providing a major contribution to patient care, or if the pediatric data requirements. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in FDASIA. Unless and until FDA promulgates a regulation stating otherwise, the pediatric data requirements do not apply to productscompany with orphan designation.
In September 2021, the NDA if the drug is intendedCourt of Appeals for the treatment11th Circuit held that, for the purpose of an adult cancerdetermining the scope of market exclusivity, the term “same disease or condition” in the statute means the designated “rare disease or condition” and is directed at a molecular target thatcould not be interpreted by the FDA determines to be substantially relevantmean the “indication or use.” Thus, the court concluded, orphan drug exclusivity applies to the growthentire designated disease or progressioncondition rather than the “indication or use.” It is unclear how this court decision will be implemented by the FDA. Although there have been legislative proposals to overrule this decision, they have not been enacted into law. On January 23, 2023, FDA announced that, in matters beyond the scope of a pediatric cancer unlessthat court’s order, FDA will continue to apply its existing regulations tying orphan-drug exclusivity to the required investigations are waiveduses or deferred. The investigation must be designed to yield clinically meaningful pediatric study data regardingindications for which the dosing, safety and preliminary efficacy to inform pediatric labeling for the product.orphan drug was approved.
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Pediatric Exclusivity
Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protectionregulatory exclusivity, including orphan exclusivity. For drug products, the six-month exclusivity may be attached to the term of any existing patent or regulatory exclusivity includingavailable under provisions of the non-patent and orphan exclusivity.FDCA. For biologic products, the six-month period may be attached to any existing regulatory exclusivities but not to any patent terms. This six-month exclusivity may be granted if an NDA or BLA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory
time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application. With regard to patents, the six-month pediatric exclusivity period will not attach to any patents for which an ANDA or 505(b)(2) applicant submitted a paragraph IV patent certification, unless the NDA sponsor or patent owner first obtains a court determination that the patent is valid and infringed by the proposed product.
Patent Term Restoration and Extension
A patent claiming a new drug product of use may be eligible for a limited patent term extension under provisions of the Hatch-Waxman Act,FDCA, which permits a patent restoration of up to five years for patent term lost during product development and the FDA regulatory review. The restoration period granted on a patent covering a product is typically one-half the time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDA and the ultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval date. Only one patent applicable to an approved drug product is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent in question. A patent that covers multiple drugsproducts for which approval is sought can only be extended in connection with one of the approvals. The U.S.United States Patent and Trademark Office reviews and approves the application for any patent term extension or restoration in consultation with the FDA.
FDA Approval of Companion Diagnostics
If safe and effective use of a therapeutic depends on an in vitro diagnostic, then the FDA generally will require approval or clearance of that diagnostic, known as a companion diagnostic, at the same time that the FDA approves the therapeutic product. In August 2014, the FDA issued final guidance clarifying the requirements that will apply to approval of therapeutic products and in vitro companion diagnostics. According to the guidance, if the FDA determines that a companion diagnostic device is essential to the safe and effective use of a novel therapeutic product or indication, the FDA generally will not approve the therapeutic product or new therapeutic product indication if the companion diagnostic device is not approved or cleared for that indication. Approval or clearance of the companion diagnostic device will ensure that the device has been adequately evaluated and has adequate performance characteristics in the intended population.
Under the FDCA, in vitro diagnostics, including companion diagnostics, are regulated as medical devices. In the United States, the FDCA and its implementing regulations, and other federal and state statutes and regulations govern, among other things, medical device design and development, preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling, storage, advertising and promotion, sales and distribution, export and import, and post‑market surveillance. Unless an exemption applies, diagnostic tests require marketing clearance or approval from the FDA prior to commercial distribution.
The FDA previously has required in vitro companion diagnostics intended to select the patients who will respond to the product candidate to obtain pre-market approval, or PMA, simultaneously with approval of the therapeutic product candidate. The PMA process, including the gathering of clinical and preclinical data and the submission to and review by the FDA, can take several years or longer. It involves a rigorous premarket review during which the sponsor must prepare and provide the FDA with reasonable assurance of the device’s safety and effectiveness and information about the device and its components regarding, among other things, device design, manufacturing and labeling. PMA applications are subject to an application fee. For federal fiscal year 2023, the standard fee is $441,547 and the small business fee is $110,387.
Review and Approval of DrugsDrug Products in Europe and other Foreign Jurisdictionsthe European Union
In additionorder to regulations inmarket any product outside of the United States, a manufacturer is subject to a varietycompany must also comply with numerous and varying regulatory requirements of regulations in foreignother countries and jurisdictions to the extent the manufacturer chooses to sell anyregarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of drug products in those foreign countries. Even if a manufacturerproducts. Whether or not it obtains FDA approval offor a product, it must stillthe company would need to obtain the requisitenecessary approvals fromby the comparable foreign regulatory authorities in foreign countries prior to the commencement ofbefore it can commence clinical trials or marketing of the product in those countries. To obtain regulatorycountries or jurisdictions. The approval of an investigational drug or biological product in the European Union, or EU, a manufacturer must submit a marketing authorization application to the European Medicines Agency, or EMA. For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, clinical trials are to be conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. The time required to obtain approval in otherprocess ultimately varies between countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.can involve additional product testing and additional administrative review periods
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Clinical Trial Approval in the EU
Beyond streamlining the process, the new legislation would come into effect six months after the European Commission publishes a notice of this confirmation. The website indicated that the audit was expected to commence in December 2020.The Clinical Trials Directive 2001/20/EC will, however, still apply three years from the date of entry into application of the Clinical Trials Regulation to (i) clinical trials applications submitted before the entry into application and (ii) clinical trials applications submitted within one year after the entry into application if the sponsor opts for old system.
The new regulation did not change the preexisting requirement that a sponsor must obtain prior approval from the competent national authority of the EU Member State in which the clinical trial is to be conducted. If the clinical trial is conducted in different EU Member States, the competent authorities in each of these EU Member States must provide their approval for the conduct of the clinical trial. Furthermore, the sponsor may only start a clinical trial at a specific clinical site after the applicable ethics committee has issued a favorable opinion.
As in the US, parties conducting certain clinical trials must post clinical trial information in the European Union at the EudraCT website: https://eudract.ema.europa.eu.
PRIME Designation in the EU
In March 2016, the EMA launched an initiative to facilitate development of product candidates in indications, often rare, for which few or no therapies currently exist. The Priority Medicines,PRIority MEdicines, or PRIME, scheme is intended to encourage drug development in areas of unmet medical need and provides accelerated assessment of products representing substantial innovation reviewed under the centralized procedure. Products from small- and medium-sized enterprises, or SME,SMEs, may qualify for earlier entry into the PRIME scheme than larger companies. Many benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements, and accelerated marketing authorization application assessment once a dossier has been submitted. Importantly, a dedicated Agency contact and rapporteur from the CHMP or Committee for Advanced Therapies, or CAT, are appointed early in PRIME scheme facilitating increased understanding of the product at EMA’s Committee level. A kick-off meeting initiates these relationships
Pediatric Studies
In the European Economic Area, or EEA, companies developing a new medicinal product must agree upon a Pediatric Investigation Plan, or PIP, with the EMA’s pediatric committee, or PDCO, and includesmust conduct pediatric clinical trials in accordance with that PIP, unless a teamwaiver applies (e.g., because the relevant disease or condition occurs only in adults). The PIP sets out the timing and measures proposed to generate data to support a pediatric indication of multidisciplinary expertsthe drug for which marketing authorization is being sought. The marketing authorization application for the product must include the results of pediatric clinical trials conducted in accordance with the PIP, unless a waiver applies, or a deferral has been granted by the PDCO of the obligation to implement some or all of the measures of the PIP until there are sufficient data to demonstrate the efficacy and safety of the product in adults, in which case the pediatric clinical trials must be completed at the EMA to provide guidance on the overall development and regulatory strategies.a later date.
Marketing Authorization
The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid for all European Union member states.EU Member States. The centralized procedure is compulsory for specificmedicinal products including for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, advanced therapy products, and products with a new active substance indicated for the treatment of certain diseases. For products with a new active substance indicateddiseases, including cancer. It is optional for the treatment of other diseases andthose products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may be optional.patients.
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Under the centralized procedure in the European Union,EU, the maximum timeframe for the evaluation of ana MAA is 210 days, excluding clock stops, when additional information or written or oral explanationinformation is to be provided by the applicantsponsor in response to questions ofasked by the CHMP. Accelerated evaluation mightmay be granted by the CHMP in exceptional cases, whencases. These are defined as circumstances in which a medicinal product is expected to be of major interest froma “major public health interest.” Three cumulative criteria must be fulfilled in such circumstances: the pointseriousness of viewthe disease, such as severely disabling or life-threatening diseases, to be treated; the absence or insufficiency of public
If a member stateconcerned EU Member State cannot approve the assessment report and related materials on the grounds ofdue to concerns relating to a potential serious risk to public health, the disputed points are subject to a dispute resolution mechanism andelements may eventually be referred to the European Commission, whose decision is binding on all member states.
A marketing authorization may be granted only to an applicanta sponsor established in the EU. Regulation No. 1901/2006 provides that prior to obtaining a marketing authorization in the EU, an applicanta sponsor must demonstrate compliance with all measures included in a Pediatric Investigation Plan, or PIP, approved by the Pediatric Committee of the EMA, covering all subsets of the pediatric population, unless the EMA has granted a product-specific waiver, class waiver, or a deferral for one or more of the measures included in the PIP.
In particular circumstances, E.U. legislation (Article 14–a Regulation (EC) No 726/2004 (as amended by Regulation (EU) 2019/5 and Regulation (EC) No 507/2006 on Conditional Marketing Authorizations for Medicinal Products for Human Use) enables sponsors to obtain a conditional marketing authorization prior to obtaining the European Union
Regulatory Requirements afterAfter Marketing Authorization
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Regulatory Data Protection in the European Union
In the EU, new chemical entities approved on the advertising and promotion of our products are subject to EU Member States’ laws governing promotion of medicinal products, interactions with physicians, misleading and comparative advertising and unfair commercial practices. In addition, other legislation adopted by individual EU Member States may apply to the advertising and promotion of medicinal products. These laws require that promotional materials and advertising in relation to medicinal products comply with the product’s Summary of Product Characteristics, or SmPC, as approved by the competent authorities. Promotionbasis of a complete independent data package qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity pursuant to Regulation (EC) No 726/2004, as amended, and Directive 2001/83/EC, as amended. Data exclusivity prevents regulatory authorities in the EU from referencing the innovator’s data to assess a generic (abbreviated) application for a period of eight years. During the additional two‑year period of market exclusivity, a generic marketing authorization application can be submitted, and the innovator’s data may be referenced, but no generic medicinal product that does not comply withcan be marketed until the SmPC is consideredexpiration of the market exclusivity. The overall ten‑year period will be extended to constitute off label promotion. The off label promotiona maximum of medicinal products is prohibited ineleven years if, during the EU. The applicable laws at EU level and infirst eight years of those ten years, the individual EU Member States also prohibit the direct-to-consumer advertising of prescription-only medicinal products. These laws may further limit or restrict the advertising and promotion of our products to the general public and may also impose limitations on our promotional activities with health care professionals.
Pediatric Exclusivity
Products that are laid down in Regulation (EC) No 1901/2006, the so‑called Pediatric Regulation. This requirement also applies when a company wants to add a new indication, pharmaceutical form or route of administration for a medicine that is already authorized. The Pediatric Committee of the EMA, or PDCO, may grant deferrals for some medicines, allowing a company to delay development of the medicine for children until there is enough information to demonstrate its effectiveness and safety in adults. The PDCO may also grant waivers when development of a medicine for children is not needed or is not appropriate, such as for diseases that only affect the elderly population. Before an MAA can be filed, or an existing marketing authorization can be amended, the EMA determines that companies actually comply with the agreed studies and measures listed in each relevant PIP. If an applicant obtainsgranted a marketing authorization in all EU Member States, or a marketing authorization granted inwith the Centralized Procedure by the European Commission, and the study results forof the pediatric populationclinical trials conducted in accordance with the PIP are included in the product information, even when negative, the medicine is then eligible for an additional six month period of qualifying patent protection througha six-month extension of the termprotection under a supplementary protection certificate (if any is in effect at the time of approval) even where the trial results are negative. In the case of orphan medicinal products, a two-year extension of the Supplementary Protection Certificate, or SPC.orphan market exclusivity may be available. This pediatric reward is subject to specific conditions and is not automatically available when data in compliance with the PIP are developed and submitted.
Orphan Drug Designation and Exclusivity in the EU
Regulation (EC) No 141/2000 and Regulation (EC) No. 847/2000 provide that a product can be designated an orphan medicinal product by the European Commission if its sponsor can establish: that the product is intended for the diagnosis,
prevention or treatment of (1) a life-threatening or chronically debilitating condition affecting not more than five in ten thousand persons in the EU when the application is made, or (2) a life-threatening, seriously debilitating or serious and chronic condition in the EU and that without incentives the medicinal product is unlikely to be developed. For either of these conditions, the applicantsponsor must demonstrate that there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the EU or, if such method exists, the medicinal product will be of significant benefit to those affected by that condition.
Once authorized, orphan medicinal products are entitled to ten years of market exclusivity in all EU Member States and in addition a range of other benefits during the development and regulatory review process including scientific assistance for studytrial protocols, authorization through the centralized marketing authorization procedure covering all member countries and a reduction or elimination of registration and marketing authorization fees. However, marketing authorization may be granted to a similar medicinal product with the same orphan indication during the ten-year period with the consent of the marketing authorization holder for the original orphan medicinal product or if the manufacturer of the original orphan medicinal product is unable to supply sufficient quantities. Marketing authorization may also be granted to a similar medicinal product with the same orphan indication if thisthe product is safer, more effective or otherwise clinically superior to the original orphan medicinal product. The period of market exclusivity may, in addition, be reduced to six years if it can be demonstrated on the basis of available evidence that the original orphan medicinal product is sufficiently profitable not to justify maintenance of market exclusivity.
Orphan drug exclusivity will not bar approval of another product under certain circumstances, including if a subsequent product with the same drug or biologic for the same indication is shown to be clinically superior to the approved product on the basis of greater efficacy or safety, or providing a major contribution to patient care, or if the company with orphan drug exclusivity is not able to meet market demand. This is the case despite an earlier court opinion holding that the Orphan Drug Act unambiguously required the FDA to recognize orphan exclusivity regardless of a showing of clinical superiority.
Brexit and the Regulatory Framework in the United Kingdom
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Medicines Regulations 2012 (SI 2012/1916) (as amended), or the HMR, as the basis for regulating medicines. The HMR has also indicatedincorporated into the domestic law the body of EU law instruments governing medicinal products that pre-existed prior to the UK will not accept high regulatory alignment withUnited Kingdom’s withdrawal from the EU.
Since a significant proportion of the regulatory framework for pharmaceutical products in the U.K.United Kingdom covering the quality, safety, and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales, and distribution of pharmaceutical products is derived from European UnionEU directives and regulations, Brexit could materiallymay have a material impact upon the future regulatory regime that applieswith respect to productsthe development, manufacture, importation, approval and the approvalcommercialization of our product candidates in the U.K.United Kingdom. For example, the United Kingdom is no longer covered by the centralized procedures for obtaining EU-wide marketing authorization from the EMA, and a separate marketing authorization will be required to market our product candidates in the United Kingdom. Until December 31, 2023, it is possible for the MHRA to rely on a decision taken by the European Commission on the approval of a new marketing authorization via the centralized procedure.
Furthermore, while the Data Protection Act of 2018 in the United Kingdom that “implements” and complements the European Union’s General Data Protection Regulation, or GDPR, has achieved Royal Assent on May 23, 2018 and is now effective in the United Kingdom, it is still unclear whether transfer of data from the EEA to the United Kingdom will remain lawful under GDPR. The Trade and Cooperation Agreement provides for a transitional period during which the United Kingdom will be treated like an European Union member state in relation to processing and transfers of personal data for four months from January 1, 2021.This may be extended by two further months. After such period, the United Kingdom will be a “third country” under the GDPR unless the European Commission adopts an adequacy decision in respect of transfers of personal data to the United Kingdom. The United Kingdom has already determined that it considers all of the EU 27 and EEA member states to be adequate for the purposes of data protection, ensuring that data flows from the United Kingdom to the EU/EEA remain unaffected.
General Data Protection Regulation
The collection, use, disclosure, transfer, or other processing of personal data regarding individuals in the EU, including personal health data, is subject to the EU General Data Protection Regulation, or GDPR, which became effective on May 25, 2018. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors. The GDPR also imposes strict rules on the transfer of personal data to countries outside the EU, including the U.S., and permits data protection authorities to impose large penalties for violations of the GDPR, including potential fines of up to €20 million or 4% of annual global revenues, whichever is greater. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. Compliance with the GDPR will be a rigorous and time-intensive process that may increase the cost of doing business or require companies to change their business practices to ensure full compliance.
The GDPR also imposes strict rules on the transfer of personal data to countries outside the EEA, including the United States, and permits data protection authorities to impose large penalties for violations of the GDPR, including potential fines of up to €20 million or 4% of annual global revenues, whichever is greater. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. Compliance with the GDPR is a rigorous and time-intensive process that may increase the cost of doing business or require companies to change their business practices to ensure full compliance. In July 2020, the Court of Justice of the European Union, or the CJEU, invalidated the EU-U.S. Privacy Shield framework, one of the mechanisms used to legitimize the transfer of personal data from the EEA to the United States.The CJEU decision also drew into question the long-term viability of an alternative means of data transfer, the standard contractual clauses, for transfers of personal data from the EEA to the United States.Following the withdrawal of the U.K. from the EU, the U.K. Data Protection Act 2018 applies to the processing of personal data that takes place in the U.K. and includes parallel obligations to those set forth by GDPR.
Additionally, in October 2022, President Biden signed an executive order to implement the EU-U.S. Data Privacy Framework, which would serve as a replacement to the EU-US Privacy Shield. The European Commission initiated the process to adopt an adequacy decision for the EU-US Data Privacy Framework in December 2022. It is unclear if and when the framework will be finalized and whether it will be challenged in court. The uncertainty around this issue may further impact our business operations in the EU.
Pharmaceutical Coverage, Pricing and Reimbursement
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In the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use our products unless coverage is provided, and reimbursement is adequate to cover a significant portion of the cost of our products. Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities. EvenThus, even if our druga product candidate is approved, sales of our productsthe product will depend, in part, on the extent to which third-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations, provide coverage, and establish adequate reimbursement levels for, such products.the product. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors are increasingly challenging the prices charged, examining the medical
necessity, and reviewing the cost-effectiveness of medical products and services and imposing controls to manage costs. Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the approved products for a particular indication.
In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable marketing approvals. Nonetheless, drugproduct candidates may not be considered medically necessary or cost-effective.cost effective. A decision by a third-party payor not to cover our druga product candidate could reduce physician utilization of our products once the product is approved and have a material adverse effect on our sales, results of operations and financial condition. Additionally, a payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a drug product does not assure that other payors will also provide coverage and reimbursement for the product, and the level of coverage and reimbursement can differ significantly from payor to payor. Third-party
In the EU, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular drug candidate to currently available therapies or so-called health technology assessments, in order to obtain reimbursement or pricing approval. For example, the EU provides options for its member states to restrict the range of products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. EU Member States may approve a specific price for a product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the product on the market. Other member states allow companies to fix their own prices for products, but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions.
Recently, many countries in the EU have increased the amount of discounts required on pharmaceuticals and these efforts could continue as countries attempt to manage healthcare expenditures, especially in light of the severe fiscal and debt crises experienced by many countries in the EU. The downward pressure on health care costs in general, particularly prescription drugs, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various EU Member States, and parallel trade, i.e., arbitrage between low-priced and high-priced member states, can further reduce prices. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any products, if approved in those countries.
Healthcare Law and Regulation
Health care providers and third-party payors play a primary role in the recommendation and prescription of drug products that are granted marketing approval. Arrangements with providers, consultants, third-party payors and customers are subject to broadly applicable fraud and abuse, anti-kickback, false claims laws, patient privacy laws and regulations and other health care laws and regulations that may constrain our business and/or financial arrangements. Restrictions under applicable federal and state health care laws and regulations, include:
•the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, paying, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal health care program such as Medicare and Medicaid;
•the federal civil and criminal false claims laws, including the civil False Claims Act, and civil monetary penalties laws, which prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false, fictitious or fraudulent or knowingly making,
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using or causing to made or used a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government;
•the Foreign Corrupt Practices Act, or FCPA, which prohibits companies and their intermediaries from making, or offering or promising to make improper payments to non-U.S. officials for the purpose of obtaining or retaining business or otherwise seeking favorable treatment; and
•the federal transparency requirements known as the federal Physician Payments Sunshine Act which requires certain manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services, or CMS, within the HHS information related to payments and other transfers of value made by that entity to physicians, other healthcare providers and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.
Further, some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures. Additionally, some state and local laws require the registration of pharmaceutical sales representatives in the jurisdiction. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, thus complicating compliance efforts.
Pharmaceutical Insurance Coverage and Healthcare Reform
In the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated health care costs. Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities. Thus, even if a product candidate is approved, sales of the product will depend, in part, on the extent to which third-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations, provide coverage and establish adequate reimbursement levels for, the product. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors are increasingly challenging the prices charged, examining the medical necessity and reviewing the cost-effectiveness of medical products and services and imposing controls to manage costs. Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the approved products for a particular indication.
In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable marketing approvals. Nonetheless, product candidates may not be availableconsidered medically necessary or cost effective. A decision by a third-party payor not to enable uscover a product could reduce physician utilization once the product is approved and have a material adverse effect on sales, results of operations and financial condition. Additionally, a payor’s decision to maintain price levels sufficientprovide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to realize an appropriate return on our investment inprovide coverage for a product development.does not assure that other payors will also provide coverage and reimbursement for the product, and the level of coverage and reimbursement can differ significantly from payor to payor.
The containment of healthcarehealth care costs also has become a priority of federal, state and foreign governments and the prices of drugsproducts have been a focus in this effort. Governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit a company’s revenue generated from the sale of any approved products. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which a company or its collaborators receive marketing approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. There have been a number of federal and state proposals during the last few years regarding the pricing of pharmaceutical and biopharmaceutical products, limiting coverage and reimbursement for drugs and biologics and other medical products, government control and other changes to the health care system in the United States.
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the ACA. In addition, other legislative changes
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have been proposed and adopted since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2031. Pursuant to the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, and subsequent legislation, these Medicare sequester reductions were suspended and reduced in 2021 and 2022 but, as of July 1, 2022, the full 2% cut resumed. Under current legislation, the actual reductions in Medicare payments may vary up to 4%. These laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.
Since enactment of the ACA, there have been, and continue to be, numerous legal challenges and Congressional actions to repeal and replace provisions of the law. For example, therewith enactment of the Tax Cuts and Jobs Act of 2017, which was signed by President Trump on December 22, 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, became effective in 2019. Further, on December 14, 2018, a U.S. District Court judge in the Northern District of Texas ruled that the individual mandate portion of the ACA is an essential and inseverable feature of the ACA, and therefore because the mandate was repealed as part of the Tax Cuts and Jobs Act, the remaining provisions of the ACA are invalid as well. The U.S. Supreme Court heard this case on November 10, 2020 and, on June 17, 2021, dismissed this action after finding that the plaintiffs do not have standing to challenge the constitutionality of the ACA. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results.
The Trump Administration also took executive actions to undermine or delay implementation of the ACA, including 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 or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. On January 28, 2021, however, President Biden issued a new Executive Order which directs federal agencies to reconsider rules and other policies that limit Americans’ access to health care, and consider actions that will protect and strengthen that access. Under this Order, federal agencies are directed to re-examine: policies that undermine protections for people with pre-existing conditions, including complications related to COVID-19; demonstrations and waivers under Medicaid and the ACA that may reduce coverage or undermine the programs, including work requirements; policies that undermine the Health Insurance Marketplace or other markets for health insurance; policies that make it more difficult to enroll in Medicaid and the ACA; and policies that reduce affordability of coverage or financial assistance, including for dependents.
Pharmaceutical Prices
The prices of prescription pharmaceuticals have also been the subject of considerable discussion in the United States. There have been several recent U.S. congressionalCongressional inquiries, and proposed federal andas well as proposed and enacted state and federal legislation designed to, among other things, bring more transparency to drugpharmaceutical pricing, review the relationship between pricing and manufacturer patient programs, and reduce the costs of drugspharmaceuticals under Medicare and reform government program reimbursement methodologiesMedicaid. In 2020 President Trump issued several executive orders intended to lower the costs of prescription products and certain provisions in these orders have been incorporated into regulations. These regulations include an interim final rule implementing a most favored nation model for drug products. Atprices that would tie Medicare Part B payments for certain physician-administered pharmaceuticals to the federal level, Congresslowest price paid in other economically advanced countries, effective January 1, 2021. That rule, however, has been subject to a nationwide preliminary injunction and, the Trump administration have each indicatedon December 29, 2021, CMS issued a final rule to rescind it. With issuance of this rule, CMS stated that it will continueexplore all options to seekincorporate value into payments for Medicare Part B pharmaceuticals and improve beneficiaries’ access to evidence-based care.
In addition, in October 2020, the HHS and the FDA published a final rule allowing states and other entities to develop a Section 804 Importation Program, or SIP, to import certain prescription products from Canada into the United States. The final rule is currently the subject of ongoing litigation, but at least six states (Vermont, Colorado, Florida, Maine, New Mexico, and New Hampshire) have passed laws allowing for the importation of products from Canada with the intent of developing SIPs for review and approval by the FDA. Further, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The final rule would also eliminate the current safe harbor for Medicare drug rebates and create new legislative and/or administrative measuressafe harbors for beneficiary point-of-sale discounts and pharmacy benefit manager service fees. It originally was set to control drug costs. For example,go into effect on May 11, 2018,January 1, 2022, but with passage of the Administration issued a planInflation Reduction Act has been delayed by Congress to lower drug prices. Under this blueprint for action, the Administration indicated thatJanuary 1, 2032.
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In September 2021, acting pursuant to an executive order signed by President Biden, the Department of Health and Human Services, or HHS, will: take stepsreleased its plan to endreduce pharmaceutical prices. The key features of that plan are to: (a) make pharmaceutical prices more affordable and equitable for all consumers and throughout the gaming of regulatoryhealth care system by supporting pharmaceutical price negotiations with manufacturers; (b) improve and patent processespromote competition throughout the prescription pharmaceutical industry by drug makers to unfairly protect monopolies; advancesupporting market changes that strengthen supply chains, promote biosimilars and genericsgeneric drugs, and increase transparency; and (c) foster scientific innovation to boost price competition; evaluatepromote better healthcare and improve health by supporting public and private research and making sure that market incentives promote discovery of valuable and accessible new treatments.
More recently, on August 16, 2022, the inclusionInflation Reduction Act of prices in drug makers’ ads to enhance price competition; speed access to and lower the cost of2022, or IRA, was signed into law by President Biden.The new drugs by clarifying policieslegislation has implications for sharing information between insurers and drug makers; avoid excessive pricing by relying more on value based pricing by expanding outcome based payments in Medicare and Medicaid; work to give Part D, plan sponsors more negotiation power with drug makers; examine which is a program available to individuals who are entitled to Medicare Part A or enrolled in Medicare Part B to give them the option of paying a monthly premium for outpatient prescription drug coverage. Among other things, the IRA requires manufacturers of certain drugs couldto engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years.
Specifically, with respect to price negotiations, Congress authorized Medicare to negotiate lower prices for certain costly single-source drug and biologic products that do not have competing generics or biosimilars and are reimbursed under Medicare Part B and Part D.CMS may negotiate prices for ten high-cost drugs paid for by Medicare Part D starting in 2026, followed by 15 Part D drugs in 2027, 15 Part B or Part D drugs in 2028, and 20 Part B or Part D drugs in 2029 and beyond.This provision applies to drug products that have been approved for at least 9 years and biologics that have been licensed for 13 years, but it does not apply to drugs and biologics that have been approved for a lowersingle rare disease or condition.Further, the legislation subjects drug manufacturers to civil monetary penalties and a potential excise tax for failing to comply with the legislation by offering a price bythat is not equal to or less than the negotiated “maximum fair price” under the law or for taking price increases that exceed inflation. The legislation also requires manufacturers to pay rebates for drugs in Medicare Part D plans,whose price increases exceed inflation. The new law also caps Medicare out-of-pocket drug costs at an estimated $4,000 a year in 2024 and, improving the design of the Part B Competitive Acquisition Program; update Medicare’s drug-pricing dashboard to increase transparency; prohibit Part D contracts that include “gag rules” that prevent pharmacists from informing patients when they could pay less out-of-pocket by not using insurance; and require that Part D plan members be provided with an annual statement of plan payments, out-of-pocket spending, and drug price increases.thereafter beginning in 2025, at $2,000 a year.
At the state level, individual stateslegislatures are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional health care 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 health care programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.
In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion
of additional studies that compare the cost-effectiveness of a particular drug candidate to currently available therapies or so-called health technology assessments, in order to obtain reimbursement or pricing approval. For example, the European Union provides options for its member states to restrict the range of products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the product on the market. Other member states allow companies to fix their own prices for products, but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions.
Recently, many countries in the European Union have increased the amount of discounts required on pharmaceuticals and these efforts could continue as countries attempt to manage healthcare expenditures, especially in light of the severe fiscal and debt crises experienced by many countries in the European Union. The downward pressure on health care costs in general, particularly prescription drugs, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various European Union member states, and parallel trade, i.e., arbitrage between low-priced and high-priced member states, can further reduce prices. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products, if approved in those countries.
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Federal and RegulationState Data Privacy Laws
In 2018 California passed into law the California Consumer Privacy Act, or the CCPA, which took effect on January 1, 2020, and imposed many requirements on businesses that process the personal information of California residents. Many of the CCPA’s requirements are similar to those found in the GDPR, including requiring businesses to provide notice to data subjects regarding the pricinginformation collected about them and how such information is used and shared, and providing data subjects the right to request access to such personal information and, in certain cases, request the erasure of pharmaceuticalsuch personal information. The CCPA also affords California residents the right to opt-out of “sales” of their personal information. The CCPA contains significant penalties for companies that violate its requirements. In November 2020 California voters passed a ballot initiative for the California Privacy Rights Act, or the CPRA, which went into effect on January 1, 2023, and biopharmaceutical products, limiting coveragesignificantly expanded the CCPA to incorporate additional GDPR-like provisions including requiring that the use, retention, and reimbursement for drugssharing of personal information of California residents be reasonably necessary and other medical products, government control and other changesproportionate to the healthcare systempurposes of collection or processing, granting additional protections for sensitive personal information, and requiring greater disclosures related to notice to residents regarding retention of information. The CPRA also created a new enforcement agency – the California Privacy Protection Agency – whose sole responsibility is to enforce the CPRA, which will further increase compliance risk. The provisions in the United States.CPRA may apply to some of our business activities. In addition, other states, including Virginia, Colorado, Utah, and Connecticut already have passed state privacy laws. Virginia’s privacy law also went into effect on January 1, 2023, and the laws in the other three states will go into effect later in the year. Other states will be considering these laws in the future, and Congress has also been debating passing a federal privacy law. These laws may impact our business activities, including our identification of research subjects, relationships with business partners and ultimately the marketing and distribution of our products.
Competition
Our drug candidates, if approved, will compete with existing and new products being developed by others for treatment of the same indications. Competition in the development of human therapeutics and, in particular, human therapeutics that target signaling pathways to treat cancers, is intense and rapidly evolving. Our competitors include large pharmaceutical and
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biopharmaceutical companies, as well as specialized biotechnology firms, that are developing cancer therapies in the same indications as we are. Many competitors have substantially greater research, development, manufacturing, marketing, and financial capabilities, than we do. Successful development and commercialization of products depends on the ability to differentiate the benefits of our products (e.g. efficacy, safety, dosing, route of administration, convenience, and cost-effectiveness) over competing drug or biologic therapies.
There are several companies developing drug candidates that target the same molecular targets and signaling pathways, and in some cases the same cancer indications, that are being pursued by us and our collaborators. We believe our primary competitors by molecular target are as follows:
Licensed Programs Under Aurigene Collaboration. We are aware of multiple other companies that are developing IRAK4 inhibitors for oncology indications, including: Nimbus Therapeutics/Roche, TGEmmaus Life Sciences, Inc./Kainos Medicine, Inc. (KM-10544), Kurome Therapeutics Inc./Ligand
Licensed Programs Under ImmuNext Collaboration. VISTA (V-domain Ig Suppressor of T-cell Activation) is a novel immuno-oncology target for which wetarget. We are aware that Hummingbird Bioscience Pte Ltd (HMBD-002), Pierre Fabre SA (W0180), and Kineta, Inc. (KVA12123), have active clinical-stage programs and multiple other companies have preclinical development programs, including: Apexigen Inc. (APX-201), PharmAbcine Inc. (PMC-309), Sensei Biotherapeutics, Inc. (SNS-101), and Suzhou Stainwei Biotech Inc. (mAb-5).
Fimepinostat: We are not aware of any other active clinical-stage programs.molecules in clinical testing that are designed as one chemical entity to target both HDAC and PI3K. However, there are a number of commercially available drugs that individually target HDAC or PI3K.
Erivedge. In 2015, Sun Pharmaceuticals Industries Ltd'sLtd.'s sonidegib (Odomzo®), a Hedgehog signaling pathway inhibitor indicated for the treatment of adult patients with locally advanced BCC that has recurred following surgery or radiation, or those who are not candidates for surgery or radiation, received regulatory approvals in the United States and European Union. Other commercially available Hedgehog pathway inhibitors include Pfizer Inc.'s glasdegib (Daurismo™). We are aware of several other biotechnology and pharmaceutical companies that have drug development programs relating to compounds that modulate the Hedgehog signaling pathway, including: Exelixis, Inc./Bristol-Myers Squibb Company (BMS-833923 / XL139), PellePharm Inc. (patidegib), and Senhwa Biosciences Inc. (silmitasertib / CX-4945). Furthermore, glasdegib (Daurismo™) is marketed by Pfizer Inc. for the treatment of newly diagnosed adult AML patients for whom intensive chemotherapy is not an option, and sonidegib (Odomzo™) is marketed by Sun Pharmaceutical Industries Ltd., for the treatment of adults with locally advanced BCC.
Many competing companies have financial, marketing and human resource capacities that are substantially greater than our own, which may provide these competitors with significant advantages over us. Others have extensive experience in undertaking clinical trials, in obtaining regulatory approval to market products, in manufacturing products on a large scale and in effectively promoting products to healthcare providers, health plans and consumers which may enhance their competitive position relative to ours. In addition to competing with pharmaceutical and biotechnology companies, the products that we are developing would also compete with those being developed by academic and research institutions, government agencies and other public organizations. Any of these organizations may discover new therapies, seek patent protection or establish collaborative arrangements for products and technologies that compete with our products and technologies.
The technologies underlying the development of human therapeutic products are expected to continue to undergo rapid and significant advancement and unpredictable changes. Accordingly, our technological and commercial success will be based, among other things, on our ability to develop proprietary positions in key scientific areas and efficiently evaluate potential product opportunities.
The timing of a product’s introduction may be a major factor in determining eventual commercial success and profitability. Early entry may have important advantages in gaining product acceptance and market share. Accordingly, we believe the relative speed with which we or any current or future collaborator(s) can complete preclinical and clinical testing,
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obtain regulatory approvals, and supply commercial quantities of a product will have an important impact on our competitive position, both in the U.S. and abroad. Other companies may succeed in developing similar products that are introduced earlier, are more effective, or are produced and marketed more effectively, or at a minimum obtain a portion of the market share. For example, our competitors may discover, characterize and develop important targeted cancer molecules before we do, which could have a material adverse effect on any of our related research programs. If research and development by others renders any of our products obsolete or noncompetitive, then our potential for success and profitability may be adversely affected.
For some of our programs, we rely on, or intend to rely on, strategic collaborators for support in our research programs and for preclinical evaluation and clinical development of our potential products and manufacturing and marketing of any products. Our strategic collaborators may conduct multiple product development efforts within each disease area that is the subject of our strategic collaboration with them. Our strategic collaboration agreements may not restrict the strategic collaborator from pursuing competing internal development efforts. Any of our drug candidates, therefore, may be subject to competition with a drug candidate under development by a strategic collaborator.
Manufacturing and Supply
We do not have our own manufacturing capabilities. We currently rely on collaborators or subcontractors, and we have no plans to develop our own manufacturing capability. Instead, we plan to continue to rely on corporate collaborators or subcontractors to manufacture products. If any of our current or planned collaborators or subcontractors encounters regulatory compliance problems or enforcement actions for their own or a collaborative product, it could have a material adverse effect on our business prospects.
We employ a material sourcing strategy that complies with regulatory requirements for building increasing amounts of quality into the product, beginning with raw materials and following through to packaged drug product for clinical use. Starting materials for the drug substance are typically sourced from qualified suppliers, and their production is conducted under our supervision. Where appropriate, redundant suppliers are added to ensure availability of key materialsmaterials.
Drug substance and product production, and subsequent packaging, labeling and distribution for all of our development candidates are conducted in the various locations under GMP controls.
Sales and Marketing
We have no sales, marketing or distribution experience or infrastructure. We must build infrastructure and we have no current plansrelated to develop such capabilities. We currently plan to rely on corporate collaborators for product sales, marketing and distribution.distribution or make arrangements with third parties to perform these services.
As of December 31, 2019,2022, we had 2851 employees in total, all of which were full-time employees, of whom seven12 hold a Ph.D. or other advanced scientific or medical degree. Of our employees, 1733 are currently involved in research and development.development, including medical doctors, molecular biologists, cell biologists, and other clinical or scientific disciplines who seek to identify and develop new applications for our existing proprietary portfolio. None of our employees is a party to a collective bargaining agreement, and we consider our relations with our employees to be good.
We believe that our future success largely depends upon our continued ability to attract and retain highly skilled employees. We offer our employees a comprehensive compensation package. Our well-designed compensation package includes salaries, annual bonuses, equity compensation, retirement savings, life insurance, and premium health and workers’ compensation insurance. Our equity compensation plans, pursuant to which we may grant stock options, restricted stock and equity-based awards, are designed to align employees’ interests with our stockholders’ interests and motivate effective performance which drives company success. We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer.
Segment Reporting
We are engaged solely in the discovery and development of innovative drug candidates for the treatment of human cancers. Accordingly, we have determined that we operate in one operating segment.
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Information about our Executive Officers
Our executive officers as of March 19, 202013, 2023 are as follows:
| Name | Age | Position | ||||||||||||
| James Dentzer | President and Chief Executive Officer | |||||||||||||
| Robert Martell, M.D., Ph.D. | Head of Research and Development | |||||||||||||
| Chief Financial Officer | ||||||||||||||
| James Dentzer | Mr. Dentzer has served on our board of directors and as our President, Chief Executive Officer, Secretary and Treasurer since September 2018. From March 2018 to September 2018, Mr. Dentzer served as our Chief Operating Officer, Chief Financial Officer, Secretary, and Treasurer. Mr. Dentzer joined the Company in March 2016 as Chief Administrative Officer, Chief Financial Officer, Secretary, and Treasurer. From December 2013 to December 2015, Mr. Dentzer served as Chief Financial Officer of Dicerna Pharmaceuticals, Inc., an RNA interference based biopharmaceutical company. From March 2010 to December 2013, Mr. Dentzer was the Chief Financial Officer of Valeritas, Inc., a commercial-stage medical technology company. From October 2006 to October 2009, Mr. Dentzer was the Chief Financial Officer of Amicus Therapeutics, Inc., a biotechnology company. In prior positions, Mr. Dentzer spent six years as corporate controller of Biogen Inc., a biotechnology company, and six years in various senior financial roles at E.I. du Pont de Nemours and Company in the U.S. and Asia. Mr. Dentzer holds a B.A. in philosophy from Boston College and an M.B.A. from the University of Chicago. | |||||||||||||
| Robert Martell, M.D., Ph.D. | Dr. Martell | |||||||||||||
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ITEM 1A.RISK FACTORS
You should carefully consider the following risk factors,risks described below in addition to the other information includedset forth in this annual report on Form 10-K.10-K, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations section and the consolidated financial statements and related notes. These risks, some of which have occurred and any of which may occur in the future, can have a material adverse effect on our business, financial condition, results of operations or the price of our publicly traded securities. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presentlycurrently known to us, or that we presentlycurrently deem less significantto be immaterial, may also impairoccur or become material in the future and adversely affect our business, operations. Please see page 4reputation, financial condition, results of this annual report on Form 10-K foroperations or the price of our publicly traded securities. Therefore, historical operating results, financial and business performance, events and trends are often not a discussionreliable indicator of some of the forward-looking statements that are qualified by these risk factors.future operating results, financial and business performance, events or trends. If any of the following risks occurs, our business, financial condition, and results of operations and future growth prospects could be materially and adversely affected.
RISKS RELATING TO OUR FINANCIAL RESULTS AND NEED FOR FINANCING
We have incurred substantial losses, expect to continue to incur substantial losses for the foreseeable future and may never generate significant revenue or achieve profitability.
We have incurred significant annual net operating losses in every year since our inception. We expect to continue to incur significant and increasing net operating losses for at least the next several years. Our net losses were $32.1 million and $32.6loss was $56.7 million for the yearsyear ended December 31, 2019 and 2018, respectively.2022. As of December 31, 2019,2022, we had an accumulated deficit of $1.0$1.1 billion. As noted below, we have identified conditions and events that raise substantial doubt about our ability to continue as a going concern. We have not completed the development of any drug candidate on our own. Other than Erivedge®, which is being commercialized and further developed by Genentech and Roche under our June 2003 collaboration with Genentech, we may never have a drug candidate approved for commercialization. WeSince our inception, we have financedfunded our operations to date primarily through public offeringsprivate and privatepublic placements of our common stock, other debt financings,equity securities, license fees, contingent cash payments, research and amounts received through various licensingdevelopment funding from our corporate collaborators and collaboration agreements.the monetization of certain royalty rights. We have devoted substantially all of our financial resources and efforts to research and development and general and administrative expense to support such research and development. Our net losses may fluctuate significantly from quarter to quarter and year to year. Net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ (deficit) equity and working capital.
We anticipate that our expenses will increase substantially if and as we:
•continue to develop and conduct clinical trials with respect to drug candidates;
•seek to identify and develop additional drug candidates;
•acquire or in-license other drug candidates or technologies;
•seek regulatory and marketing approvals for our drug candidates that successfully complete clinical trials, if any;
•hire and retain additional personnel, such as clinical, quality control, and scientific personnel;
•establish sales, marketing, distribution and other commercial infrastructure in the future to commercialize various drugs for which we may obtain marketing approval, if any;
•require the manufacture of larger quantities of drug candidates for clinical development and, potentially, commercialization;
•maintain, expand, and protect our intellectual property portfolio; and
•add equipment and physical infrastructure as may be required to support our research and development programs.
Our ability to become and remain profitable depends on our ability to generate significant revenue. Our only current source of revenues comprises licensing and royalty revenues that we earn under our collaboration with Genentech related to the development and commercialization of Erivedge. In addition, aA significant portion of our royalty and royalty related revenues under our collaboration with Genentech will be paid to TPC Investments I LP and TPC Investments II LP, or the Purchasers, pursuant to the royalty interest purchase agreement we and Curis Royalty entered into with the Purchasers and Lind SA LLC, or Agent, on March 22, 2019, or the Oberland Purchase Agreement. In addition, on March 3, 2023, Curis and Curis Royalty received a letter from counsel to Oberland Capital Management, LLC, the Purchasers and the Agent alleging defaults under the Oberland Purchase Agreement. The letter further alleges that these alleged defaults are events of default under the Oberland Purchase Agreement and that each alleged default separately entitles the Purchasers to exercise the put option, which would require Curis Royalty to repurchase the Purchased Receivables at a price, referred to as the Put/Call Price, equal to 250% of the sum of the upfront purchase price and any portion of the milestone payments paid in a lump sum by the Purchasers, if any, minus certain payments previously received by the Purchasers with respect to the Purchased Receivables. The Purchasers have not attempted to exercise that put option but have purported to reserve their alleged right to exercise it without further notice. As of the date of
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the filing of this annual report on Form 10-K, the estimated amount of the Put/Call Price is up to $72.5 million. The Purchasers have also reserved other asserted rights in respect of the alleged defaults, including the asserted right to seek judicial remedies, including for damages and rescission, and to assert alleged claims against Curis and Curis Royalty for indemnification on the basis of material breach and fraud in the inducement. Curis and Curis Royalty dispute these allegations.However, if Oberland elects to pursue these claims, and if Curis and Curis Royalty are unsuccessful in defending against these claims, it could have a material adverse impact on Curis and Curis Royalty, including their ability to continue as a going concern.
We do not expect to generate significant revenues other than those related to Erivedge unless and until we are, or any collaborator is, able to obtain marketing approval for, and successfully commercialize, one or more of our drug candidates other than Erivedge. Successful commercialization will require achievement of key milestones, including initiating and successfully completing clinical trials of our drug candidates, obtaining marketing approval for these drug candidates, manufacturing, marketing, and selling those drugs for which we, or any of our collaborators, may obtain marketing approval, satisfying any post marketing requirements and obtaining reimbursement for our drugs from private insurance or government payors. Because of the uncertainties and risks associated with these activities, we are unable to accurately predict the timing and amount of revenues and whether or when we might achieve profitability. We and any collaborators may never succeed in these activities and, even if we do, or any collaborators do, we may never generate revenues that are large enough for us to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our pipeline of drug candidates, or continue our operations and cause a decline in the value of our common stock.
We will require substantial additional capital, which may be difficult to obtain, and if we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our drug development programs or commercialization efforts.
We will require substantial funds to continue our research and development programs and to fulfill our planned operating goals. Our planned operating and capital requirements currently include the support of our current and future research and development activities for emavusertib, as well as other candidates we have, and may continue to license under our collaborations with Aurigene and ImmuNext. We will require substantial additional capital to fund the further development of these programs, as well as to fund our general and administrative costs and expenses. Moreover, our agreements with collaborators impose significant potential financial obligations on us. For example, under our collaboration, license and option agreement with Aurigene, we are required to make milestone and royalty fee payments for preclinical development programs that will be performed by Aurigene, which impose significant potential financial obligations on us. In addition, if we choose to exercise our option under the option and license agreement with ImmuNext, or the ImmuNext Agreement, we will be required to make milestone, royalty, and option fee payments in connection with the development of CI-8993.
Based upon our current operating plan, we believe that our existing cash, cash equivalents and investments of $85.6 million as of December 31, 2022, should enable us to fund our operating expenses and capital expenditure requirements into 2025. We have based this assessment on assumptions that may prove to be wrong, and it is possible that we will not achieve the progress that we expect with these funds because the actual costs and timing of clinical development and regulatory and commercial activities are difficult to predict and are subject to substantial risks and delays, and that we will use our capital resources sooner than we currently expect. This estimate does not reflect any additional expenditures that may result from any further strategic transactions to expand and diversify our product pipeline, including acquisitions of assets, businesses, rights to products, product candidates or technologies or strategic alliances or collaborations that we may pursue. It also does not reflect the possibility that we may not be able to access a portion of our existing cash, cash equivalents and investments due to market conditions. For example, on March 10, 2023, the Federal Deposit Insurance Corporation, or the FDIC, took control and was appointed receiver of Silicon Valley Bank, or SVB. As of March 13, 2023, not including any FDIC-insured amounts, our exposure to SVB is immaterial. If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened and could have a material adverse effect on our business and financial condition.
Our ability to raise additional funds in the future will depend on financial, economic and market conditions, many of which are outside of our control, and we may be unable to raise financing when needed, or on terms favorable to us, or at all. Furthermore, high volatility and instability in the capital markets, interest rate fluctuations, heightened inflation, economic slowdown or recession and periodic COVID-19 resurgence have resulted in a significant disruption of global financial markets and have had, and could continue to have, a negative impact on the price of our common stock. If the disruption persists and deepens, we could experience an inability to raise additional funds. In addition, market volatility and instability, interest rate fluctuations and heightened inflation may increase our cost of financing or restrict our access to potential sources of future
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liquidity. If we are unable to obtain sufficient funding, we may be forced to delay, reduce in scope or eliminate some of our research and development programs, including related clinical trials and operating expenses, potentially delaying the time to market for, or preventing the marketing of, any of our product candidates. For example, in November 2022 we announced that to further advance the development of emavusertib, we are concentrating our resources to focus on and accelerate emavusertib. Resources have been reallocated to the emavusertib programs and resources dedicated to all other pipeline programs have been reduced. In addition, we may seek to engage in one or more strategic alternatives, such as a strategic partnership with one or more parties, the licensing, sale or divestiture of some of our assets or proprietary technologies or the sale of our company, but there can be no assurance that we would be able to enter into such a transaction or transactions on a timely basis or on terms favorable to us, or at all.
Our failure to raise capital through a financing or strategic alternative as and when needed could adversely affect our business prospects and our ability to continue operations, and would have a negative impact on our financial condition and our ability to pursue our business strategy. If we are unable to raise sufficient capital we would be unable to fund our operations and may be required to evaluate alternatives, which could include dissolving and liquidating our assets or seeking protection under the bankruptcy laws, and a determination to file for bankruptcy could occur at a time that is earlier than when we would otherwise exhaust our cash resources.
In March 2021, we entered into a sales agreement, or the 2021 Sales Agreement, with Cantor Fitzgerald & Co., or Cantor, and JonesTrading Institutional Services LLC, or JonesTrading, pursuant to which, from time to time, we may offer and sell through Cantor and JonesTrading up to $100.0 million of our common stock registered under our universal shelf registration statement on Form S-3 in one or more “at-the-market” offerings. To date, we have sold 4,583,695 shares, representing gross proceeds of $6.3 million. The extent to which we utilize the 2021 Sales Agreement with Cantor and JonesTrading as a source of funding will depend on a number of factors, including the prevailing market price of our common stock, general market conditions and other restrictions and the extent to which we are able to secure funds from other sources. Accordingly, we may not be able to sell additional shares under the 2021 Sales Agreement at prices or amounts that we deem acceptable, and there can be no assurance that we will be able to sell the remaining $93.7 million of common stock contemplated under the 2021 Sales Agreement.
Furthermore, there are a number of factors that may affect our future capital requirements and further accelerate our need for additional working capital, many of which are outside our control, including the following:
•unanticipated costs in our research and development programs;
•the timing and cost of obtaining regulatory approvals for our drug candidates and maintaining compliance with regulatory requirements;
•the timing and amount of option exercise fees, milestone payments, royalties and other payments, including payments due to licensors, including Aurigene and ImmuNext if we exercise our option under the ImmuNext Agreement, for patent rights and technology used in our drug development programs;
•the costs of commercialization activities for any of our drug candidates that receive marketing approval, to the extent such costs are our responsibility, including the costs and timing of establishing drug sales, marketing, distribution and manufacturing capabilities;
•unplanned costs to prepare, file, prosecute, defend and enforce patent claims and other patent-related costs, including litigation costs and technology license fees;
•unexpected losses in our cash investments or an inability to otherwise liquidate or access our cash investments due to unfavorable conditions in the capital markets, including volatility and instability in the capital markets; and
•our ability to continue as a going concern.
In connection with the Oberland Purchase Agreement, we transferred and encumbered certain royalty and royalty related payments on commercial sales of Erivedge, Curis Royalty granted a first priority lien and security interest in all of its assets, including its rights to the Erivedge royalty payments, and we granted the Purchasers a first priority lien and security interest in our equity interest in Curis Royalty. As a result, in the event of a default by us or Curis Royalty we could lose all retained rights to future royalty and royalty related payments, we could be required to repurchase the Purchased Receivables at a price that is a multiple of the payments we have received, and our ability to enter into future arrangements may be inhibited, all of which could have a material adverse effect on our business, financial condition and stock price.
Pursuant to the Oberland Purchase Agreement, the Purchasers acquired the rights to a portion of certain royalty and royalty related payments excluding a portion of non-U.S. royalties retained by Curis Royalty, referred to as the Purchased
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Receivables, owed by Genentech under our collaboration agreement with Genentech. In connection with entering into the Oberland Purchase Agreement, Curis Royalty and the Agent entered into a security agreement and Curis and the Purchasers entered into a pledge agreement.
Following an event of default under the security agreement entered into between Curis Royalty and the Agent, in connection with the transaction, the Agent has the right to stop all allocations of payments that would have otherwise been allocated to Curis Royalty pursuant to the Oberland Purchase Agreement and instead retain all such payments. In addition, the Oberland Purchase Agreement provides that after the occurrence of an event of default by Curis Royalty under the security agreement, as described below, the Purchasers shall have the option, for a period of 180 days, to require Curis Royalty to repurchase the Purchased Receivables at a price, referred to as the Put/Call Price, equal to a percentage, beginning at a low triple digit percentage and increasing over time up to a low-mid triple digit percentage, of the sum of the upfront purchase pricePrice.
Pursuant to the security agreement, Curis Royalty granted to the Agent a first priority lien and security interest in all of its assets and all real, intangible and personal property, including all of its right, title and interest in and to the Erivedge royalty payments. The security interest secures the obligations of Curis Royalty arising under the Oberland Purchase Agreement, the security agreement or otherwise with respect to the due and prompt payment of (i) an amount equal to the Put/Call Price and (ii) all fees, costs, expenses, indemnities and other payments of Curis Royalty under or in respect of the Oberland Purchase Agreement and the security agreement.
The obligations of Curis Royalty under the Oberland Purchase Agreement may be accelerated upon the occurrence of an event of default under the security agreement (subject to certain cure periods), which events of default include:
•any royalty and royalty related payments to be remitted into a certain Curis Royalty designated account controlled by the Agent pursuant to a control agreement, referred to as the royalty account, into which all royalty and royalty related payments must be paid by Curis or Curis Royalty are not so remitted in accordance with the Oberland Purchase Agreement;
•any representation or warranty made by Curis or Curis Royalty in the Oberland Purchase Agreement or any other transaction document proves to be incorrect or misleading in any material respect when made;
•a default by Curis or Curis Royalty in the performance of affirmative and negative covenants set forth in the Oberland Purchase Agreement or any other transaction document;
•a default by Curis in the performance or observance of its indemnity obligations under the Oberland Purchase Agreement;
•the failure by Genentech to pay material amounts owed under the Genentech collaboration agreement because of an actual breach or default by Curis under the Genentech collaboration agreement;
•the failure of the security agreement to create a valid and perfected first priority security interest in any of the collateral;
•a material breach or default by Curis under our agreement with Curis Royalty pursuant to which we transferred our rights to the royalty revenues under the Genentech collaboration agreement to Curis Royalty;
•the voluntary or involuntary commencement of bankruptcy proceedings by either Curis or Curis Royalty and other insolvency related events;
•any materially adverse effect on the binding nature of any of the Oberland Purchase Agreement, Security Agreement, Pledge Agreementsecurity agreement, pledge agreement or other transaction documents, the Genentech collaboration agreement or our agreement with Curis Royalty;
•any person shall be designated as an independent director of Curis Royalty other than in accordance with Curis Royalty’s limited liability company operating agreement; or
•Curis shall at any time cease to own, of record and beneficially, 100% of the equity interests in Curis Royalty.
Upon the occurrence and continuance of an event of default under the security agreement, the Agent may exercise its rights and remedies under the security agreement with respect to Curis Royalty and to the collateral pledged thereunder, including, among other things, acceleration of the obligations under the security agreement, the sale or other realization of the collateral and performance of Curis Royalty’s obligations under the purchase and sale agreement. Additionally, Curis granted to the Agent a first priority lien and security interest of Curis’ equity interest in Curis Royalty pursuant to a pledge agreement. Upon the occurrence and continuance of an event of default under the security agreement, the Agent may exercise its rights and remedies under the pledge agreement with respect to the equity interests, including, among other things, the rights to receive distributions and exercise voting rights with respect to the equity interests and to sell or otherwise realize upon the collateral in
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satisfaction of the obligations. The exercise by the Agent of the foregoing rights shall be deemed to constitute an exercise by the Purchasers of their put option under the Oberland Purchase Agreement.
Although Curis and Curis Royalty dispute these allegations, if Oberland elects to pursue these claims, and if Curis and Curis Royalty are unsuccessful in defending against these claims, Curis Royalty may not have sufficient funds to pay the Put/Call pricePrice or other amounts claimed by the Purchasers and the Agent could foreclose on the secured royalty and royalty related payment stream and/or our equity interests in Curis Royalty. In such an event, we could lose our right to royalty and royalty related payments not transferred to the Purchasers pursuant to the Oberland Purchase Agreement and we could lose our rights in Curis Royalty. In addition, in the event Genentech exercises its set-off rights against royalty payments to Curis Royalty pursuant to our collaboration agreement with
In addition, in the event Genentech exercises its set-off rights against royalty payments to Curis Royalty pursuant to our collaboration agreement with Genentech, we may be required to satisfy our royalty-sharing obligations to the Purchasers with amounts from our working capital.
Any of these consequences of the alleged events of default or any future allegations of an event of default could have a material adverse effect on our business, financial condition and stock price.price, including our ability to continue as a going concern.
The amount of royalty revenue we received from sales of Erivedge has been adversely affected by a competing drug, and may further be affected in the future.
Pursuant to the terms of our collaboration agreement with Genentech, our subsidiary Curis Royalty is entitled to receive royalties on net sales of Erivedge that range from 5% to 7.5% based upon global Erivedge sales by Roche and Genentech. The royalty rate applicable to Erivedge may be decreased in certain specified circumstances, including when a competing drug product that binds to the same molecular target as Erivedge is approved by the applicable country’s regulatory authority and is being sold in such country by a third-party for use in the same indication as Erivedge, or when there is no issued intellectual property covering Erivedge in a territory in which sales are recorded. During the third quarter of 2015, the U.S. Food and Drug Administration, or FDA and the Committee for Medicinal Products for Human Use, or CHMP approved an additional Hedgehog signaling pathway inhibitor marketed by Sun Pharmaceutical Industries Ltd., or Sun Pharmaceutical, sonidegib (Odomzo®), for the treatment of adults with locally advanced basal cell carcinoma, or BCC.
Sales of sonidegib (Odomzo)Odomzo were first recorded in the U.S. during the fourth quarter of 2015 and, accordingly, Genentech has reduced royalties on its net sales in the U.S. of Erivedge from 5-7.5% to 3-5.5%. Furthermore, we anticipate that Genentech will reduce by 2% royalties on net sales of Erivedge outside of the United States on a country-by-country basis to the extent that sonidegib is approved by the applicable country’s regulatory authority and is being sold in such country. We also believe that sales of sonidegib have, and are likely to continue to, adversely affect sales of Erivedge, including those in the U.S. and ex-U.S. countries, which would adversely affect the resulting revenue we may receive from Genentech. A decrease in sales of Erivedge, or in the royalty rate that we receive for sales of Erivedge could adversely affect our operating results.
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If the estimates we make and the assumptions on which we rely in preparing our financial statements prove inaccurate, our actual results may vary significantly.
Our financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, the amounts of charges taken by us, and disclosures related thereto. Such estimates and judgments include the carrying value of our property, the value of equipment and intangible assets, revenue recognition, and the value of certain liabilities the repayment term of our loan from HealthCare Royalty, for periods prior to its termination, and stock-based compensation expense. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. However, these estimates and judgments, and their underlying assumptions, may change over time. Accordingly, our actual financial results may vary significantly from the estimates contained in our financial statements.
Public health outbreaks, epidemics, pandemics of contagious or infectious diseases, such as COVID-19, may significantly disrupt our business. Such outbreaks pose the risk that we or our employees, contractors, suppliers, or other partners may be prevented from conducting business activities for an indefinite period of time due to spread of the estimatesdisease, or due to shutdowns that may be requested or mandated by federal, state and judgmentslocal governmental authorities. Business disruptions could include disruptions or restrictions on our ability to travel, as well as temporary closures of our facilities or the facilities of our contractors, suppliers, and other partners.
We continue to monitor our operations and applicable government recommendations, and we have made modifications to our normal operations because of the COVID-19 pandemic, including limiting travel and working from home. Remote working arrangements could impact employees’ productivity and morale, strain our technology resources and introduce operational risks. Additionally, the risk of cyber-attacks or other privacy or data security incidents may be heightened as a result of our moving increasingly towards a remote working environment, which may be less secure and more susceptible to hacking attacks.
The COVID-19 pandemic could affect the health and availability of our workforce as well as those of the third parties we rely on. Furthermore, delays and disruptions experienced by our collaborators or other third parties due to the COVID-19 pandemic could adversely impact the ability of such parties to fulfill their obligations, which could affect the clinical development of our product candidates.
The COVID-19 pandemic has continued to impact the global supply chain, primarily through constraints on raw materials. These constraints on raw materials are also impacting companies outside of our direct industry, which is resulting in a competitive supply environment causing higher costs.
While it is not possible at this time to estimate the entirety of the impact that we makethe COVID-19 pandemic will have on our business, operations, employees, customers, suppliers or collaboration partners, continued spread of COVID-19, measures taken by governments, actions taken to protect employees and the critical accounting policies thatbroad impact of the pandemic on all business activities may materially and adversely affect these estimatesour business, results of operations and judgments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” set forth in this report.financial condition.
RISKS RELATING TO THE DEVELOPMENT AND COMMERCIALIZATION OF OUR DRUGS
We depend heavily on the success of our most advanced drug candidates. All of our drug candidates are still in early clinical or preclinical development. Preclinical studies and clinical trials of our drug candidates may not be successful. If we are unable to commercialize our drug candidates or experience significant delays in doing so, our business will be materially harmed.
Our ability to generate drug candidate(s) and/or drug product revenues, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our most advanced drug candidates, including CA-4948, CI-8993, and fimepinostat. Due to preliminary efficacy data and current market conditions, we have determined that no further patients will be enrolled in our Phase 1 combination study of fimepinostat with venetoclax. While we are currently evaluating potential future studies for fimepinostat, ouremavusertib. Our success depends heavily on our ongoing and future clinical trials of CA-4948 and CI-8993, both ofemavusertib, which are in early stage clinicaldevelopment.
We, and any collaborators, are not permitted to commercialize, market, promote or sell any drug candidate in the U.S. without obtaining marketing approval from the FDA. Foreign regulatory authorities, such as the European Medicines Agency, or EMA, impose similar requirements. We, and any collaborators, must complete extensive preclinical development and clinical trials to demonstrate the safety and efficacy of our drug candidates in humans before we will be able to obtain these approvals.
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Clinical testing is expensive, is difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. The clinical development of our drug candidates is susceptible to the risk of failure inherent at any stage of drug development, including failuredevelopment. Moreover, we, or any collaborators, may experience any of a number of possible unforeseen adverse events in connection with clinical trials, many of which are beyond our control, including:
•our ability to demonstrate a favorable pharmacodynamicsuccessfully resolve the continuing partial clinical hold imposed by the FDA on the monotherapy expansion phase (Phase 2a) and pharmacokinetic profile,the combination therapy phase (Phase 1b) of the TakeAim Leukemia Phase 1/2 trial in emavusertib;
•we, or our collaborators, may fail to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence of adverse events or undesirable side effects that are severe or medically or commercially unacceptable, failure to comply with protocols or applicable regulatory requirements and determination by the FDA or any comparable foreign regulatory authority that a drug candidate may not continue development or is not approvable. Itpatients;
•it is possible that even if one or more of our drug candidates has a beneficial effect, that effect will not be detected during clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of our clinical trials. Conversely, as a result of the same factors, our clinical trials may indicate an apparent positive effect of a drug candidate that is greater than the actual positive effect, if any. Similarly, in our clinical trials we may fail to detect toxicity or intolerability caused by our drug candidates, or we may mistakenly believe that our drug candidates are toxic or not well tolerated when that is not in fact the case.any;
•if any of our drug candidates is associated with adverse events or undesirable side effects or has properties that are unexpected, we, or any collaborators, may need to abandon development or limit development of that drug candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in clinical or earlier stage testing have later been found to cause undesirable or unexpected side effects
•regulators or institutional review boards may not authorize us, any collaborators or our or their investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
•we, or any collaborators, may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
•clinical trials of our drug candidates may produce unfavorable or inconclusive results, including with respect to the safety, tolerability, efficacy, or pharmacodynamic and pharmacokinetic profile of the drug candidate;
•we, or any collaborators, may decide, or regulators may require us or them, to conduct additional clinical trials or abandon drug development programs;
•the number of patients required for clinical trials of our drug candidates may be larger than we, or any collaborators, anticipate, patient enrollment in these clinical trials may be slower than we, or any collaborators, anticipate or participants may drop out of these clinical trials at a higher rate than we, or any collaborators, anticipate;
•our estimates of the patient populations available for study may be higher than actual patient numbers and result in our inability to sufficiently enroll our trials;
•the cost of planned clinical trials of our drug candidates may be greater than we anticipate;
•our third-party contractors or those of any collaborators, including those manufacturing our drug candidates or components or ingredients thereof or conducting clinical trials on our behalf or on behalf of any collaborators, may fail to comply with regulatory requirements or meet their contractual obligations to us or any collaborators in a timely manner or at all;
•patients that enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical trial protocol, resulting in the need to drop the patients from the clinical trial, increase the needed enrollment size for the clinical trial or extend the clinical trial’s duration;
•the FDA or comparable foreign regulatory authorities may disagree with our, or any collaborators’, clinical trial designs or our or their interpretation of data from preclinical studies and clinical trials;
•the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or facilities of third-party manufacturers with which we, or any collaborators, enter into agreements for clinical and commercial supplies;
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•the supply or quality of raw materials or manufactured drug candidates or other materials necessary to conduct clinical trials of our drug candidates may be insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply; and
•the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient to obtain marketing approval.approval; and
The FDA previously placed a partial clinical hold on our TakeAim Leukemia Phase 1/2 trial and our TakeAim Lymphoma Phase 1/2 trial, which remains in effect with respect to the monotherapy expansion phase (Phase 2a) and the combination therapy phase (Phase 1b) of our drug candidates. We doTakeAim Leukemia Phase 1/2 trial. The continuing partial clinical hold could take considerable time and expense to address and there can be no assurance that the FDA will remove the partial clinical hold in a timely manner, or at all, in which case our business and prospects for development and approval of emavusertib in patients with relapsed or refractory acute myeloid leukemia or high-risk myelodysplastic syndromes would be materially harmed.
In April 2022, following our report of a serious adverse event, the FDA placed partial clinical holds on our TakeAim Leukemia Phase 1/2 trial investigating emavusertib in patients with relapsed or refractory, or R/R, acute myeloid leukemia, or AML, or high-risk myelodysplastic syndromes, or MDS, and our TakeAim Lymphoma Phase 1/2 trial investigating emavusertib in patients with B-cell malignancies. In August 2022, the FDA lifted the partial clinical hold on the TakeAim Lymphoma Phase 1/2 study. The partial clinical hold was lifted following agreement with the FDA on our strategy for rhabdomyolysis identification and management, as well as on the enrollment of at least nine additional patients at the 200mg dose level. In addition, we agreed to enroll at least six additional patients at the 100mg dose level of emavusertib in combination with ibrutinib. In August 2022, the FDA notified us that we could resume enrollment of additional patients in the monotherapy dose finding phase (Phase 1a) of the TakeAim Leukemia Phase 1/2 study, in which we have agreed to enroll at least nine additional patients at the 200mg dose level. The partial clinical hold remains in place for the monotherapy expansion phase (Phase 2a) and the combination therapy phase (Phase 1b) of emavusertib with azacitidine or venetoclax of the study until Phase 1a is complete and the FDA approves proceeding to the next phases of the study.
It may require considerable time and expense to enroll the additional patients and complete Phase 1a of the TakeAim Leukemia study, and the partial clinical hold on the monotherapy expansion phase (Phase 2a) and the combination therapy phase (Phase 1b) of our TakeAim Leukemia Phase 1/2 trial may not know whether any preclinical tests or clinical trials will begin as planned, will need to be restructured, or will be completed on schedulelifted in a timely manner, or at all. Significant preclinical studyEven if we are able to address the FDA’s concerns, the FDA may make subsequent additional requests that we would need to fulfill prior to the lifting of the partial clinical hold, which could include making material changes to our trial protocols or proposed dosing regimen. Such changes could impose considerable costs and further delay the conduct of these trials and reporting of results from these trials.
Even if we are able to resolve the partial clinical hold, we may observe new safety events or have efficacy concerns in our trials, which may lead to future clinical holds, or necessitate additional or amended clinical trials, any of which could have a material adverse effect on our business, operations and prospects. Even if the partial clinical hold is ultimately lifted, we may not be able to obtain institutional review board committee or data safety monitoring board approvals for these trials, which could further delay our ability to open new trial delays also could shorten any periods during which we,sites and enroll patients into the clinical trials. Any delay in enrolling patients or any collaborators,our inability to resume, will delay or may have the exclusive rightcause us to commercializeterminate our drug candidatesclinical development plans for emavusertib in patients with R/R AML or allow our competitors, or the competitors of any collaborators, to bring drugs to market before we, or any collaborators, doMDS and ultimately impair our ability to obtain FDA approval for emavusertib in patients with R/R AML or MDS which would have a material adverse affect on our business, operations and prospects.
The therapeutic efficacy of our primary drug candidates is unproven in humans, and we may not be able to successfully develop and commercialize our primary drug candidate.
Our primary drug candidate, emavusertib, is a novel chemical and biologic entity and its potential benefit as a therapeutic cancer drug is unproven. Our ability to generate revenues from this drug candidate, which we do not expect will occur in the abilityshort-term, if ever, will depend heavily on its successful development and commercialization, which is subject to many potential risks. For example, emavusertib may not prove to be an effective inhibitor of the molecular targets its being designed to act against, and may not demonstrate in patients any collaborators,or all of the pharmacological benefits that may have been demonstrated in preclinical studies. Emavusertib may interact with human biological systems in unforeseen, ineffective or harmful ways. If the FDA determines that emavusertib is associated with significant side effects or has characteristics that are unexpected, we may need to delay or abandon its development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk benefit perspective. Moreover, we may determine after conducting clinical trials or related studies that emavusertib does not possess the anticipated therapeutic characteristics, and we may decide to abandon or discontinue any one of our clinical studies. For
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example, in the fourth quarter of 2019, we announced initial data from a clinical study of CA-170 in patients with mesothelioma in conjunction with the Society of Immunotherapy of Cancer conference and based on this data, we decided no further patients will be enrolled in this study. In addition, in March 2020, we announced that although we observed no significant drug-drug interaction in our Phase 1 study of fimepinostat in combination with venetoclax, we did not see a sufficient efficacy signal that would warrant continuation of the study. Accordingly, no further patients will be enrolled in this study. In November 2022, we announced a strategic reprioritization whereby we deprioritized CI-8993 prior to reaching the maximum tolerated dose in our Phase 1 trial of CI-8993.
Moreover, many drug candidates that initially showed promise in early stage testing for treating cancer have later been found to cause side effects that prevented further development of the compound or resulted in their removal from the market. As a result of these and other risks described herein that are inherent in the development and commercialization of novel therapeutic agents, we may not successfully maintain third-party licensing or collaboration transactions with respect to, or successfully commercialize, our drug candidates, in which case we will not achieve profitability and may harm our business and results of operations. In addition, many of the factors that lead to clinical trial delays may ultimately lead to the denial of marketing approval of anyvalue of our drug candidates.stock may decline.
If we experience delays in the enrollment of patients in our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for our drug candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials. Patient enrollment is a significant factor in the timing of clinical trials, and is affected by many factors, including:
•our ability to successfully enroll additional patients and to complete the monotherapy dose finding phase (Phase 1a) of the TakeAim Leukemia study;
•our ability to successfully resolve the continuing partial clinical hold imposed by the FDA on the monotherapy expansion phase (Phase 2a) and the combination therapy phase (Phase 1b) of the TakeAim Leukemia Phase 1/2 trial of emavusertib;
•the size and nature of the patient population;
•the severity of the disease under investigation;
•the availability of approved therapeutics for the relevant disease;
•the proximity of patients to clinical sites;
•the eligibility criteria and design for the trial;
•efforts to facilitate timely enrollment;
•competing clinical trials; and
•clinicians’ and patients’ perceptions as to the potential advantages and risks of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.
In addition, many of our competitors have ongoing clinical trials for drug candidates that could be competitive with our drug candidates. Patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ drug candidates or rely upon treatment with existing therapies that may preclude them from eligibility for our clinical trials.
Our inability, or the inability of any future collaborators, to enroll a sufficient number of patients for our, or their, clinical trials could result in significant delays or may require us or them to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials, including for clinical trials of CA-4948, CI-8993,altogether and fimepinostat, may result in increased development costs for our drug candidates, which could cause the value of our stock price to decline.
Results of preclinical studies and early clinical trials may not be predictive of results of future late stage clinical trials.trials, and interim, “top-line,” initial, and preliminary data from our clinical trials may change as more patient data become available or as additional analyses are conducted and audit and verification procedures could result in material changes to the final data.
We cannot assure you that we will be able to replicate in human clinical trials the results we observed in animal models. Moreover, the outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of clinical trials do not necessarily predict success in future clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late stage clinical trials after achieving positive results in earlier development, and we could face similar setbacks. The design of a clinical trial can determine whether its results will support approval of a drug and flaws in the design of a clinical trial may not become apparent until the clinical
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trial is well advanced. We have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing approval. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their drug candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the drug candidates. Even if we, or any collaborators, believe that the results of clinical trials for our drug candidates warrant marketing approval, the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of our drug candidates.
In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same drug candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size
and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. If we fail to receive positive results in clinical trials of our drug candidates, the development timeline and regulatory approval and commercialization prospects for our most advanced drug candidates, and, correspondingly, our business and financial prospects would be negatively impacted.
We have never obtained marketing approval for a drug candidate and we may be unable to obtain, or may be delayed in obtaining, marketing approval for any of our current drug candidates or any future drug candidates that we, or any future collaborators, may develop.
We have never obtained marketing approval for a drug candidate. It is possible that the FDA may refuse to accept for substantive review any new drug applications, or NDAs, or Biologics Licensing Applications, or BLAs that we submit for our drug candidates or may conclude after review of our data that our application is insufficient to obtain marketing approval of our drug candidates. If the FDA does not accept or approve our NDAs or BLAs for any of our drug candidates, it may require that we conduct additional clinical trials, preclinical studies or manufacturing validation studies and submit that data before it will reconsider our applications. Depending on the extent of these or any other FDA-required trials or studies, approval of any NDA, BLA or application that we submit may be delayed by several years, or may require us to expend more resources than we have available. It is also possible that additional trials or studies, if performed and completed, may not be considered sufficient by the FDA to approve our NDAs.NDAs or BLAs. Any delay in obtaining, or an inability to obtain, marketing approvals would prevent us from commercializing our drug candidates or any companion diagnostics, generating revenues and achieving and sustaining profitability. If any of these outcomes occur, we may be forced to abandon our development efforts for our drug candidates, which could significantly harm our business.
Even if any drug candidates that we, or any collaborators, may develop receive marketing approval, we or others may later discover that the drug is less effective than previously believed or causes undesirable side effects that were not previously identified, which could compromise our ability, or that of any collaborators, to market the drug.
•regulatory authorities may withdraw their approval of the drug or seize the drug;
•we, or any future collaborators, may be required to recall the drug, change the way the drug is administered or conduct additional clinical trials;
•additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular drug;
•we may be subject to fines, injunctions or the imposition of civil or criminal penalties;
•regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;
•we, or any future collaborators, may be required to create a Medication Guide outlining the risks of the previously unidentified side effects for distribution to patients;
•we, or any future collaborators, could be sued and held liable for harm caused to patients;
•the drug may become less competitive; and
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•our reputation may suffer.
Any of these events could harm our business and operations, and could negatively impact our stock price.
Even if our drug candidates receive marketing approval, they 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 drug, and even if one of our drug candidates 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 are often reluctant to switch their patients from existing therapies even when new and potentially more effective or convenient treatments enter the market. Further, patients often acclimate to the therapy that they are currently taking and do not want to switch unless their physicians recommend switching drugs or they are required to switch therapies due to lack of reimbursement for existing therapies.
Efforts to educate the medical community and third-party payors on the benefits of our drug candidates may require significant resources and may not be successful. If any of our drug candidates is approved but does not achieve an adequate level of market acceptance, we may not generate significant revenues and we may not become profitable. The degree of market acceptance of our drug candidates, if approved for commercial sale, will depend on a number of factors, including:
•the efficacy and safety of the drug;
•the potential advantages of the drug compared to competitive therapies;
•the prevalence and severity of any side effects;
•whether the drug 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 drug for sale at competitive prices;
•the drug’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 drug and patient adherence to the drug’s dosing regimen once prescribed;
•limitations or warnings, including distribution or use restrictions, contained in the drug’s approved labeling;
•the strength of sales, marketing and distribution support;
•changes in the standard of care for the targeted indications for the drug; and
•availability and amount of coverage and reimbursement from government payors, managed care plans and other third-party payors.
We may expend our limited resources to pursue a particular drug candidate or indication and fail to capitalize on drug candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we focus on research programs and drug candidates that we believe may have the best potential in certain specific indications. As a result, we may delay or forgo pursuit of certain opportunities with our other drug candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. Our spending on current and future proprietary research and development programs and drug candidates for specific indications may not yield any commercially viable drug candidates. If we do not accurately evaluate the commercial potential or target market for a particular drug candidate, we may relinquish valuable rights to that drug 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 drug candidate. For example, in the fourth quarter of 2019, we announced initial data from a clinical study of CA-170 in patients with mesothelioma in conjunction with the Society of Immunotherapy of Cancer conference. Based on this data, we decided no further patients will be enrolled in the study. In addition, in March 2020, we announced that although we observed no significant drug-drug interaction in our Phase 1 study of fimepinostat in combination with venetoclax, we did not see a sufficient efficacy signal that would warrant continuation of the study. Accordingly, no further patients will be enrolled in this study. In November 2022, we announced a strategic reprioritization that while we still have not yet reached the maximum tolerated dose in our Phase 1 trial of CI-8993, we have deprioritized this candidate.
We currently have no sales, marketing, or distribution experience and, as such, planwe must build infrastructure related to rely primarily on third-parties whoproduct sales, marketing and distribution or make arrangements with third parties to perform these services, and any such third parties may not successfully market or sell any drugs we develop.
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We currently have no sales, marketing, or drug distribution experience or capabilities. If we receive required regulatory approvals to commercialize any of our drug candidates, we may plan to rely primarily on sales, marketing and distribution arrangements with third-parties,third parties, including our collaborative partners. For example, as part of our agreements with Genentech, we have granted Genentech the exclusive rights to distribute drugs resulting from such collaboration, and Genentech is currently commercializing Erivedge. We may have to enter into additional marketing and/or sales arrangements in the future and we may not be able to enter into these additional arrangements on terms that are favorable to us, if at all. In addition, we may have limited or no control over the sales, marketing, and distribution activities of these third-parties,third parties, and sales through these third-partiesthird parties could be less profitable for us than direct sales. These third-parties could sell competing drugs and may devote
insufficient sales efforts or resources to our drugs. Our future revenues will be materially dependent upon the successful efforts of these third-parties.third parties.
We may seek to independently market and sell drugs that are not already subject to agreements with other parties. If we undertake to perform sales, marketing and distribution functions ourselves, we could face a number of additional risks, including:
•we may not be able to attract and build a significant and skilled marketing staff or sales force;
•the cost of establishing a marketing staff or sales force may not be justifiable in light of the revenues generated by any particular drug; and
•our direct sales and marketing efforts may not be successful.
We face substantial competition, and our competitors may discover, develop or commercialize drugs before or more successfully than we do.
Our drug candidates face competition from existing and new technologies and drugs being developed by biotechnology, medical device, and pharmaceutical companies, as well as universities and other research institutions. For example, there are several companies developing drug candidates that target the same molecular targets that we are targeting or that are testing drug candidates in the same cancer indications that we are testing. For example, while we are not aware of other molecules in clinical testing that are designed as one chemical entity to inhibit both PI3K and HDAC that targets MYC, there are commercially available drugs that individually target PI3K or HDAC and there are multiple companies testing PI3K or HDAC inhibitors that are in various stages of clinical development.
We are aware of multiple other companies in pre-clinical development ofthat are developing IRAK4 inhibitors for oncology indications, including Pfizer,Emmaus Life Sciences, Inc./Kainos Medicine, Inc. (KM-10544), Nimbus Discovery, Inc./Genentech, TGKurome Therapeutics Inc./Ligand Pharmaceuticals, Incorporated., Rigel Pharmaceuticals, Inc., Noxopharm Ltd.(IRAK1/4 asset), Kymera Therapeutics Inc. (KT-413 and KT-474), and Bayer AG.Rigel Pharmaceuticals, Inc. (R289). VISTA (V-domain Ig Suppressor of T-cell Activation) is a novel immuno-oncology target which wetarget. We are not aware of any otherthat Hummingbird Bioscience Pte Ltd (HMBD-002), Pierre Fabre SA (W0180), and Kineta Inc. (KVA12123) have active clinical-stage programs.programs and multiple other companies have preclinical developments, including Apexigen Inc. (APX-201), PharmAbcine Inc. (PMC-309), Sensei Biotherapeutics, Inc. (SNS-101), and Suzhou Stainwei Biotech Inc. (mAb-5). In addition, there are multiple approved products on the market that inhibit PD1/PDL1,PD-L1, including Bristol-Myers Squibb Company’s Opdivo™, Merck & Co., Inc.'s Keytruda™, Roche Holding AG's Tecentriq™, Merck & Co., Inc., KGaA / Pfizer Inc.'s Bavencio™Bavencio™, AstraZeneca plc’s Imfinzi™Imfinzi™, Regeneron Pharmaceuticals, Inc./Sanofi S.A.'s Libtayo™, and a number of drug candidates in various stages of development (by Novartis AG, TESARO, Inc., and others). We are also aware of multiple other companies developing drugs to target TIM3, including Novartis AG, Incyte Corporation, TESARO, Inc., Bristol-Myers Squibb Company, Eli Lilly and Company, and others.
We are aware of several companies that have clinical development programs relating to compounds that modulate the Hedgehog signaling pathway and may compete with Erivedge, including: Exelixis, Inc./Bristol-Myers Squibb Company (BMS-833923 / XL139), PellePharm, Inc. (patidegib), and Cyclene Pharmaceuticals Inc./Senhwa Biosciences Inc. (silmitasertib / CX-4945). Furthermore, glasdegib (Daurismo™) is marketed by Pfizer Inc. for the treatment of newly diagnosed adult AML patients for whom intensiveintensive chemotherapy is not an option, and sonidegib (Odomzo™) is marketed by Sun Pharmaceutical for the treatment of adults with locally advanced BCC. Under the terms of our collaboration agreement with Genentech, our royalty on sales of Erivedge has been reduced and may be further reduced as a result of sales of sonidegib.
Many of our competitors have substantially greater capital resources, research and development staffsstaff and facilities, and more extensive experience than we have. As a result, efforts by other biotechnology, medical device and pharmaceutical companies could render our programs or drugs uneconomical or result in therapies superior to those that we develop alone or with a collaborator. For those programs that we have selected for internal development, we face competition from companies that are more experienced in drug development and commercialization, obtaining regulatory approvals and drug manufacturing. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Other smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third-partiesthird parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. As a
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result, any of these companies may be more successful in obtaining collaboration agreements or other monetary support, approval and commercialization of their drugs and/or may develop competing drugs more rapidly and/or at a lower cost.
If we are not able to compete effectively, then we may not be able, either alone or with others, to advance the development and commercialization of our drug candidates, which would adversely affect our ability to grow our business and become profitable.
Even if we, or any collaborators, are able to commercialize any drug candidate that we, or they, develop, the drug may become subject to unfavorable pricing regulations, third-party payor reimbursement practices or healthcare reform initiatives, any of which could harm our business.
The commercial success of our drug candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our drug candidates will be paid by third-party payors, including government health care programs and private health insurers. If coverage is not available, or reimbursement is limited, we, or any collaborators, may not be able to successfully commercialize our drug candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us, or any collaborators, to establish or maintain pricing sufficient to realize a sufficient return on our or their investments. In the U.S., no uniform policy of coverage and reimbursement for drugs exists among third-party payors and coverage and reimbursement levels for drugs 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 drugs to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.
There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved drugs. Marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or drug licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we, or any future collaborators, might obtain marketing approval for a drug in a particular country, but then be subject to price regulations that delay commercial launch of the drug, possibly for lengthy time periods, which may negatively impact the revenues we are able to generate from the sale of the drug in that country. Adverse pricing limitations may hinder our ability or the ability of any future collaborators to recoup our or their investment in one or more drug candidates, even if our drug candidates obtain marketing approval.
Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Therefore, our ability, and the ability of any future collaborators, to commercialize successfully any of our drug candidates will depend in part on the extent to which coverage and adequate reimbursement for these drugs and related treatments will be available from third-party payors. Third-party payors decide which medications they will cover and establish reimbursement levels. The healthcare industry is acutely focused on cost containment, both in the U.S. and elsewhere. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications, which could affect our ability or that of any future collaborators to sell our drug candidates profitably. These payors may not view our drugs, if any, as cost-effective, and coverage and reimbursement may not be available to our customers, or those of any future collaborators, or may not be sufficient to allow our drugs, if any, to be marketed on a competitive basis. Cost-control initiatives could cause us, or any future collaborators, to decrease the price we, or they, might establish for drugs, which could result in lower than anticipated drug revenues. If the prices for our drugs, if any, decrease or if governmental and other third-party payors do not provide coverage or adequate reimbursement, our prospects for revenue and profitability will suffer.
There may also be delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the indications for which the drug is approved by the FDA or comparable foreign regulatory authorities. 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. Reimbursement rates may vary, by way of example, according to the use of the drug and the clinical setting in which it is used. Reimbursement rates may also be based on reimbursement levels already set for lower cost drugs or may be incorporated into existing payments for other services.
In addition, increasingly, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and are challenging the prices charged. Further, the net reimbursement for drug products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the U.S. An inability to promptly obtain coverage and adequate payment rates from both government-funded and private payors for any of our drug candidates for which we, or any future collaborator, obtain marketing approval could significantly harm our operating results, our ability to raise capital needed to commercialize drugs and our overall financial condition.
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Product liability lawsuits against us or our collaborators could divert our resources, cause us to incur substantial liabilities and limit commercialization of any drugs that we may develop.
We and our collaborators face a risk of product liability claims, are inherent in the process of researching, developing and commercializing human healthcare drugs andwhich could expose us and them to significant liabilities and costs and prevent or interfere with the development or commercialization of our drug candidates.candidates or drugs that we may develop. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the drug, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we or our collaborators cannot successfully defend ourselves against product liability claims, we or our collaborators may incur substantial liabilities or be required to limit commercialization of our drug candidates.candidates or drugs that we may develop. Regardless of their merit or eventual outcome, such liability claims would require us to spend significant time, money and other resources to defend such claims, and could result in:
in decreased demand for our drug candidates or drugs that we may develop;
develop, injury to our reputation and significant negative media attention;
loss of revenue;revenue.
Although we currently have product liability insurance for our clinical trials, this insurance is subject to deductibles and coverage limitations and may not be adequate in scope to protect us in the event of a successful drugproduct liability claim. The cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial. We will need to increase our insurance coverage if and when we commercialize any drug that receives marketing approval. In addition, insurance coverage is becoming increasingly expensive. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could prevent or inhibit the development and commercial production and sale of our drug candidates, which could harm our business, financial condition, results of operations and prospects.
RISKS RELATING TO OUR DEPENDENCE ON THIRD-PARTIESTHIRD PARTIES
We are reliant on Genentech and Roche for the successful development and commercialization of Erivedge. If Genentech and Roche do not successfully commercialize Erivedge for advanced BCC, or develop Erivedge for other indications, our future prospects may be substantially harmed.
•Erivedge becomes no longer accepted as safe, efficacious, cost-effective and preferable for the treatment of advanced BCC to current therapies in the medical community and by third-party payors;
•Genentech and/or Roche fail to continue to apply the necessary financial resources and expertise to manufacturing, marketing and selling Erivedge for advanced BCC, and to regulatory approvals for this indication outside of the U.S.;
•Genentech and/or Roche do not continue to develop and implement effective marketing, sales and distribution strategies and operations for development and commercialization of Erivedge for advanced BCC;
•Genentech and/or Roche do not continue to develop, validate and maintain a commercially viable manufacturing process for Erivedge that is compliant with current good manufacturing practices;
•Genentech and/or Roche do not successfully obtain third-party reimbursement and generate commercial demand that results in sales of Erivedge for advanced BCC in any geographic areas where requisite approvals have been, or may be, obtained;
•we, Genentech, or Roche encounter third-party patent interference, derivation, inter partes review, post grant review, reexamination or patent infringement claims with respect to Erivedge;
•Genentech and/or Roche do not comply with regulatory and legal requirements applicable to the sale of Erivedge for advanced BCC;
•competing drug products are approved for the same indications as Erivedge, such as is the case with sonidegib, which is being marketed and sold by Sun Pharmaceutical, both in the U.S. and abroad for the treatment of adults with locally advanced BCC;sonidegib;
•new safety risks are identified;
•Erivedge does not demonstrate acceptable safety and efficacy in current or future clinical trials, or otherwise does not meet applicable regulatory standards for approval in indications other than advanced BCC;
•Genentech and/or Roche determine to reprioritize Genentech’s commercial or development programs and reduce or terminate Genentech’s efforts on the development or commercialization of Erivedge; or
•Genentech does not exercise its first right to maintain or defend intellectual property rights associated with Erivedge.
We depend on third-parties for the research and, as applicable, development and commercialization of certain programs. If one or more of our collaborators fails or delays in developing or, as applicable, commercializing drug candidates based upon our technologies, our business prospects and operating results wouldcould suffer and our stock price would likelycould decline.
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Pursuant to our collaboration with Genentech, we have granted to Genentech exclusive rights to develop and commercialize drugs based upon our Hedgehog signaling pathway technologies. Collaborations involving our drug candidates, including our collaborations with Aurigene, Genentech and ImmuNext, pose the following risks to us:
•Our collaborators each have significant discretion in determining the efforts and resources that they will apply to their respective collaboration with us. If a collaborator fails to allocate sufficient time, attention and resources to our collaboration, the successful development and commercialization of drug candidates under such collaboration is likely to be adversely affected. For example, we are dependent on ImmuNext to conduct certain non-clinical research activities to support our expected Phase 1 clinical trial of CI-8993.
•Our collaborators may develop and commercialize, either alone or with others, drugs that are similar to or competitive with the drug candidates that are the subject of our respective collaborations. For example, Genentech and Roche are involved in the commercialization of many cancer medicines and are seeking to develop several other cancer drug therapies, and Aurigene has other active cancer-focused discovery programs and has also entered into license agreements with other companies that focus on cancer therapies.
•Our collaborators may change the focus of their development and commercialization efforts or pursue higher-priority programs.programs and there can be no assurance that third parties engaged to develop or commercialize our product candidates or products will succeed in developing or commercializing our products or devote sufficient resources to the development or commercialization of our product candidates or products. In addition, potential competitors may have substantially greater financial and other resources and may be able to expend more funds and effort with respect to competing products than Genentech or other third-parties engaged by us.
•Our collaborators may enter into one or more transactions with third-parties, including a merger, consolidation, reorganization, sale of substantial assets, sale of substantial stock or change of control. Any such transaction could divert the attention of our collaborative partner’s management and adversely affect its ability to retain and motivate key personnel who are important to the continued development of the programs under such collaboration. In addition, an acquirer could determine to reprioritize our collaborator’s development programs such that our collaborator ceases to diligently pursue the development of our programs, and/or terminates our collaboration.
•Our collaborators may, under specified circumstances, terminate their collaborations with us on short notice and for circumstances outside of our control, which could make it difficult for us to attract new collaborators or adversely affect how we are perceived in the scientific, biotech, pharma and financial communities.
•Our collaborators may utilize our intellectual property rights in such a way as to invite litigation that could jeopardize or invalidate our intellectual property rights, or expose us to potential liability.
•Disputes may arise between collaborators and us regarding ownership of or other rights in the intellectual property generated in the course of the collaborations.
•If any of our collaborators were to breach or terminate its arrangement with us, the development and commercialization of the affected drug candidate or program could be delayed, curtailed or terminated.
We may not be successful in establishing additional strategic collaborations, which could adversely affect our ability to develop and commercialize any drug candidates.candidates which we have strategically determined to pursue with a collaborator.
We intend tomay seek corporate collaborators or licensees for the further development and commercialization of one or more of our drug candidates in one or more geographic territories, particularly in territories outside of the U.S. We do not currently have the resources or capacity to advance these programs into later stage clinical development (i.e., Phase 3) or commercialization on our own, but we are seeking to build such a capacity to enable us to retain development and certain commercial rights to most of our programs in at least the U.S., should we elect to do so. Our success will depend, in part, on either our ability to build such capacity, or our ability to enter into one or more collaborations for our drug candidates. We face significant competition in seeking appropriate collaborators and a number of recent business combinations in the biotechnology and pharmaceutical industry may result in a reduced number of potential future collaborators. In addition, collaborations are complex and time-consuming to negotiate and document. We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. Moreover, we may not be successful in our efforts to establish a collaboration or other alternative arrangements because our research and development pipeline may be insufficient, our programs may be deemed to be at too early of a stage of development for collaborative effort and/or third-parties may not view our drug candidates and programs as having the requisite potential to demonstrate safety and efficacy or as sufficiently differentiated compared to existing or emerging treatments. We are also restricted under the terms of certain of our existing collaboration agreements from entering into collaborations regarding or otherwise developing drug candidates that are similar to the drug candidates that are subject to those agreements, such as developing drug candidates that inhibit the same molecular target. In addition, collaboration agreements that we enter into in the future may contain further restrictions on our ability to enter into potential collaborations or to otherwise develop specified drug candidates. Even if we are successful in our
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efforts to establish new collaborations, the terms that we agree upon may not be favorable to us and such collaboration agreements may not lead to development or commercialization of drug candidates in the most efficient manner, or at all.
Moreover, if we fail to establish and maintain additional collaborations related to our drug candidates:candidates for which we have determined to pursue a collaborator:
•the development of certain of our current or futuresuch drug candidates may be terminated or delayed;
•our cash expenditures related to development of certain of our current or futuresuch drug candidates would increase significantly and we may need to seek additional financing;
•we may be required to hire additional employees or otherwise develop additional expertise, such as clinical, regulatory, sales and marketing expertise, for which we have not budgeted;
•we will have to bear all of the risk related to the development of any such drug candidates; and
•our future prospects may be adversely affected and our stock price could decline.
We rely in part on third-partiesthird parties to conduct clinical trials of our internally-developed and in-licensed drug candidates, and if such third-parties perform inadequately, including failing to meet deadlines for the completion of such trials, research or testing, then we willmay not be able to successfully develop and commercialize drug candidates and grow our business.
We rely heavily on third-parties such as consultants, clinical investigators, contract research organizations and other similar entities to complete certain aspects of our preclinical testing and clinical trials and provide services in connection with such clinical trials, and expect to continue to do so for the foreseeable future. Despite having contractual 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. Furthermore, these third-partiesthird parties may also have relationships with other entities, some of which may be our competitors. These third-partiesthird parties may not complete activities on schedule, or at all, or may
not conduct our clinical trials in accordance with the established clinical trial protocol or design. In addition, the FDA and its foreign equivalents require us to comply with certain standards, referred to as “good clinical practices,” and applicable regulatory requirements, for conducting, recording and reporting the results of clinical trials. These requirements assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Our reliance on third-parties does not relieve us of these responsibilities and requirements. If any of our third-party contractors do not comply with good clinical practices or other applicable regulatory requirements, we may not be able to use the data and reported results from the applicable trial. Any failure by a third-party to conduct our clinical trials as planned or in accordance with regulatory requirements could delay or otherwise adversely affect our efforts to obtain regulatory approvals for and commercialize our drug candidates.
We depend on third-partiesthird parties to produce our drug candidates, and if these third-partiesthird parties do not successfully formulate or manufacture these drug candidates, our business willcould be harmed.
To the extent that we or any collaborators seek to enter into manufacturing arrangements with third-parties,third parties, we and such collaborators will depend upon these third-partiesthird parties to perform their obligations in a timely and effective manner and in accordance with government regulations. We may be unable to establish any agreements with contract manufacturers or to
do so on acceptable terms. Contract manufacturers may breach their manufacturing agreements because of factors beyond our and our collaborators’ control, or may terminate or fail to renew a manufacturing agreement based on their own business priorities, becoming costly and/or inconvenient for us and our collaborators. Even if we are able to establish agreements with
contract manufacturers, reliance on contract manufacturers entails additional risks, including:
•manufacturing delays if our third-party contractors give greater priority to the supply of other products over our product candidates or otherwise do not satisfactorily perform according to the terms of the agreements between us and them, or if unforeseen events in the manufacturing process arise;
•the failure of third-party contractors to comply with applicable regulatory requirements;
•the possible mislabeling of clinical supplies, potentially resulting in the wrong dose amounts being supplied or active drug or placebo not being properly identified;
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•the possibility of clinical supplies not being delivered to clinical sites on time, leading to clinical trial interruptions, or of drug supplies not being distributed to commercial vendors in a timely manner, resulting in lost sales; and
•the possible misappropriation of our proprietary information, including our trade secrets and know-how.
Any manufacturing problem, the loss of a contract manufacturer or any loss of storage could be disruptive to our operations, delay our clinical trials and, if our products are approved for sale, result in lost sales.
Any contract manufacturers with whom we or our collaborators enter into manufacturing arrangements will be subject to ongoing periodic, unannounced inspection by the FDA and state and foreign agencies or their designees to ensure strict compliance with current good manufacturing practices and other governmental regulations and corresponding foreign standards. Any failure by contract manufacturers, collaborators, or us to comply with applicable regulations could result in sanctions being imposed, including fines, injunctions, civil penalties, denial by regulatory authorities of marketing approval for drug candidates, delays, suspension or withdrawal of approvals, imposition of clinical holds, seizures or recalls of drug candidates, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business. If we or a collaborator need to change manufacturers, the FDA and corresponding foreign regulatory agencies must approve any new manufacturers in advance. This would involve testing and pre-approval inspections to ensure compliance with FDA and foreign regulations and standards.
If third-partythird party manufacturers fail to perform their obligations, our competitive position and ability to generate revenue may be adversely affected in a number of ways, including;including:
•we, and any collaborators, may not be able to initiate or continue certain preclinical and/or clinical trials of our drug candidates under development;
•we, and any collaborators, may be delayed in submitting applications for regulatory approvals for our drug candidates; and
•we, and any collaborators, may not be able to meet commercial demand for any approved drug products.
Because we rely on a limited number of suppliers for the raw materials used in our drug candidates, any delay, shortage or interruption in the supply of such raw materials or contamination in our manufacturing process could lead to delays in the manufacture and supply of our drug candidates.
We rely on third-parties to supply certain raw materials necessary to produce our drug candidates for preclinical studies and clinical trials. There are a small number of suppliers for certain raw materials that we use to manufacture our drug candidates. We purchase these materials from our suppliers on a purchase order basis and do not have long-term supply agreements in place. Any reliance on suppliers may involve severalplace, which exposes us to a variety of risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules, reliability and quality. Any unanticipated disruption to our contract manufacturing caused by problems at suppliers could delay shipment of our product candidates, increase our cost of goods sold and result in lost sales with respect to any approved products. Although we generally do not begin a preclinical studySuppliers may extend lead times, limit supplies, or clinical trial unless we believe we have a sufficient supply of a drug candidateincrease prices due to complete such studycapacity constraints or trial, anyother factors beyond our control. Any significant delay in the supply of raw materials for our drug candidates for a preclinical study or an ongoing clinical trial due to the need to replace a third-party supplier could considerably delay completion of certain preclinical studies and/or clinical trials. Moreover, if we are unable to purchase sufficient raw materials after regulatory approval for our drug candidates, the commercial launch of our drug candidates could be delayed, or there could be a supply shortage, each of which would impair our ability to generate revenues from their sale.
RISKS RELATING TO EMPLOYEE MATTERS AND MANAGING GROWTH
If we are not able to attract and retain key management and scientific personnel and advisors, we may not successfully develop our drug candidates or achieve our other business objectives.
We depend upon our senior management team. The loss of the service of any of the key members of our senior management may significantly delay or prevent the achievement of drug development and other business objectives. Our officers all serve pursuant to “at will” employment arrangements and can terminate their employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees. In the future, we may be dependent on other members of our management, scientific and development team.
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Our ability to compete in the biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. Our industry has experienced a high rate of turnover of management personnel in recent years. If we lose one or more of our executive officers or other key employees, our ability to successfully implement our business strategy could be seriously harmed. Furthermore, replacing executive officers or other key employees may be difficult and 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 develop, market and commercialize drugs successfully. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these additional key employees on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies, universities and research institutions for similarly qualified personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions.
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 other entities and may have commitments under consulting or advisory contracts with those entities that may limit their availability to us. If we are unable to continue to attract and retain highly qualified personnel, our ability to develop and commercialize our drug candidates will be limited.
We may seek to acquire complementary businesses and technologies or otherwise seek to expand our operations and grow our business, which may divert management resources and adversely affect our financial condition and operating results.
We may seek to expand our operations, including through internal growth and/or the acquisition of businesses and technologies that we believe are a strategic complement to our business model. We may not be able to identify suitable acquisition candidates or expansion strategies and successfully complete such acquisitions or successfully execute any such other expansion strategies. We may never realize the anticipated benefits of any efforts to expand our business. Furthermore, the expansion of our business, either through internal growth or through acquisitions, poses significant risks to our existing operations, financial condition and operating results, including:
•a diversion of management attention from our existing operations;
•increased operating complexity of our business, requiring greater personnel and resources;
•significant additional cash expenditures to expand our operations and acquire and integrate new businesses and technologies;
•unanticipated expenses and potential delays related to integration of the operations, technology and other resources of any acquired companies;
•uncertainty related to the value, benefits or legitimacy of intellectual property or technologies acquired;
•retaining and assimilating key personnel and the potential impairment of relationships with our employees;
•incurrence of debt, other liabilities and contingent liabilities, including potentially unknown contingent liabilities; and
•dilutive stock issuances.
RISKS RELATING TO OUR INTELLECTUAL PROPERTY
We may not be able to obtain and maintain patent protection for our technologies and drugs, our licensors may not be able to obtain and maintain patent protection for the technology or drugs that we license from them, and the patent protection we or they do obtain may not be sufficient to stop our competitors from using similar technology.
The long-term success of our business depends in significant part on our ability to:
•obtain patents to protect our technologies and discoveries;
•protect trade secrets from disclosure to competitors;
•operate without infringing upon the proprietary rights of others; and
•prevent others from infringing on our proprietary rights.
The patent positions of pharmaceutical and life science companies, including ours, are generally uncertain and involve complex legal, scientific and factual questions. The laws, procedures and standards that the U.S. Patent and Trademark Office and various foreign intellectual property offices use to grant and maintain patents, and the standards that courts use to interpret patents, are not always applied predictably or uniformly and have changed in significant ways and are expected to continue to change. In addition, the laws of foreign countries may not protect our rights to the same extent or in the same manner as the
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laws of the U.S. For example, European patent law restricts the patentability of methods of treatment of the human body more than U.S. law does. Consequently, the level of protection, if any, that will be obtained and provided by our patents if we attempt to enforce them, and they are challenged, is uncertain.
Patents may not issue from any of the patent applications that we own or license. If patents do issue, the type and extent of patent claims issued to us may not be sufficient to protect our technology from exploitation by our competitors. Our patents also may not afford us protection against competitors with similar technology. Assuming the other requirements for patentability are met, currently, the first to file a patent application is generally entitled to the patent. Prior to March 16, 2013, in the U.S., patent applications were subject to a “first to invent” rule of law. Applications filed on or after March 16, 2013 (with the exception of certain applications claiming priority to applications filed prior to March 16, 2013, such as continuations and divisionals) are subject to new laws including a “first to file” rule of law. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the U.S. and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Additionally, how the U.S. Patent & Trademark Office and U.S. courts will interpret the new laws remains significantly uncertain at this time. We cannot be certain that any existing or future application will be subject to the “first to file” or “first to invent” rule of law, that we were the first to make the
inventions claimed in our existing patents or pending patent applications subject to the prior laws, or that we were the first to file for patent protection of such inventions subject to the new laws.
We may not have rights under patents that may cover one or more of our drug candidates. Patents of others may overlap with our own patents regarding one or more of our drug candidates. In some cases, these patents may be owned or controlled by third-party competitors and may prevent or impair our ability to exploit our technology. As a result, we or our current or potential future collaborative partners may be required to obtain licenses under third-party patents to develop and commercialize some of our drug candidates. If we are unable to secure licenses to such patented technology on acceptable terms, we or our collaborative partners may not be able to develop and commercialize the affected drug candidate or candidates.
It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, in some circumstances, we do not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology or drugs that we license from third-parties and are reliant on our licensors. For example, while under our collaboration with AurigeneImmuNext we have established a joint patent teamthe right to coordinate effortsreview and comment on patent filing, prosecution, maintenance and other patent matters, we do not control the patent process until we have exercised our option to obtain an exclusive license on a program-by-program basis.license. If we do not control the filing, prosecution of certain patent rights, we cannot be certain that these patents and applications will be prosecuted and enforced in a manner consistent with the best interests of our business.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in courts or patent offices in the U.S. and abroad. Such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical technology and drugs, or limit the duration of the patent protection of our technology and drugs. Given the amount of time required for the development, testing, and regulatory review of new drug candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing drugs similar or identical to ours.
We may become involved in expensive and unpredictable patent litigation or other contentious intellectual property proceedings, which could result in liability for damages or require us to cease our development and commercialization efforts.
There are substantial threats of litigation and other adversarial opposition proceedings regarding patent and other intellectual property rights in the pharmaceutical and life science industries. We may become a party to patent litigation or other proceedings regarding intellectual property rights.
Situations that may give rise to patent litigation or other disputes over the use of our intellectual property include:
•initiation of litigation or other proceedings against third-parties to enforce our patent rights, to seek to invalidate the patents held by third-parties or to obtain a judgment that our drug candidates do not infringe such third-parties’ patents;
•participation in interference and/or derivation proceedings to determine the priority of invention if our competitors file U.S. patent applications that claim technology also claimed by us;
•initiation of opposition, reexamination, post grant review or inter partes review proceedings by third-parties that seek to limit or eliminate the scope of our patent protection;
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•initiation of litigation by third-parties claiming that our processes or drug candidates or the intended use of our drug candidates infringes their patent or other intellectual property rights; and
•initiation of litigation by us or third-parties seeking to enforce contract rights relating to intellectual property that may be important to our business.
Any patent litigation or other proceeding, even if resolved favorably, will likely require us to incur substantial costs and be a distraction to management. Some of our competitors may be able to sustain the cost of such litigation or other proceedings more effectively than we can because of their substantially greater financial resources. In addition, our collaborators and licensors may have rights to file and prosecute claims of infringement of certain of our intellectual property, and we are reliant on them. If a patent litigation or other intellectual property proceeding is resolved unfavorably, we or any collaborative partners may be enjoined from manufacturing or selling our future drugs without a license from the other party and be held liable for significant damages. Moreover, we may not be able to obtain required licenses on commercially acceptable terms or any terms at all. In addition, we could be held liable for lost profits if we are found to have infringed a valid patent, or liable for treble
damages if we are found to have willfully infringed a valid patent. Litigation results are highly unpredictable, and we or any collaborative partner may not prevail in any patent litigation or other proceeding in which we may become involved. Any changes in, or unexpected interpretations of, the patent laws may adversely affect our ability to enforce our patent position. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could damage our ability to compete in the marketplace.
We face risks relating to the enforcement of our intellectual property rights in China and India that could adversely affect our business.
We have conducted chemical development work through contract research agreements with contract research organizations, or CROs, in China and India. We seek to protect our intellectual property rights under this arrangement through, among other things, non-disclosure and assignment of invention covenants. Enforcement of intellectual property rights and confidentiality protections in China may not be as effective as in the U.S. or other countries. Policing unauthorized use of proprietary technology is difficult and expensive, and we might need to resort to litigation to enforce or defend patents issued to us or to determine the enforceability, scope and validity of our proprietary rights or those of others. The experience and capabilities of Chinese courts in handling intellectual property litigation vary, and outcomes are unpredictable. Further, such litigation may require significant expenditure of cash and management efforts and could harm our business, financial condition and results of operations. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, prospects and reputation.
In addition, we collaborate with Aurigene, an Indian company, in the development of new therapeutic compounds. Some or all of the intellectual property arising from this collaboration may be developed by Aurigene’s employees, consultants, and third-party contractors, and we have anexercised our option right under the collaboration agreement to obtain exclusive licenses to Aurigene’s rights in this intellectual property. Accordingly, our rights depend in part on Aurigene’s contracts with its employees and contractors and Aurigene’s ability to protect its trade secrets and other confidential information in India, both before and after we exercise our option to obtain exclusive license rights on a program-by-program basis. Enforcement of intellectual property rights and confidentiality protections in India may not be as effective as in the U.S. or other countries. Policing unauthorized use of proprietary technology is difficult and expensive, and we or Aurigene might need to resort to litigation to protect our trade secrets and confidential information. The experience and capabilities of Indian courts in handling intellectual property litigation vary, and outcomes are unpredictable. Further, such litigation may require significant expenditure of cash and management efforts and could harm our business, financial condition and results of operations. An adverse determination in any such litigation would impair our intellectual property rights and may harm our business, prospects and reputation.
If we are unable to keep our trade secrets confidential, our technology and proprietary information may be used by competitors.
We rely heavily on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect this information through confidentiality and intellectual property license or assignment provisions in agreements with our employees, consultants and other third-party contractors, including our contract research agreements with CROs in China and India, as well as through other security measures. Similarly, our agreements with Genentech, Aurigene and ImmuNext require each collaborator to enter into such agreements with its employees, consultants, and other third-party contractors. The confidentiality and intellectual property provisions of our agreements and security measures may be breached, and we or they may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently developed by competitors.
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We have agreements under which we license rights to technology from third-parties, and we could lose license rights to intellectual property that are important to our business under certain circumstances.
We are party to agreements that provide us licenses of intellectual property or sharing of rights to intellectual property that is important to our business, and we may enter into additional agreements in the future that provide us licenses to valuable technology. These licenses, including our agreements with Aurigene and ImmuNext, impose, and future licenses may impose, various commercialization, milestone and other obligations on us, including the obligation to terminate our use of licensed subject matter under certain contingencies. If a licensor becomes entitled to, and exercises, termination rights under a license, we would lose valuable rights and could lose our ability to develop our drugs. We may need to license other intellectual property to commercialize future drugs. Our business may suffer if any current or future licenses terminate, if the licensors fail to abide by the terms of the license or fail to prevent infringement by third-parties, if the licensed patents or other rights are found to be invalid, or if we are unable to enter into necessary licenses on acceptable terms. In addition, during the option period under our agreement with ImmuNext, we are obligated to assign to ImmuNext all rights to inventions made by Curis alone or jointly with ImmuNext in conducting clinical and non-clinical activities under the agreement during such period and any related patent rights. In the event we exercise our option under the agreement, such rights would be assigned to Curis, in the case of inventions made by Curis alone, or joint ownership to Curis and ImmuNext, in the case of inventions made jointly
by Curis and ImmuNext, upon the option exercise date. In the event we do not exercise our option under the agreement with ImmuNext, we will lose all rights to any inventions made by Curis alone or jointly with ImmuNext in conducting clinical and non-clinical activities under the agreement upon expiration of the option period.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
As is common in the biotechnology and pharmaceutical industry, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our current and potential competitors. Although no claims against us are currently pending, we may be subject to claims that such employees, or as a result, we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
RISKS RELATING TO REGULATORY APPROVAL AND MARKETING OF OUR DRUGPRODUCT CANDIDATES AND OTHER LEGAL COMPLIANCE MATTERS
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 or any future collaborators from obtaining approvals for the commercialization of some or all of our drugproduct candidates. As a result, we cannot predict when or if, and in which territories, we, or any future collaborators, will obtain marketing approval to commercialize a drugproduct candidate.
The research, testing, manufacturing, labeling, approval, selling, marketing, promotion and distribution of drugsproducts are subject to extensive regulation by the FDA and comparable foreign regulatory authorities. We, and any future collaborators, are not permitted to market our drugproduct candidates in the U.S. or in other countries until we, or they, receive approval of an NDA or BLA from the FDA or marketing approval from applicable regulatory authorities outside the U.S. Our drugproduct candidates are in various stages of development and are subject to the risks of failure inherent in drug development. We have not submitted an application for or received marketing approval for any of our drugproduct candidates in the U.S.United States or in any other jurisdiction. We have limited experience in conducting and managing the clinical trials necessary to obtain marketing approvals, including FDA approval of an NDA.NDA or a BLA.
The process of obtaining marketing approvals, both in the U.S.United States and abroad, is lengthy, expensive and uncertain. It may take many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the drugproduct candidates involved. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information, including manufacturing information, to regulatory authorities for each therapeutic indication to establish the drugproduct candidate’s safety and efficacy. Securing marketing approval also requires the submission of information about the drug manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. The FDA or other regulatory authorities may determine that our drugproduct candidates are not safe and effective, only moderately effective or have undesirable or unintended side effects, toxicities or other characteristics that preclude our obtaining marketing approval or prevent or limit commercial use. Moreover, the FDA or other regulatory authorities may fail to approve the companion diagnostics we contemplate developing with partners. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post approval commitments that render the approved drug not commercially viable.
In addition, changes in marketing approval policies during the development period, changes in or the enactment or promulgation of additional statutes, regulations or guidance or changes in regulatory review for each submitted drugproduct application, may cause delays in the approval or rejection of an application. Regulatory authorities 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 drugproduct candidate. Any marketing approval we, or any future collaborators, ultimately obtain
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may be limited or subject to restrictions or post approval commitments that render the approved drugproduct not commercially viable.
Any delay in obtaining or failure to obtain required approvals could negatively affect our ability or that of any future collaboratorcollaborators to generate revenue from the particular drugproduct candidate, which likely would result in significant harm to our financial position and adversely impact our stock price.
Failure to obtain marketing approval in foreign jurisdictions would prevent our drugproduct candidates from being marketed abroad. Any approval we aremay be granted for our drugproduct candidates in the U.S. would not assure approval of our drug candidates in foreign jurisdictions.jurisdictions and any of our product candidates that may be approved for marketing in a foreign jurisdiction will be subject to risk associated with foreign operations.
In order to market and sell our drugsproducts in the European Union and other foreign jurisdictions, we, and any future collaborators, must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The marketing approval process outside the U.S.United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the U.S.,United States, a drugproduct must be approved for reimbursement before the drugproduct can be approved for sale in that country. We, and any future collaborators, may not obtain approvals from regulatory authorities outside the U.S.United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the U.S. does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We may file for marketing approvals but not receive the necessary approvals to commercialize our drugsproducts in any market.
In addition, following the result of a referendum in 2016, the electorate in the United Kingdom voted in favor of leavingleft the European Union,EU on January 31, 2020, commonly referred to as Brexit. Following protracted negotiations,After lapse of a transition period, the United Kingdom leftis no longer part of the European Single Market and European Union onCustoms Union as of January 31, 2020. Under1, 2021. A trade and cooperation agreement that outlines the withdrawal agreement, there is a transitional period until December 31, 2020 (extendable up to two years). Discussionsfuture trading relationship between the United Kingdom and the European Union have so far mainly focusedEU was agreed to in December 2020 and entered into force on finalizing withdrawal issuesMay 1, 2021. As of January 1, 2021, the Medicines and transition agreements, but have been extremely difficult. To date, only an outlineHealthcare products Regulatory Agency, or the MHRA, became responsible for supervising medicines and medical devices in Great Britain, comprising England, Scotland and Wales under domestic law, whereas Northern Ireland will continue to be subject to EU rules under the Northern Ireland Protocol. The MHRA will rely on the Human Medicines Regulations 2012 (SI 2012/1916) (as amended), or the HMR, as the basis for regulating medicines. The HMR has incorporated into the domestic law of a trade agreement has been reached. Much remains open but the Prime Minister has indicatedbody of EU law instruments governing medicinal products that pre-existed prior to the United Kingdom will not seek to extendKingdom’s withdrawal from the transitional period beyond the end of 2020. If no trade agreement has been reached before the end of the transitional period, there may be significant market and economic disruption. The Prime Minister has also indicated that the UK will not accept high regulatory alignment with the EU.
Since a significant proportion of the regulatory framework for pharmaceutical products in the United Kingdom covering the quality, safety, and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales, and distribution of pharmaceutical products is derived from European UnionEU directives and regulations, the referendum could materiallyBrexit may have a material impact upon the regulatory regime with respect to the development, manufacture, importation, approval and commercialization of our product candidates in the United Kingdom. For example, the United Kingdom oris no longer covered by the centralized procedures for obtaining EU-wide marketing authorization from the EMA, and a separate marketing authorization will be required to market our product candidates in the United Kingdom. Until December 31, 2023, it is possible for the MHRA to rely on a decision taken by the European Union.Commission on the approval of a new marketing authorization via the centralized procedure. However, it is unclear whether the MHRA in the United Kingdom is sufficiently prepared to handle the increased volume of marketing authorization applications that it is likely to receive after such time. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would preventmay force us from commercializing our product candidates in the United Kingdom and/or the European Union and restrict our ability to generate revenue and achieve and sustain profitability. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom and/or European Union for our product candidates, which could significantly and materially harm our business.
We expect that we will be subject to additional risks in commercializing any of our product candidates that receive marketing approval outside the United States, including tariffs, trade barriers and regulatory requirements; economic weakness, including inflation, or political instability in particular foreign economies and markets; compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; foreign currency fluctuations, which could result in
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increased operating expenses and reduced revenue, and other obligations incident to doing business in another country; and workforce uncertainty in countries where labor unrest is more common than in the United States.
We, or any future collaborators, may not be able to obtain orphan drug designation or orphan drug exclusivity for our drugproduct candidates and, even if we do, that exclusivity may not prevent the FDA or the EMA from approving competing drugs.products.
Regulatory authorities in some jurisdictions, including the U.S.United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, of 1983, the FDA may designate a drug as an orphan drug if it is a drugproduct intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the U.S. We, or any future collaborators, may seek orphan drug designations for drug candidates and may be unable to obtain such designations.United States.
We or any future collaborators may seek orphan drug designations for our product candidates and may be unable to obtain such designations. Even if we do secure such designations and orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different products can be approved for the same condition. Further, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the later product is clinically superior in that it is shown to be safer, to be more effective or to make a major contribution to patient care. Finally, orphan drug exclusivity may be lost if the FDA or the EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drugproduct to meet the needs of patients with the rare disease or condition.
Any product candidate for which we or any futureour collaborators obtain marketing approval will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements relating to quality control and manufacturing, quality assurance and corresponding maintenance of records and documents, and requirements regarding the distribution of samples to physicians and recordkeeping. In addition, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the medicine, including the requirement to implement a risk evaluation and mitigation strategy. Accordingly, if we receive marketing approval for one or more of our product candidates, we will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control. If we fail to comply with these requirements, we could have the marketing approvals for our drug candidates, the terms of approvalsproducts withdrawn by regulatory authorities and ongoing regulation of our drugs may limit how we manufacture and market our drugs, which could impair our ability to generate revenue.market any products could be limited, which could adversely affect our ability to achieve or sustain profitability.
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approved. The FDA and other agencies, including the Department of Justice, or the DOJ, closely regulate and monitor the post-approval marketing and promotion of products to ensure that they are marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. In addition, manufacturersSeptember 2021, the FDA published final regulations which describe the types of evidence that the agency will consider in determining the intended use of a drug or biologic. Moreover, with passage of the PIE Act in December 2022, sponsors of products that have not been approved drugsmay proactively communicate to payors certain information about products in development to help expedite patient access upon product approval. Violations of the Federal Food, Drug, and those manufacturers’ facilities are requiredCosmetic Act and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription products may lead to investigations and enforcement actions alleging violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws.
Failure to comply with extensive FDAregulatory requirements, may yield various results, including:
•restrictions on such products, manufacturers or manufacturing processes;
•restrictions on the labeling or marketing of a product;
•restrictions on distribution or use of a product;
•requirements to conduct post-marketing studies or clinical trials;
•warning letters or untitled letters;
•withdrawal of the products from the market;
•refusal to approve pending applications or supplements to approved applications that we submit;
•recall of products;
•damage to relationships with collaborators;
•unfavorable press coverage and damage to our reputation;
•fines, restitution or disgorgement of profits or revenues;
•suspension or withdrawal of marketing approvals;
•refusal to permit the import or export of our products;
•product seizure;
•injunctions or the imposition of civil or criminal penalties; and
•litigation involving patients using our products.
Non-compliance with EU requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result in significant financial penalties. Similarly, failure to comply with the EU’s requirements regarding the protection of personal information can also lead to significant penalties and sanctions. Further, the marketing and promotion of authorized drugs, including ensuring that quality controlindustry-sponsored continuing medical education and manufacturing procedures conform to cGMPs, which include requirements relating to quality controladvertising directed toward the prescribers of drugs and/or the general public, are strictly regulated in the EU notably under Directive 2001/83EC, as amended, and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. We, our contract manufacturers, any future collaborators and their contract manufacturers could beare also subject to periodic unannounced inspections byEU Member State laws. Direct-to-consumer advertising of prescription medicines is prohibited across the FDA to monitor and ensure compliance with cGMPs.EU.
Accordingly, assuming we, or any futureour collaborators, receive marketing approval for one or more of our drugproduct candidates, we, and any futureour collaborators, and our and their contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, drugproduct surveillance and quality control.
If we, and any futureour collaborators, are not able to comply with post approvalpost-approval regulatory requirements, we, and any future collaborators, could have the marketing approvals for our drugs withdrawn by regulatory authorities and our or any futureour collaborators’, ability to market any future drugsproducts could be limited, which could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance with post approvalpost-approval regulations may have a negative effect on our operating results and financial condition.
We may seek acertain designations for our product candidates, including Breakthrough Therapy designation for one or more of our drug candidates,and Fast Track designations, in the U.S., and PRIME Designation in the EU, but we might not receive such designation,designations, and even if we do, such designationdesignations may not lead to a faster development or regulatory review or approval process.
We may seek a Breakthrough Therapy designationcertain designations for one or more of our drug candidates.product candidates that could expedite review and approval by the FDA. A Breakthrough Therapy product is defined as a drugproduct that is intended, alone or in combination with one or more other drugs,products, to treat a serious condition, and preliminary clinical evidence indicates that the drugproduct may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugproduct candidates that have been designated as Breakthrough Therapies,
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interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. DrugsProducts designated as Breakthrough Therapies by the FDA may also be eligible for priority review if supported by clinical data at the time the NDA is submitted to the FDA.
The FDA may also designate a product for Fast Track review if it is intended, whether alone or in combination with one or more other products, for the treatment of a serious or life‑threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For Fast Track products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a Fast Track product’s application before the application is complete. This rolling review may be available if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a Fast Track product may be effective. The sponsor must also provide, and the FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees.
Designation as a Breakthrough Therapy or Fast Track is within the discretion of the FDA. Accordingly, even if we believe that one of our drugproduct candidates meets the criteria for designation as a Breakthrough Therapy,these designations, the FDA may disagree and instead determine not to make such designation. EvenFurther, even if we receive Breakthrough Therapy or Fast Track designation, the receipt of such designation for a drugproduct candidate may not result in a faster development or regulatory review or approval process compared to drugsproducts considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our drugproduct candidates qualify as Breakthrough Therapies,qualifies for one of these designations, the FDA may later decide that the drugproduct candidates no longer meet the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.
In the EU, we may seek PRIME designation for one or moresome of our drugproduct candidates such as fimepinostat, may not actually leadin the future. PRIME is a voluntary program aimed at enhancing the EMA’s role to a fasterreinforce scientific and regulatory support in order to optimize development or regulatory review or approval process.
If we are required by the FDA to obtain clearance or approval of a companion diagnostic in connection with approval of a candidate therapeutic product, and we do not obtain or there are delays in obtaining FDA clearance or approval of a diagnostic device, we will not be able to commercialize the product candidate and our ability to generate revenue will be materially impaired.
In August 2014, the FDA issued final guidance clarifying the requirements that will apply to approval of therapeutic products and in vitro companion diagnostics. According to the guidance, if the FDA determines that a companion diagnostic device is essential to the safe and effective use of a novel therapeutic product or indication, the FDA generally will not approve the therapeutic product or new therapeutic product indication if the companion diagnostic is not also approved or cleared for that indication. Under the Federal Food, Drug, and Cosmetic Act, or FDCA, companion diagnostics are regulated as medical devices and the FDA has generally required companion diagnostics intended to select the patients who will respond to cancer treatment to obtain premarket approval, or a PMA. Consequently, we anticipate that certain of our companion diagnostics may require us or our collaborators to obtain a PMA.
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The PMA process, including the gathering of clinical and preclinical data and the submission to and review by the FDA, involves a rigorous premarket review during which the applicant must prepare and provide the FDA with reasonable assurance of the device's safety and effectiveness and information about the device and its components regarding, among other things, device design, manufacturing and labeling. PMA approval is not guaranteed and may take considerable time, and the FDA may ultimately respond to a PMA submission with a not approvable determination based on deficiencies in the application and require additional clinical trial or other data that may be expensive and time-consuming to generate and that can substantially delay approval. As a result, if we or our collaborators are required by the FDA to obtain approval of a companion diagnostic for a candidate therapeutic product, and we or our collaborators do not obtain or there are delays in obtaining FDA approval of a diagnostic device, we will not be able to commercialize the product candidate and our ability to generate revenue will be materially impaired.
In its August 2014 guidance, the FDA also indicated that companion diagnostics used to make treatment decisions in clinical trials of a therapeutic product generally will be considered investigational devices. When a companion diagnostic is used to make critical treatment decisions, such as patient selection, the FDA stated that the diagnostic will be considered a significant risk device requiring an investigational device exemption. The FDA may find that a companion diagnostic that we, will receive marketing approvalalone or that approvalwith a third party, plan to develop does not comply with those requirements and, if this were to occur, we would not be able to proceed with our planned trial of the applicable product candidate in these patient populations.
Given our limited experience in developing and commercializing diagnostics, we do not plan to develop companion diagnostics internally and thus will be granted within any particular timeframedependent on the sustained cooperation and effort of third-party collaborators in developing and obtaining approval for fimepinostat or any other product candidate that may receive Fast Track designation.these companion diagnostics. We may not experiencebe able to enter into arrangements with a fasterprovider to develop a companion diagnostic for use in connection with a registrational trial for our product candidates or for commercialization of our product candidates, or do so on commercially reasonable terms, which could adversely affect and/or delay the development or regulatory review orcommercialization of our product candidates. We and our future collaborators may encounter difficulties in developing and obtaining approval process with Fast Track designation compared to conventional FDA procedures. The FDA may withdraw Fast Track designation for fimepinostat or any other product candidate that may receive Fast Track designation if it believes that the designation is no longer supported by data from our clinical development program. Fast Track designation alone for fimepinostat or any other product candidate does not guarantee qualification for the FDA’s priority review procedures.
We believe that adoption of screening and treatment into clinical practice guidelines is important for payer access, reimbursement, utilization in medical practice and commercial success, but both our collaborators and we may have difficulty gaining acceptance of the companion diagnostic into clinical practice guidelines. If such companion diagnostics fail to gain market acceptance, it would impacthave an adverse effect on our ability to generate revenue.
derive revenues from sales, if any, of any of our product candidates that are approved for commercial sale. In December 2016,addition, any companion diagnostic collaborator or third party with whom we contract may decide not to commercialize or to discontinue selling or manufacturing the 21st Century Cures Act,companion diagnostic that we anticipate using in connection with development and commercialization of our product candidates, or Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of drugs and spur innovation, but its ultimate implementation is unclear. If we are slowour relationship with such collaborator or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we arethird party may otherwise terminate. We may not be able to maintain regulatory compliance, we may lose any marketing approval that we may have obtainedenter into arrangements with another provider to obtain supplies of an alternative diagnostic test for use in connection with the development and we may not achievecommercialization of our product candidates or sustain profitability,do so on commercially reasonable terms, which wouldcould adversely affect our business, prospects, financial condition and results of operations.
product candidates.
Inadequate funding for the FDA, the SEC and other government agencies, including from government shutdowns, or other disruptions to these agencies’ operations, 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 business 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 can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. Disruptions at the FDA and other agencies may also slow the time necessary for new product candidates to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. 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.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugsproduct candidates to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years including the 35-day period between December 22, 2018 and January 25, 2019, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC,
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have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, again, 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. 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.
Separately, in response to the COVID-19 pandemic in 2020 and 2021, a number of companies announced receipt of complete response letters due to the FDA’s inability to complete required inspections for their applications.
As of May 26, 2021, the FDA noted it was continuing to ensure timely reviews of applications for medical products during the pandemic in line with its user fee performance goals and conducting mission critical domestic and foreign inspections to ensure compliance of manufacturing facilities with FDA quality standards. However, the FDA may not be able to continue its current pace and review timelines could be extended, thus the FDA may be unable to complete such required inspections during the review period. Regulatory authorities outside the U.S. may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic and may experience delays in their regulatory activities. On January 30, 2023, the Biden administration announced that it will end the public health emergency declarations related to COVID-19 on May 11, 2023. On January 31, 2023, the FDA indicated that it would soon issue a Federal Register notice describing how the termination of the public health emergency will impact the FDA’s COVID-19 related guidance, including the clinical trial guidance and updates thereto. At this point, it is unclear how, if at all, these developments will impact our efforts to develop and commercialize our product candidates.
If a prolonged government shutdown or other disruption 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. Future shutdowns or other disruptions could also affect other government agencies such as the SEC, which may also impact our business by delaying review of our public filings, to the extent such review is necessary, and our ability to access the public markets.
If approved, our product candidates that are licensed and regulated as biologics may face competition from biosimilars approved through an abbreviated regulatory pathway.
The BPCIA was enacted as part of the Patient Protection and Affordable Care Act, or the ACA, to establish an abbreviated pathway for the approval of biosimilar and interchangeable biological products.The 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 approved biologic. Under the BPCIA, a reference biological product is granted 12 years of data exclusivity from the time of first licensure of the product, and the FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four years after the date of first licensure of the reference product. In addition, the licensure of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still develop and receive approval of a competing biologic, so long as its BLA does not reply on the reference product, sponsor’s data or submit the application as a biosimilar application.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, and any new policies or processes adopted by the FDA could have a material adverse effect on the future commercial prospects for our biological products.
We believe that any of the product candidates we develop 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 the subject product candidates to be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated.Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of the reference products in a way that is similar to traditional generic substitution for non-biological products will depend on a number of marketplace and regulatory factors that are still developing.Nonetheless, the approval of a biosimilar to our product candidates would have a material adverse impact on our business due to increased competition and pricing pressure.
If the FDA, EMA or other comparable foreign regulatory authorities approve generic versions of any of our small molecule investigational products that receive marketing approval, or such authorities do not grant our products appropriate periods of exclusivity before approving generic versions of those products, the sales of our products, if approved, could be adversely affected.
Once an NDA is approved, the product covered thereby becomes a “reference listed drug” in the FDA’s publication, “Approved Drug Products with Therapeutic Equivalence Evaluations,” commonly known as the Orange Book. Manufacturers
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may seek approval of generic versions of reference listed drugs through submission of abbreviated new drug applications, or ANDAs, in the United States. In support of an ANDA, a generic manufacturer need not conduct clinical trials to assess safety and efficacy. Rather, the sponsor generally must show that its product has the same active ingredient(s), dosage form, strength, route of administration and conditions of use or labelling as the reference listed drug and that the generic version is bioequivalent to the reference listed drug, meaning it is absorbed in the body at the same rate and to the same extent. Generic products may be significantly less costly to bring to market than the reference listed drug and companies that produce generic products are generally able to offer them at lower prices. Thus, following the introduction of a generic drug, a significant percentage of the sales of any branded product or reference listed drug is typically lost to the generic product.
The FDA may not approve an ANDA for a generic product until any applicable period of non-patent exclusivity for the reference listed drug has expired. The FDCA provides a period of five years of non-patent exclusivity for a new drug containing a new chemical entity. Specifically, in cases where such exclusivity has been granted, an ANDA may not be submitted to the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification that a patent covering the reference listed drug is either invalid or will not be infringed by the generic product, in which case the sponsor may submit its application four years following approval of the reference listed drug.
Generic drug manufacturers may seek to launch generic products following the expiration of any applicable exclusivity period we obtain if our products are approved, even if we still have patent protection for such products. Competition that our products could face from generic versions of our products could materially and adversely affect our future revenue, profitability, and cash flows and substantially limit our ability to obtain a return on the investments we have made in those product candidates.
Current and future legislation may increase the difficulty and cost for us and any future collaborators to obtain reimbursement for any of our product candidates that do receive marketing approval and commercialize our drug candidates and affect the prices we, or they, may obtain.ability to generate revenue will be materially impaired.
In the U.S.United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could among other things, prevent or delay marketing approval of our drugproduct candidates, restrict or regulate post approvalpost-approval activities and affect our ability or the ability of any future collaborators, to profitably sell any drugsproduct candidates for which we or they, obtain marketing approval. We expect that current laws, as well as other
healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we, or any future collaborators, may receive for any approved drugs.products.
Since enactment of the ACA, there have been, and continue to be, numerous legal challenges and Congressional actions to repeal and replace provisions of the law. For example, with enactment of the Tax Cuts and Jobs Act of 2017, which was signed by the President Trump on December 22, 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, became effective in 2019. 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.
Further, on December 14, 2018, a U.S. District Court judge in the Northern District of Texas ruled that the individual mandate portion of the ACA is an essential and inseverable feature of the ACA and therefore because the mandate was repealed as part of the Tax Cuts and Jobs Act, the remaining provisions of the ACA are invalid as well. The current administration and CMS have both stated that the ruling will have no immediate effect, and on December 30, 2018 the same judge issued an order staying the judgment pending appeal. The current Administration has recently represented to the court of appeals considering this judgment that it does not oppose the lower court’s ruling. On July 10, 2019, the Court of Appeals for the Fifth Circuit heard oral argument in this case. In those arguments, the current administration argued in support of upholding the lower court decision. However, in a subsequent filing, the U.S. Department of Justice contended that the ACA should be invalidated only in the states that are suing, rather than all states. On December 18, 2019, that court affirmed the lower court’s ruling that the individual mandate portion of the ACA is unconstitutional and it remanded the case to the district court for reconsideration of the severability question and additional analysis of the provisions of the ACA. On January 21, 2020, the U.S. Supreme Court declinedheard this case on November 10, 2020 and on June 17, 2021, dismissed this action after finding that the plaintiffs do not have standing to reviewchallenge the decisionconstitutionality of the Court of Appeals on an expedited basis.ACA. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results.
The costsTrump Administration also took executive actions to undermine or delay implementation of the ACA, including directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay
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the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. On January 28, 2021, however, President Biden issued a new Executive Order which directs federal agencies to reconsider rules and other policies that limit Americans’ access to health care, and consider actions that will protect and strengthen that access. Under this Order, federal agencies are directed to re-examine: policies that undermine protections for people with pre-existing conditions, including complications related to COVID-19; demonstrations and waivers under Medicaid and the ACA that may reduce coverage or undermine the programs, including work requirements; policies that undermine the Health Insurance Marketplace or other markets for health insurance; policies that make it more difficult to enroll in Medicaid and the ACA; and policies that reduce affordability of coverage or financial assistance, including for dependents.
We expect that these healthcare reforms, 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, new payment methodologies and additional downward pressure on the price that we receive for any approved product and/or the level of reimbursement physicians receive for administering any approved product we might bring to market. Reductions in reimbursement levels may negatively impact the prices we receive or the frequency with which our products are prescribed or administered. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. Accordingly, such reforms, if enacted, could have an adverse effect on anticipated revenue from product candidates that we may successfully develop and for which we may obtain marketing approval and may affect our overall financial condition and ability to develop or commercialize product candidates.
The prices of prescription pharmaceuticals in the U.S. has alsoUnited States and foreign jurisdictions are subject to considerable legislative and executive actions and could impact the prices we obtain for our products, if and when licensed.
The prices of prescription pharmaceuticals have been the subject of considerable discussion in the U.S., and members of Congress and the Administration have stated that they will address such costs through new legislative and administrative measures. The pricing of prescription pharmaceuticals is also subject to governmental control outside the U.S. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our ability to generate revenues and become profitable could be impaired. In the European Union, similar political, economic and regulatory developments may affect our ability to profitably commercialize our products. In addition to continuing pressure on prices and cost containment measures, legislative developments at the European Union or member state level may result in significant additional requirements or obstacles that may increase our operating costs.
In addition, in October 2020, HHS and the FDA published a final rule allowing states and other entities to develop a Section 804 Importation Program, or SIP, to import certain prescription drugs from Canada into the United States. The final rule is currently the subject of ongoing litigation, but at least six states (Vermont, Colorado, Florida, Maine, New Mexico, and New Hampshire) have passed laws allowing for the importation of drugs from Canada with the intent of developing SIPs for review and approval by the FDA. Further, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The implementation of the rule has been delayed by the Infrastructure Investment and Jobs Act to January 1, 2026 in response to ongoing litigation. The rule would also eliminate the current safe harbor for Medicare drug rebates and create new legislative and/or administrative measuressafe harbors for beneficiary point-of-sale discounts and pharmacy benefit manager service fees. It originally was set to control drug costs. For example,go into effect on May 11, 2018,January 1, 2022, but with passage of the Administration issued aInflation Reduction Act has been delayed by Congress to January 1, 2032.
In September 2021, acting pursuant to an executive order signed by President Biden, the HHS released its plan to lower drugreduce pharmaceutical prices. Under this blueprintThe key features of that plan are to: (a) make pharmaceutical prices more affordable and equitable for action,all consumers and throughout the Administration indicatedhealth care system by supporting pharmaceutical price negotiations with manufacturers; (b) improve and promote competition throughout the prescription pharmaceutical industry by supporting market changes that the Department of Health and Human Services, or HHS will: take steps to end the gaming of regulatory and patent processes by drug makers to unfairly protect monopolies; advancestrengthen supply chains, promote biosimilars and generic drugs, and increase transparency; and (c) foster scientific innovation to promote better healthcare and improve health by supporting public and private research and making sure that market incentives promote discovery of valuable and accessible new treatments.
More recently, on August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law by President Biden.The new legislation has implications for Medicare Part D, which is a program available to individuals who are entitled to Medicare Part A or enrolled in Medicare Part B to give them the option of paying a monthly premium for outpatient prescription drug coverage. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under
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Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025).The IRA permits the Secretary of HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years.
Specifically, with respect to price negotiations, Congress authorized Medicare to negotiate lower prices for certain costly single-source drug and biologic products that do not have competing generics or biosimilars and are reimbursed under Medicare Part B and Part D.CMS may negotiate prices for ten high-cost drugs paid for by Medicare Part D starting in 2026, followed by 15 Part D drugs in 2027, 15 Part B or Part D drugs in 2028, and 20 Part B or Part D drugs in 2029 and beyond.This provision applies to boostdrug products that have been approved for at least 9 years and biologics that have been licensed for 13 years, but it does not apply to drugs and biologics that have been approved for a single rare disease or condition.Nonetheless, since CMS may establish a maximum price competition; evaluatefor these products in price negotiations, we would be fully at risk of government action if our products are the inclusionsubject of Medicare price negotiations.Moreover, given the risk that could be the case, these provisions of the IRA may also further heighten the risk that we would not be able to achieve the expected return on our drug products or full value of our patents protecting our products if prices are set after such products have been on the market for nine years.
Further, the legislation subjects drug manufacturers to civil monetary penalties and a potential excise tax for failing to comply with the legislation by offering a price that is not equal to or less than the negotiated “maximum fair price” under the law or for taking price increases that exceed inflation. The legislation also requires manufacturers to pay rebates for drugs in Medicare Part D whose price increases exceed inflation. The new law also caps Medicare out-of-pocket drug makers’ adscosts at an estimated $4,000 a year in 2024 and, thereafter beginning in 2025, at $2,000 a year. In addition, the IRA potentially raises legal risks with respect to enhance price competition; speed access toindividuals participating in a Medicare Part D prescription drug plan who may experience a gap in coverage if they required coverage above their initial annual coverage limit before they reached the higher threshold, or “catastrophic period” of the plan. Individuals requiring services exceeding the initial annual coverage limit and lowerbelow the catastrophic period, must pay 100% of the cost of new drugstheir prescriptions until they reach the catastrophic period. Among other things, the IRA contains many provisions aimed at reducing this financial burden on individuals by clarifying policiesreducing the co-insurance and co-payment costs, expanding eligibility for sharing information between insurers and drug makers; avoid excessive pricing by relying more on value based pricing by expanding outcome based payments in Medicare and Medicaid; work to give Part D plan sponsors more negotiation power with drug makers; examine which Medicare Part B drugs could be negotiated for a lower price by Part Dincome subsidy plans, and improvingprice caps on annual out-of-pocket expenses, each of which could have potential pricing and reporting implications.
Accordingly, while it is currently unclear how the design of the Part B Competitive Acquisition Program; update Medicare’s drug-pricing dashboard
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional health care authoritieshealthcare organizations 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 health carehealthcare programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.
therapies. In somemany countries, such as the countriesincluding those of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control.control and access. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug.product. To obtain reimbursement or pricing approval in some countries, we or any futureour collaborators may be required to conduct a clinical trial that compares the cost-effectiveness of our drugproduct to other available therapies. If reimbursement of our drugsproducts is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be materially harmed.
We may be subject to certain healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, fines, disgorgement, exclusion from participation in government healthcare programs, curtailment or restricting of our operations, and diminished profits and future earnings.
Healthcare providers, third-party payors and others will play a primary role in the recommendation and prescription of any drugsproduct for which we obtain marketing approval. Our future arrangements with healthcare providers and third-party payors
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will expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any drugsproduct for which we obtain marketing approval. Potentially applicable U.S. federal and state healthcare laws and regulations include the following:
Anti-Kickback Statute. The federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid;
False Claims Laws. The federal false claims laws, including the civil False Claims Act, impose criminal and civil penalties, including those from civil whistleblower or qui tam actions against individuals or entities for knowingly presenting, or causing to be presented to the federal government claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
HIPAA. The federal Health Insurance Portability and Accountability Act of 1996, or HIPPA,HIPAA, imposes criminal and civil liability for executing or attempting to execute a scheme to defraud any healthcare benefit program;
HIPAA and HITECH. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or the HITECH Act, also imposes obligations on certain types of individuals and entities, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
False Statements Statute. The federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;
Transparency Requirements. The federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to report annually to the U.S. Department of Health and Human ServicesHHS information related to physicianhealthcare provider payments and other transfers of value and physicianhealthcare provider ownership and investment interests; and
Analogous State and Foreign Laws. Analogous state laws and regulations, such as state anti-kickback and false claims laws, and transparency laws, may apply to sales or marketing arrangements, and claims involving healthcare items or services reimbursed by non-governmental third-partythird party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, in addition to requiring drug manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures. Many state laws also govern the privacy and security of health information and other personal information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. Foreign laws also govern the privacy and security of health information and other personal information in many circumstances.
Efforts to ensure that our business arrangements with third-parties,third parties, and our business generally, will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of drugsproducts from government funded healthcare programs, such as Medicare and Medicaid, disgorgement, contractual damages, and reputational harm, any of which could substantially disrupt our operations. If any of the physicians or other providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
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fines, claims for damages by affected individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations or prospects.
There are numerous U.S. federal and state laws and regulations related to the privacy and security of personal information. In particular, regulations promulgated pursuant to HIPAA establish privacy and security standards that limit the use and disclosure of individually identifiable health data, isinformation, or protected health information, and require the implementation of administrative, physical and technological safeguards to protect the privacy of protected health information and ensure the confidentiality, integrity and availability of electronic protected health information. Determining whether protected health information has been handled in compliance with applicable privacy standards and our contractual obligations can be complex and may be subject to changing interpretation. These obligations may be applicable to some or all of our business activities now or in the EUfuture.
If we are unable to properly protect the privacy and security of protected health information, we could be found to have breached our contracts. Further, if we fail to comply with applicable privacy laws, including applicable HIPAA privacy and security standards, we could face civil and criminal penalties. HHS enforcement activity can result in financial liability and reputational harm, and responses to such enforcement activity can consume significant internal resources. In addition, state attorneys general are authorized to bring civil actions seeking either injunctions or damages in response to violations that threaten the privacy of state residents. We cannot be sure how these regulations will be interpreted, enforced or applied to our operations. In addition to the risks associated with enforcement activities and potential contractual liabilities, our ongoing efforts to comply with evolving laws and regulations at the federal and state level may be costly and require ongoing modifications to our policies, procedures and systems.
In 2018, California passed into law the California Consumer Privacy Act, or the CCPA, which took effect on January 1, 2020, and imposed many requirements on businesses that process the personal information of California residents. Many of the CCPA’s requirements are similar to those found in the General Data Protection Regulation, or the GDPR, which became effective on May 25, 2018.including requiring businesses to provide notice to data subjects regarding the information collected about them and how such information is used and shared, and providing data subjects the right to request access to such personal information and, in certain cases, request the erasure of such personal information. The GDPR is wide-ranging in scope and imposes numerous requirements onCCPA also affords California residents the right to opt out of “sales” of their personal information. The CCPA contains significant penalties for companies that violate its requirements. In November 2020, California voters passed a ballot initiative for the California Privacy Rights Act, or the CPRA, which went into effect on January 1, 2023, and significantly expand the CCPA to incorporate additional GDPR-like provisions including requiring that the use, retention and sharing of personal information of California residents be reasonably necessary and proportionate to the purposes of collection or processing, granting additional protections for sensitive personal information, and requiring greater disclosures related to notice to residents regarding retention of information. The CPRA also created a new enforcement agency – the California Privacy Protection Agency – whose sole responsibility is to enforce the CPRA, which will further increase compliance risk. The provisions in the CPRA may apply to some of our business activities. In addition, other states, including Virginia, Colorado, Utah and Connecticut, already have passed state privacy laws. Virginia’s privacy law also went into effect on January 1, 2023, and the laws in the other three states will go into effect later in the year. Other states will be considering these laws in the future, and Congress has also been debating passing a federal privacy law. These laws may impact our business activities, including our identification of research subjects, relationships with business partners and ultimately the marketing and distribution of our products.
A broad range of legislative measures related to privacy also have been introduced at the federal level. Accordingly, failure to comply with federal and state laws (both those currently in effect and future legislation) regarding privacy and security of personal information could expose us to fines and penalties under such laws. There also is the threat of consumer class actions related to these laws and the overall protection of personal data. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our reputation and our business.
In addition to the foregoing, any breach of privacy laws or data security laws, particularly resulting in a significant security incident or breach involving the misappropriation, loss or other unauthorized use or disclosure of sensitive or confidential patient or consumer information, could have a material adverse effect on our business, reputation and financial condition. As a data controller, we will be accountable for any third-party service providers we engage to process personal data on our behalf, including requirements relatingour CROs. There is no assurance that privacy and security-related safeguards we implement will protect us from all risks associated with the third-party processing, storage and transmission of such information. In certain situations, both in the United States and in other countries, we also may be obligated as a result of a security breach to processing health and other sensitive data, obtaining consent of thenotify individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors. The GDPR also imposes strict rules on the transfer of personal data to countries outside the EU, including the U.S., and permits data protection authorities to impose large penalties for violations of the GDPR, including
Given the breadth and depth of changes in data protection obligations, preparing for and complying with the GDPR’ssuch requirements has requiredis rigorous and will continue to requiretime intensive and requires significant time, resources and a review of our technologies, systems and
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practices, as well as those of any third-party collaborators, service providers, contractors or consultants that process or transfer personal data collected in the European Union. The GDPR and other changes in laws or regulations associated with the enhanced protection of certain types of sensitive data, such as healthcare data or other personal information from our clinical trials, could require us to change our business practices and put in place additional compliance mechanisms, may interrupt or delay our development, regulatory and commercialization activities and increase our cost of doing business, and could lead to government enforcement actions, private litigation orand significant fines and penalties against us and could have a material adverse effect on our business, financial condition or results of operations.
We are subject to U.S. and foreign anti-corruption and anti-money laundering laws with respect to our operations and non-compliance with such laws can subject us to criminal and/or civil liability and harm our business.
We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and possibly other state and national anti-bribery and anti-money laundering laws in countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, third-party intermediaries, joint venture partners and collaborators from authorizing, promising, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector. We may have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. In addition, we may engage third-partythird party intermediaries to promote our clinical research activities abroad and/or to obtain necessary permits, licenses, and other regulatory approvals. We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize or have actual knowledge of such activities.
We have adopted a Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics that mandates compliance with the FCPA and other anti-corruption laws applicable to our business throughout the world. However, weWe cannot assure you, however, that our employees and third-partythird party intermediaries will comply with this code or such anti-corruption laws. Noncompliance with anti-corruption and anti-money laundering laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension and/or debarment from contracting with certain persons, the loss of export privileges, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas, investigations, or other enforcement actions are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations and financial condition could be materially harmed. In addition, responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense and compliance costs and other professional fees. In certain cases, enforcement authorities may even cause us to appoint an independent compliance monitor which can result in added costs and administrative burdens.
We are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability if we are not in compliance with applicable laws.
Our drug products and other materialssolutions are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. Exports of our drugsproducts and solutions outside of the U.S.United States must be made in compliance with these laws and regulations. If we fail to comply with these laws and regulations, we and certain of our employees could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges, fines, which may be imposed on us and responsible employees or managers, and, in extreme cases, the incarceration of responsible employees or managers.
In addition, changes in our drugsproducts or solutions or changes in applicable export or import laws and regulations may create delays in the introduction, provision, or sale of our drugsproducts and solutions in international markets, prevent customers from using our drugsproducts and solutions or, in some cases, prevent the export or import of our drugs and solutions to certain countries, governments or persons altogether. Any limitation on our ability to export, provide, or sell our drugsproducts and solutions could adversely affect our business, financial condition and results of operations.
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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. From time to time and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if we contract with third-partiesthird parties for the disposal of these materials and waste products, we cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting from the use or disposal of our 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.
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, buthowever this insurance may not provide adequate coverage against potential liabilities. However, weWe do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current or future environmental laws and regulations may impair our research, development or production efforts. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties or other sanctions.
Our employees may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, which could cause significant liability for us and harm our reputation.
We are exposed to the risk of employee fraud or other misconduct, including intentional failures to comply with FDA regulations or similar regulations of comparable foreign regulatory authorities, provide accurate information to the FDA or comparable foreign regulatory authorities, comply with manufacturing standards we have established, comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, report financial information or data accurately or disclose unauthorized activities to us. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter employee misconduct, 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, standards or 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 and results of operations, including the imposition of significant fines or other sanctions.
Our internal computer systems, or those of any collaborators or contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs.
Despite the implementation of security measures and certain data recovery measures, our internal computer systems and those of our current and any future collaborators and other contractors or consultants are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, sabotage, natural disasters, terrorism, war and telecommunication and electrical failures. We may experience security breaches of our information technology systems. Any system failure, accident or security breach that causes interruptions in our operations, for us or those third parties with which we contract, could result in a material disruption of our product development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information or other similar disruptions, in addition to possibly requiring substantial expenditures of resources to remedy. For example, the loss of clinical trial data from an ongoing, completed or future clinical trial could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we may incur liabilities, our competitive position could be harmed and the further development and commercialization of our product candidates may be delayed. In addition, we may not have adequate insurance coverage to provide compensation for any losses associated with such events.
We could be subject to risks caused by misappropriation, misuse, leakage, falsification or intentional or accidental release or loss of information maintained in the information systems and networks of our company, including personal information of our employees. In addition, outside parties have attempted, and may in the future attempt, to penetrate our systems or those of our vendors or fraudulently induce our employees or employees of our vendors to disclose sensitive information to gain access to our data. Like other companies, we may experience threats to our data and systems, including malicious codes and viruses, and other cyber-attacks. The number and complexity of these threats continue to increase over time. If a material breach of our
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security or that of our vendors occurs, the market perception of the effectiveness of our security measures could be harmed, we could lose business and our reputation and credibility could be damaged. We could be required to expend significant amounts of money and other resources to repair or replace information systems or networks. Although we develop and maintain systems and controls designed to prevent these events from occurring, and we have a process to identify and mitigate threats, the development and maintenance of these systems, controls and processes is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Moreover, despite our efforts, the possibility of these events occurring cannot be eliminated entirely.
RISKS RELATING TO OUR COMMON STOCK
If we fail to meet the requirements for continued listing on the Nasdaq Global Market, our common stock could be delisted from trading, which would decrease the liquidity of our common stock and our ability to raise additional capital.
Our common stock is currently listed on the Nasdaq Global Market. We are required to meet specified requirements to maintain our listing on the Nasdaq Global Market, including a minimum market value of listed securities of $50.0 million, a minimum bid price of $1.00 per share for our common stock, and other continued listing requirements.
Although we have been able to regain compliance with the listing requirements within the manner and time periods prescribed by Nasdaq in the past, there can be no assurance that in the future, we will be able to maintain compliance with the Nasdaq continued listing requirements.requirements in the future or that we will be able to regain compliance with respect to any future deficiencies. If we fail to satisfy the Nasdaq Global Market’s continued listing requirements, we may transfer to the Nasdaq Capital Market, which generally has lower financial requirements for initial listing, to avoid delisting, or, if we fail to meet its listing requirements, the OTC Bulletin Board.delisting. However, we may not be able to satisfy the initial listing requirements for the Nasdaq Capital Market. AIf we are able to satisfy the initial listing requirements for the Nasdaq Capital Market, we may be eligible for an additional 180 calendar day compliance period or second compliance period. However, a transfer of our listing to the Nasdaq Capital Market or having our common
Our stock price has and may continue to fluctuate significantly and the market price of our common stock could drop below the price paid by our investors.
The trading price of our common stock has been volatile and is likely to continue to be volatile in the future. For example, our stock traded within a range of a high price of $18.75$16.65 and a low price of $0.60$0.47 per share for the period January 1, 20142017 through March 12, 2020.2, 2023. The daily closing market price for our common stock has varied between a high price of $3.35 on March 2, 2022 and a low price of $0.47 on December 27, 2022 in the twelve-month period ending on March 2, 2023. During this time, the price per share has ranged from an intra-day high of $3.46 per share to an intra-day low of $0.50 per share. The stock market, particularly in recent years, has experienced significant volatility with respect to pharmaceutical and biotechnology company stocks.
On March 10, 2023, the FDIC took control and was appointed receiver of SVB. At the time SVB entered into receivership, a large number of pharmaceutical and biotechnology companies held cash deposits with SVB. It is unclear if and when such pharmaceutical and biotechnology companies will be able to access their cash deposits held with SVB and if they
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will ultimately be able to recover any such cash deposits in excess of the FDIC standard deposit insurance limit. The financing uncertainty pharmaceutical and biotechnology companies may now face as a result of SVB’s entry into receivership may cause significant volatility with respect to pharmaceutical and biotechnology company stocks, which in turn could negatively impact the trading price of our common stock.
Prices for our stock will be determined in the marketplace and may be influenced by many factors, including:
•the timing and result of clinical trials of our drug candidates;
•the success of, and announcements regarding, existing and new technologies and/or drug candidates by us or our competitors;
•regulatory actions with respect to our product candidates or our competitors’ products and product candidates;
•market conditions in the biotechnology and pharmaceutical sectors;
•rumors relating to us or our collaborators or competitors;
•commencement or termination of collaborations for our development programs;
•litigation or public concern about the safety of our drug candidates;
•actual or anticipated variations in our quarterly operating results and any subsequent restatement of such results;
•the amount and timing of any royalty revenue we receive from Genentech related to Erivedge;
•actual or anticipated changes to our research and development plans;
•deviations in our operating results from the estimates of securities analysts;analysts or the failure by one or more securities analysts to continue to cover our stock;
•entering into new collaboration agreements or termination of existing collaboration agreements;
•adverse results or delays in clinical trials being conducted by us or any collaborators;
•any intellectual property disputes or other lawsuits involving us;
•third-party sales of large blocks of our common stock;
•sales of our common stock by our executive officers, directors or significant stockholders;
•equity sales by us of our common stock to fund our operations;
•the loss of any of our key scientific or management personnel;
•FDA or international regulatory actions;
•limited trading volume in our common stock;
•general economic and market conditions, including recent adverse changes in the domestic and international financial markets; and
•the other factors described in this “Risk Factors” section.
While we cannot predict the individual effect that these factors may have on the price of our common stock, these factors, either individually or in the aggregate, could result in significant variations in price during any given period of time.
In the past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources.
Fluctuations in our quarterly and annual operating results could adversely affect the price of our common stock which could result in substantial losses for purchasers of our common stock.
Our quarterly and annual operating results may fluctuate significantly. Some of the factors that may cause our operating results to fluctuate on a period-to-period basis include:
•payments we may be required to make to collaborators such as Aurigene and ImmuNext to exercise license rights and satisfy milestones and royalty obligations;
•the status of, and level of expenses incurred in connection with, our programs;
•fluctuations in sales of Erivedge and related royalty and milestone payments;
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•any intellectual property infringement lawsuit or other litigation in which we may become involved;
•the implementation of restructuring and cost-savings strategies;
•the occurrence of an event of default under the Oberland Purchase Agreement;
•the implementation or termination of collaboration, licensing, manufacturing or other material agreements with third- parties, and non-recurring revenue or expenses under any such agreement;
•compliance with regulatory requirements; and
•general conditions in the global economy and financial markets.
If any of the foregoing matters were to occur, or if our operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially, which could result in substantial losses for purchasers of our common stock. In addition, we currently have no drug revenues and depend entirely on funds raised through other sources, such as funding through debt and/or equity offerings. Our ability to raise funds in this manner depends upon, among other things, our stock price.
We and our collaborators may not achieve projected research, development, commercialization and marketing goals in the time frames that we or they announce, which could have an adverse impact on our business and could cause our stock price to decline.
We set goals for, and make public statements regarding, the timing of certain accomplishments, such as the commencement and completion of preclinical studies, and clinical trials, and other developments and milestones relating to our business and our collaboration agreements. Our collaborators may also make public statements regarding their goals and expectations for their collaborations with us. The actual timing of any such events can vary dramatically due to a number of factors including delays or failures in our and our current and potential future collaborators’ preclinical studies or clinical trials, the amount of time, effort and resources committed to our programs by all parties, and the inherent uncertainties in the regulatory approval and commercialization process. As a result:
•our or our collaborators’ preclinical studies and clinical trials may not advance or be completed in the time frames we or they announce or expect;
•we or our collaborators may not make regulatory submissions, receive regulatory approvals or commercialize approved drugs as predicted; and
•we or our collaborators may not be able to adhere to our or their current schedule for the achievement of key milestones under any programs.
If we or any collaborators fail to achieve research, development and commercialization goals as planned, our business could be materially adversely affected and the price of our common stock could decline.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, if a company undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post change taxable income or taxes may be limited. Changes in our stock ownership, some such changes being out of our control, may have resulted or could in the future result in an ownership change. The changes ofIf such an ownership will resultchange occurred or occurs in net operating loss and research and development credit carryforwards that we expect to expire unutilized. If additional limitations were to apply,the future, utilization of a portion of our net operating loss and tax credit carryforwards could be further limited in future periods and a portion of the carryforwards could expire before being available to reduce future income tax liabilities.
There is also a risk that due to regulatory changes, such as suspensions on the use of net operating losses, or other unforeseen reasons, our existing net operating losses could expire or otherwise become unavailable to offset future income tax liabilities. As described below in “Changes in tax laws or in their implementation or interpretation may adversely affect our business and financial condition,” the Tax Cuts and Jobs Act, or the TCJA, as amended by the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, includes changes to U.S. federal tax rates and the rules governing net operating loss carryforwards that may significantly impact our ability to utilize our net operating losses to offset taxable income in the future. In addition, state net operating losses generated in one state cannot be used to offset income generated in another state. For these reasons, even if we attain profitability, we may be unable to use a material portion of our net operating losses and other tax attributes.
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Our effective tax rate may fluctuate, and we may incur obligations in tax jurisdictions in excess of accrued amounts.
We are subject to taxation in numerous U.S. states and territories. As a result, our effective tax rate is derived from a combination of applicable tax rates in the various places that we operate. In preparing our financial statements, we estimate the amount of tax that will become payable in each of such places. Nevertheless, our effective tax rate may be different than experienced in the past due to numerous factors, including as a result of applying the provisions of the Tax Cuts and Jobs Act, or TCJA, (as such provisions may be elaborated on or further developed in guidance, regulations and technical corrections pertaining to the TCJA), changes in the mix of our profitability from state to state, the results of examinations and audits of our tax filings, our inability to secure or sustain acceptable agreements with tax authorities, changes in accounting for income taxes and changes in tax laws.laws, as more fully described below in “Changes in tax laws or in their implementation or interpretation may adversely affect our business and financial condition.” Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or our current expectations and may result in tax obligations in excess of amounts accrued in our financial statements.
Changes in tax laws or in their implementation or interpretation may adversely affect our business and financial condition.
Changes in tax law may adversely affect our business or financial condition. On December 22, 2017, the U.S. government enacted the TCJA, which significantly reformed the Code. The TCJA, among other things, contained significant changes to corporate taxation, including limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely).
As part of Congress’ response to the COVID-19 pandemic, the Families First Coronavirus Response Act, or FFCR Act, was enacted on March 18, 2020, the CARES Act was enacted on March 27, 2020, COVID relief provisions were included in the Consolidated Appropriations Act, 2021, or CAA, which was enacted on December 27, 2020, and the American Rescue Plan Act of 2021, or ARPA, was enacted on March 11, 2021. All contain numerous tax provisions. In particular, the CARES Act retroactively and temporarily (for taxable years beginning before January 1, 2021) suspends application of the 80%-of-income limitation on the use of net operating losses, which was enacted as part of the TCJA. It also provides that net operating losses arising in any taxable year beginning after December 31, 2017, and before January 1, 2021 are generally eligible to be carried back up to five years.
Regulatory guidance under the TCJA, the FFCR Act, the CARES Act, the CAA, and ARPA is and continues to be forthcoming, and such guidance could ultimately increase or lessen the impact of these laws on our business and financial condition. It is also possible that Congress will enact additional legislation in connection with the COVID-19 pandemic, and as a result of the changes in the U.S. presidential administration and control of the U.S. Senate, additional tax legislation may also be enacted; any such additional legislation could have an impact on us. In addition, it is uncertain if and to what extent various states will conform to the TCJA, the FFCR Act, the CARES Act, the CAA, or the ARPA.
Future sales of shares of our common stock, including by us, employees and large stockholders, orincluding pursuant to our common stock purchase agreement with Aspire Capital and sales agreement with Cantor and JonesTrading or our universal shelf registration statement could result in dilution to our stockholders and negatively affect our stock price.
Most of our outstanding common stock can be traded without restriction at any time. As such, sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell such shares, could reduce the market price of our common stock.
As of December 31, 2019,March 2, 2023, Aurigene beneficially owned approximately 16.4%5.7% of our outstanding common stock. Subject to certain restrictions, Aurigene is able to sell its common shares in the public market from time to time without registering them, subject to certain limitations on the timing, amount and method of those sales imposed by Rule 144 under the Securities Act of 1933, as amended. Pursuant to our registration rights agreement with Aurigene, Aurigene has the right, subject to certain conditions and with certain exceptions, to require us to file registration statements covering the common shares it owns or to
We have a significant number of shares that are subject to outstanding options and in the future, we may issue additional options, warrants or other derivative securities convertible into our common stock. The exercise of any such options, warrants or other derivative securities, and the subsequent sale of the underlying common stock, could cause a further decline in our stock price.price and could dilute our stockholders. These sales also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
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market” offerings. In addition, with our prior written approval, JonesTrading may sell these shares of common stock by any other method permitted by law, including in privately negotiated transactions. To date, we have not made any salessold 4,583,695 shares, representing gross proceeds of common stock pursuant to the sales agreement.$6.3 million. The extent to which we
utilize the sales agreement2021 Sales Agreement with Cantor and JonesTrading as a source of funding will depend on a number of factors, including the prevailing market price of our common stock, general market conditions and other restrictions and the extent to which we are able to secure funds from other sources.
If we are not able to maintain effective internal controls under Section 404 of the Sarbanes-Oxley Act, our business and stock price could be adversely affected.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us, on an annual basis, to review and evaluate our internal controls, and requires our independent registered accounting firm to attest to the effectiveness of our internal controls. Any failure by us to maintain the effectiveness of our internal controls in accordance with the requirements of Section 404 of the
Sarbanes-Oxley Act, as such requirements exist today or may be modified, supplemented or amended in the future, could have a material adverse effect on our business, operating results and stock price.
We do not intend to pay dividends on our common stock, and any return to investors will come, if at all, only from potential increases in the price of our common stock.
We have never declared nor paid cash dividends on our common stock. We currently plan to retain all of our future earnings, if any, to finance the operation, development and growth of our business. In addition, the terms of any future debt or credit agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
Insiders have substantial influence over us and could cause us to take actions that may not be, or refrain from taking actions that may be, in our best interest or in the best interest of our stockholders.
As of December 31, 2019,March 2, 2023, we believe that our directors, executive officers and principal stockholders, together with their affiliates, owned, in the aggregate, approximately 17.1%11.6% of our outstanding common stock including approximately 16.4%5.7% of our outstanding common stock owned by Aurigene. As a result, if these stockholders were to choose to act together, they may be able to affect the outcome of matters submitted to our stockholders for approval, as well as our management and affairs, such as:
•the composition of our board of directors;
•the adoption of amendments to our certificate of incorporation and bylaws;
•the approval of mergers or sales of substantially all of our assets;
•our capital structure and financing; and
•the approval of contracts between us and these stockholders or their affiliates, which could involve conflicts of interest.
This concentration of ownership could harm the market price of our common stock by:
•delaying, deferring or preventing a change in control of our company and making some transactions more difficult or impossible without the support of these stockholders, even if such transactions are beneficial to other stockholders;
•impeding a merger, consolidation, takeover or other business combination involving our company; or
•entrenching our management or the board of directors.
Moreover, the interests of these stockholders may conflict with the interests of other stockholders, and we may be required to engage in transactions that may not be agreeable to or in the best interest of us or other stockholders.
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We have anti-takeover defenses that could delay or prevent an acquisition that our stockholders may consider favorable, or prevent attempts by our stockholders to replace or remove current management, which could result in a decline in the price of our common stock.
Provisions of our certificate of incorporation, our bylaws, and Delaware law may deter unsolicited takeovers or delay or prevent changes in control of our management, including transactions in which our stockholders might otherwise receive a premium for their shares over then-current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions that they may deem to be in their best interest. For example, we have divided our board of directors into three classes that serve staggered three-year terms, we may issue shares of our authorized “blank check” preferred stock, and our stockholders are limited in their ability to call special stockholder meetings.
In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person who together with his, her, or its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. These provisions could discourage, delay or prevent a change in control.
ITEM 1B.UNRESOLVED STAFF COMMENTS
None.
Our headquarters consist of office and development requirements located at 4 Maguire Roadlaboratory space in Lexington, Massachusetts consistingMassachusetts. We occupy approximately 31,112 feet of 24,529 square feet. On November 1, 2017,space under a seven-year lease agreement, which we entered into a second amendmentin December 2019 and which was amended in January 2022 ("Lease Amendment"). We occupied this leased property in May 2020. The Lease Amendment provides us and the landlord each with an option to terminate the lease agreement pursuant to which we extendedbefore the original lease term expires on April 30, 2027. The Company's early termination option becomes effective on the lease for an additional two-year period. The second amended lease expired on February 29, 2020, and we are exercising our hold over rights pursuant to the second amended lease until our new premises are completed.
ITEM 3.LEGAL PROCEEDINGS
We are currently not a party to any material legal proceedings.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information. Our common stock is traded on the Nasdaq Global Market under the trading symbol “CRIS.”
Holders. On March 12, 2020 the last reported sale price of our common stock per share on the Nasdaq Global Market was $1.01 and2, 2023, there were 10777 holders of record of our common stock. The number of record holders may not be representative of the number of beneficial owners because many of the shares of our common stock are held by depositories, brokers or other nominees.
Dividends. We have never declared or paid any cash dividends on our common stock. We currently intend to retain earnings, if any, to support our business strategy and do not anticipate paying cash dividends in the foreseeable future. Payment of future dividends, if any, will be at the sole discretion of our board of directors after taking into account various factors, including our financial condition, operating results, capital requirements and any plans for expansion.
Issuer Purchases of Equity Securities. None.
Unregistered Sales of Equity Securities. None.
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Performance Graph. Not required.
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes appearing elsewhere in this annual report. This discussion contains forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors, including those set forth under Part I, Item 1A, “Risk Factors” and elsewhere in this annual report. As used throughout this annual report, the terms “the Company,” “we,” “us,” and “our” refer to the business of Curis, Inc. and its wholly owned subsidiaries, except where the context otherwise requires, and the term “Curis” refers to Curis, Inc. Unless otherwise indicated, all information in this Form 10-K gives effect to a 1-for-5 reverse stock split of Curis' common stock, that became effective on May 29, 2018. All common shares and per share amounts have been adjusted to reflect such reverse stock split.
Overview
We are a biotechnology company focused on theseeking to develop and commercialize innovative drug candidates to treat cancer. Our product development of first-in-class and innovative therapeutics for the treatment of cancer.
initiatives, described below, are being pursued using our internal resources or through our collaborations. We conduct our research and development programs both internally and through strategic collaborations. Our programs are discussed in more detail below.
In November 2022, we announced that to further advance the development of emavusertib, we are concentrating our resources to focus on and accelerate emavusertib. Resources have been reallocated to the emavusertib programs and resources dedicated to all other pipeline programs have been reduced. Deprioritization of other programs enabled a reduction of approximately 30% of our workforce and is expected to extend our cash runway into 2025.
Our lead clinical stage drug candidatescandidate is emavusertib, an orally available small molecule inhibitor of Interleukin-1 receptor-associated kinase 4, or IRAK4. Emavusertib is currently undergoing testing in a Phase 1/2 open-label, single arm dose escalating and expansion trial in patients with relapsed or refractory, or R/R, acute myeloid leukemia, or AML, and high-risk myelodysplastic syndromes, or hrMDS, also known as the TakeAim Leukemia Phase 1/2 study. In April 2021, emavusertib was granted Orphan Drug Designation for the treatment of R/R AML and hrMDS by the U.S. Food and Drug Administration, or FDA.
We are CA-4948, CI-8993, and fimepinostat:
In April 2022, the FDA placed partial clinical holds on our TakeAim Leukemia Phase 1/2 study and TakeAim Lymphoma Phase 1/2 study after we reported the death of a patient with R/R AML in the TakeAim Leukemia Phase 1/2 study. In August 2022, the FDA lifted the partial clinical hold on the TakeAim Lymphoma Phase 1/2 study. The partial clinical hold was lifted following agreement with the FDA on our strategy for rhabdomyolysis identification and management, as well as on the enrollment of at least nine additional patients at the 200mg dose level. In addition, we have agreed to enroll at least six additional patients at the 100mg dose level of emavusertib in combination with ibrutinib. In August 2022, the FDA notified us that we could resume enrollment of additional patients in the monotherapy dose finding phase (Phase 1a) of the TakeAim Leukemia Phase 1/2 study, in which we have agreed to enroll at least nine additional patients at the 200mg dose level. The partial clinical hold remains in place for the monotherapy expansion phase (Phase 2a) and the combination therapy phase (Phase 1b) of emavusertib with azacitidine or venetoclax of the study until Phase 1a is complete and the FDA approves proceeding to the next phases of the study.
In June 2022, we provided initial preliminary clinical data from the study in December 2019. We are currently planning to initiate a separate Phase 1 trial for acute myeloid leukemia and myelodysplastic syndromes patients in the first halfcombination portion of 2020.
Our pipeline also includes several compounds, including CI-8993, fimepinostat, CA-170, and CA-327 which is a pre-Investigational New Drug, or IND, stage oncology drug candidate.have been deprioritized following our determination to focus our resources on emavusertib.
We are party to a collaboration with Genentech Inc., or Genentech, a member of the Roche Group, under which Genentech and F. Hoffmann-La Roche Ltd, or Roche, and Genentech are commercializing Erivedge® (vismodegib), a first-in-class orally administered small molecule Hedgehog signaling pathway inhibitor.antagonist. Erivedge is approved for the treatment of advanced basal cell carcinoma, or BCC.
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In January 2015, we entered into aan exclusive collaboration agreement focused on immuno-oncology and selected precision oncology targets with Aurigene Discovery Technologies Limited, or Aurigene, which was amended in September 2016 and February 2020.2020, for the discovery, development and commercialization of small molecule compounds in the areas of immuno-oncology and precision oncology. As of December 31, 2022, we have licensed four programs under the Aurigene collaboration, including emavusertib.
In addition, we are party to an option and license agreement with ImmuNext, Inc., or ImmuNext. Pursuant to the terms of the option and license agreement, we have an option, exercisable for a specified period as set forth in the option and license agreement, to obtain an exclusive license to develop and commercialize certain VISTA antagonizing compounds, including ImmuNext's lead compound, CI-8993, and products containing these compounds in the field of oncology.
Based on our clinical development plans for our pipeline, we intend to predominantly focus our available resources on the continued development of CA-4948, in collaboration with Aurigene,emavusertib, subject to resolution of the continuing partial clinical hold imposed by the FDA on the monotherapy expansion phase (Phase 2a) and CI-8993, in collaboration with ImmuNext, in the near term.combination therapy phase (Phase 1b) of our TakeAim Leukemia Phase 1/2 trial.
Since our inception, we have funded our operations primarily through private and public placements of our equity securities, license fees, contingent cash payments, research and development funding from our corporate collaborators, and the monetization of certain royalty rights. We have never been profitable on an annual basis and had an accumulated deficit of $1.1 billion as of December 31, 2019,2022. For the year ended December 31, 2022, we incurred a loss of $56.7 million and used $54.3 million of cash in operations. We expect to continue to generate operating losses in the foreseeable future. Based upon our current operating plan, we believe that our $20.5$85.6 million of existing cash, cash equivalents and investments at December 31, 2022 should enable us to maintainfund our planned operationsoperating expenses and capital expenditure requirements for the next 12 months and into the second half of 2020.2025. We have based this assessment on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. Based on our available cash resources, recurring losses
We will need to generate significant revenues to achieve profitability, and cash outflows from operations since inception, an expectation of continuing operating losses and cash outflows from operations fordo not expect to achieve profitability in the foreseeable future, and the need to raise additional capital to finance our future operations, we concluded we do not have sufficient cash on hand to support current operations within the next 12 months from the date of filing this Annual Report on Form 10-K. These factors raise substantial doubt regarding our ability to continue as a going concern. We expect to finance our operations through our common stock purchase agreement with Aspire Capital Fund LLC, or Aspire Capital, and our at-the-market sales agreement with JonesTrading Institutional Services LLC, or JonesTrading or other potential equity financings, debt financings or other capital sources. However, we may not be successful in securing additional financing on acceptable terms, orif at all. If sufficient funds are not available, we maywill have to delay, reduce the scope of, or eliminate some of our research and development programs, including related clinical trials and operating expenses, potentially delaying the time to market for or preventing the marketing of any of our product candidates, which could adversely affect our business prospects and our ability to continue our operations, and would have a negative impact on our financial condition and ability to pursue our business strategies. For example, in November 2022 we announced that to further advance the development of emavusertib, we are concentrating our resources to focus on and accelerate emavusertib. Resources have been reallocated to the emavusertib programs and resources dedicated to all other pipeline programs have been reduced. In addition, we may seek to engage in one or more strategic alternatives, such as a strategic partnership with one or more parties, the licensing, sale or divestiture of some of our assets or proprietary technologies or the sale of our company, but there can be no assurance that we would be able to enter into such a transaction or transactions on a timely basis or on terms favorable to us, or at all.
On March 10, 2023, the FDIC took control and was appointed receiver of SVB. As of March 13, 2023, not including any FDIC-insured amounts, our exposure to SVB is immaterial. We will continue to monitor the situation.
Key Drivers
We believe that near term key drivers to our success will include:
•our ability to successfully resolve the continuing partial clinical hold imposed by the FDA on the monotherapy expansion phase (Phase 2a);
•our ability to focus and successfully plan and execute current and planned clinical trials for emavusertib, and for such clinical trials to generate favorable data; and
•our ability to raise additional financing, when required, to fund operations.
In the longer term, a key driver to our success will be our ability, and the ability of any current or future collaborator or licensee, to successfully develop and commercialize drug candidates.
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Our Collaborations and License Agreements
Our current collaborations and license agreements are summarized as follows:below and detailed in the Business section of this annual report on Form 10-K. See "Business—Collaborations and License Agreements."
Aurigene
Under the collaboration agreement, as amended, Aurigene granted us an option to obtain exclusive, royalty-bearing licenses to relevant Aurigene technology to develop, manufacture and commercialize products containing certain of such compounds anywhere in the world, except for India and Russia, which are territories retained by Aurigene.
For each of the IRAK4, PD1/VISTA, PD1/TIM3current four licensed programs, and the fourth immuno-oncology program, we have remaining unpaid or unwaived payment obligations of $42.5 million per program, related to regulatory approval and commercial sales milestones, plus specified additional payments for approvals for additional indications, if any.
We have agreed to pay Aurigene tiered royalties on our and our affiliates’ annual net sales of products at percentage rates ranging from the high single digits up to 10%, subject to specified reductions.
ImmuNext License Agreement
In January 2020, we entered into an option and license agreement with ImmuNext, or the ImmuNext Agreement. Under the terms of the ImmuNext Agreement, we agreed to engage in a collaborative effort with ImmuNext, and to conduct a Phase 1a/1b1 clinical trial of an ImmuNext compound that antagonizes VISTA. We plan to conductare conducting this Phase 1a/1b1 clinical trial with respect to CI-8993. In exchange, ImmuNext granted us an exclusive option, exercisable until the earlier of (a) four years after January 6, 2020 and (b) 90 days after database lock for the first Phase 1a/1b1 trial in which the endpoints are satisfied, or the Option Period, to obtain an exclusive, worldwide license to develop and commercialize certain VISTA antagonizing compounds and products containing these compounds in the field of oncology.
In January 2020, we paid $1.3 million as an upfront fee to ImmuNext. In addition, if we exercise the option, we will pay ImmuNext an option exercise fee of $20.0 million. ImmuNext will be eligible to receive up to $4.6 million in potential development milestones, up to $84.3 million in potential regulatory approval milestones, and up to $125.0 million in potential sales milestone payments from us. ImmuNext is also eligible to receive tiered royalties on annual net sales on a product-by-product and country-by-country basis, at percentage rates ranging from high single digits to low double digits, subject to specified adjustments.
Genentech Hedgehog Signaling Pathway Collaboration Agreement
In 2003, we entered into a collaborative research, development and license agreement with Genentech, which we refer to as the collaboration agreement.
Under the terms of our collaboration agreement with Genentech, we granted Genentech an exclusive, global, royalty-bearing license, with the right to sublicense, to make, use, sell and import molecules capable of inhibiting the Hedgehog signaling pathway (including small molecules, proteins and antibodies) for human therapeutic applications, including cancer therapy. Genentech subsequently granted a sublicense to Roche for non-U.S. rights to Erivedge, other than in Japan where such rights are held by Chugai. Genentech and Roche are responsible for worldwide clinical development, regulatory affairs, manufacturing and supply, formulation, and sales and marketing.
We are eligible to receive up to an aggregate of $115.0 million in contingent cash milestone payments, exclusive of royalty payments, in connection with the development of Erivedge or another small molecule Hedgehog pathway inhibitor, assuming the successful achievement by Genentech and Roche of specified clinical development and regulatory objectives. Of this amount, we have received $59.0 million to date.
In addition to the contingent cash milestone payments, our wholly owned subsidiary, Curis Royalty, is entitled to a royalty on net sales of Erivedge that ranges from 5% to 7.5% based upon global Erivedge sales by Roche and Genentech. The royalty rate applicable to Erivedge may be decreased by 2% on a country-by-country basis in certain specified circumstances, including when a competing product that binds to the same molecular target as Erivedge is approved by the applicable country’s regulatory authority in another country and is being sold in such country by a third-party for use in the same indication as Erivedge, or, when there is no issued intellectual property covering Erivedge in a territory in which sales are recorded. During the third quarter of 2015, the FDA and the CHMP, approved another Hedgehog signaling pathway inhibitor, Odomzo® (sonidegib), which is marketed by Sun Pharmaceutical Industries Ltd., for use in locally advanced BCC. Accordingly, Genentech reduced royalties to Curis Royalty on its net sales in the United States of Erivedge by 2% since the fourth quarter of 2015 and we anticipate that Genentech will reduce by 2% royalties on net sales of Erivedge outside of the United States on a country-by-country basis to the extent that sonidegib is approved by the applicable country's regulatory authority and is being sold in such country. However, pursuant to the Oberland Purchase Agreement, we have retained our rights with respect to the 2% of royalties that are subject to such reduction in countries where such reduction may or has occurred, subject to the terms and conditions of the Oberland Purchase Agreement, which we refer to as the “Retained Royalty Amounts”.
We recognized $10.4$10.3 million of royalty revenue from Genentech’s net sales of Erivedge during the year ended December 31, 2019,2022, and have recognized an aggregate of $58.7$90.3 million in royalty revenues since Erivedge was approved.
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As a result of our licensing agreements with various universities, we are obligated to make payments to university licensors on royalties that Curis Royalty earns in all territories, (other than Australia) in an amount that is equalsubject to 5% of the royalty payments received from Genentech. This obligation endures on a country-by-country basis for a period of 10 years from the first commercial sale of Erivedge, which occurred in February 2012 in the U.S. For royalties that we earn from Roche’s sales of Erivedge in Australia, we were obligated to make payments to university licensors of 2% of Roche’s direct net
The Leukemia & Lymphoma Society
In November 2011, we entered into an agreement with Leukemia and Lymphoma Society, or LLS, pursuant to which LLS agreed to provide us with up to $4.0 million in payments to support our ongoing development of fimepinostat, subject to the achievement of specified milestones.
We agreed to make up to $1.7 million in future payments to LLS, which represents the aggregate payments previously received from LLS under the November 2011 agreement, pursuant to achievement of certain objectives, including a licensing, sale, or other similar transaction, as well as regulatory and commercial objectives, in each case related to the fimepinostat program in hematological malignancies. However, if fimepinostat does not continue to meet its clinical safety endpoints in ongoing and future clinical trials in the defined field, or fails to obtain necessary regulatory approvals, all funding provided to us by LLS will be considered a non-refundable grant.
Financial Operations Overview
General. Our future operating results will largely depend on the progress of drug candidates currently in our research and development pipeline. The results of our operations will vary significantly from year to year and quarter to quarter and depend on, among other factors, the cost and outcome of any preclinical development or clinical trials then being conducted. For a discussion of our liquidity and funding requirements, see “Liquidity” and “Liquidity and Capital Resources - Funding Requirements.”
Debt. In December 2012, Curis RoyaltyApril 2020, we entered into a $30promissory note evidencing an unsecured $0.9 million credit agreement with BioPharma-II, at an annual interest rate of 12.25% collateralized with certain future Erivedge royalty and royalty-related payment streams.
Liability Related to the Sale of Future Royalties. In connection with the termination and repayment in full of the loan with HealthCare Royalty,March 2019, the Company and Curis Royalty entered into the royalty interest purchase agreement, or Oberland Purchase Agreement.Agreement, with entities managed by Oberland Capital Management, LLC, or the Purchasers. Upon closing of the Oberland Purchase Agreement, Curis Royalty received an upfront purchase price of $65.0 million from the Purchasers, approximately $33.8 million of which was used to pay off the remaining loan principal to HealthCare Royalty Partners III, L.P., or HealthCare Royalty, and $3.7 million of which was used to pay transaction costs, including $3.4 million to HealthCare Royalty in accrued and unpaid interest and prepayment fees under the loan, resulting in net proceeds of $27.5 million. Curis Royalty will also be entitled to receive milestone payments of (i) $17.2 million if the Purchasers and Curis Royalty receive aggregate royalty payments pursuant to the Oberland Purchase Agreement in excess of $18.0 million during the calendar year 2021, subject to certain exceptions, and (ii) $53.5 million if the Purchasers receive payments pursuant to the Oberland Purchase Agreement in excess of $117.0 million on or prior to December 31, 2026, which milestone payments may each be paid, at the option of the Purchasers, in a lump sum in cash or out of the Purchaser’s portion of future payments under the Oberland Purchase Agreement.
On March 3, 2023, Curis and Curis Royalty received a letter from counsel to Oberland Capital Management, LLC, the Purchasers and the Agent alleging defaults under Sections 4.04 and 6.04(b) of the Oberland Purchase Agreement and demanding cure of the asserted default under Section 6.04(b) of the Oberland Purchase Agreement. The asserted basis for the alleged defaults is that Curis and Curis Royalty were required to disclose, and failed to disclose, certain information prior to execution of the Oberland Purchase Agreement and that Curis and Curis Royalty have since failed to disclose certain information that has been requested by the Purchasers pursuant to Section 6.04(b) of the Oberland Purchase Agreement. The letter further alleges that these alleged defaults are events of default under the Oberland Purchase Agreement and that each alleged default separately entitles the Purchasers to exercise the put option, which would require Curis Royalty to repurchase the Purchased Receivables at a price, referred to as the Put/Call Price, equal to 250% of the sum of the upfront purchase price and any portion of the milestone payments paid in a lump sum by the Purchasers, if any, minus certain payments previously received by the Purchasers with respect to the Purchased Receivables. The Purchasers have not attempted to exercise that put option but have purported to reserve their alleged right to exercise it without further notice. As of the date of the filing of this annual report on Form 10-K, the estimated amount of the Put/Call Price is up to $72.5 million. The Purchasers have also reserved other asserted rights in respect of the alleged defaults, including the asserted right to seek judicial remedies, including
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for damages and rescission, and to assert alleged claims against Curis and Curis Royalty for indemnification on the basis of material breach and fraud in the inducement. Curis and Curis Royalty dispute these allegations. However, if Oberland elects to pursue these claims, and if Curis and Curis Royalty are unsuccessful in defending against these claims, it could have a material adverse impact on Curis and Curis Royalty, including their ability to continue as a going concern.
For further discussion of the Oberland Purchase Agreement, see “Liquidity and Capital Resources – Royalty Interest Purchase Agreement”. For a further discussion of risks related to the letter from Oberland Capital Management, LLC, the Purchasers and the Agent, please refer to “Risk Factors – Risks Related to our Financial Results and Need for Financing - In connection with the Oberland Purchase Agreement, we transferred and encumbered certain royalty and royalty related payments on commercial sales of Erivedge, Curis Royalty granted a first priority lien and security interest in all of its assets, including its rights to the Erivedge royalty payments, and we granted the Purchasers a first priority lien and security interest in our equity interest in Curis Royalty. As a result, in the event of a default by us or Curis Royalty we could lose all retained rights to future royalty and royalty related payments, we could be required to repurchase the Purchased Receivables at a price that is a multiple of the payments we have received, and our ability to enter into future arrangements may be inhibited, all of which could have a material adverse effect on our business, financial condition and stock price.”
Revenue. We do not expect to generate any revenues from our direct sale of products for several years, if ever. Substantially all of our revenues to date have been derived from license fees, research and development payments, and other amounts that we have received from our strategic collaborators and licensees, including royalty payments. Since the first quarter of 2012, we have recognized royalty revenues related to Genentech’s sales of Erivedge and we expect to continue to recognize royalty revenue in future quarters from Genentech’s sales of Erivedge in the U.S. and Roche’s sales of Erivedge outside of the U.S. However, a significant portion of our royalty and royalty-related revenues under our collaboration with Genentech will be paid to the Purchasers, pursuant to the Oberland Purchase Agreement. The Oberland Purchase Agreement will terminate upon the earlier to occur of (i) the date on which Curis Royalty’s rights to receive the Purchased Receivables owed by Genentech under the Genentech collaboration agreement have terminated in their entirety andor (ii) the date on which payment in
full of the put/call pricePut/Call Price is received by the Purchasers pursuant to the Purchasers’ exercise of their put option or Curis Royalty’s exercise of its call right. For additional information regarding the terms and termination provisions of this agreement, see Note 89, “Liability Related to the Sale of Future Royalties.Royalties,” to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this annual report on Form 10-K.
We could receive additional milestone payments from Genentech, provided that contractually specified development and regulatory objectives are met. Also, we could receive milestone payments from the Purchasers, provided that contractually specified royalty payment amounts are met within applicable time periods. Our only source of revenues and/or cash flows from operations for the foreseeable future will be royalty payments that are contingent upon the continued commercialization of Erivedge under thisour collaboration with Genentech, and contingent cash payments for the achievement of clinical, development and regulatory objectives, if any, that are met, under our existing collaboration with Genentech. Our receipt of additional payments under our existing collaboration with Genentech cannot be assured, nor can we predict the timing of any such payments, as the case may be.
Cost of Royalty Revenues. Cost of royalty revenues consists of all expenses incurred that are associated with royalty revenues that we record as revenues in our consolidated statementsConsolidated Statements of operationsOperations and comprehensive loss.Comprehensive Loss. These costs currently consist of payments we are obligated to make to university licensors on royalties that Curis Royalty receives from Genentech on net sales of Erivedge. In all territories other than Australia, ourOur obligation is equal to 5% of the royalty payments that we receive from Genentech for a period of 10 years from the first commercial sale of Erivedge on a country-by-country basis, which occurred in February 2012 in the U.S. In addition,During the year ended December 31, 2022, our obligation to one of the licensors expired for royalties that Curis Royalty receives from Roche’s sales of Erivedge in Australia, we were obligated to make payments to university licensors of 2% of Roche’s direct net sales in Australia until expiration of the patent which occurred in April 2019. Subsequent to April 2019,U.S. and expired entirely for the amount we are obligated to pay in Australia decreased to 5% of the royalty payments that Curis Royalty receives from Genentech.other licensor.
Research and Development. Research and development expense consists of costs incurred to develop our drug candidates. These expenses consist primarily of:
•salaries and related expenses for personnel, including stock-based compensation expense;
•costs of conducting clinical trials, including amounts paid to clinical centers, clinical research organizations and consultants, among others;
•other outside service costs including costs of contract manufacturing;
•sublicense payments;
•the costs of supplies and reagents;
•occupancy and depreciation charges; and
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•certain payments that we make to Aurigene and ImmuNext under our collaboration agreement,agreements, including, for example, option exercise fees and milestone payments; and
We expense research and development costs as incurred. We are currently incurring research and development costs under our Hedgehog signaling pathway inhibitor collaboration with Genentech related to the maintenance of third-party licenses to certain background technologies.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will increase substantially over the next several years as we conduct our clinical trials of CA-4948, CI-8993, and fimepinostat;emavusertib; prepare regulatory filings for our product candidates; continue to develop additional product candidates; and potentially advance our product candidates into later stages of clinical development.
The successful development and commercialization of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:
•our ability to successfully resolve the continuing partial clinical hold imposed by the FDA on the monotherapy expansion phase (Phase 2a);
•our ability to successfully enroll our current and future clinical trials and our ability to initiate future clinical trials,
•the scope, quality of data, rate of progress and cost of clinical trials and other research and development activities undertaken by us or our collaborators;
•the cost and timing of regulatory approvals and maintaining compliance with regulatory requirements;
•the costresults of future preclinical studies and timing of establishing sales, marketing and distribution capabilities;clinical trials;
•the cost of establishing clinical and commercial supplies of our drug candidates and any products that we may develop;
•the cost and timing of establishing sales, marketing and distribution capabilities;
•our ability to become and remain profitable, requires that we, either alone or with collaborators, must develop and eventually commercialize one or more drug candidates with significant market potential and successfully launch a product for commercial sale;
•the effect of competing technological and market developments; and
•the cost and effectiveness of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.
Any changes in the outcome of any of these variables with respect to the development of our product candidates could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA does not lift the continuing partial clinical hold on the monotherapy expansion phase (Phase 2a) of our TakeAim Leukemia Phase 1/2 trial, if the FDA or another regulatory authority were to delayotherwise delays our clinical trials or requirerequires us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time to complete clinical development of that product candidate. We may never obtain regulatory approval for any of our product candidates. DrugIf we do obtain regulatory approval for our product candidates, drug commercialization will take several years and millions of dollars in development costs.
A further discussion of some of the risks and uncertainties associated with completing our research and development programs on schedule, or at all, and some consequences of failing to do so, are set forth under “Part I, Item 1A—Risk Factors.”
General and Administrative. General and administrative expense consists primarily of salaries, stock-based compensation expense and other related costs for personnel in executive, finance, accounting, business development, legal, information technology, corporate communications and human resource functions. Other costs include facility costs not otherwise included in research and development expense, insurance, and professional fees for legal, patent and accounting services. Patent costs include certain patents covered under collaborations, a portion of which is reimbursed by collaborators and a portion of which is borne by us.
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Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires that we make estimates and assumptions that affect the reported amounts and disclosure of certain assets and liabilities at our balance sheet date. Such estimates and judgments include the carrying value of property and equipment and intangible assets, revenue recognition, the value of certain liabilities, debt classification and stock-based compensation. We base our estimates on historical experience and on various other factors that we believe to be appropriate under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies,” to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this annual report on Form 10-K, we believe that the following accounting policies arepolicy is critical to understanding the judgmentsjudgment and estimatesestimate we use in preparing our financial statements:
Our discussion of our critical accounting policiespolicy is not intended to be a comprehensive discussion of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.
Liability Related to the Sale of Future Royalties
As a result of the obligation to pay future royalties to the Purchasers, we recorded the proceeds from this transaction as a liability on our Consolidated Balance Sheet that is accounted for using the interest method over the estimated life of the Oberland Purchase Agreement. As a result, we impute interest on the transaction and record imputed interest expense at the estimated interest rate. Our estimate of the interest rate under the Oberland Purchase Agreement is based on the amount of royalty payments expected to be received by the Purchasers over the life of the arrangement. We periodically assess the expected royalty payments to Curis Royalty from Genentech using a combination of historical results and forecasts from market data sources. To the extent such payments are greater or less than the initial estimates or the timing of such payments is materially different than the original estimates, we will prospectively adjust the amortization of the liability.
Results of Operations (all amounts rounded to the nearest thousand)
Years Ended December 31, 20192022 and 2018December 31, 2021
The following table summarizes our results of operations for the years ended December 31, 2019,2022 and 2018:December 31, 2021:
| For the Year Ended December 31, | Percentage Increase/ (Decrease) | ||||||||||||||||
| 2022 | 2021 | 2022 v. 2021 | |||||||||||||||
| Revenues | $ | 10,162 | $ | 10,649 | (5) | % | |||||||||||
| Cost of royalty revenues | 257 | 533 | (52) | % | |||||||||||||
| Research and development | 43,277 | 34,884 | 24 | % | |||||||||||||
| General and administrative | 19,648 | 17,297 | 14 | % | |||||||||||||
| Other expense, net | 3,652 | 3,371 | 8 | % | |||||||||||||
| Net loss | $ | (56,672) | $ | (45,436) | 25 | % | |||||||||||
For the Year Ended December 31, | Percentage Increase/ (Decrease) | |||||||||
| 2019 | 2018 | 2019 v. 2018 | ||||||||
| Revenues | $ | 10,004 | $ | 10,428 | (4 | )% | ||||
| Cost of royalty revenues | 503 | 563 | (11 | )% | ||||||
| Research and development | 22,302 | 24,413 | (9 | )% | ||||||
| General and administrative | 11,555 | 14,785 | (22 | )% | ||||||
| Total other expense, net | 7,785 | 3,242 | >100% | |||||||
| Net loss | $ | (32,141 | ) | $ | (32,575 | ) | 1 | % | ||
Revenues, net
Total revenues, net are summarized as follows:
| For the Year Ended December 31, | Percentage Increase/ (Decrease) | ||||||||||||||||
| 2022 | 2021 | 2022 v. 2021 | |||||||||||||||
| Royalties | $ | 10,278 | $ | 10,749 | (4) | % | |||||||||||
| Other revenue | — | 1 | (100) | % | |||||||||||||
| Contra revenue, net | (116) | (101) | 15 | % | |||||||||||||
| Total revenues, net | $ | 10,162 | $ | 10,649 | (5) | % | |||||||||||
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For the Year Ended December 31, | Percentage Increase/ (Decrease) | |||||||||
| 2019 | 2018 | 2019 v. 2018 | ||||||||
| Royalties | $ | 10,418 | $ | 10,421 | — | % | ||||
| Contra revenue, net | (414 | ) | 7 | <(100%) | ||||||
| Total revenues | $ | 10,004 | $ | 10,428 | (4 | )% | ||||
Total revenues decreased by $0.4$0.5 million, or 4%5%, to $10.0$10.2 million for the year ended December 31, 20192022 as compared to $10.4$10.6 million for the year ended December 31, 2018, primarily related2021, due to an increasea decrease in the reserve for contractualErivedge royalties.
Cost of royalty reductions arising fromrevenues
Cost of royalty revenues is comprised of amounts due to third-party university patent licensors in connection with Genentech and Roche’sRoche's Erivedge net sales of Erivedge.
Research and Development Expenses. Research and development expenses are summarized as follows:
| For the Year Ended December 31, | Percentage Increase/ (Decrease) | ||||||||||||||||
| 2022 | 2021 | 2022 v. 2021 | |||||||||||||||
| Direct research and development expenses | $ | 20,691 | $ | 20,253 | 2 | % | |||||||||||
| Employee related costs | 20,025 | 12,647 | 58 | % | |||||||||||||
| Facility related costs | 2,561 | 1,984 | 29 | % | |||||||||||||
| Total research and development expenses | $ | 43,277 | $ | 34,884 | 24 | % | |||||||||||
Research and development expenses increased by $8.4 million, or 24%, to $43.3 million for the year ended December 31, 20192022, as compared to $0.6 million for the year ended December 31, 2018. The decrease reflects our obligation to make payments to two university licensors on royalties that Curis Royalty earns on Genentech’s net sales of Erivedge, which decreased in 2019 as compared to 2018.
For the Year Ended December 31, | Percentage Increase/ (Decrease) | |||||||||
| 2019 | 2018 | 2019 v. 2018 | ||||||||
| Direct research and development expenses | $ | 14,719 | $ | 10,941 | 35 | % | ||||
| Employee-related expenses | 5,921 | 11,378 | (48 | )% | ||||||
| Facilities, depreciation and other expenses | 1,662 | 2,094 | (21 | )% | ||||||
| Total research and development expenses | $ | 22,302 | $ | 24,413 | (9 | )% | ||||
headcount.
We expect that a majority of our research and development expenses for the foreseeable future will be incurred in connection with our efforts to advance our programs, including clinical and preclinical development costs, manufacturing, option exercise fees, and potential payments upon achievement of certain milestones.to our collaborators and/or licensors.
General and Administrative Expenses. General and administrative expenses are summarized as follows:
For the Year Ended December 31, | Percentage Increase/ (Decrease) | |||||||||
| 2019 | 2018 | 2019 v. 2018 | ||||||||
| Personnel | $ | 3,705 | $ | 5,277 | (30 | )% | ||||
| Occupancy and depreciation | 580 | 553 | 5 | % | ||||||
| Legal services | 2,020 | 2,906 | (30 | )% | ||||||
| Professional and consulting services | 1,842 | 2,142 | (14 | )% | ||||||
| Insurance costs | 453 | 409 | 11 | % | ||||||
| Stock-based compensation | 2,083 | 2,630 | (21 | )% | ||||||
| Other general and administrative expenses | 872 | 868 | — | % | ||||||
| Total general and administrative expenses | $ | 11,555 | $ | 14,785 | (22 | )% | ||||
| For the Year Ended December 31, | Percentage Increase/ (Decrease) | ||||||||||||||||
| 2022 | 2021 | 2022 v. 2021 | |||||||||||||||
| Employee related costs | $ | 10,404 | $ | 9,012 | 15 | % | |||||||||||
| Professional, legal, and consulting services | 5,259 | 5,471 | (4) | % | |||||||||||||
| Facility related costs | 2,580 | 1,793 | 44 | % | |||||||||||||
| Insurance costs | 1,405 | 1,021 | 38 | % | |||||||||||||
| Total general and administrative expenses | $ | 19,648 | $ | 17,297 | 14 | % | |||||||||||
General and administrative expenses decreasedincreased by $3.2$2.4 million, or 22%14%, during the year ended December 31, 2019 as compared to the prior year. The decrease in general administrative expense was driven primarily by $1.6 million of lower personnel expense primarily attributable to the departure of personnel following a reduction in headcount announced in the fourth quarter of 2018 and the departure of our former Chief Executive Officer in the third quarter of 2018. Legal services decreased $0.9 million as compared to 2018 primarily due to a reduction in intellectual property following a portfolio review of non-essential patents. Stock-based compensation decreased by $0.5 million primarily due to a lower head count in 2019 as compared to 2018, and professional and consulting services decreased by $0.3 million, offset by other general and administrative expenses for the 2019 period.
Other Expense, net
Other expense, net for the year ended December 31, 2022 primarily consisted of imputed interest expense related to debt was $0.8 million infuture royalty payments partially offset by interest income. Other expense, net for the current year as compared to $3.9 million in 2018. This decrease was a direct result of the March 22, 2019 payment to HealthCare Royalty in full satisfaction of the debt held by Curis Royalty. In March 2019 we recorded a $3.5 million loss on extinguishment of debt in conjunction with the repayment of the loan obligation to BioPharma-II. Additionally, imputed interest of $4.1 million resulting from the previously announced sale of a portion of Erivedge royalties to Oberland Capital Management was also recorded. For the years ended December 31, 2019 and 2018,2021 primarily consisted of imputed interest income was $0.6 million and $0.7 million, respectively.
Liquidity and Capital Resources
We have financed our operations primarily through private and public placements of our equity securities, license fees, contingent cash payments and research and development funding from our corporate collaborators, debt financings, and the monetization of certain royalty rights. See “Funding Requirements” below and Note 1 “Nature of Business”Business,” to our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this annual report on Form 10-K for a further discussion of our liquidity.
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At December 31, 2022, our principal sources of liquidity consisted of cash, cash equivalents, and investments of $85.6 million, excluding our restricted cash of $0.6 million. Our cash and cash equivalents are highly liquid investments with a maturity of three months or less at date of purchase. Our investments short and long-term primarily include commercial paper and securities. We maintain cash balances with financial institutions in excess of insured limits.
As of March 13, 2023, not including any FDIC-insured amounts, our exposure to SVB is immaterial. We will continue to monitor the conditions and events that raise substantial doubt regarding our ability to continue as a going concern.
situation.
Common Stock Purchase Agreement
In February 2020, wethe Company entered into a common stock purchase agreement, of up to $30.0 millionor the Agreement, with Aspire Capital Fund, LLC, or Aspire Capital. UnderCapital, for the termssale of up to $30.0 million of the agreement, Aspire Capital made an initial investment of $3.0 million throughCompany's common stock. During 2020, the purchase of 2,693,965Company issued 7,990,516 shares of our common stock. In addition, Aspire Capital committed to purchase up to an additional $27.0 million in shares of our common stock, at our request from time to time during a 30-month period at prices based on the market price at the time of each sale, subject to specified terms and limitations. As consideration for Aspire Capital’s obligation under the agreement, we issued 646,551 shares of ourCompany’s common stock to Aspire Capital asfor aggregate proceeds of $8.4 million. As of December 31, 2021, a commitment fee. Wetotal of $21.6 million remained available under the Agreement. The Company did not sell shares of common stock under the Agreement during the year ended December 31, 2022 and December 31, 2021. The Agreement expired in August 2022.
The Company also entered into a registration rights agreementRegistration Rights Agreement with Aspire Capital in connection enteringwith its entry into the agreement setting forth our obligation to maintain an effective registration statement covering any shares of common stock sold or to be sold to Aspire Capital, subject to the terms of the registration rights agreement.Agreement, which also expired in August 2022.
$6.3 million.
Debt Financing
In March 2017,April 2020, we and Curis Royalty entered into a credit agreement with HealthCare Royalty forpromissory note evidencing an unsecured $0.9 million loan, or the purpose of refinancing our and Curis Royalty’s existing royalty financing arrangement with BioPharma-II. OnPPP Loan, under the effective datePaycheck Protection Program, or PPP, of the credit agreement with Healthcare Royalty,Coronavirus Aid, Relief, and Economic Security Act, or the prior loan was terminated in its entirety. Pursuant toCARES Act as administered by the credit agreement, HealthCare Royalty madeU.S. Small Business Administration, or the SBA. Under the terms of the CARES Act, and the Paycheck Protection Program Flexibility Act of 2020, PPP Loan recipients can apply for and be granted forgiveness for all or a $45.0 million loan at an annual interest rateportion of 9.95% to Curis Royalty, which was used to pay off the $18.4 million in remaining loan obligations to BioPharma-IIloans granted under the prior loan. The residual proceedsPPP. We applied for such forgiveness in 2020 and received notification in June 2021 that the SBA had forgiven the PPP Loan in full, including interest accrued on the PPP Loan. During the year ended December 31, 2021, the Company recorded a gain of $0.9 million to Other income (expense), net for extinguishment of the loan were distributed to us as sole equity member of Curis Royalty. The final maturity date of the loan was the earlier of such date that the principal is paid in full, or Curis Royalty's right to receive royalties under the collaboration agreement with Genentech is terminated.
Royalty Interest Purchase Agreement
As upfront consideration for the purchase of the royalty rights, at closing the Purchasers paid to Curis Royalty $65.0 million less certain transaction expenses. Curis Royalty will also be entitled to receive up to approximately $70.7$53.5 million in milestone payments based on sales of Erivedge as follows: (i) $17.2 million if the Purchasers and Curis Royalty receive aggregate royalty payments pursuant to the Oberland Purchase Agreement in excess of $18.0 million during the calendar year 2021, subject to certain exceptions and (ii) $53.5 million if the Purchasers receive payments pursuant to the Oberland Purchase Agreement in excess of $117.0 million on or prior to December 31, 2026. For further discussion please refer to Note 8. 9, “Liability Related to the Sale of Future Royalties,” to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this annual report on Form 10-K.
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On March 3, 2023, Curis and Curis Royalty received a letter from counsel to Oberland Capital Management, LLC, the Purchasers and the Agent alleging defaults under the Oberland Purchase Agreement. The letter further alleges that these alleged defaults are events of default under the Oberland Purchase Agreement and that each alleged default separately entitles the Purchasers to exercise the put option, which would require Curis Royalty to repurchase the Purchased Receivables at the Put/Call Price. The Purchasers have not attempted to exercise that put option but have purported to reserve their alleged right to exercise it without further notice. As of the date of the filing of this annual report on Form 10-K, the estimated amount of the Put/Call Price is up to $72.5 million. The Purchasers have also reserved other asserted rights in respect of the alleged defaults, including the asserted right to seek judicial remedies, including for damages and rescission, and to assert alleged claims against Curis and Curis Royalty for indemnification on the basis of material breach and fraud in the inducement. Curis and Curis Royalty dispute these allegations. However, if Oberland elects to pursue these claims, and if Curis and Curis Royalty are unsuccessful in defending against these claims, it could have a material adverse impact on Curis and Curis Royalty, including their ability to continue as a going concern.
For a further discussion please refer to “Financial Operations Overview–Liability Related to the Sale of Future Royalties.Royalties” above. For a further discussion of risks related to the letter from Oberland Capital Management, LLC, the Purchasers and the Agent, please refer to “Risk Factors – Risks Related to our Financial Results and Need for Financing - In connection with the Oberland Purchase Agreement, we transferred and encumbered certain royalty and royalty related payments on commercial sales of Erivedge, Curis Royalty granted a first priority lien and security interest in all of its assets, including its rights to the Erivedge royalty payments, and we granted the Purchasers a first priority lien and security interest in our equity interest in Curis Royalty. As a result, in the event of a default by us or Curis Royalty we could lose all retained rights to future royalty and royalty related payments, we could be required to repurchase the Purchased Receivables at a price that is a multiple of the payments we have received, and our ability to enter into future arrangements may be inhibited, all of which could have a material adverse effect on our business, financial condition and stock price.”
Milestone Payments and Monetization of Royalty Rights
We have received aggregate milestone payments totaling $59.0 million under our collaboration with Genentech since 2012. In addition, we began receiving royalty revenues in 2012 in connection with Genentech’s sales of Erivedge in the U.S. and Roche’s sales of Erivedge outside of the U.S. Erivedge royalty revenues received after December 2012 have been used to repay Curis Royalty’s outstanding principal and interest under the loans due to BioPharma-II and HealthCare Royalty.credit agreements. A portion of Erivedge royalty and royalty-related revenue payments will be paid to the Purchasers pursuant to the Oberland Purchase Agreement. We also remain entitled to receive any contingent payments upon achievement of clinical development objectives and royalty payments related to sales of Erivedge pursuant to our collaboration agreement with Genentech and certain contingent payments upon achievement of contractually specified royalty revenue payment amounts related to sales of Erivedge pursuant to the Oberland Purchase Agreement. Upon receipt of any such payments, as well as on royalties received, in any territory other than Australia, we are required to make payments to certain university licensors totaling 5% of these amounts. In addition, for royalties that Curis Royalty receives from Roche’s sales of Erivedge in Australia, we were obligatedamounts, subject to make payments to university licensors of 2% of Roche’s direct net sales in Australia until the expiration of the patent in April 2019. After April 2019, the amount we were obligated to pay decreased to 5% of the royalty payments that Curis Royalty receives from Genentech.
Cash Flows from Operating Activities
Cash flows from operating activities consist of our net loss adjusted for operations have primarily beenvarious non-cash items and changes in operating assets and liabilities. Cash used for salariesin operating activities during 2022 and wages for our employees, facility2021 was $54.3 million and facility-related costs for our office and laboratory, fees paid in connection with preclinical and clinical studies, laboratory supplies, consulting fees and legal fees. We expect that costs associated with clinical studies will increase in future periods.
$37.6 million, respectively. Net cash used in operatingoperations increased $16.7 million in 2022 compared to 2021 primarily due to increased research and development expenses and timing of payments.
Cash flows From Investing Activities
Investing activities provided $33.0 million of $26.2cash in 2022 and used $47.9 million during the year ended December 31, 2019of cash in 2021. Cash provided by investing activities in 2022 was primarily the resultdue to sales and maturities of our net loss for the period of $32.1 million,investments partially offset by non-cash charges consistingpurchases of $2.7 millioninvestments. Cash used by investing activities in stock-based compensation, $3.5 million related2021 was due to the loss on extinguishment of debt, $1.0 million of non-cash lease expense, and $0.3 million of non-cash imputed interest expense related to the sale of future royalties. Accounts payable and accrued and other liabilities increased $0.1 million, accounts receivable increased $0.4 million related to an increase in fourth quarter Erivedge
Cash Flows From Financing Activities
Financing activities provided $0.9 million of cash in 2022 and used $4.2 million of $23.3 million for the year ended December 31, 2019. Thiscash in 2021. Cash provided by financing activities in 2022 was primarily due to proceeds from the $65.0 million in gross proceeds we received from Oberland Capital (Note 8) which was partially2021 Sales Agreement, offset by $37.2 million in payments made to terminate our credit agreement with HealthCare Royalty Partners. In addition, we made payments of $2.2 million related to the royalty interest purchase agreement withfor the Oberland Capital and we made principalPurchase Agreement. Cash used in financing activities in 2021 was primarily due to payments on Curis Royalty's loan with HealthCare Royalty of $1.8 million, and received $0.1 million in proceeds from the sale of common stock related to our stock-based compensation plans.
Funding Requirements
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We have incurred significant losses since our inception. As of December 31, 2019,2022, we had an accumulated deficit of approximately $1.0$1.1 billion. We will require substantial funds to continue our research and development programs and to fulfill our planned operating goals. In particular, our currentlyOur planned operating and capital requirements currently include the need for working capital to support of our current and future research and development activities for CA-4948, CI-8993,emavusertib as well as development candidates we have and fimepinostat, and other programscontinue to license under our collaborationcollaborations with Aurigene and ImmuNext. We will require substantial additional capital to fund the further development of these programs, as well as to fund our general and administrative costs and expenses. Moreover, our agreements with collaborators impose significant potential financial obligations on us. For example, under our collaboration, license and option agreement with Aurigene, we are required to make milestone, royalty and option fee payments for discovery, research and preclinical development programs that will be performed by Aurigene, which impose significant potential financial obligations on us. In addition, if we choose to exercise our option under the ImmuNext Agreement, we will be required to make milestone, royalty, and option fee payments in connection with the development of CI-8993.
Based onupon our available cash resources,current operating plan, we do not have sufficient cash on hand to support current operations within the next 12 months from the date of filing this annual report on Form 10-K and anticipatebelieve that our $20.5 million of existing cash, cash equivalents and investments of $85.6 million as of December 31, 2019,2022, should enable us to maintainfund our plannedoperating expenses and capital expenditure requirements into 2025. We have based this assessment on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. If we are unable to obtain sufficient funding, we will be forced to delay, reduce in scope or eliminate some of our research and development programs, including related clinical trials and operating expenses, potentially delaying the time to market for, or preventing the marketing of, any of our product candidates, which could adversely affect our business prospects and our ability to continue operations, intoand would have a negative impact on our financial condition and our ability to pursue our business strategies. For example, in November 2022 we announced that to further advance the second halfdevelopment of 2020.emavusertib, we are concentrating our resources to focus on and accelerate emavusertib. Resources have been reallocated to the emavusertib programs and resources dedicated to all other pipeline programs have been reduced. Our ability to raise additional funds will depend on financial, economic and market conditions, many of which are outside of our control, and we may be unable to raise financing when needed, or on terms favorable to us. Weus, or at all. In addition, we may seek to engage in one or more strategic alternatives, such as a strategic partnership with one or more parties, the licensing, sale or divestiture of some of our assets or proprietary technologies or the sale of our company, but there can be no assurance that we would be able to enter into such a transaction or transactions on a timely basis or on terms favorable to us, or at all. Our failure to raise capital through a financing or strategic alternative as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. If we are unable to raise sufficient capital we would be unable to obtain additional funding on acceptable terms,fund our operations and may be required to evaluate alternatives, which could include dissolving and liquidating our assets or seeking protection under the bankruptcy laws, and a determination to file for bankruptcy could occur at all. Factorsa time that is earlier than when we would otherwise exhaust our cash resources. If we decide to dissolve and liquidate our assets or to seek protection under the bankruptcy laws, it is unclear to what extent we would be able to pay our obligations, and, accordingly, it is further unclear whether and to what extent any resources would be available for distributions to stockholders.
Furthermore, there are a number of factors that may affect our planned future capital requirements and further accelerate our need for additional working capital, includemany of which are outside our control, including the following:
•unanticipated costs in our research and development programs;programs, such as costs relating to our efforts to resolve the continuing partial clinical hold imposed by the FDA on our TakeAim Leukemia Phase 1/2 trial;
•the timing and cost of obtaining regulatory approvals for our drug candidates and maintaining compliance with regulatory requirements;
•the costs of commercialization activities for any of our drug candidates that receive marketing approval, to the extent such costs are our responsibility, including the costs and timing of establishing drug sales, marketing, distribution and manufacturing capabilities;
•unplanned costs to prepare, file, prosecute, defend and enforce patent claims and other patent-related costs, including litigation costs and technology license fees; and
•unexpected losses in our cash investments or an inability to otherwise liquidate or access our cash investments due to unfavorable conditions in the capital markets.markets, including volatility and instability in the capital markets; and
•our ability to continue as a going concern.
To become and remain profitable, we, either alone or with collaborators, must develop and eventually commercialize one or more drug candidates with significant market potential. This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of our drug candidates, obtaining marketing approval for these drug candidates, manufacturing, marketing and selling those drugs for which we may obtain marketing approval and satisfying any post marketing requirements. We may never succeed in these activities and, even if we do, may never generate
90
revenues that are significant or large enough to achieve profitability. Other than Erivedge, which is being commercialized by Genentech and Roche, our most advanced drug candidates are currently only in early clinical testing.
For the foreseeable future, we will need to spend significant capital in an effort to develop and commercialize products and we expect to incur substantial operating losses. Our failure to become and remain profitable would, among other things, depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our research and development programs or continue our operations.
Contractual Obligations
| Payment Due By Period (amounts in 000’s) | |||||||||||||||||||
| Total | Less than One Year | One to Three Years | Three to Five Years | More than Five Years | |||||||||||||||
| Operating lease obligations (1) | $ | 8,509 | $ | 984 | $ | 2,260 | $ | 2,397 | $ | 2,868 | |||||||||
| Outside service obligations (2) | 779 | 434 | 345 | — | — | ||||||||||||||
| Licensing obligations (3) | 382 | 307 | 75 | — | — | ||||||||||||||
| Total future obligations | $ | 9,670 | $ | 1,725 | $ | 2,680 | $ | 2,397 | $ | 2,868 | |||||||||
New Accounting Pronouncements
See Note 2, "Summary of Significant Accounting Policies," to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this annual report on Form 10-K for a description of recent accounting pronouncements applicable to our business.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Curis, Inc.
We have audited the accompanying consolidated balance sheets of Curis, Inc. and its subsidiaries (the “Company”) as of December 31, 20192022 and 2018,2021, and the related consolidated statements of operations and comprehensive loss, of stockholders'stockholders’ equity (deficit) and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20192022 and 2018, 2021, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinion
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effectivefraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting was maintained in all material respects.but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.opinion.
Critical Audit Matters
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Liability Related to the Sale of Future Royalties
As described in Note 9 to the consolidated financial statements, the Company entered into a royalty interest purchase agreement (“Oberland Purchase Agreement”) in 2019 with entities managed by Oberland Capital Management, LLC (“the Purchasers”). The Company sold to the Purchasers a portion of its rights to receive royalties from Genentech on potential net sales of Erivedge. As a result of the assetsobligation to pay future royalties to the Purchasers, management recorded the proceeds from this transaction as a liability on its consolidated balance sheet accounted for using the interest method over the estimated life of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
The principal considerations for our determination that performing procedures relating to the liability related to the sale of future royalties is a critical audit matter are the (i) high degree of auditor judgment and subjectivity in applying procedures relating to the fair value measurement of the company’s assets that could have a material effectliability due to the significant amount of judgment by management when developing the estimate and (ii) significant audit effort in evaluating the revenue growth rate and in evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements.
| /s/ PricewaterhouseCoopers LLP | ||
| Boston, Massachusetts | ||
| March | ||
We have served as the Company's auditor since 2002.
92
CURIS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share data)
The accompanying notes are an integral part of these consolidated financial statements.
| December 31, | |||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| ASSETS | |||||||||||||||||
| Current assets: | |||||||||||||||||
| Cash and cash equivalents | $ | 19,658 | $ | 40,014 | |||||||||||||
| Short-term investments | 65,965 | 75,870 | |||||||||||||||
| Accounts receivable | 2,975 | 3,224 | |||||||||||||||
| Prepaid expenses and other current assets | 3,521 | 3,267 | |||||||||||||||
| Total current assets | 92,119 | 122,375 | |||||||||||||||
| Long-term investments | — | 23,964 | |||||||||||||||
| Property and equipment, net | 689 | 505 | |||||||||||||||
| Restricted cash, long-term | 635 | 726 | |||||||||||||||
| Operating lease right-of-use asset | 4,401 | 5,749 | |||||||||||||||
| Goodwill | 8,982 | 8,982 | |||||||||||||||
| Other assets | 2,022 | — | |||||||||||||||
| Total assets | $ | 108,848 | $ | 162,301 | |||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||
| Current liabilities: | |||||||||||||||||
| Accounts payable | $ | 3,193 | $ | 6,417 | |||||||||||||
| Accrued liabilities | 5,679 | 6,339 | |||||||||||||||
| Current portion of operating lease liability | 1,141 | 682 | |||||||||||||||
| Total current liabilities | 10,013 | 13,438 | |||||||||||||||
| Long-term operating lease liability | 2,800 | 4,358 | |||||||||||||||
| Liability related to the sale of future royalties, net | 49,483 | 53,798 | |||||||||||||||
| Total liabilities | 62,296 | 71,594 | |||||||||||||||
Commitments and contingencies, Note 7 | |||||||||||||||||
| Stockholders’ equity (deficit): | |||||||||||||||||
| Common stock, $0.01 par value—227,812,500 shares authorized, 96,607,586 shares issued and outstanding at December 31, 2022; 227,812,500 shares authorized, 91,645,369 shares issued and outstanding at December 31, 2021 | 966 | 916 | |||||||||||||||
| Additional paid-in capital | 1,194,769 | 1,182,225 | |||||||||||||||
| Accumulated deficit | (1,148,997) | (1,092,325) | |||||||||||||||
| Accumulated other comprehensive loss | (186) | (109) | |||||||||||||||
| Total stockholders’ equity | 46,552 | 90,707 | |||||||||||||||
| Total liabilities and stockholders’ equity | $ | 108,848 | $ | 162,301 | |||||||||||||
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| December 31, | |||||||
| 2019 | 2018 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 15,430 | $ | 23,636 | |||
| Restricted cash | 153 | — | |||||
| Investments | 5,113 | 634 | |||||
| Accounts receivable | 3,244 | 2,864 | |||||
| Prepaid expenses and other current assets | 1,063 | 827 | |||||
| Total current assets | 25,003 | 27,961 | |||||
| Property and equipment, net | 154 | 267 | |||||
| Restricted cash | 816 | 153 | |||||
| Operating lease right-of-use asset | 149 | — | |||||
| Goodwill | 8,982 | 8,982 | |||||
| Other assets | 3 | 2 | |||||
| Total assets | $ | 35,107 | $ | 37,365 | |||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 4,465 | $ | 2,909 | |||
| Accrued liabilities | 1,910 | 3,457 | |||||
| Operating lease liability | 166 | — | |||||
| Current portion of long-term debt, net | — | 6,884 | |||||
| Total current liabilities | 6,541 | 13,250 | |||||
| Long-term debt, net | — | 28,600 | |||||
| Liability related to the sale of future royalties, net | 62,477 | — | |||||
| Other long-term liabilities | — | 11 | |||||
| Total liabilities | 69,018 | 41,861 | |||||
| Stockholders’ deficit: | |||||||
| Common stock, $0.01 par value—101,250,000 shares authorized, 33,241,793 shares issued and outstanding at December 31, 2019; 67,500,000 shares authorized, 33,159,253 shares issued and outstanding at December 31, 2018 | 332 | 332 | |||||
| Additional paid-in capital | 982,738 | 980,012 | |||||
| Accumulated deficit | (1,016,981 | ) | (984,840 | ) | |||
| Total stockholders’ deficit | (33,911 | ) | (4,496 | ) | |||
| Total liabilities and stockholders’ deficit | $ | 35,107 | $ | 37,365 | |||
CURIS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
| Years Ended December 31, | |||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Revenues, net: | |||||||||||||||||
| Royalties | $ | 10,278 | $ | 10,749 | |||||||||||||
| Other revenue | — | $ | 1 | ||||||||||||||
| Contra revenue, net | (116) | (101) | |||||||||||||||
| Total revenues, net | 10,162 | 10,649 | |||||||||||||||
| Operating expenses: | |||||||||||||||||
| Cost of royalties | 257 | 533 | |||||||||||||||
| Research and development | 43,277 | 34,884 | |||||||||||||||
| General and administrative | 19,648 | 17,297 | |||||||||||||||
| Total operating expenses | 63,182 | 52,714 | |||||||||||||||
| Loss from operations | (53,020) | (42,065) | |||||||||||||||
| Other expense: | |||||||||||||||||
| Interest income | 1,119 | 211 | |||||||||||||||
| Expense related to the sale of future royalties | (4,771) | (4,472) | |||||||||||||||
| Other income | — | 890 | |||||||||||||||
| Total other expense | (3,652) | (3,371) | |||||||||||||||
| Net loss | $ | (56,672) | $ | (45,436) | |||||||||||||
| Net loss per common share (basic and diluted) | $ | 0.61 | $ | 0.50 | |||||||||||||
| Weighted average common shares (basic and diluted) | 93,392,515 | 91,569,154 | |||||||||||||||
| Comprehensive loss: | |||||||||||||||||
| Net Loss | (56,672) | (45,436) | |||||||||||||||
| Other comprehensive loss: | |||||||||||||||||
| Unrealized loss on marketable securities | (77) | (106) | |||||||||||||||
| Total comprehensive loss | $ | (56,749) | $ | (45,542) | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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CURIS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive LossStockholders’ Equity (Deficit)
(In thousands, except share and per share data)
| Years Ended December 31, | |||||||
| 2019 | 2018 | ||||||
| Revenues, net: | |||||||
| Royalties | $ | 10,418 | $ | 10,421 | |||
| Contra revenue, net | (414 | ) | 7 | ||||
| Total revenues, net | 10,004 | 10,428 | |||||
| Costs and expenses: | |||||||
| Cost of royalties | 503 | 563 | |||||
| Research and development | 22,302 | 24,413 | |||||
| General and administrative | 11,555 | 14,785 | |||||
| Total costs and expenses | 34,360 | 39,761 | |||||
| Loss from operations | (24,356 | ) | (29,333 | ) | |||
| Other expense: | |||||||
| Loss on debt extinguishment | (3,495 | ) | — | ||||
| Interest income | 614 | 684 | |||||
| Imputed interest expense related to the sale of future royalties | (4,055 | ) | — | ||||
| Interest expense, debt | (791 | ) | (3,926 | ) | |||
| Other income (expense), net | (58 | ) | — | ||||
| Total other expense | (7,785 | ) | (3,242 | ) | |||
| Net loss | $ | (32,141 | ) | $ | (32,575 | ) | |
| Net loss per common share (basic and diluted) | $ | (0.97 | ) | $ | (0.98 | ) | |
| Weighted average common shares (basic and diluted) | 33,180,516 | 33,118,393 | |||||
| Net loss | $ | (32,141 | ) | $ | (32,575 | ) | |
| Other comprehensive gain | |||||||
| Unrealized gain on marketable securities | — | 2 | |||||
| Comprehensive loss | $ | (32,141 | ) | $ | (32,573 | ) | |
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2020 | 91,502,461 | $ | 915 | $ | 1,176,647 | $ | (1,046,889) | $ | (3) | $ | 130,670 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Recognition of stock-based compensation | — | — | 5,279 | — | — | 5,279 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuances of common stock under stock-based compensation plans | 142,908 | 1 | 299 | — | — | 300 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized loss on marketable securities | — | — | — | — | (106) | (106) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (45,436) | — | (45,436) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | 91,645,369 | 916 | 1,182,225 | (1,092,325) | (109) | $ | 90,707 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recognition of stock-based compensation | — | — | 6,752 | — | — | 6,752 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuances of common stock under stock-based compensation plans | 378,522 | 4 | 244 | — | — | 248 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares in connection with 2021 Sales Agreement, net of fees of $0.7 million for issuance of shares | 4,583,695 | 46 | 5,548 | — | — | 5,594 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized loss on marketable securities | — | — | — | — | (77) | (77) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (56,672) | — | (56,672) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | 96,607,586 | 966 | $ | 1,194,769 | $ | (1,148,997) | $ | (186) | $ | 46,552 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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CURIS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity (Deficit)Cash Flows
(In thousands, except share data)
| Common Stock | Additional Paid-in Capital | Treasury Stock | Accumulated Deficit | Accumulated Other Comprehensive Income/(Loss) | Total Stockholders’ Equity | |||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||
| Balance, December 31, 2017 | 33,075,949 | $ | 331 | $ | 977,453 | $ | (1,524 | ) | $ | (952,265 | ) | $ | (2 | ) | $ | 23,993 | ||||||||||
| Issuance of common stock under grant of restricted stock awards | 294,250 | 3 | (3 | ) | — | — | — | — | ||||||||||||||||||
| Issuances of common stock upon the exercise of stock options and for purchases under the ESPP | 101,623 | 1 | 142 | — | — | — | 143 | |||||||||||||||||||
| Recognition of stock-based compensation | — | — | 3,941 | — | — | — | 3,941 | |||||||||||||||||||
| Cancellation of restricted stock awards | (68,000 | ) | (1 | ) | 1 | — | — | — | — | |||||||||||||||||
| Retirement of treasury stock | (244,569 | ) | (2 | ) | (1,522 | ) | 1,524 | — | — | — | ||||||||||||||||
| Other comprehensive income | — | — | — | — | — | 2 | 2 | |||||||||||||||||||
| Net loss | — | — | — | — | (32,575 | ) | — | (32,575 | ) | |||||||||||||||||
| December 31, 2018 | 33,159,253 | 332 | 980,012 | — | (984,840 | ) | — | (4,496 | ) | |||||||||||||||||
| Issuances of common stock upon the exercise of stock options and for purchases under the ESPP | 91,013 | — | 68 | — | — | — | 68 | |||||||||||||||||||
| Recognition of stock-based compensation | — | — | 2,658 | — | — | — | 2,658 | |||||||||||||||||||
| Cancellation of restricted stock awards | (8,473 | ) | — | — | — | — | — | — | ||||||||||||||||||
| Net Loss | — | — | — | — | (32,141 | ) | — | (32,141 | ) | |||||||||||||||||
| Balance, December 31, 2019 | 33,241,793 | $ | 332 | $ | 982,738 | $ | — | $ | (1,016,981 | ) | $ | — | $ | (33,911 | ) | |||||||||||
| Years Ended December 31, | |||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net loss | $ | (56,672) | $ | (45,436) | |||||||||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||||||||
| Depreciation and amortization | 233 | 158 | |||||||||||||||
| Non-cash lease expense | 1,158 | 828 | |||||||||||||||
| Stock-based compensation expense | 6,752 | 5,279 | |||||||||||||||
| Non-cash expense related to the sale of future royalties | 659 | 36 | |||||||||||||||
| Amortization of premiums and (discounts) on marketable securities | 351 | 1,402 | |||||||||||||||
| Gain on forgiveness of PPP loan | — | (890) | |||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Accounts receivable | 249 | (181) | |||||||||||||||
| Prepaid expenses and other assets | (254) | (2,049) | |||||||||||||||
| Other assets | (2,022) | — | |||||||||||||||
| Accounts payable and accrued and other liabilities | (3,884) | 4,965 | |||||||||||||||
| Operating lease liability | (907) | (1,731) | |||||||||||||||
| Total adjustments | 2,335 | 7,817 | |||||||||||||||
| Net cash used in operating activities | (54,337) | (37,619) | |||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Purchases of investments | (62,000) | (93,125) | |||||||||||||||
| Sales and maturities of investments | 95,439 | 45,230 | |||||||||||||||
| Purchases of property and equipment | (416) | — | |||||||||||||||
| Net cash provided by (used in) investing activities | 33,023 | (47,895) | |||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Proceeds from issuance of common stock associated with 2021 Sales Agreement, net of issuance costs | 5,594 | — | |||||||||||||||
| Proceeds from issuance of common stock under the Company’s stock-based compensation plans | 248 | 300 | |||||||||||||||
| Payment of liability of future royalties, net of imputed interest | (4,975) | (4,472) | |||||||||||||||
| Net cash provided by (used in) financing activities | 867 | (4,172) | |||||||||||||||
| Net decrease in cash and cash equivalents and restricted cash | (20,447) | (89,686) | |||||||||||||||
| Cash and cash equivalents and restricted cash, beginning of period | 40,740 | 130,426 | |||||||||||||||
| Cash and cash equivalents and restricted cash, end of period | $ | 20,293 | $ | 40,740 | |||||||||||||
| Supplemental cash flow data: | |||||||||||||||||
| Cash paid for interest | 4,112 | 4,437 | |||||||||||||||
| Decrease in right-of-use assets and operating lease liabilities resulting from lease modification | 191 | — | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
96
| Years Ended December 31, | |||||||
| 2019 | 2018 | ||||||
| Cash flows from operating activities: | |||||||
| Net loss | $ | (32,141 | ) | $ | (32,575 | ) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
| Depreciation and amortization | 125 | 177 | |||||
| Non-cash lease expense | 956 | — | |||||
| Stock-based compensation expense | 2,658 | 3,940 | |||||
| Amortization of debt issuance costs | 8 | 35 | |||||
| Non-cash imputed interest expense related to the sale of future royalties | 287 | — | |||||
| Non-cash interest income on investments | (64 | ) | (147 | ) | |||
| Loss on extinguishment of debt | 3,495 | — | |||||
| Loss on disposal of fixed assets | 29 | 7 | |||||
| Changes in operating assets and liabilities: | |||||||
| Accounts receivable | (380 | ) | 209 | ||||
| Prepaid expenses and other assets | (237 | ) | 162 | ||||
| Accounts payable and accrued and other liabilities | 60 | (1,873 | ) | ||||
| Operating lease liability | (1,001 | ) | — | ||||
| Total adjustments | 5,936 | 2,510 | |||||
| Net cash used in operating activities | (26,205 | ) | (30,065 | ) | |||
| Cash flows from investing activities: | |||||||
| Purchases of investments | (11,465 | ) | (26,741 | ) | |||
| Sales and maturities of investments | 7,050 | 48,200 | |||||
| Purchases of property and equipment | (41 | ) | (85 | ) | |||
| Net cash (used in) provided by investing activities | (4,456 | ) | 21,374 | ||||
| Cash flows from financing activities: | |||||||
| Proceeds from royalty interest purchase agreement with Oberland Capital Management, LLC | 65,000 | — | |||||
| Payment of transaction costs on royalty interest purchase agreement | (584 | ) | — | ||||
| Proceeds from issuance of common stock under the Company’s stock-based compensation plans | 68 | 143 | |||||
| Payment of liability of future royalties, net of imputed interest | (2,226 | ) | — | ||||
| Payment on termination of credit agreement with HealthCare Royalty Partners, III, L.P. | (37,162 | ) | — | ||||
| Payments made on Curis Royalty’s debt | (1,825 | ) | (6,104 | ) | |||
| Net cash provided by (used in) financing activities | 23,271 | (5,961 | ) | ||||
| Net (decrease) increase in cash and cash equivalents and restricted cash | (7,390 | ) | (14,652 | ) | |||
| Cash and cash equivalents and restricted cash, beginning of period | 23,789 | 38,441 | |||||
| Cash and cash equivalents and restricted cash, end of period | $ | 16,399 | $ | 23,789 | |||
| Supplemental cash flow data: | |||||||
| Cash paid for interest | $ | 4,716 | $ | 3,919 | |||
Notes to Consolidated Financial Statements
(1)Nature of Business
Curis, Inc. is a biotechnology company focused on the development of first-in-classseeking to develop and commercialize innovative therapeutics for the treatment ofdrug candidates to treat cancer. Throughout this Annual Report on Form 10-K,these consolidated financial statements, Curis, Inc. and ourits wholly owned subsidiaries are collectively referred to as “the Company,” “Curis,” “we,” “us,” or “our.”
The Company conducts its research and development programs both internally and through strategic collaborations. The Company’sCompany has prioritized its lead clinical stage drug candidates are CA-4948, CI-8993, and fimepinostat:candidate emavusertib, an orally available small molecule inhibitor of Interleukin-1 receptor associated kinase 4 (“IRAK4”).
Company’s workforce. The Company’s deprioritized programs include: CI-8993, a monoclonal antibody designed to antagonize the V-domain Ig suppressor of T cell activation (“VISTA”) signaling pathway, whichpathway; fimepinostat, a small molecule that potently inhibits the Company plans to begin clinical testing inactivity of histone deacetylase and phosphotidyl-inositol 3 kinase enzymes; and CA-170, a Phase 1a/1b trial in 2020.
PD-L1. The Company's pipeline includes CA-170, for which the Company announced initial data from a clinical study in patients with mesothelioma, in conjunction with the Societypre-clinical development candidates include CA-327, an orally available small molecule antagonist of lmmunotherapy of Cancer conference in November 2019. Based on this data, no further patients will be enrolled in the study. The Company is currently evaluating future studies for CA-170.PD-L1 and TIM3.
The Company is party to a collaboration with Genentech Inc. (“Genentech”), a member of the Roche Group, under which Genentech and F. Hoffmann-La Roche Ltd (“Roche”) and Genentech are commercializing Erivedge® Erivedge® (vismodegib), a first-in-class orally administered small molecule Hedgehog signaling pathway inhibitor.antagonist. Erivedge is approved for the treatment of advanced basal cell carcinoma (“BCC”).
In January 2015, the Company entered into an exclusive collaboration agreement with Aurigene Discovery Technologies Limited (“Aurigene”) for the discovery, development and ascommercialization of small molecule compounds in the areas of immuno-oncology and precision oncology, which was amended in September 2016 and February 2020,2020.
In addition, the Company entered intois a collaboration, option and license agreement focused on immuno-oncology and selected precision oncology targets with Aurigene Discovery Technologies Limited (“Aurigene”).
license agreement, to obtain an exclusive license to develop and commercialize certain VISTA antagonizing compounds, including ImmuNext's lead compound, CI-8993, and products containing these compounds in the field of oncology.
The Company is subject to risks common to companies in the biotechnology industry as well as risks that are specific to the Company’s business, including, but not limited to: the Company’s ability to obtain adequate financing to fund its operations; the Company’s ability to advance and expand its research and development programs; the Company’s reliance on Aurigene to successfully discover and preclinically develop drug candidates under the parties’ collaboration agreement; the Company’s reliance on Roche and Genentech to successfully commercialize Erivedge in the approved indication of advanced BCC and to progress its clinical development in indications other than BCC; the Company’s ability to obtain adequate financing to fundexecute on its operations; the ability of the Company and its wholly owned subsidiary, Curis Royalty, LLC (“Curis Royalty”) to satisfy the terms of the royalty interest purchase agreement (the “Oberland Purchase Agreement”) with TPC Investments I LP and TPC Investments II LP, referred to as the Purchasers, each of which is a Delaware limited partnership managed by Oberland Capital Management, LLC, and Lind SA LLC, referred to as the Agent, a Delaware limited liability company managed by Oberland Capital Management, LLC, as collateral agent for the Purchasers;overall business strategies; the Company’s ability to obtain and maintain necessary intellectual property protection; development by the Company’s competitors of new or better technological innovations; the Company's dependence on key personnel; the Company’s ability to comply with regulatory requirements; the Company's ability to obtain and maintain applicable regulatory approvals and commercialize any approved product candidates,candidates; the ability of the Company and its wholly owned subsidiary, Curis Royalty, LLC (“Curis Royalty”), to satisfy the terms of the royalty interest purchase agreement (the “Oberland Purchase Agreement”) with entities managed by Oberland Capital Management, LLC (the “Purchasers”); and the Company’s ability to executemaintain its listing on its overall business strategies.the Nasdaq Global Stock Market.
The Company’s future operating results will largely depend on the progress of drug candidates currently in its development pipeline and the magnitude of payments that it may receive and make under its current and potential future collaborations. The results of the Company’s operations have varied and will likely continue to vary significantly from year to year and quarter to quarter and depend on a number of factors, including, but not limited to:to the timing, outcome and cost of the Company’s preclinical studies and clinical trials for its drug candidates; Aurigene’s abilitycandidates.
The Company will require substantial funds to successfully discovermaintain research and develop preclinicaldevelopment programs under the Company’s collaboration with Aurigene, as well as the Company’s decision to exclusively license and further develop programs under this collaboration; Roche and Genentech’s ability to successfully commercialize Erivedge; and positive results in Roche and Genentech’s ongoing clinical trials.
support operations. The Company has incurred losses and negative cash flows from operations since its inception. As of December 31, 2019,2022, the Company had an accumulated deficit of approximately $1.0$1.1 billion, incurred a net loss of $32.1$56.7 million and used $26.2$54.3 million of cash in operations.operations for the year ended December 31, 2022. The Company expects to continue to generate operating losses in the foreseeable future. The Company anticipates that its $20.5$85.6 million of existing cash, cash equivalents and investments at December 31, 2019 should enable it2022 will be sufficient to maintain its planned operations into the second half of 2020. Based on the Company's available cash resources, recurring losses and cash outflows from operations since inception, an expectation of continuing operating losses and cash outflows fromfund operations for the foreseeable future and the need to raise additional capital to finance our future operations, the Company concluded it does not have sufficient cash on hand to support current operations within the nextat least 12 months from the date of filing this Annual Report on Form 10-K. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company expects to finance its operations through its common stock purchase agreement with Aspire Capital Fund LLC, or Aspire Capital, and its at-the-market sales agreement with JonesTrading Institutional Services LLC, or JonesTrading or other potential equity financings, debt financings or other capital sources. However, the Company may not be successful in securing additional financing on acceptable terms, or at all. issuance of these financial statements.
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The Company’s ability to raise additional funds will depend, among other factors, on financial, economic and market conditions, many of which are outside of its control and it may be unable to raise financing when needed, or on terms favorable to the Company. If necessary funds are not available, the Company will have to delay, reduce the scope of, or eliminate some of its development programs, potentially delaying the time to market for or preventing the marketing of any of its product candidates.
(a)Basis of common stock outstanding, average numberPresentation and Principles of shares outstanding and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split on a retroactive basis (see Note 12).Consolidation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. (“GAAP”) and include the accounts of our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whetherand determined that there are no conditions and events,
considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the Consolidated Financial Statements are issued.
(b)Use of Estimates and Assumptions
The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United StatesGAAP requires management to make estimates and assumptions that affect the reported amounts and disclosure of revenue, expenses and certain assets and liabilities at the balance sheet date. Such estimates include revenue recognition, including estimates related to the performance obligations under the Company’s collaboration agreements; the estimated repayment term of the Company’s debt and related short and long-term classification; the collectability of receivables; the carrying value of propertygoodwill; and equipment and intangible assets; the assumptions used in the Company’s valuation of stock-based compensation and the value of certain investments and liabilities. Actual results may differ from such estimates.
(c)Cash Equivalents, Restricted |
Cash equivalents consist of short-term, highly liquid investments purchased with original maturities of three months or less. All other liquid investments are classified as marketable securities.
The Company classified $1.0$0.6 million and $0.2$0.7 million of its cash as restricted cash, as of December 31, 20192022 and 2018. ThisDecember 31, 2021, respectively. These amount represents the security deposit delivered to the respective landlords ofassociated with the Company's current and future Lexington, Massachusetts headquarters.
The Company’s short-term investments are marketable debt securities with original maturities of greater than three months from the date of purchase, but less than twelve months from the balance sheet date, and long-term investments are marketable debt securities with original maturities of greater than twelve months from the balance sheet. Marketable securities consist of commercial paper, corporate bonds and notes, andand/or government obligations. All of the Company’s investments have been designated available-for-sale and are stated at fair value. Unrealized gains and temporary losses on investments are included in accumulated other comprehensive income (loss) as a separate component of stockholders’ equity.deficit. Realized gains and losses, dividends and interest income are included in other income (expense) in the period during which the securities are sold. Any premium or discount arising at purchase is amortized and/or accreted to interest income.
(d)Concentrations and Significant Customer Information
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, marketable securities, and accounts receivable. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. The Company’s credit risk related to investments is reduced as a result of the Company’s policy to limit the amount invested in any one issue. As of December 31, 2019,2022, the Company did not have a material concentration in any single investment.
The Company’s accounts receivable at December 31, 20192022 and 2018December 31, 2021 represents amounts due from collaborators, primarily for royalties earned on sales of Erivedge by Genentech and Roche.
The Company relies on third-parties to supply certain raw materials necessary to produce its drug candidates, including CA-4948, CI-8993, and fimepinostat,emavusertib, for preclinical studies and clinical trials. There are a small number of suppliers for certain raw materials that the Company uses to manufacture its drug candidates.
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(e)Long-Lived Assets Other than Goodwill
Long-lived assets other than goodwill consist of property and equipment. The Company applies the guidance in FASBFinancial Accounting Standards Board ("FASB") Codification Topic 360-10-05, Impairment or Disposal of Long-Lived Assets. If it were determined that the carrying value of the Company’s other long-lived assets might not be recoverable based upon the existence of one or more indicators of impairment, the Company would measure an impairment based on the difference between the carrying value and fair value of the asset. The Company did not recognize any material impairment charges for the years ended December 31, 20192022 or 2018.December 31, 2021.
Purchased equipment is recorded at cost. The Company does not currently hold any leased equipment. Depreciation and amortization are provided on the straight-line method over the estimated useful lives of the related assets or the remaining terms of the leases, whichever is shorter, as follows:
| Useful Life | |||||
| Laboratory equipment, computers and software | 3-5 years | ||||
| Leasehold improvements | Lesser of lease or asset life | ||||
| Office furniture and equipment | 5 years | ||||
The Company adopted the leasing standards using the modified retrospective transition approach, as of January 1, 2019, with no restatement of prior periods or cumulative adjustment to retained earnings. Upon adoption, the Company elected the package of transition practical expedients, which allowed Curis to carry forward prior conclusions related to whether any expired or existing contracts are or contain leases, thedetermines if an arrangement is a lease classification for any expired or existing leases and initial direct costs for existing leases.at contract inception. The Company also made an accounting policy election to not recognize leases with an initial term of 12 months or less within its consolidated balance sheetsConsolidated Balance Sheets and to recognize those lease payments on a straight-line basis in its consolidated statementsConsolidated Statements of incomeOperations and Comprehensive Loss over the lease term. Upon adoption of the leasing standard Curis recognized an operating lease asset of approximately $1.0 million and a corresponding operating lease liability of approximately $1.1 million, which are included in the Company's consolidated balance sheets. The adoption of the leasing standard did not have an impact on the consolidated statement of income.
As most of the Company's leases dolease does not provide an implicit interest rate, the Company uses its incremental borrowing rate, which is based on rates that would be incurred to borrow on a collateralized basis over a term equal to the lease payments in a similar economic environment, in determining the present value of lease payments.
The Company's operating lease is reflected in operating lease right-of-use asset and operating lease liability in the consolidated balance sheets.Consolidated Balance Sheets. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
(h)Other assets
(i)Revenue Recognition
The Company applies the Company adopted ASCrevenue recognition guidance in accordance with FASB Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), using. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred and title has passed, the modified retrospective transition method. The Company's only contract not completed as of January 1, 2018 was its collaboration agreement with Genentech (see Note 10).price is fixed or determinable, and collectability is reasonably assured. The Company assessed the potential effectsexercises significant judgment in determining whether an arrangement contains multiple elements, and, if so, how much revenue is allocable to the consolidated financial statements and retained earnings and has concluded that, upon adoption of the new standard, there was no material impact.
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Royalty Revenue
Since the first quarter of 2012, the Company has recognized royalty revenues related to Genentech’s and Roche’s sales of Erivedge. For arrangements that include sales based royalties, including milestone payments based on the level of sales, and where the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). The Company expects to continue recognizing royalty revenue from Genentech’s sales of Erivedge in the U.S. and in other markets where Genentech and Roche successfully obtain marketing approval, if anyoutside of the U.S. (see Note 10)11, Research and Development Collaborations). However, a significant portion of potential Erivedge royalties will be paid to the Purchasers pursuant to the Oberland Purchase Agreement (see Note 8)9, Liability Related to the Sale of Future Royalties).
Contra Revenue, Net
Contra revenue, net represents shared costs, primarily related to intellectual property, with the Company's collaboration partners, and reserves for potentialpartners.
(j)Cost of Royalties
Cost of royalty reductions.
(k)Research and the specific time periods over which we recognized revenue, such as non-refundable, up-front license fees. To the extent that actual facts and circumstances differ from our initial judgments, our revenue recognition with respect to such transactions would change accordingly and any such change could affect our reported financial results.Development
Research and development expense consists of costs incurred to discover, research and develop drug candidates. These expenses primarily include: (1) salaries and related expenses for personnel including stock-based compensation expense; (2) outside service costs, including clinical research organizations and contract manufacturing costs, among others; (3) sublicense payments; and (4) the costs of supplies and reagents, consulting, and occupancy and depreciation charges. The Company expenses research and development costs as they are incurred.
Basic and diluted net losses per share were determined by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is the same as basic net loss per common share for all periods presented, as the effect of the potential common stock equivalents is antidilutive due to the Company’s net loss position for all periods presented. Antidilutive securities consist of stock options outstanding as of the respective reporting period. Antidilutive securities as of December 31, 2019 and 2018 consisted of the following:
(m)Stock-Based Compensation
| For the Year Ended December 31, | |||||
| 2019 | 2018 | ||||
| Stock options outstanding | 6,158,026 | 3,714,394 | |||
| Total antidilutive securities | 6,158,026 | 3,714,394 | |||
The Company accounts for stock-based compensation transactions using a grant-date fair-value based method under FASB Codification Topic 718, Compensation-Stock Compensation.
The Company measures compensation cost for stock-based compensation at fair value including an estimate of forfeitures and recognizes the expense as compensation expense over the period that the recipient is required to provide service in exchange for the award, which generally is the vesting period. The Company uses the Black-Scholes option pricing model to measure the fair value of stock options. This model requires significant estimates related to the award’s expected life and future stock price volatility of the underlying equity security.
The expected volatility is based on the annualized daily historical volatility of the Company’s stock price for a time period consistent with the expected term of each grant. Management believes that the historical volatility of the Company’s stock price best represents the future volatility of the stock price. The risk-free rate is based on the U.S. Treasury yield in effect at the time of grant for the expected term of the respective grant. The Company has not historically paid cash dividends, and does not expect to pay cash dividends in the foreseeable future.
Comprehensive loss is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized holding gains and losses arising during the period on available-for-sale securities that are not other-than-temporarily impaired.
(o)Segment Reporting
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The Company has determined that it operates in a single reportable segment, which is the research and development of innovative drug candidates for the treatment of human cancer. The Company expects that any products that are successfully developed and commercialized would be used in
(p)Interest Expense on Liability related to the healthcare industry and would be regulated in the United States by the FDA and in overseas markets by similar regulatory authorities.Sale of Future Royalties
In March 2019 the Company entered into the Oberland Purchase Agreement with Oberland Capital.Agreement. Pursuant to the terms of the Oberland Purchase Agreement the Company sold to Oberlandthe Purchasers a portion of its rights to receive royalties from Genentech on potential net sales of Erivedge. As a result of the obligation to pay future royalties to Oberland,the Purchasers, the Company recorded the proceeds from this transaction as a liability onin its Consolidated Balance Sheet that is accounted for using the interest method over the estimatedexpected life of the Oberland Purchase Agreement. As a result, the Company imputes interest on the transaction and records imputed interest expense at the estimated interest rate. The Company's estimate of the interest rate under the agreementOberland Purchase Agreement is based on the amount of royalty payments expected to be received by Oberlandthe Purchasers over the life of the arrangement. On a quarterly basis, the Company assesses the expected royalty payments to Curis Royalty from Genentech using a combination of historical results and forecasts from market data sources. To the extent such payments are greater or less than the initial estimates or the timing of such payments is materially different than the original estimates, the Company will prospectively adjust the amortization of the liability.
(q)New Accounting Pronouncements
Recently Issued and Adopted
In June 2018, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) 2018-07, Compensation - Stock Compensation: Improvements to Nonemployee Share-based Payment Accounting, which simplifies the accounting for nonemployee share-based payment transactions resulting from expanding the scope of ASC 718, Compensation - Stock Compensation (“ASC 718”). The standard was effective for annual reporting periods and interim periods within those annual periods, beginning after December 15, 2018, and early adoption is permitted, but no earlier than an entity's adoption date of ASC 606, Revenue from Contracts with Customers (“ASC 606”). The Company did not have any outstanding nonemployee awards as of June 30, 2018, and adopted this update as of that date. There was no material impact on the Company's consolidated financial statements.
(3) Fair Value of Financial Instruments
The Company applies the provisions of ASC TopicAccounting Standards Codification 820, Fair Value Measurements (“ASC 820”) for its financial assets and liabilities that are re-measured and reported at fair value each reporting period and the non-financial assets and liabilities that are re-measured and reported at fair value on a non-recurring basis. Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which it would transact and consider assumptions that market participants would use when pricing the asset or liability. ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. Financial assets and liabilities are categorized within the valuation hierarchy based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy are defined as follows:
| Level 1 | Quoted prices in active markets for identical assets or liabilities. | ||||
| Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | ||||
| Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. | ||||
In accordance with the fair value hierarchy, the following table shows the fair value as of December 31, 20192022 and 20182021 of those financial assets and liabilities that are measured at fair value on a recurring basis, according to the valuation techniques
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the Company used to determine their fair value. No financial assets or liabilities are measured at fair value
| Quoted Prices in Active Markets (Level 1) | Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | Fair Value | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| As of December 31, 2022 | ||||||||||||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||||||||
| Money market funds | $ | 15,215 | $ | — | $ | — | $ | 15,215 | ||||||||||||||||||
| U.S. treasury securities and government agency obligations | — | 2,998 | — | 2,998 | ||||||||||||||||||||||
| Short-term investments: | ||||||||||||||||||||||||||
| Corporate debt securities and commercial paper | — | 42,071 | — | 42,071 | ||||||||||||||||||||||
| U.S. treasury securities and government agency obligations | — | 23,894 | — | 23,894 | ||||||||||||||||||||||
| Total | $ | 15,215 | $ | 68,963 | $ | — | $ | 84,178 | ||||||||||||||||||
| Quoted Prices in Active Markets (Level 1) | Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | Fair Value | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| As of December 31, 2021 | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | 33,944 | $ | — | $ | — | $ | 33,944 | |||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| Corporate debt securities and commercial paper | — | 75,870 | — | 75,870 | |||||||||||||||||||
| Long-term investments: | |||||||||||||||||||||||
| Corporate debt securities and commercial paper | — | 15,964 | — | 15,964 | |||||||||||||||||||
| U.S. treasury securities and government agency obligations | — | 8,000 | — | 8,000 | |||||||||||||||||||
| Total assets at fair value | $ | 33,944 | $ | 99,834 | $ | — | $ | 133,778 | |||||||||||||||
Accrued interest receivable on a nonrecurring basis atthe Company's available-for-sale debt securities totaled $0.2 million and $0.4 million as of December 31, 20192022 and 2018.2021, respectively.
(4)Investments
Quoted Prices in Active Markets (Level 1) | Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | Fair Value | ||||||||||||
| (in thousands) | |||||||||||||||
| As of December 31, 2019 | |||||||||||||||
| Cash equivalents: | |||||||||||||||
| Money market funds | $ | 10,684 | $ | — | $ | — | $ | 10,684 | |||||||
| US government obligations | — | 550 | — | 550 | |||||||||||
| Commercial paper | — | 300 | — | 300 | |||||||||||
| Municipal bonds | — | 90 | — | 90 | |||||||||||
| Short-term investments: | |||||||||||||||
| Corporate commercial paper, bonds and notes | — | 5,113 | — | 5,113 | |||||||||||
| Total assets at fair value | $ | 10,684 | $ | 6,053 | $ | — | $ | 16,737 | |||||||
Quoted Prices in Active Markets (Level 1) | Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | Fair Value | ||||||||||||
| (in thousands) | |||||||||||||||
| As of December 31, 2018 | |||||||||||||||
| Cash equivalents: | |||||||||||||||
| Money market funds | $ | 18,180 | $ | — | $ | — | $ | 18,180 | |||||||
| Corporate commercial paper, stock, bonds and notes | — | 2,199 | — | 2,199 | |||||||||||
| Municipal bonds | — | 135 | — | 135 | |||||||||||
| Short-term investments: | �� | ||||||||||||||
| Corporate commercial paper, stock, bonds and notes | — | 634 | — | 634 | |||||||||||
| Total assets at fair value | $ | 18,180 | $ | 2,968 | $ | — | $ | 21,148 | |||||||
The amortized cost, unrealized gains and losses and fair value of investments available-for-sale as of December 31, 20192022 are as follows:
| (in thousands) | Amortized Cost | Unrealized Gain | Unrealized Loss | Fair Value | |||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| Corporate debt securities and commercial paper | $ | 42,109 | $ | 2 | $ | (40) | $ | 42,071 | |||||||||||||||
| U.S. treasury securities and government agency obligations | 24,042 | — | (148) | 23,894 | |||||||||||||||||||
| Total investments | $ | 66,151 | $ | 2 | $ | (188) | $ | 65,965 | |||||||||||||||
Amortized Cost | Unrealized Gain | Unrealized Loss | Fair Value | ||||||||||||
| Corporate bonds and notes—short-term | $ | 5,113 | $ | — | $ | — | $ | 5,113 | |||||||
| Total investments | $ | 5,113 | $ | — | $ | — | $ | 5,113 | |||||||
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The amortized cost, unrealized gains and losses and fair value of investments available-for-sale as of December 31, 20182021 are as follows:
| (in thousands) | Amortized Cost | Unrealized Gain | Unrealized Loss | Fair Value | |||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| Corporate debt securities and commercial paper | $ | 75,896 | $ | — | $ | (26) | $ | 75,870 | |||||||||||||||
| Long-term investments: | |||||||||||||||||||||||
| US government obligations | 16,024 | — | (60) | 15,964 | |||||||||||||||||||
| Corporate debt securities and commercial paper | 8,023 | — | (23) | 8,000 | |||||||||||||||||||
| Total investments | $ | 99,943 | $ | — | $ | (109) | $ | 99,834 | |||||||||||||||
Amortized Cost | Unrealized Gain | Unrealized Loss | Fair Value | ||||||||||||
| Corporate bonds and notes—short-term | $ | 634 | $ | — | $ | — | $ | 634 | |||||||
| Total investments | $ | 634 | $ | — | $ | — | $ | 634 | |||||||
The aggregate fair value of available-for-sale investments in a continuous unrealized loss position for more than 12 months ator longer as of December 31, 20192022 was $27.4 million. As of December 31, 2021, the Company held no investments that have been in a continuous unrealized loss position for 12 months or 2018 respectively.longer.
(5)Property and Equipment, Net
Property and equipment consist of the following:
| December 31, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| Laboratory equipment, computers and software | $ | 1,776 | $ | 1,752 | |||||||
| Leasehold improvements | 257 | 214 | |||||||||
| Office furniture and equipment | 1,113 | 764 | |||||||||
| 3,146 | 2,730 | ||||||||||
| Less—Accumulated depreciation and amortization | (2,457) | (2,225) | |||||||||
| Total | $ | 689 | $ | 505 | |||||||
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Laboratory equipment, computers and software | $ | 1,725 | $ | 1,753 | |||
| Leasehold improvements | 185 | 185 | |||||
| Office furniture and equipment | 331 | 354 | |||||
| 2,241 | 2,292 | ||||||
| Less—Accumulated depreciation and amortization | (2,087 | ) | (2,025 | ) | |||
| Total | $ | 154 | $ | 267 | |||
(6)Accrued Liabilities
Accrued liabilities consist of the following:
| December 31, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| Compensation and related costs | $ | 3,152 | $ | 3,260 | |||||||
| R&D related costs | 1,727 | 2,232 | |||||||||
| Professional and legal fees | 762 | 644 | |||||||||
| Other | 38 | 203 | |||||||||
| Total | $ | 5,679 | $ | 6,339 | |||||||
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Accrued compensation | $ | 1,413 | $ | 2,774 | |||
| Professional fees | 289 | 233 | |||||
| Accrued interest on debt (see Note 11) | — | 165 | |||||
| Other | 208 | 285 | |||||
| Total | $ | 1,910 | $ | 3,457 | |||
The Company leaseshas a single lease for real estate, including laboratory and office space, and certain equipment. The lease for the current real estate property that is used for office, research and laboratory space located at 4 Maguire Road in Lexington, Massachusetts expired on February 29, 2020. The Company is exercising its contractual right to holdover on a month-to-month basis until our new facility is available for occupancy.
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In January 2022, the Company amended its lease agreement at 128 Spring Street ("Lease Amendment"). The Lease Amendment added approximately 9,340 square feet to the existing space for $30 per square foot, or $0.3 million per year in base rent subject to annual rent increases. Rent for the additional space is paid on a “gross amount” basis and the Company is not obligated to reimburse the landlord for taxes or operating expenses on the additional space. Payments under the Lease Amendment commenced when the Company took possession of the space during the second quarter of 2020.2022. The Lease Amendment expires December 31, 2025. In addition, the Lease Amendment provides the Company and the landlord each with an option to terminate the lease agreement before the original lease term expires on April 30, 2027. The Company's early termination option becomes effective on the lease commencement date of a new lease for larger premises within the landlord’s commercial real estate portfolio (“New Lease”), and the Company may exercise its early termination option by providing the landlord with written notice of such election to terminate the lease agreement concurrently with the execution of the New Lease. The landlord has the option to terminate the lease agreement early by providing written notice to the Company eighteen months prior to December 31, 2025. The Company expects the lease to end as of December 31, 2025.
The Lease Amendment constitutes a modification as it reduces the original lease term and increases the scope of the lease (additional space provided under the Lease Amendment), which requires evaluation of the remeasurement of the lease liability and corresponding right-of-use asset. The additional space did recordnot result in a separate contract as the security deposit providedrent increase was determined not to be commensurate with the standalone price for the additional right of use. Accordingly, the Company reassessed the classification of the lease, and concluded it continues to be an operating lease, and remeasured the lease liability on the basis of the reduced lease term as of the effective date of the modification.
The shortened lease term and resulting remeasurement for the modification resulted in a decrease to the landlord which was classifiedlease liability and the right-of-use asset. The additional space provided under the Lease Amendment and resulting remeasurement for the modification resulted in an increase to the lease liability and the right-of-use asset. During the year ended December 31, 2022, the Company recognized a net decrease of $0.2 million to the lease liability and right-of-use asset as restricted cash.a result of the modification.
The discount rate associated with the Company’s right-of-use asset is 10.0%. The total cash obligation for the base rent over the seven yearsix-year term of thethis lease agreement is approximately $8.3$8.8 million, andof which $1.3 million was paid during the Company will start paying rent on the commencement date.year ended December 31, 2022.
| December 31, | ||||||||||||||
| (in thousands) | 2022 | 2021 | ||||||||||||
| Assets: | ||||||||||||||
| Operating lease right-of-use asset | $ | 4,401 | $ | 5,749 | ||||||||||
| Liabilities: | ||||||||||||||
| Operating lease liability - short-term | $ | 1,141 | $ | 682 | ||||||||||
| Operating lease liability - long-term | $ | 2,800 | $ | 4,358 | ||||||||||
| Total operating liability | $ | 3,941 | $ | 5,040 | ||||||||||
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| Balance sheet location | As of December 31, 2019 | |||
| Assets: | ||||
| Operating lease right-of-use asset | $ | 149 | ||
| Liabilities: | ||||
| Operating lease liability | $ | 166 | ||
The following table summarizes the effect of lease costs in our consolidated statementsConsolidated Statements of income:Operations and Comprehensive Loss:
| For the Year Ended December 31, | |||||||||||||||||
| (in thousands) | 2022 | 2021 | |||||||||||||||
| Operating lease cost | |||||||||||||||||
| Research and development | $ | 1,187 | $ | 1,042 | |||||||||||||
| General and administrative | 382 | 311 | |||||||||||||||
| $ | 1,569 | $ | 1,353 | ||||||||||||||
| Income statement location | For the year ended December 31, 2019 | |||
| Operating lease cost | ||||
| Research and development | $ | 651 | ||
| General and administrative | 351 | |||
| Total lease cost | $ | 1,002 | ||
| Year Ending December 31, | (in thousands) | |||||||
| 2023 | $ | 1,471 | ||||||
| 2024 | 1,515 | |||||||
| 2025 | 1,561 | |||||||
| Total lease payments | $ | 4,547 | ||||||
| Less: interest | 606 | |||||||
| Present value of operating lease liabilities | $ | 3,941 | ||||||
| Year Ending December 31, | ||||
| 2020 | $ | 168 | ||
| 2021 | — | |||
| 2022 | — | |||
| 2023 | — | |||
| 2024 | — | |||
| Thereafter | — | |||
| Total lease payments | $ | 168 | ||
| Less: interest | 2 | |||
| Present value of operating lease liabilities | $ | 166 | ||
| Year Ending December 31, | ||||
| 2019 | $ | 1,002 | ||
| 2020 | 168 | |||
| Total minimum payments | $ | 1,170 | ||
In exchange for the right to use licensed technology in its research and development efforts, the Company has entered into various license agreements and funding agreements. These license agreements generally stipulate that the Company pay an annual license fee and is obligated to pay royalties on future revenues, if any, resulting from use of the underlying licensed technology. Such revenues may include for example, up-front license fees, contingent payments upon collaborators’ achievement of development and regulatory objectives, and royalties. In addition, some of the agreements commit the Company to make contractually defined payments upon the attainment of scientific or clinical milestones. The Company expenses these payments as they are incurred and expenses royalty payments as related future product sales or as royalty revenues are recorded. The Company accrues expenses for scientific and clinical objectives over the period that the work required to meet the respective objective is completed, provided that the Company believes that the achievement of such objective is probable. The Company did not incur license fee expenses within the “Research and development” line item of its “Costs and expenses” section of its consolidated statement of operations for the years ended December 31, 2019 or 2018. For the years ended December 31, 20192022 and 2018,2021, the Company also recognized $0.3 million and $0.5 million, and $0.6 millionrespectively, as cost of royalty revenues in its Consolidated Statements of Operations and Comprehensive Loss related to such obligations (see Note 10(a))11(a), Research and Development Collaborations - Genentech).
In April 2020, the Company entered into a promissory note evidencing an unsecured $0.9 million loan (the “PPP Loan”) under the Paycheck Protection Program (“PPP”), of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) as administered by the U.S. Small Business Administration (the "SBA"). Under the terms of the CARES Act and the Paycheck Protection Program Flexibility Act of 2020, PPP Loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP. The Company applied for such forgiveness in 2020 and received notification in June 2021 that the SBA had forgiven the PPP Loan in full, including interest accrued on the PPP Loan. During the year ended December 31, 2021, the Company recorded a gain of $0.9 million to Other income (expense), net for extinguishment of the debt.
(9)Liability Related to the Sale of Future Royalties
In March 22, 2019, the Company and Curis Royalty entered into the royalty interest purchase agreement (“Oberland Purchase Agreement”) with entitiesTPC Investments I LP and TPC Investments II LP ("the Purchasers"), each of which is a Delaware limited partnership managed by Oberland Capital Management, LLC, (the “Purchasers”).and Lind SA LLC, a Delaware limited liability company managed by Oberland Capital Management, LLC, as collateral agent for the Purchasers. The Company sold to the Purchasers a portion of its rights to receive royalties from Genentech on potential net sales of Erivedge. Concurrently with the closing of the Oberland Purchase Agreement, Curis Royalty used a portion of the proceeds to terminate and repay the then existing loan with Healthcare Royalty. (see Note 9)Royalty Partners III, L.P.
As upfront consideration for the purchase of the royalty rights, at closing the Purchasers paid to Curis Royalty $65.0 million less certain transaction expenses. Curis Royalty will also be entitled to receive up to approximately $70.7$53.5 million in milestone
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payments based on sales of Erivedge as follows: (i) $17.2 million if the Purchasers and Curis Royalty receive aggregate royalty payments pursuant to the Oberland Purchase Agreement in excess of $18.0 million during the calendar year 2021, subject to certain exceptions and (ii) $53.5 million if the Purchasers receive payments pursuant to the Oberland Purchase Agreement in excess of $117.0 million on or prior to December 31, 2026.
The Oberland Purchase Agreement provides that after the occurrence of an event of default as defined under the security agreement by Curis Royalty, the Purchasers shall have the option, for a period of 180 days, to require Curis Royalty to repurchase a portion of certain royalty and royalty related payments, excluding a portion of non-U.S. royalties retained by Curis Royalty, referred to as the Purchased Receivables, at a price, referred to as the Put/Call Price, equal to a percentage, beginning at a low triple digit percentage and increasing over time up to a low mid triple digit percentage250% of the sum of the upfront purchase price and any portion of the milestone payments paid in a lump sum by the Purchasers, if any, minus certain payments previously received by the Purchasers with respect to the Purchased Receivables. The Company concluded the put option is an embedded derivative that requires bifurcation from the deferred royalty obligation and evaluates the fair value of the put option each reporting period.The estimated fair value of the put option is immaterial as of December 31, 2022 and 2021, respectively. Additionally, Curis Royalty shall have the option at any time to repurchase the Purchased Receivables at the Put/Call Price as of the date of such repurchase. No events of default occurred as of December 31, 2022.
As a result of the obligation to pay future royalties to Oberland,the Purchasers, the Company recorded the proceeds from this transaction as a liability on its Consolidated Balance Sheet that will be accountedSheets. It accounts for the liability and interest expense using the interest method over the estimatedexpected life of the Oberland Purchase Agreement. As a result, the Company imputes interest on the transaction and records imputed interest expense at the estimated interest rate. The Company's estimate of the interest rate under the agreementOberland Purchase Agreement is based on the amount of royalty payments expected to be received by Oberlandthe Purchasers over the life of the arrangement.Oberland Purchase Agreement. The projected amount of royalty payments expected to be paid to the Purchasers involves the use of significant estimates and assumptions with respect to the revenue growth rate in the Company's projections of sales of Erivedge. The Company periodically assesses the expected royalty payments to Curis Royalty from Genentech using a combination of historical results and forecasts from market data sources. To the extent such payments are greater or less than theits initial estimates or the timing of such payments is materially different than theits original estimates, the Company will prospectively adjust the amortization of the liability.
The Company determined the fair value of the liability related to the sale of future royalties at the time of the Oberland Purchase Agreement to be $65.0 million, with a current effective annual imputed interest rate of 8.2%6.2%. The Company incurred $0.6 million of transaction costs in connection with the agreement.Oberland Purchase Agreement. These transaction costs will be amortized to imputed interest expense over the estimated term of the Oberland Purchase Agreement. The carrying value of the liability related to the sale of future royalties approximates fair value as of December 31, 2022 and is based on our current estimates of future royalties expected to be paid the Purchasers over the life of the arrangement, which are considered Level 3 inputs.
The following table shows the activity with respect to the liability related to the sale of future royalties during the years ended December 31, 2021 and December 31, 2022:
| (in thousands) | |||||
| Carrying value of liability related to the sale of future royalties at January 1, 2021 | $ | 58,235 | |||
| Other | 61 | ||||
| Imputed interest expense | 4,411 | ||||
| Less: payments to Oberland Capital, LLC | (8,909) | ||||
| Carrying value of liability related to the sale of future royalties at December 31, 2021 | $ | 53,798 | |||
| Other | 739 | ||||
| Imputed interest expense | 4,033 | ||||
| Less: payments to Oberland Capital, LLC | (9,087) | ||||
| Carrying value of liability related to the sale of future royalties at December 31, 2022 | $ | 49,483 | |||
On March 3, 2023, Curis and Curis Royalty received a letter from counsel to Oberland Capital Management, LLC, the Purchasers and the Agent alleging defaults under Sections 4.04 and 6.04(b) of the Oberland Purchase Agreement and demanding cure of the asserted default under Section 6.04(b) of the Oberland Purchase Agreement. The asserted basis for the alleged defaults is that Curis and Curis Royalty were required to disclose, and failed to disclose, certain information prior to execution of the Oberland Purchase Agreement and that Curis and Curis Royalty have since failed to disclose certain information that has been requested by the Purchasers pursuant to Section 6.04(b) of the Oberland Purchase Agreement. The letter further alleges that these alleged defaults are events of default under the Oberland Purchase Agreement and that each alleged default separately entitles the Purchasers to exercise the put option described above, which would require Curis Royalty to repurchase the Purchased Receivables at the Put/Call Price. The Purchasers have not attempted to exercise that put option but have purported to reserve their alleged right to exercise it without further notice. As of the date of the filing of this annual report
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on Form 10-K, the estimated amount of the Put/Call Price is up to $72.5 million. The Purchasers have also reserved other asserted rights in respect of the alleged defaults, including the asserted right to seek judicial remedies, including for damages and rescission, and to assert alleged claims against Curis and Curis Royalty for indemnification on the basis of material breach and fraud in the inducement. Curis and Curis Royalty dispute these allegations.
However, if Oberland elects to pursue these claims, and if Curis and Curis Royalty are unsuccessful in defending against these claims, it could have a material adverse impact on Curis and Curis Royalty, including their ability to continue as a going concern.
(10)Common Stock
(a)Charter Amendments
In May 2021, the Company's stockholders approved an increase to the number of authorized shares of its common stock from 151,875,000 shares to 227,812,500 shares.
(b)2021 Sales Agreement with Cantor Fitzgerald & Co. and JonesTrading Institutional Services LLC
In March 2021, the Company entered into a sales agreement (the “2021 Sales Agreement”) with Cantor Fitzgerald & Co.("Cantor") and JonesTrading Institutional Services LLC ("JonesTrading") to sell from time to time up to $100.0 million of the Company’s common stock through an “at-the-market offering” program under which Cantor and JonesTrading act as sales agents. Subject to the terms and conditions of the 2021 Sales Agreement, Cantor and JonesTrading can sell the common stock by any method deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”).
Pursuant to the terms of the 2021 Sales Agreement, the aggregate compensation payable to each of Cantor and JonesTrading is 3% of the gross proceeds from sales of the common stock sold by Cantor or JonesTrading, as applicable. Each party agreed in the 2021 Sales Agreement to provide indemnification and contribution against certain liabilities, including liabilities under the Securities Act, subject to the terms of the 2021 Sales Agreement.
The Company sold 4,583,695 shares of common stock under the 2021 Sales Agreement during the year ended December 31, 2019:2022, representing gross proceeds of $6.3 million. As of December 31, 2022, $93.7 million remained available for sale under the 2021 Sales Agreement.
(c)AspireCapital Fund, LLC
| Liability related to sale of future royalties at March 22, 2019 | $ | 65,000 | |
| Issuance costs capitalized | (584 | ) | |
| Imputed interest expense recognized | 4,055 | ||
| Less: Payments made to Oberland Capital, LLC | (5,994 | ) | |
| Carrying value of liability related to sale of future royalties at December 31, 2019 | $ | 62,477 | |
For the Year Ended December 31, | |||||
| 2019 | 2018 | ||||
| Statutory federal income tax rate | 21.0 | % | 21.0 | % | |
| State income taxes, net of federal benefit | 6.1 | % | 5.9 | % | |
| Research and development tax credits | 2.7 | % | 3.8 | % | |
| Orphan drug tax credits | 4.6 | % | 3.2 | % | |
| Expiration of NOLs/Credits | (4.0 | )% | (13.5 | )% | |
| Permanent adjustments and other | (0.6 | )% | (1.1 | )% | |
| Change in valuation allowance | (29.8 | )% | (19.3 | )% | |
| Effective income tax rate | — | % | — | % | |
2022. The Agreement expired in August 2022.
The principle components ofCompany also entered into a Registration Rights Agreement with Aspire Capital in connection with its entry into the Company’s deferred tax assets at December 31, 2019Agreement, which also expired in August 2022.
(11)Research and 2018, respectively, are as follows:Development Collaborations
(a)Genentech
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Deferred Tax Assets: | |||||||
| NOL carryforwards | $ | 58,654 | $ | 67,068 | |||
| Research and development tax credit carryforwards | 15,408 | 15,825 | |||||
| Orphan drug tax credit carryforwards | 18,088 | 16,625 | |||||
| Depreciation and amortization | 9,671 | 10,672 | |||||
| Capitalized research and development expenditures | 34,487 | 33,993 | |||||
| Stock options | 6,329 | 5,783 | |||||
| Accrued expenses and other | 131 | 259 | |||||
| Oberland agreement | 17,022 | — | |||||
| Lease liability ASC 842 | 45 | — | |||||
| Total gross deferred tax asset | 159,835 | 150,225 | |||||
| Valuation allowance | (159,794 | ) | (150,225 | ) | |||
| Net deferred tax asset | $ | 41 | $ | — | |||
| Deferred tax liabilities: | |||||||
| Right of use asset ASC 842 | (41 | ) | — | ||||
| Total gross deferred tax liabilities | $ | (41 | ) | $ | — | ||
| Net deferred tax assets (liabilities) | $ | — | $ | — | |||
In June 2003, the Company licensed its proprietary Hedgehog pathway antagonist technologies to Genentech for human therapeutic use. The primary focus of the collaborative research plan has been to develop molecules that inhibit the Hedgehog pathway for the treatment of various cancers. The collaboration is currently focused on the development of Erivedge, which is being commercialized by Genentech in the U.S. and by Genentech's parent company, Roche, in several other countriesoutside of the U.S. for the treatment of advanced BCC. Pursuant to the agreement, the Company is eligible to receive up to an aggregate of $115.0 million in contingent cash milestone payments, exclusive of royalty payments, in connection with the development of Erivedge or another small molecule Hedgehog pathway inhibitor, assuming the successful achievement by Genentech and Roche of specified clinical development and regulatory objectives. Of this amount, the Company has received $59.0 million in cash milestone payments as of December 31, 2019.2022.
In addition to these payments and pursuant to the collaboration agreement, the Company is entitled to a royalty on net sales of Erivedge that ranges from 5% to 7.5%. The royalty rate applicable to Erivedge may be decreased by 2% on a country-by-country basis in certain specified circumstances, including when a competing product that binds to the same molecular target as Erivedge is approved by the applicable regulatory authority in another country and is being sold in such country by a third-partythird-
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party for use in the same indication as Erivedge, or, when there is no issued intellectual property covering Erivedge, in a territory in which sales are recorded. In 2016, the FDA and the European Medicine Agency’s Committee for Medicinal Products for Human Use, approved another Hedgehog signaling pathway inhibitor, Odomzo® (sonidegib), which is marketed by Sun Pharmaceutical Industries Ltd., for use in locally advanced BCC. Beginning in the fourth quarter of 2015, Genentech applied the 2% royalty reduction on U.S. sales of Erivedge as a result of the first commercial sale of Odomzo in the U.S. and the Company anticipates that Genentech will reduce by 2% royalties on net sales of Erivedge outside of the United States on a country-by-country basis to the extent that sonidegib is approved by the applicable country's regulatory authority and is being sold in such country. However, pursuant to the Oberland Purchase Agreement, the Company has retained its rights with respect to the 2% of royalties that are subject to such reduction in countries where such reduction has not occurred, subject to the terms and conditions of the Oberland Purchase Agreement (the “Retained Royalty Amounts”).
The Company has identified the following performance obligations related to the Genentech collaboration:
1.To grant the license for its Hedgehog antagonist programs and to provide service on both a steering committee and co-development steering committee. This performance obligation has been satisfied and only contingent royalty revenue remains to be recognized in the future.
2.To provide reimbursable research and development services. This performance obligation has been satisfied and no revenue remains to be recognized in the future.
The Company recognized $10.4$10.3 million and $10.7 million in royalty revenues, net under the Genentech collaboration during the years ended December 31, 20192022 and 2018.2021, respectively. The Company also recorded $0.3 million and $0.5 million and $0.6 million, respectively, as cost of royalty revenues within the costs andoperating expenses section of its consolidated statementsConsolidated Statements of operationsOperations and comprehensive lossComprehensive Loss during these same periods.the years ended December 31, 2022 and 2021, respectively. Cost of royalty revenues is comprised of the 5% of thepayments to university licensors on royalties earned bythat Curis Royalty with respect to Erivedge outside Australia, and 5% direct net salesearns in Australia (subject to decrease on expiration of the patenteligible territories in April 2019an amount that is equal to 5% of the royalty payments that Curis Royalty receivesreceived from Genentech.
The Company has accounts receivables from Genentech through February 2022), that the Company is obligated to pay to university licensors.under this collaboration of $3.0 million and $3.2 million as of December 31, 2022 and 2021, respectively, in its Consolidated Balance Sheets.
As further discussed in Note 8,9, Liability Related to the Sales of Future Royalties, a significant portion of royalty revenues received from Genentech on net sales of Erivedge will be paid to the Purchasers pursuant to the Oberland Purchase Agreement. The Company recorded research and development revenues of $0.1 million during the years ended December 31, 2019 and 2018, respectively, related to expenses incurred by the Company on behalf of Genentech that were paid by the Company and for which Genentech is obligated to reimburse the Company.
In January 2015, the Company entered into an exclusive collaboration agreement with Aurigene for the discovery, development and commercialization of small molecule compounds in the areas of immuno-oncology and selected precision oncology targets. Under the collaboration agreement, Aurigene granted the Company an option to obtain exclusive, royalty-bearing licenses to relevant Aurigene technology to develop, manufacture and commercialize products containing certain of such compounds anywhere in the world, except for India and Russia, which are territories retained by Aurigene.
In connection with the collaboration agreement, the Company issued to Aurigene 3,424,026 shares of its common stock valued at $24.3 million in partial consideration for the rights granted to the Company under the collaboration agreement, which the Company recognized as expense during the year ended December 31, 2015. The shares were issued pursuant to a stock purchase agreement with Aurigene dated January 18, 2015.
In February 2020, the Company and Aurigene further amended their collaboration agreement. Under the terms of the amended agreement, Aurigene will fund and conduct a Phase 2b/3 randomized study evaluating CA-170, in combination with chemoradiation, in approximately 240 patients with non-squamous non-small cell lung cancer (nsNSCLC)("nsNSCLC"). In turn, Aurigene receiveshas rights to develop and commercialize CA-170 in Asia, in addition to its existing rights in India and Russia, based on the terms of the original agreement. The Company retains U.S., European Union, and rest of world rights to CA-170, and is entitled to receive royalty payments on potential future sales of CA-170 in Asia at percentage rates ranging from the high single digits up to 10% subject to specified reductions.
As of December 31, 2019,2022, the Company has exercised its option to license the following four programs under the collaboration:
1.IRAK4 Program - a precision oncology program of small molecule inhibitors of IRAK4. The development candidate is emavusertib.
2.PD1/VISTA Program - an immuno-oncology program of small molecule antagonists of PD1 and VISTA immune checkpoint pathways. The development candidate is CA-170.
3.PD1/TIM3 Program - an immuno-oncology program of small molecule antagonists of PD1 and TIM3 immune checkpoint pathways. The development candidate is CA-327.
4.The Company exercised its option to license a fourth program, which is an immuno-oncology program.
For each of the licensed programs (as described above) the Company is obligated to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize at least one product in each of the U.S., specified countries in the
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European Union and Japan, and Aurigene is obligated to use commercially reasonable efforts to perform its obligations under the development plan for such licensed program in an expeditious manner.
For each of the IRAK4, PD1/VISTA, PD1/TIM3 programs, and the fourth immuno-oncology program, the Company has remaining unpaid or unwaived payment obligations of $42.5 million per program, related to regulatory approval and commercial sales milestones, plus specified additional payments for approvals for additional indications, if any.
In addition to the collaboration agreement, in June 2017, the Company entered into a master development and manufacturing agreement with Aurigene for the supply of drug substance and drug product, under which it has made cash payments to Aurigene of $1.4product. Under this agreement, the Company incurred less than $0.1 million and $2.2 million in 2019research and $0.6development expense during the years ended December 31, 2022 and 2021, respectively. The Company had $0.1 million in 2018.prepaid expenses as of December 31, 2022 associated with this agreement.
(c)ImmuNext
In January 2020, the Company entered into an option and license agreement with ImmuNext.ImmuNext (the “ImmuNext Agreement”). Under the terms of the agreement,ImmuNext Agreement, the Company has agreed to collaborateengage in a collaborative effort with ImmuNext, and the Company has agreed to conduct at its own cost, a Phase 1a/1b1 clinical trial of an ImmuNext compound that antagonizes VISTA.CI-8993. In exchange, ImmuNext has granted Curisthe Company an exclusive option, periodexercisable until the earlier of (a) January 2024 or (b) 90 days after database lock for the first Phase 1 trial in which the endpoints are satisfied (the “Option Period”), to obtain an exclusive, worldwide license to develop and commercialize certain VISTA antagonizing compounds and products containing these compounds in the field of oncology. (see Note 17)In consideration of the grant of the option, the Company made an upfront payment to ImmuNext of $1.3 million.
ImmuNext has retained exclusive rights. In addition, the Company recorded related accrued interest on its debt of $0.2has agreed to reimburse ImmuNext for certain documented external costs and expenses incurred by ImmuNext in carrying out non-clinical research activities approved by the joint steering committee, up to $0.3 million as of December 31, 2018 with such amount includedper calendar year, unless otherwise agreed to by both parties in the Company’s accrued liabilities section of its consolidated balance sheet. For the years ended December 31, 2019 and 2018, respectively,writing.
If the Company recognized interest expense relatedelects to its debt of $0.8 million and $3.9 million, respectively, inexercise the consolidated statement of operations and comprehensive loss.
As of December 31, | |||
| 2018 | |||
| Debt, current | $ | 6,920 | |
| Debt issue costs, current | (36 | ) | |
| Debt, current portion net of issuance costs | $ | 6,884 | |
| Debt, long-term | 28,696 | ||
| Debt issue costs, long-term | (96 | ) | |
| Debt, net of current portion and issuance costs | $ | 28,600 | |
As of December 31, 2019,2022, the Company had two shareholder-approved, stock-based compensation plans: (i) the Fourth Amended and Restated 2010 Stock Incentive Plan (“2010 Plan”) and (ii) the Amended and Restated 2010 Employee Stock Purchase Plan, (“ESPP”), adopted by the Board of Directors in April 2017 and approved by shareholders in June 2017, and (ii) the Third Amended and Restated 2010 Stock Incentive Plan, (“2010 Plan”), adopted by the Board of Directors in March 2018 and approved by shareholders in June 2018, which was amended to, among other things, add an additional 2,390,000 shares under the 2010 Plan, and set a new expiration date of May 14, 2028 for the 2010 Plan.. New employees are typically issued options as an inducement equity award under Nasdaq Listing Rule 5635(c)(4) outside of the 2010 Plan. Effective May 29, 2018, the number of shares of common stock available for issuance under the plans and the number of shares of common stock issuable upon the exercise of then outstanding options have been adjusted to reflect a 1-for-5 reverse stock split (see Note 12).
The ThirdFourth Amended and Restated 2010 Stock Incentive Plan
The 2010 Plan permits the granting of incentive and non-qualified stock options and stock awards to employees, officers, directors, and consultants of the Company and its subsidiaries at prices determined by the Company’s Boardboard of Directors. Ondirectors. In May 23, 20192021, the Company's stockholdersshareholders approved an amendment to the Company's ThirdFourth Amended and Restated 2010 Stock Incentive Plan to reserve an additional 4,700,00011,000,000 shares of common stock for issuance under the 2010 Plan. The Company can issue up to 10,890,00023,190,000 shares of its common stock pursuant to awards granted under the 2010 Plan. Options vest and become exercisable asbased on a schedule determined by the Boardboard of Directorsdirectors and expire up to ten years from the date of grant. The 2010 Plan uses a “fungible share” concept under which each share of stock subject to awards granted as options and stock appreciation rights (“SARs”), will cause one share per share under the award to be removed from the available share pool, while each share of stock subject to awards granted as restricted stock, restricted stock units, other stock-based awards or performance awards where the price charged for the award is less than 100% of the fair market value of the Company’s common stock will cause 1.3
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Stock Options
During the year ended December 31, 2019,2022, the Company’s board of directors granted options to purchase 2,737,8653,663,800 shares of the Company’s common stock to officers and employees of the Company under the 2010 Plan. These options vest and become exercisable as to 25% of the shares underlying the award after the first year and as to an additional 6.25% of the shares underlying the award in each subsequent quarter, based upon continued employment over a four-year period, and are exercisable at a price equal to the closing price of the Company’s common stock on the Nasdaq Global Market on the grant dates.date.
During the first quarter of 2019,year ended December 31, 2022, the Company’s board of directors granted options to its non-employee directors to purchase 720,000450,000 shares of common stock under the 2010 Plan, which will vest and become exercisable in one year from the date of grant. These options were granted at an exercise price of $1.16 per share, which equalsthat equaled the closing market price of the Company’s common stock on the Nasdaq Global Market on the grant date. There were no additional non-employee grants made in the current quarter.
Nonstatutory Inducement Grants
For certain new employees the Company issued options as an inducement equity award under Nasdaq Listing Rule 5635(c)(4) outside of the 2010 Plan. The option will vest as to 25% of the shares underlying the option on the first anniversary of the grant date, and as to an additional 6.25% of the shares underlying the option on each successive three-month periodquarter thereafter. During the year ended December 31, 2019,2022, the Company’s board of directors granted inducement equity awards of 575,5002,140,950 shares of common stock. These options were granted at a weighted averagean exercise price of $1.97, which is based onthat equaled the closing market price of the Company’s common stock on the Nasdaq Global Market on the grant date.
For the Year Ended December 31, | |||||
| 2019 | 2018 | ||||
| Expected term (years)—Employees and Officers | 5.5 | 5.5 | |||
| Expected term (years)—Directors | 5.5 | N/A | |||
| Risk-free interest rate | 1.5-2.6% | 2.5-3.0% | |||
| Expected volatility | 76-79% | 66-73% | |||
| Expected dividend yield | None | None | |||
| Number of Options | Weighted Average Exercise Price per Share | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value (000's) | ||||||||||||||||||||
| Outstanding, December 31, 2021 | 10,363,769 | $ | 3.80 | 7.41 | |||||||||||||||||||
| Granted | 6,254,750 | 2.62 | |||||||||||||||||||||
| Exercised | — | — | |||||||||||||||||||||
| Canceled | (2,945,263) | 3.90 | |||||||||||||||||||||
| Outstanding, December 31, 2022 | 13,673,256 | $ | 3.24 | 6.51 | $ | — | |||||||||||||||||
| Exercisable at December 31, 2022 | 8,261,371 | $ | 3.30 | 5.00 | $ | — | |||||||||||||||||
| Vested and unvested expected to vest | 13,673,256 | $ | 3.24 | 6.51 | $ | — | |||||||||||||||||
Number of Options | Weighted Average Exercise Price per Share | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||
| Outstanding, December 31, 2018 | 3,714,394 | $ | 7.68 | 6.38 | ||||||||
| Granted | 4,033,365 | 1.30 | ||||||||||
| Exercised | — | — | ||||||||||
| Canceled | (1,589,733 | ) | 7.97 | |||||||||
| Outstanding, December 31, 2019 | 6,158,026 | $ | 3.43 | 8.33 | $ | 1,657 | ||||||
| Exercisable at December 31, 2019 | 1,561,926 | $ | 8.44 | 6.47 | $ | 26 | ||||||
| Vested and unvested expected to vest | 5,540,023 | $ | 3.64 | 8.25 | $ | 1,451 | ||||||
| For the Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Expected term (years) | 5.5 | 5.5 | |||||||||||||||
| Risk-free interest rate | 1.4-4.1% | 0.4-1.4% | |||||||||||||||
| Expected volatility | 110-115% | 107-111% | |||||||||||||||
| Expected dividend yield | None | None | |||||||||||||||
As of December 31, 2019,2022, there was approximately $3.4$10.9 million including the impact of estimated forfeitures, of unrecognized compensation cost related to unvested employee stock option awards outstanding, under the Company’s 2010 Plan that is expected to be recognized as expense over a weighted average period of 2.42.5 years. There were no employee stock options exercised during the year ended December 31, 2019. As there were no employee stock options exercised during either 2019 or 2018, the intrinsic value2022.
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Restricted Stock Awards
The following table presents a summary of outstanding RSAs under the 2010 Plan as of December 31, 2019:
Number of Shares | Weighted Average Grant Date Fair Value | ||||
| Unvested, December 31, 2018 | 226,250 | 3.45 | |||
| Awarded | — | — | |||
| Vested | (195,313 | ) | 3.45 | ||
| Forfeited | — | — | |||
| Unvested, December 31, 2019 | 30,937 | 3.45 | |||
| Number of Shares | Weighted Average Grant Date Fair Value | ||||||||||
| Unvested, December 31, 2021 | 10,312 | $ | 3.45 | ||||||||
| Awarded | — | — | |||||||||
| Vested | (10,312) | 3.45 | |||||||||
| Forfeited | — | — | |||||||||
| Unvested, December 31, 2022 | — | $ | — | ||||||||
As of December 31, 2019,2022, there were 30,937 sharesno outstanding covered by RSAs that are expected to vest. The weighted average fair value of these shares of restricted stock was $3.45 per share and the aggregate fair value of these shares of restricted stock was approximately $0.1 million. As of December 31, 2019, there were approximately $0.1 million of unrecognized compensation costs, net of estimated forfeitures, related to RSAs granted to officers and non-employee directors, which are expected to be recognized as expense over a remaining weighted average period of 2.06 years.RSAs.
The Company has reserved 2,000,000 of its shares of common stock for issuance under the ESPP. Eligible employees may purchase shares of the Company’s common stock at 85% of the lower closing market price of the common stock at the beginning of the enrollment period or ending date of the any purchase period within a two-year enrollment period, as defined. The Company has four six-month purchase periods per each two-year enrollment period. If, within any one of the four purchase periods in an enrollment period, the purchase period ending stock price is lower than the stock price at the beginning of the enrollment period, the two-year enrollment resets at the new lower stock price. This aspect ofDuring the plan was amended in 2017. Prior to 2017, the plan included two six-month purchase period per year with no defined enrollment period. As ofended December 31, 2019, 521,9032022, 378,522 shares were issued under the ESPP, of which 91,013 were issued during 2019.ESPP. As of December 31, 2019,2022, there were 1,677,9341,175,008 shares available for future purchase under the ESPP.
For the years ended December 31, 20192022 and 2018,2021, the Company recorded compensation expense related to its ESPP and calculated the fair value of shares expected to be purchased under the ESPP using the Black-Scholes models with the following assumptions:
| For the Year Ended December 31, | |||||||
| 2019 | 2018 | ||||||
| Compensation expense recognized under ESPP | $ | 49 | $ | 173 | |||
| Expected term | 6-24 months | 6-24 months | |||||
| Risk-free interest rate | 1.5-2.1% | 2.1-2.7% | |||||
| Volatility | 92-97% | 79-104% | |||||
| Dividends | None | None | |||||
Total Stock-Based Compensation Expense
For the years ended December 31, 20192022 and 2018,2021, the Company recorded employee and non-employee stock-based compensation expense to the following line items in its Costs andOperating Expenses section of the Consolidated Statements of Operations and Comprehensive Loss:
| For the Year Ended December 31, | For the Year Ended December 31, | |||||||||||||||||||||||
| 2019 | 2018 | 2022 | 2021 | |||||||||||||||||||||
| Research and development expenses | $ | 575 | $ | 1,310 | Research and development expenses | $ | 2,798 | $ | 1,844 | |||||||||||||||
| General and administrative expenses | 2,083 | 2,630 | General and administrative expenses | 3,954 | 3,435 | |||||||||||||||||||
| Total stock-based compensation expense | $ | 2,658 | $ | 3,940 | Total stock-based compensation expense | $ | 6,752 | $ | 5,279 | |||||||||||||||
No income tax benefits have been recorded for the years ended December 31, 2019 or 2018,2022 and 2021, as the Company has recorded a full valuation allowance and management has concluded that it is more likely than not that the net deferred tax assets will not be realized (see Note 9)14, Income Taxes).
The Company has a 401(k) retirement savings plan covering substantially all of the Company’s employees. For each of the years ended December 31, 20192022, 2021, and 2018,2020, the Company made matching contributions of $0.2$0.7 million and $0.4 million, respectively.
(14)Income Taxes
For the years ended December 31, 2022 and 2021, the Company did not record any federal or state income tax expense given its continued operating losses, all of which were attributable to the United States.
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| For the Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Statutory federal income tax rate | 21.0 | % | 21.0 | % | |||||||||||||
| State income taxes, net of federal benefit | 6.0 | % | 6.2 | % | |||||||||||||
| Research and development tax credits | 3.3 | % | 3.5 | % | |||||||||||||
| Orphan drug tax credits | 4.4 | % | 2.9 | % | |||||||||||||
| Expiration of NOLs/Credits | (3.2) | % | (9.8) | % | |||||||||||||
| Permanent adjustments and other | (0.6) | % | (0.2) | % | |||||||||||||
| Stock based compensation | — | % | (9.4) | % | |||||||||||||
| Change in valuation allowance | (30.9) | % | (14.2) | % | |||||||||||||
| Effective income tax rate | — | % | — | % | |||||||||||||
The principal components of the Company’s deferred tax assets at December 31, 2022 and December 31, 2021, respectively, are as follows:
| December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Deferred Tax Assets: | |||||||||||
| NOL carryforwards | $ | 79,827 | $ | 68,802 | |||||||
| Research and development tax credit carryforwards | 15,996 | 14,801 | |||||||||
| Orphan drug tax credit carryforwards | 22,565 | 20,096 | |||||||||
| Depreciation and amortization | 6,449 | 7,493 | |||||||||
| Capitalized research and development expenditures | 41,168 | 37,528 | |||||||||
| Stock options | 4,506 | 3,344 | |||||||||
| Accrued expenses and other | 1,067 | 916 | |||||||||
| Oberland agreement | 13,285 | 14,637 | |||||||||
| Lease liability ASC 842 | 1,072 | 1,371 | |||||||||
| Total gross deferred tax asset | 185,935 | 168,988 | |||||||||
| Valuation allowance | (184,738) | (167,424) | |||||||||
| Net deferred tax asset | $ | 1,197 | $ | 1,564 | |||||||
| Deferred tax liabilities: | |||||||||||
| Right of use asset ASC 842 | (1,197) | (1,564) | |||||||||
| Total gross deferred tax liabilities | $ | (1,197) | $ | (1,564) | |||||||
| Net deferred tax assets (liabilities) | $ | — | $ | — | |||||||
| Quarter Ended | |||||||||||||||
| March 31, 2019 | June 30, 2019 | September 30, 2019 | December 31, 2019 | ||||||||||||
| Revenues | $ | 1,767 | $ | 2,094 | $ | 2,856 | $ | 3,287 | |||||||
| Loss from operations | (5,558 | ) | (6,141 | ) | (5,323 | ) | (7,334 | ) | |||||||
| Net loss | (9,884 | ) | (7,213 | ) | (6,436 | ) | (8,609 | ) | |||||||
| Net loss per common share (basic and diluted) | $ | (0.30 | ) | $ | (0.22 | ) | $ | (0.19 | ) | $ | (0.26 | ) | |||
| Weighted average common shares (basic and diluted) | 33,150,869 | 33,154,566 | 33,202,871 | 33,209,217 | |||||||||||
| Quarter Ended | |||||||||||||||
| March 31, 2018 | June 30, 2018 | September 30, 2018 | December 31, 2018 | ||||||||||||
| Revenues | $ | 2,468 | $ | 2,358 | $ | 2,847 | $ | 2,755 | |||||||
| Loss from operations | (9,908 | ) | (7,860 | ) | (6,417 | ) | (5,148 | ) | |||||||
| Net loss | (10,747 | ) | (8,664 | ) | (7,223 | ) | (5,941 | ) | |||||||
| Net loss per common share (basic and diluted) | $ | (0.33 | ) | $ | (0.26 | ) | $ | (0.22 | ) | $ | (0.18 | ) | |||
| Weighted average common shares (basic and diluted) | 33,053,702 | 33,135,391 | 33,161,592 | 33,121,666 | |||||||||||
As of CI-8993. In exchange, ImmuNext grantedDecember 31, 2022 and 2021, the Company an exclusive option, exercisable until the earlier of (a) four years after January 6, 2020 and (b) 90 days after database lock for the first Phase 1a/1b trial in which the endpoints are satisfied (the “Option Period”), to obtain an exclusive, worldwide license to develop and commercialize certain VISTA antagonizing compounds and products containing these compounds in the field of oncology.
As of December 31, 2022 and 2021, the Company had state research and development credit carryforwards of $3.8 million and $3.5 million, respectively. The credits will expire in the years 2023 through 2037, unless previously utilized.
As of December 31, 2022 and 2021, the Company had orphan drug tax credit carryforwards of $22.6 million and $20.1 million, respectively. These credits, if any, relate to qualified expenses incurred for fimepinostat and emavusertib since receiving the Orphan Drug designation.
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The Tax Cuts and Jobs Act contained a provision which requires the capitalization of Section 174 costs incurred in the years beginning on or after Jan. 1, 2022. Section 174 costs are expenditures which represent research and development costs that are incident to the development or improvement of a product, process, formula, invention, computer software or technique. This provision changes the treatment of Section 174 costs such that the expenditures are no restrictions on future financingslonger allowed as an immediate deduction but rather must be capitalized and there are no financial covenants, participation rights, rightsamortized. We have included the impact of first refusal, or penaltiesthis provision, which results in the Agreement. The Company has the right to terminate the Agreement at any time without any additional cost or penalty.
The Company has no obligation to sell anyevaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, and has determined that it is more likely than not that the Company will not recognize the benefits of the Sharesdeferred tax assets. Accordingly, a valuation allowance of approximately $184.7 million has been established at December 31, 2022.
The valuation allowance increased approximately $17.3 million and $6.4 million during the years ended December 31, 2022 and 2021. The increases in the valuation allowance are primarily due to an increase in net deferred tax assets with an offsetting valuation allowance related to income recorded for tax related to the Oberland Purchase Agreement.
Utilization of the NOL may be subject to a substantial annual limitation under Section 382 of the Sales Agreement. EitherInternal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company completed a §382 study in 2019 and determined no ownership changes have occurred and no limitation on NOLs through December 31, 2018. There could be additional ownership changes in the future, which may result in additional limitations in the utilization of the carryforward NOLs and credits, and the Company or JonesTrading may atdoes not expect to have any time suspend solicitations and offers undertaxable income for the Sales Agreement upon notice to the other party.foreseeable future.
As of December 31, 2022, the Company is generally no longer subject to examination by taxing authorities for years prior to 2019. However, NOL’s and credits in the United States may be subject to adjustments by taxing authorities in future years in which they are utilized. The Company is currently not under examination by the IRS or any other condition to JonesTrading’s obligations is not fulfilled; orjurisdictions for any suspension of trading in the Shares or in securities generally on the Nasdaq Global Market shall have occurred.tax years. The Company recognizes both accrued interest and JonesTrading eachpenalties related to unrecognized benefits in income tax expense. The Company has the right to terminate the Sales Agreement innot recorded any interest or penalties on any unrecognized tax benefits since its sole discretion at any time upon five days’ notice.inception.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Management’s Report on Internal Control Over Financial Reporting
Our management with the participation of our chief executive officer,is responsible for establishing and chiefmaintaining adequate internal control over financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2019. The term “disclosure controls and procedures,” asreporting. Internal control over financial reporting is defined in Rules 13a-15(e) and 15d-15(e)13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act means controls and other procedures of 1934, as amended, as a company that areprocess designed to ensure that information required to be disclosed by, us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including itssupervision of, our principal executive and principal financial officers as appropriateand effected by our board of directors, management and other personnel, to allow timely decisionsprovide reasonable assurance regarding required disclosure. Management recognizes that any controlsthe reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures no matter how well designedthat:
•pertain to the maintenance of records that in reasonable detail accurately and operated, can fairly reflect the transactions and dispositions of our assets;
•provide only reasonable assurance that transactions are recorded as necessary to permit preparation of achieving their objectivesfinancial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management necessarily applies its judgment in evaluating the cost-benefit relationshipand our board of possible controlsdirectors; and procedures. Based
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the evaluationfinancial statements.
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Because of December 31, 2019, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019.2022. In making this assessment our management used the criteria set forthestablished in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, (COSO)or COSO.
Based on our assessment, management concluded that, as of December 31, 2022, our internal control over financial reporting is effective based on the criteria established in its 2013 Internal Control—Integrated Framework. (2013) issued by COSO.
Changes in Internal Control Over Financial Reporting
ITEM 9B.OTHER INFORMATION
None.
ITEM 9C.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
PART III
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information concerning directors that is required by this Item 10 will be set forth in our proxy statement for our 20202023 annual meeting of stockholders, or 2023 proxy statement, under the headings “Directors and Nominees for Director,” and “Board Committees” which information is incorporated herein by reference. The information concerning our code of ethics is set forth in our proxy statement under the heading “Code of Business Conduct and Ethics.” The name, age, and position of each of our executive officers is set forth under the heading “Executive Officers of the Registrant”“Information about our Executive Officers” in Part I of this Annual Reportannual report on Form 10-K, which information is incorporated herein by reference.
ITEM 11.EXECUTIVE COMPENSATION
Information required by this Item 11 will be set forth in our 2023 proxy statement for our 2020 annual meeting of stockholders under the headings “Executive and Director Compensation and Related Matters,” “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report,” which information is incorporated herein by reference. Pay versus performance disclosures under the heading "Pay Versus Performance" from our 2023 proxy statement is not incorporated herein by reference.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by this Item 12 relating to security ownership of certain beneficial owners and management will be set forth in our 20202023 proxy statement under the captionheading “Security Ownership of Certain Beneficial Owners and Management” and is incorporated herein by reference. Information required by this Item 12 relating to securities authorized for issuance under equity compensation plans will be set forth in our 20202023 proxy statement under the captionheading “Executive and Director Compensation and Related Matters—Securities Authorized for Issuance Under Equity Compensation Plans” and is incorporated herein by reference.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this Item 13 will be set forth in our 2023 proxy statement for our 2020 annual meeting of stockholders under the headings “Policies and Procedures for Related Person Transactions,” “Determination of Independence” and “Board Committees,” which information is incorporated herein by reference.
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ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this Item 14 will be set forth in our 2023 proxy statement for our 2020 annual meeting of stockholders under the heading “Independent Registered Public Accounting Firm’s Fees and Other Matters,” which information is incorporated herein by reference.
PART IV
ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements.
Page number in this report | |||||
| Curis, Inc. and Subsidiaries | |||||
Report of Independent Registered Public Accounting Firm (PCAOB ID 238) | |||||
(a)(2) Financial Statement Schedules.
All schedules are omitted because they are not applicable or the required information is shown in the Financial Statement or Notes thereto.
(a)(3) List of Exhibits.
| Incorporated by Reference | ||||||||||||||||||||||||||||||||||||||
Exhibit No. | Description | Link to Filing | Form | SEC Filing Date | Exhibit Number | Filed with this 10-K | ||||||||||||||||||||||||||||||||
| Articles of Incorporation and By-laws | ||||||||||||||||||||||||||||||||||||||
| 3.1 | Restated Certificate of Incorporation of Curis, Inc., as amended | 10-Q | 11/9/2021 | 3.1 | ||||||||||||||||||||||||||||||||||
| 3.2 | Certificate of Designations of Curis, Inc. | S-3 (333-50906) | 8/10/2001 | 3.2 | ||||||||||||||||||||||||||||||||||
| 3.3 | Amended and Restated By-laws of Curis, Inc. | X | ||||||||||||||||||||||||||||||||||||
| Instruments defining the rights of security holders, including indentures | ||||||||||||||||||||||||||||||||||||||
| 4.1 | Form of Curis Common Stock Certificate | 10-K | 3/1/2004 | 4.1 | ||||||||||||||||||||||||||||||||||
| 4.2 | Description of Registrants' Securities | X | ||||||||||||||||||||||||||||||||||||
| Material contracts—Management Contracts and Compensatory Plans | ||||||||||||||||||||||||||||||||||||||
| #10.1 | Employment Agreement, dated March 29, 2016, as amended September 24, 2018 by and between Curis, Inc. and James E. Dentzer. | 10-Q | 11/1/2018 | 10.2 | ||||||||||||||||||||||||||||||||||
| #10.2 | Employment Agreement, dated August 4, 2022, by and between Curis, Inc. and Diantha Duvall | 10-Q | 11/9/2022 | 10.1 | ||||||||||||||||||||||||||||||||||
| #10.3 | Employment Agreement, dated September 11, 2019, by and between Curis, Inc. and William E. Steinkrauss | 10-Q | 11/5/2019 | 10.1 | ||||||||||||||||||||||||||||||||||
| #10.4 | Employment Agreement, dated June 1, 2018, by and between Curis, Inc. and Robert E. Martell, M.D., Ph.D. | 10-Q | 8/2/2018 | 10.2 | ||||||||||||||||||||||||||||||||||
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| Incorporated by Reference | ||||||||||||
Exhibit No. | Description | Link to Filing | Form | SEC Filing Date | Exhibit Number | Filed with this 10-K | ||||||
| Articles of Incorporation and By-laws | ||||||||||||
| 3.1 | Restated Certificate of Incorporation of Curis, Inc., as amended | 10-Q | 8/9/2019 | 3.1 | ||||||||
| 3.2 | Certificate of Designations of Curis, Inc. | S-3 (333-50906) | 8/10/2001 | 3.2 | ||||||||
| 3.3 | Amended and Restated By-laws of Curis, Inc. | 10-K | 2/29/2016 | 3.3 | ||||||||
| Instruments defining the rights of security holders, including indentures | ||||||||||||
| 4.1 | Form of Curis Common Stock Certificate | 10-K | 3/1/2004 | 4.1 | ||||||||
| 4.2 | Description of Registrants' Securities | X | ||||||||||
| Material contracts—Management Contracts and Compensatory Plans | ||||||||||||
| #10.1 | Employment Agreement, dated March 29, 2016, as amended September 24, 2018 by and between Curis, Inc. and James E. Dentzer. | 10-Q | 11/1/2018 | 10.2 | ||||||||
| #10.2 | Employment Agreement, dated September 11, 2019 between Curis, Inc. and William E. Steinkrauss | 10-Q | 11/5/2019 | 10.1 | ||||||||
| Incorporated by Reference | ||||||||||||||||||||||||||||||||||||||
Exhibit No. | Description | Link to Filing | Form | SEC Filing Date | Exhibit Number | Filed with this 10-K | ||||||||||||||||||||||||||||||||
| #10.5 | ||||||||||||||||||||||||||||||||||||||
| 10-Q | 8/ | |||||||||||||||||||||||||||||||||||||
| Form of Indemnification Agreement, by and between Curis, Inc. and each non-employee director of the Board of Directors of Curis, Inc. | 10-Q | 8/7/2014 | 10.3 | |||||||||||||||||||||||||||||||||||
| Curis 2010 Stock Incentive Plan | Def 14A | 4/16/2010 | Exhibit A | |||||||||||||||||||||||||||||||||||
| Curis 2010 Employee Stock Purchase Plan | Def 14A | 4/16/2010 | Exhibit B | |||||||||||||||||||||||||||||||||||
| Form of Incentive Stock Option Agreement for awards granted to named executive officers under Curis’ 2010 Stock Incentive Plan | 8-K | 6/4/2010 | 10.1 | |||||||||||||||||||||||||||||||||||
| Form of Non-Statutory Stock Option Agreement for awards granted to directors and named executive officers under Curis’ 2010 Stock Incentive Plan | 8-K | 6/4/2010 | 10.2 | |||||||||||||||||||||||||||||||||||
| Form of Restricted Stock Agreement for awards granted to directors and named executive officers under Curis’ 2010 Stock Incentive Plan | 8-K | 6/4/2010 | 10.3 | |||||||||||||||||||||||||||||||||||
| Curis Amended and Restated 2010 Stock Incentive Plan, as amended | 8-K | 5/28/2015 | 99.1 | |||||||||||||||||||||||||||||||||||
| Form of Incentive Stock Option Agreement for awards granted to named executive officers under Curis’ Amended and Restated 2010 Stock Incentive Plan, as amended | 10-K | 3/8/2018 | 10.21 | |||||||||||||||||||||||||||||||||||
| Form of Non-Statutory Stock Option Agreement for awards granted to directors and named executive officers under Curis’ Amended and Restated 2010 Stock Incentive Plan, as amended | 10-K | 3/8/2018 | 10.22 | |||||||||||||||||||||||||||||||||||
| Form of Restricted Stock Agreement for awards granted to directors and named executive officers under Curis’ Amended and Restated 2010 Stock Incentive Plan, as amended | 10-K | 3/8/2018 | 10.23 | |||||||||||||||||||||||||||||||||||
| #10.16 | Form of Incentive Stock Option Agreement (Online Acceptance) for awards granted to named executive officers under Curis’ Amended and Restated 2010 Stock Incentive Plan | 10-K | 3/9/2017 | 10.21 | ||||||||||||||||||||||||||||||||||
| #10.17 | Form of Nonstatutory Stock Option Agreement (Online Acceptance) granted to directors and named executive officers under Curis’ Amended and Restated 2010 Stock Incentive Plan | 10-K | 3/9/2017 | 10.22 | ||||||||||||||||||||||||||||||||||
| #10.18 | Curis Second Amended and Restated 2010 Stock Incentive Plan | 8-K | 5/22/2017 | 99.1 | ||||||||||||||||||||||||||||||||||
| #10.19 | Form of Incentive Stock Option Agreement for awards granted to named executive officers under Curis’ Second Amended and Restated 2010 Stock Incentive Plan | 10-K | 3/8/2018 | 10.27 | ||||||||||||||||||||||||||||||||||
116
| Incorporated by Reference | ||||||||||||||||||||||||||||||||||||||
Exhibit No. | Description | Link to Filing | Form | SEC Filing Date | Exhibit Number | Filed with this 10-K | ||||||||||||||||||||||||||||||||
| #10.20 | Form of Non-Statutory Stock Option Agreement for awards granted to directors and named executive officers under Curis’ Second Amended and Restated 2010 Stock Incentive Plan | 10-K | 3/8/2018 | 10.28 | ||||||||||||||||||||||||||||||||||
| #10.21 | Form of Restricted Stock Agreement for awards granted to directors and named executive officers under Curis’ Second Amended and Restated 2010 Stock Incentive Plan | 10-K | 3/8/2018 | 10.29 | ||||||||||||||||||||||||||||||||||
| #10.22 | Form of Nonstatutory Stock Option Agreement - Inducement Grant pursuant to Nasdaq Stock Market Rule 5635(c)(4) | S-8 | 1/6/2017 | 99.1 | ||||||||||||||||||||||||||||||||||
| #10.23 | Curis Third Amended and Restated 2010 Stock Incentive Plan, as amended | 8-K | 6/10/2020 | 99.1 | ||||||||||||||||||||||||||||||||||
| #10.24 | Form of Incentive Stock Option Agreement for awards granted to named executive officers under Curis’ Third Amended and Restated 2010 Stock Incentive Plan | 10-K | 2/24/2022 | 10.2 | ||||||||||||||||||||||||||||||||||
| #10.25 | Form of Non-Statutory Stock Option Agreement for awards granted to directors and named executive officers under Curis’ Third Amended and Restated 2010 Stock Incentive Plan | 10-K | 2/24/2022 | 10.2 | ||||||||||||||||||||||||||||||||||
| #10.26 | Curis Fourth Amended and Restated 2010 Stock Incentive Plan | 8-K | 6/2/2021 | 99.1 | ||||||||||||||||||||||||||||||||||
| #10.27 | Curis Amended and Restated 2010 Employee Stock Purchase Plan, as amended | 10-K | 3/8/2018 | 10.31 | ||||||||||||||||||||||||||||||||||
| Material contracts—Leases | ||||||||||||||||||||||||||||||||||||||
| 10.28 | Lease, dated December 5, 2019, by and between Curis, Inc. and 128 Spring Street Lexington, LLC relating to the premises at 128 Spring Street, Lexington, Massachusetts | 8-K | 12/6/2019 | 10.1 | ||||||||||||||||||||||||||||||||||
| 10.29 | First Amendment to Lease Agreement, dated January 27, 2022, by and between Curis, Inc. and 99 Hayden, LLC, successor-in-interest to 128 Spring Street Lexington, LLC | 8-K | 2/2/2022 | 10.1 | ||||||||||||||||||||||||||||||||||
| Material contracts—Financing Agreements | ||||||||||||||||||||||||||||||||||||||
| 10.30 | Consent and Payment Direction Letter Agreement, dated November 20, 2012 and effective as of December 11, 2012 by and between Curis, Inc., Curis Royalty LLC and Genentech, Inc. | 10-K | 3/13/2013 | 10.32 | ||||||||||||||||||||||||||||||||||
| 10.31 | Consent and Payment Direction Letter Agreement, dated March 3, 2017 by and between Curis, Inc., Curis Royalty LLC and Genentech, Inc. | 10-K | 3/9/2017 | 10.28 | ||||||||||||||||||||||||||||||||||
| ††10.32 | Purchase and Sale Agreement, dated as of December 11, 2012 between Curis, Inc. and Curis Royalty LLC | X | ||||||||||||||||||||||||||||||||||||
| †10.33 | Royalty Interest Purchase Agreement, dated March 22, 2019, by and between, Curis, Inc., Curis Royalty LLC, a wholly owned subsidiary of Curis, Inc., TPC Investments I LP and TPC Investments II LP | 10-K | 3/26/2019 | 10.40 | ||||||||||||||||||||||||||||||||||
117
| Incorporated by Reference | ||||||||||||
Exhibit No. | Description | Link to Filing | Form | SEC Filing Date | Exhibit Number | Filed with this 10-K | ||||||
| #10.19 | Form of Incentive Stock Option Agreement (Online Acceptance) for awards granted to named executive officers under Curis’ Amended and Restated 2010 Stock Incentive Plan | 10-K | 3/9/2017 | 10.21 | ||||||||
| #10.20 | Form of Nonstatutory Stock Option Agreement (Online Acceptance) granted to directors and named executive officers under Curis’ Amended and Restated 2010 Stock Incentive Plan | 10-K | 3/9/2017 | 10.22 | ||||||||
| #10.21 | Curis Second Amended and Restated 2010 Stock Incentive Plan | 8-K | 5/22/2017 | 99.1 | ||||||||
| #10.22 | Form of Incentive Stock Option Agreement for awards granted to named executive officers under Curis’ Second Amended and Restated 2010 Stock Incentive Plan | 10-K | 3/8/2018 | 10.27 | ||||||||
| #10.23 | Form of Non-Statutory Stock Option Agreement for awards granted to directors and named executive officers under Curis’ Second Amended and Restated 2010 Stock Incentive Plan | 10-K | 3/8/2018 | 10.28 | ||||||||
| #10.24 | Form of Restricted Stock Agreement for awards granted to directors and named executive officers under Curis’ Second Amended and Restated 2010 Stock Incentive Plan | 10-K | 3/8/2018 | 10.29 | ||||||||
| #10.25 | Form of Nonstatutory Stock Option Agreement - Inducement Grant pursuant to Nasdaq Stock Market Rule 5635(c)(4) | S-8 | 1/6/2017 | 99.1 | ||||||||
| #10.26 | Curis Third Amended and Restated 2010 Stock Incentive Plan, as amended | 8-K | 5/30/2019 | 99.1 | ||||||||
| #10.27 | Curis Amended and Restated 2010 Employee Stock Purchase Plan, as amended | 10-K | 3/8/2018 | 10.31 | ||||||||
| Material contracts—Leases | ||||||||||||
| 10.28 | Lease, dated September 16, 2010, by and between Curis, Inc. and the Trustees of Lexington Office Realty Trust relating to the premises at 4 Maguire Road, Lexington, Massachusetts | 8-K | 9/21/2010 | 10.1 | ||||||||
| 10.29 | Second Amendment to Lease, dated November 1, 2017, by and between Curis, Inc. and the Trustees of Lexington Office Realty Trust relating to the premises at 4 Maguire Road, Lexington, Massachusetts | 10-Q | 11/7/2017 | 10.2 | ||||||||
| 10.30 | Lease, dated December 5, 2019, by and between Curis, Inc. and 128 Spring Street Lexington, LLC relating to the premises at 128 Spring Street, Lexington, Massachusetts | 8-K | 12/6/2019 | 10.1 | ||||||||
| Material contracts—Financing Agreements | ||||||||||||
| 10.31 | Consent and Payment Direction Letter Agreement, dated November 20, 2012 and effective as of December 11, 2012 by and between Curis, Inc., Curis Royalty LLC and Genentech, Inc. | 10-K | 3/13/2013 | 10.32 | ||||||||
| 10.32 | Consent and Payment Direction Letter Agreement, dated March 3, 2017 by and between Curis, Inc., Curis Royalty LLC and Genentech, Inc. | 10-K | 3/9/2017 | 10.28 | ||||||||
| Incorporated by Reference | ||||||||||||||||||||||||||||||||||||||
Exhibit No. | Description | Link to Filing | Form | SEC Filing Date | Exhibit Number | Filed with this 10-K | ||||||||||||||||||||||||||||||||
| 10.34 | Security Agreement, dated March 22, 2019, by and between, Curis Royalty LLC, a wholly owned subsidiary of Curis, Inc., TPC Investments I LP and TPC Investments II LP | 10-K | 3/26/2019 | 10.41 | ||||||||||||||||||||||||||||||||||
| 10.35 | Pledge Agreement, dated March 22, 2019, by and between, Curis, Inc., TPC Investments I LP and TPC Investments II LP | 10-K | 3/26/2019 | 10.42 | ||||||||||||||||||||||||||||||||||
| 10.36 | Consent and Payment Direction Letter Agreement, dated March 22, 2019, by and between Curis, Inc., Curis Royalty LLC and Genentech, Inc. | 10-K | 3/26/2019 | 10.43 | ||||||||||||||||||||||||||||||||||
| Material contracts—License and Collaboration Agreements | ||||||||||||||||||||||||||||||||||||||
| †10.37 | Collaborative Research, Development and License Agreement, dated June 11, 2003, by and between Curis, Inc. and Genentech, Inc. | 10-Q | 8/6/2015 | 10.1 | ||||||||||||||||||||||||||||||||||
| ††10.38 | Collaboration, License and Option Agreement, dated January 18, 2015, by and between Curis, Inc. and Aurigene Discovery Technologies Limited | 10-K | 2/24/2022 | 10.36 | ||||||||||||||||||||||||||||||||||
| ††10.39 | First Amendment to Collaboration, License and Option Agreement, dated September 7, 2016, by and between Curis, Inc. and Aurigene Discovery Technologies Limited | 10-K | 2/24/2022 | 10.37 | ||||||||||||||||||||||||||||||||||
| †10.40 | Second Amendment to Collaboration, License and Option Agreement, dated February 5, 2020, by and between Curis, Inc. and Aurigene Discovery Technologies Limited | 10-K | 1 | 3/19/2020 | 10.41 | |||||||||||||||||||||||||||||||||
| †10.41 | Option and License Agreement, dated January 6, 2020 by and between Curis, Inc and ImmuNext, Inc. | 10-K | 3/19/2020 | 10.42 | ||||||||||||||||||||||||||||||||||
| Material contracts—Miscellaneous | ||||||||||||||||||||||||||||||||||||||
| 10.42 | Common Stock Purchase Agreement, dated January 18, 2015, by and between Curis, Inc. and Aurigene Discovery Technologies Limited | 10-K | 2/24/2015 | 10.34 | ||||||||||||||||||||||||||||||||||
| 10.43 | Stock Purchase Agreement, dated September 7, 2016, by and between Curis, Inc. and Aurigene Discovery Technologies Limited | 10-Q | 11/3/2016 | 10.3 | ||||||||||||||||||||||||||||||||||
| 10.44 | Registration Rights Agreement, dated January 18, 2015, by and between Curis, Inc. and Aurigene Discovery Technologies Limited | 10-K | 2/24/2015 | 10.35 | ||||||||||||||||||||||||||||||||||
| 10.45 | Registration Rights Agreement, dated September 7, 2016, by and between Curis, Inc. and Aurigene Discovery Technologies Limited | 10-Q | 11/3/2016 | 10.4 | ||||||||||||||||||||||||||||||||||
| 10.46 | Form of Securities Purchase Agreement, dated June 11, 2020, by and among Curis, Inc. and the Purchasers named therein | 8-K | 6/11/2020 | 10.1 | ||||||||||||||||||||||||||||||||||
| 10.47 | Sales Agreement, dated March 16, 2021, by and among Curis, Inc., Cantor Fitzgerald & Co. and JonesTrading Institutional Services, LLC | S-3ASR | 3/16/2021 | 1.2 | ||||||||||||||||||||||||||||||||||
| Code of Conduct | ||||||||||||||||||||||||||||||||||||||
| 14 | Amended and Restated Code of Business Conduct and Ethics | X | ||||||||||||||||||||||||||||||||||||
| Additional Exhibits | ||||||||||||||||||||||||||||||||||||||
118
| Incorporated by Reference | ||||||||||||
Exhibit No. | Description | Link to Filing | Form | SEC Filing Date | Exhibit Number | Filed with this 10-K | ||||||
| †10.33 | Purchase and Sale Agreement, dated as of December 11, 2012 between Curis, Inc. and Curis Royalty LLC | 10-K | 3/13/2013 | 10.33 | ||||||||
| ††10.34 | Royalty Interest Purchase Agreement, dated March 22, 2019, by and between, Curis, Inc., Curis Royalty LLC, a wholly owned subsidiary of Curis, Inc., TPC Investments I LP and TPC Investments II LP | 10-K | 3/26/2019 | 10.40 | ||||||||
| 10.35 | Security Agreement, dated March 22, 2019, by and between, Curis Royalty LLC, a wholly owned subsidiary of Curis, Inc., TPC Investments I LP and TPC Investments II LP | 10-K | 3/26/2019 | 10.41 | ||||||||
| 10.36 | Pledge Agreement, dated March 22, 2019, by and between, Curis, Inc., TPC Investments I LP and TPC Investments II LP | 10-K | 3/26/2019 | 10.42 | ||||||||
| 10.37 | Consent and Payment Direction Letter Agreement, dated March 22, 2019, by and between Curis, Inc., Curis Royalty LLC and Genentech, Inc. | 10-K | 3/26/2019 | 10.43 | ||||||||
| Material contracts—License and Collaboration Agreements | ||||||||||||
| †10.38 | Collaborative Research, Development and License Agreement, dated June 11, 2003, by and between Curis, Inc. and Genentech, Inc. | 10-Q | 8/6/2015 | 10.1 | ||||||||
| †10.39 | Collaboration, License and Option Agreement, dated January 18, 2015, by and between Curis, Inc. and Aurigene Discovery Technologies Limited | 10-K | 2/24/2015 | 10.32 | ||||||||
| †10.40 | First Amendment to Collaboration, License and Option Agreement, dated September 7, 2016, by and between Curis, Inc. and Aurigene Discovery Technologies Limited | 10-Q | 11/3/2016 | 10.2 | ||||||||
| ††10.41 | Second Amendment to Collaboration, License and Option Agreement, dated February 5, 2020, by and between Curis, Inc. and Aurigene Discovery Technologies Limited | X | ||||||||||
| ††10.42 | Option and License Agreement, dated January 6, 2020 by and between Curis, Inc and ImmuNext, Inc. | X | ||||||||||
| Material contracts—Miscellaneous | ||||||||||||
| 10.43 | Common Stock Purchase Agreement, dated January 18, 2015, by and between Curis, Inc. and Aurigene Discovery Technologies Limited | 10-K | 2/24/2015 | 10.34 | ||||||||
| 10.44 | Stock Purchase Agreement, dated September 7, 2016, by and between Curis, Inc. and Aurigene Discovery Technologies Limited | 10-Q | 11/3/2016 | 10.3 | ||||||||
| 10.45 | Registration Rights Agreement, dated January 18, 2015, by and between Curis, Inc. and Aurigene Discovery Technologies Limited | 10-K | 2/24/2015 | 10.35 | ||||||||
| 10.46 | Registration Rights Agreement, dated September 7, 2016, by and between Curis, Inc. and Aurigene Discovery Technologies Limited | 10-Q | 11/3/2016 | 10.4 | ||||||||
| 10.47 | Common Stock Purchase Agreement, dated February 26, 2020, by and between Curis, Inc. and Aspire Capital Fund, LLC | 8-K | 2/27/2020 | 10.1 | ||||||||
| Incorporated by Reference | ||||||||||||||||||||||||||||||||||||||
Exhibit No. | Description | Link to Filing | Form | SEC Filing Date | Exhibit Number | Filed with this 10-K | ||||||||||||||||||||||||||||||||
| 21 | Subsidiaries of Curis | X | ||||||||||||||||||||||||||||||||||||
| 23.1 | Consent of PricewaterhouseCoopers LLP | X | ||||||||||||||||||||||||||||||||||||
| 31.1 | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act/15d-14(a) of the Exchange Act | X | ||||||||||||||||||||||||||||||||||||
| 31.2 | Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act/15d-14(a) of the Exchange Act | X | ||||||||||||||||||||||||||||||||||||
| 32.1 | Certification of the Chief Executive Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Exchange Act and 18 U.S.C. Section 1350 | X | ||||||||||||||||||||||||||||||||||||
| 32.2 | Certification of the Chief Financial Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Exchange Act and 18 U.S.C. Section 1350 | X | ||||||||||||||||||||||||||||||||||||
| 101.INS | InLine XBRL Instance Document | X | ||||||||||||||||||||||||||||||||||||
| 101.SCH | InLine XBRL Taxonomy Extension Schema Document | X | ||||||||||||||||||||||||||||||||||||
| 101.CAL | InLine XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||||||||||||||||||||||||||||
| 101.DEF | InLine XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||||||||||||||||||||||||||||
| 101.LAB | InLine XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||||||||||||||||||||||||||||
| 101.PRE | InLine XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File | X | ||||||||||||||||||||||||||||||||||||
| Incorporated by Reference | ||||||||||||
Exhibit No. | Description | Link to Filing | Form | SEC Filing Date | Exhibit Number | Filed with this 10-K | ||||||
| 10.48 | Registration Rights Agreement, dated February 26, 2020, by and between Curis, Inc. and Aspire Capital Fund. LLC | 8-K | 2/27/2020 | 4.1 | ||||||||
| 10.49 | Sales Agreement, dated March 4, 2020, by and between Curis, Inc. and JonesTrading Institutional Services LLC | 8-K | 3/6/2020 | 1.1 | ||||||||
| Code of Conduct | ||||||||||||
| 14 | Amended and Restated Code of Business Conduct and Ethics | 10-K | 3/8/2018 | 14 | ||||||||
| Additional Exhibits | ||||||||||||
| 21 | Subsidiaries of Curis | X | ||||||||||
| 23.1 | Consent of PricewaterhouseCoopers LLP | X | ||||||||||
| 31.1 | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act/15d-14(a) of the Exchange Act | X | ||||||||||
| 31.2 | Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act/15d-14(a) of the Exchange Act | X | ||||||||||
| 32.1 | Certification of the Chief Executive Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Exchange Act and 18 U.S.C. Section 1350 | X | ||||||||||
| 32.2 | Certification of the Chief Financial Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Exchange Act and 18 U.S.C. Section 1350 | X | ||||||||||
| 101.INS | XBRL Instance Document | X | ||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | X | ||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||
# Indicates management contract or compensatory plan or arrangement.
† Confidential treatment has been granted as to certain portions, which portions have been separately filed with the Securities and Exchange Commission.
†† Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
119
ITEM 16.FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CURIS, INC. | ||||||||||
| By: | /s/ JAMES DENTZER | |||||||||
James Dentzer President and Chief Executive Officer | ||||||||||
Date: March 19, 202013, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||||||||||||||
| /s/ JAMES DENTZER | President, Chief Executive Officer and Director (Principal Executive Officer) | March | ||||||||||||||
| James Dentzer | ||||||||||||||||
| /s/ | Chief Financial Officer (Principal Financial and Accounting Officer) | March | ||||||||||||||
| /s/ MARTYN D. GREENACRE | Chairman of the Board of Directors | March | ||||||||||||||
| Martyn D. Greenacre | ||||||||||||||||
| /s/ ANNE E. BORGMAN | Director | March 13, 2023 | ||||||||||||||
| Anne E. Borgman | ||||||||||||||||
| /s/ JOHN A. HOHNEKER | Director | March 13, 2023 | ||||||||||||||
| John A. Hohneker | ||||||||||||||||
| /s/ KENNETH I. KAITIN | Director | March | ||||||||||||||
| Kenneth I. Kaitin | ||||||||||||||||
| /s/ MARC RUBIN | Director | March | ||||||||||||||
| Marc Rubin | ||||||||||||||||
120