UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 (Mark(Mark One)

 

x

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

 

For the Fiscal Year EndedDecember 31, 20172020

 

¨

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

 

For the transition period from __________________ to __________________

 

Commission file number:001-38327

 

Cue Biopharma, Inc.

(Exact Namename of Registrantregistrant as Specifiedspecified in Its Charter)its charter)

 

Delaware

47-3324577

(State or Other Jurisdictionother jurisdiction of
Incorporation

incorporation or Organization)organization)

(I.R.S. Employer Identification No.)

 

675 W. Kendall St.,

21 Erie Street Cambridge, MA

02142

02139

(Address of Principal Executive Offices)principal executive offices)

(Zip Code)

 

(617) 949-2680

(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, par value $0.001 per share

CUE

The NASDAQ Stock

Nasdaq Capital Market LLC

 

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¨Nox

 

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¨Nox

 

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. YesxNo¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YesxNo¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.¨

 

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 definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer¨

Accelerated filer¨

Non-accelerated filerx(Do not check if a smaller reporting company)

Smaller reporting company¨

Emerging growth companyx

 

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

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):  Yes¨Nox

 

The registrant completedaggregate market value of the initial public offeringvoting and non-voting common equity held by non-affiliates of its common stock on December 27, 2017. Accordingly, there was no public market for the registrant’s common stockregistrant, as of June 30, 2017, the last business day of the registrant’s most recently completed second fiscal quarter.quarter, was approximately $695.1 million (based on the closing price of the registrant’s common stock on June 30, 2020 of $24.51 per share).

 

As of March 22, 2018, there were 20,130,7661, 2021, the registrant had  30,457,250 shares of the registrant’s common stockCommon Stock, $0.001 par value per share, outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days after the end of the fiscal year ended December 31, 2017.2020. Portions of such proxy statement are incorporated by reference into Part III of this Form 10-K.10-K.

 

 

 


 

CUE BIOPHARMA, INC.

TABLE OF CONTENTS

 

PART I

Item 1.

Business

2

4

Item 1A.

Risk Factors

25

47

Item 1B.

Unresolved Staff Comments

45

77

Item 2.

Properties

45

77

Item 3.

Legal Proceedings

45

77

Item 4.

Mine Safety Disclosures

45

77

PART II

Item 5.

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

46

78

Item 6.

Selected Financial Data

48

78

Item 7.

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

49

79

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

60

91

Item 8.

Financial Statements and Supplementary Data.

60

91

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

61

91

Item 9A.

Controls and Procedures.

61

91

Item 9B.

Other Information.

61

92

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

62

93

Item 11.

Executive Compensation

62

93

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.

62

93

Item 13.

Certain Relationships and Related Transactions, and Director Independence

62

93

Item 14.

Principal Accountant Fees and Services

62

93

PART IV

Item 15.

Exhibits, Financial Statements and Schedules

95

Item 16.

63Form 10-K Summary

97

 

 

 


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

AND INDUSTRY DATA

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be covered by the “safe harbor” created by those sections.amended. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “would,” “could,” “seek,” “intend,” “plan,” “goal,” “project,” “estimate,” “anticipate,” “strategy”, “future”, “likely” or other comparable terms and references to future periods.terms. All statements, other than statements of historical facts includedfact, contained in this Annual Report on Form 10-K, including statements regarding our strategies,strategy, future operations, future financial position, future revenue, projected costs, prospects, financial condition, operations, costs, plans and objectives of management, are forward-looking statements. Examples of

The forward-looking statements in this Annual Report on Form 10-K include, among others,other things, statements we make regarding: anticipated results of our drug development efforts, including study results, our expectations regarding regulatory developments and expected future operating results.about:

 

the initiation, timing, progress and results of our current and future preclinical studies and clinical trials and our research and development programs;

our estimates regarding expenses, future revenue, capital requirements and need for additional financing;

our expectations regarding our ability to fund our projected operating requirements with our existing cash resources and the period in which we expect that such cash resources will enable us to fund such operating requirements;

our plans to develop our drug product candidates;

the timing of and our ability to submit applications for, obtain and maintain regulatory approvals for our drug product candidates;

the potential advantages of our drug product candidates;

the rate and degree of market acceptance and clinical utility of our drug product candidates, if approved;

our estimates regarding the potential market opportunity for our drug product candidates;

our commercialization, marketing and manufacturing capabilities and strategy;

our intellectual property position;

our ability to identify additional products, drug product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;

the impact of government laws and regulations;

our competitive position;

developments relating to our competitors and our industry;

our ability to establish collaborations or obtain additional funding; and

the impacts of the COVID-19 pandemic.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include among others, the following:factors discussed below under the heading “Risk Factor Summary,” and the risk factors detailed further in Item 1A., “Risk Factors” of Part I of this Annual Report on Form 10-K.

1

·our limited operating history, limited cash and a history of losses;

·our ability to achieve profitability;

·our ability to secure required Food and Drug Administration (“FDA”) or other governmental approvals for our product candidates and the breadth of any approved indication;

·negative or inconclusive results from our clinical studies or serious and unexpected drug-related side effects or other safety issues experienced by participants in our clinical trials;

·delays and changes in regulatory requirements, policy and guidelines including potential delays in submitting required regulatory applications to the FDA;

·our reliance on licensors, collaborations and strategic alliances;

·our ability to obtain adequate financing to fund our business operations in the future;

·the other risks and uncertainties described in the Risk Factors and in Management’s Discussion; and Analysis of Financial Condition and Results of Operations sections of this Annual Report on Form 10-K.

This 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 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.

Any forward-looking statement made by us in this reportAnnual Report on Form 10-K is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

2


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 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 report could be materially different from those anticipated in such forward-looking statements.

 

1

We are a clinical-stage biopharmaceutical company, have no history of generating commercial revenue, have a history of operating losses, and we may never achieve or maintain profitability.

 

We currently do not have, and may never develop, any FDA-approved or commercialized products.

We are substantially dependent on the success of our drug product candidates, only one of which is currently being tested in a clinical trial, and significant additional research and development and clinical testing will be required before we can potentially seek regulatory approval for or commercialize any of our drug product candidates.

We have limited experience in conducting clinical trials and no history of commercializing biologic products, which may make it difficult to evaluate the prospects for our future viability.

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

We plan to seek collaborations or strategic alliances. However, we may not be able to establish such relationships, and relationships we have established may not provide the expected benefits. Our collaboration agreements with Merck and LG Chem contain exclusivity provisions that restrict our research and development activities.

We may not be successful in our efforts to identify additional drug product candidates. Due to our limited resources and access to capital, we must prioritize development of certain drug product candidates; these decisions may prove to be wrong and may adversely affect our business.

We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.

We rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

We rely completely on third parties to manufacture our preclinical and clinical drug supplies for our drug product candidates.

If we or our licensor is unable to protect our or its intellectual property, then our financial condition, results of operations and the value of our technology and potential products could be adversely affected.

We will be subject to stringent domestic and foreign regulation in respect of any potential products. The regulatory approval processes of the FDA and other comparable regulatory authorities outside the United States are lengthy, time-consuming and inherently unpredictable. Any unfavorable regulatory action may materially and adversely affect our future financial condition and business operations.

Even if a potential therapeutic is ultimately approved by the various regulatory authorities, it may be approved only for narrow indications which may render it commercially less viable.

Even if we receive regulatory approval of our drug product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our drug product candidates.

3


PART I

Cue Biopharma, Inc. (“we,” “us,” “our,” “Cue” and the “Company”) was incorporated in the State of Delaware on December 31, 2014 under the name Imagen Biopharma, Inc., and completed its organization, formation and initial capitalization activities effective as of January 1, 2015. In October 2016, the Company changed its name to Cue Biopharma, Inc. The Company’s corporate office and research facilities are located in Cambridge, Massachusetts.

Item 1. Business

Overview

We are an innovativea clinical-stage biopharmaceutical company developingengineering a novel and proprietary class of biologic drugsinjectable biologics to selectively engage and modulate targeted T cells directly within the patient’s body. We believe our proprietary Immuno-STAT™ (Selective Targeting and Alteration of T Cells) platform, as described below, will allow us to harness the fullest potential of an individual’s intrinsic immune repertoire for restoring health while avoiding the deleterious side effects of broad immune activation (for immuno-oncology or infectious immunity) or broad immune suppression (for autoimmunity and inflammation). In addition to the selective modulation of T cell activity, we believe Immuno-STATs offer several key points of potential differentiation over competing approaches, including modularity and versatility providing broad disease coverage, manufacturability, and convenient administration.

Through rational protein engineering, we leverage the modular and versatile nature of the Immuno-STAT platform to design drug product candidates for selective immune modulation in cancer, chronic infectious disease, and autoimmune disease. To address the needs of these clinical indications, we have developed four biologic series within the Immuno-STAT platform: CUE-100, CUE-200, CUE-300, and CUE-400, each specifically designed through rational engineering to possess distinct signaling modules for desired biological mechanisms that may be applied across many diseases.  The CUE-100 series exploits rationally engineered IL-2 in context of the core Immuno-STAT framework for selective activation of targeted tumor-specific T cells, while the CUE-200 series is focused on cell surface receptors including CD80 and/or 4-1BBL to address T cell exhaustion associated with chronic infections. The CUE-300 series, being developed for autoimmune diseases, incorporates the inhibitory PD-L1 co-modulator for selective inhibition of the autoreactive T cell repertoire.  This approach is pertinent for autoimmune diseases with known, well characterized, limited or few autoantigens, such as type 1 diabetes. The CUE-400 series, for autoimmune diseases with diverse or unknown autoantigens, represents a novel class of bispecific molecules that can selectively and effectively expand induced regulatory T cells, or iTregs. We categorize these molecules as “pathway-specific modulators” or PSM. The first candidate, CUE-401, incorporates the two key biological signals that are necessary for generation of iTregs, namely IL-2 and TGF-beta. Based on structure-based rational protein engineering, both IL-2 and TGF-beta have been affinity tuned (i.e. the binding strength has been optimized) to maintain on-target engagement while minimizing systemic toxicities.

Our drug product candidates are in various stages of clinical and preclinical development, and while we believe that these candidates hold potential value, our activities are subject to significant risks and uncertainties. We have not yet commenced any commercial revenue-generating operations, have limited cash flows from operations, and will need to access additional capital to fund our growth and ongoing business operations.


Our Immuno-STAT Platform Pipeline

The pipeline below details our current portfolio assets and their stages of development. CUE-101 is our most advanced clinical stage asset, currently being dosed in a Phase1 monotherapy trial for human papilloma virus (HPV)-driven recurrent/metastatic (R/M) head and neck cancer, as well as in a first line Phase 1 combination trial with KEYTRUDA® (pembrolizumab) in the same indication. CUE-102 focuses on Wilm’s tumor-1 (WT1) as the tumor antigen.

We have made significant progress advancing the IL-2-based CUE-100 series for oncology.  We dosed the first patient in September 2019 in a monotherapy Phase 1 dose escalation clinical trial of CUE-101 for the treatment of HPV16-driven recurrent/metastatic, or R/M, head and neck squamous cell carcinoma, or HNSCC, in late-stage treatment-refractory patients with R/M HNSCC who have received and failed several prior lines of systemic therapy including checkpoint inhibitors such as KEYTRUDA, already approved for first-line, or 1L, HPV+R/M HNSCC. To date CUE-101 has demonstrated a favorable tolerability profile in the monotherapy trial and continues to generate encouraging emerging data pertaining to its pharmacokinetic, or PK, and pharmacodynamic, or PD, profile, as well as anti-tumor clinical activity.

During the fourth quarter of 2020 we initiated a Phase 1 clinical trial into the first-line R/M HNSCC setting to evaluate the combination of CUE-101 with Merck Sharp & Dohme Corp., or Merck’s, anti-PD-1 therapy KEYTRUDA®.  The first patient in this combination study was dosed in the first quarter of 2021.  The potential synergy with KEYTRUDA is due to CUE-101’s design and protein engineering to selectively activate and expand tumor-targeted T cells directly in the patient’s body.  We believe the potential of CUE-101 to synergize with and enhance the clinical activity of KEYTRUDA is mechanistically attractive since the presence of expanded tumor-specific T cells are a pre-requisite for and an obligatory target of anti-PD-1.  In preclinical studies, we have observed activation and expansion of the targeted T cells circulating in the peripheral blood, as well as a significant expansion of tumor infiltrating lymphocytes.  In addition to the Phase 1 monotherapy and combination trial with KEYTRUDA, we also intend to initiate a neoadjuvant study in locally advanced HPV+ HNSCC patients in the second half of 2021, which is expected to provide further mechanistic evidence and insights into the activation and effector function of T cells resident in tumor tissue and their impact on tumor viability.  

CUE-101 is the most advanced candidate from our IL-2 based CUE-100 series and is exemplary of the union of the rational protein engineering underscoring the Immuno-STAT platform and key immunological targets, or activity nodes, to selectively enhance anti-tumor immunity.  Data relating to this work were recently published in a peer-reviewed journal (Quayle et al., Clinical Cancer Research 2020, https://clincancerres.aacrjournals.org/content/early/2020/01/15/1078-0432.CCR-19-3354).  Importantly, we believe that the totality of clinical data with CUE-101, effectively reduces the risk profile of the IL-2 based CUE-100 series due to the fact that the core framework of the CUE-100 series remains essentially the same for each drug candidate, except for the targeting peptide epitope within the major histocompatibility complex, or MHC, pocket or the human immune systemleukocyte antigen, or HLA, in humans.  Therefore, with the exception of some protein engineering modifications to ensure stability and manufacturability the core IL-2 scaffold is a shared molecular feature of all molecules generated within this series (including CUE-102, and the next-gen platform, Neo-STATTM, as described below).


We are also advancing a pipeline of additional promising preclinical candidates that we believe hold the potential to treat a broad rangemultiple cancers.  Data from our second candidate of cancersthe CUE-100 series, CUE-102 (WT1) were recently presented at the New York Academy of Science, or NYAS, Frontiers in Cancer Immunotherapy meeting and autoimmune disorders.at the Society for Immunotherapy of Cancer, or SITC, meeting in November 2020. These data support early evidence of selective T cell expansion, along with polyfunctional effector function including killing of target cells. We believe our innovative CUE Biologics™ platform approachare continuing to selectively modulate disease relevantdevelop CUE-102 toward an investigational new drug application, or IND, through enabling studies, and we anticipate filing an investigational new drug application, or IND, for this candidate in the first half of 2022.  We have also generated foundational data with Immuno-STATs targeting the mutated G12V KRAS T cell epitope including demonstration of activation and expansion of T cells providesexpressing G12V-specific T cell receptors, or TCRs. These data were presented at the SITC meeting in November 2020 and more recently at the Immuno-Oncology conference, IO-360, in February 2021.

Importantly, through rational protein engineering, we have expanded the reach of the Immuno-STAT platform to potentially address the heterogeneity and diversity of many cancers by developing a transformative solutionderivative scaffold from the CUE-100 series that contains stable “peptide-less” or “empty” MHC pocket or human leukocyte antigen, orHLA, molecules, to which peptides of interest may be covalently attached. We refer to this derivative scaffold as Neo-STAT.   Neo-STAT is designed to provide greater flexibility for targeting multiple tumor epitopes, enhance production efficiencies, decrease time and cost to manufacture and potentially lend itself to personalized neo-antigen strategies in cancer immunotherapy as an off-the-shelf approach.

In addition to oncology, we have made recent advances in autoimmune diseases where our core strategy has centered on two major themes: (i) modulating antigen-specific T cells with Immuno-STATs in diseases with restricted or known autoantigens (e.g., type 1 diabetes), and (ii) exploiting a pathway-specific approach via modalities focused on regulatory T cells and other mechanisms that could be broadly applied to autoimmune diseases with unknown or diverse autoantigens. In the challenges facing prevailing immunotherapeutics. By directly engaging and modulating disease relevantfirst instance we have made significant advances with the CUE-300 series for targeting antigen-specific T cells in autoimmune disorders, including progress made in our collaboration with Merck which was recently extended and further supported through 2021.  To date, we have generated proof of concept data demonstrating the patient’s body via an injectable drug,potential for targeting autoreactive T cells in type 1 diabetes; https://www.cuebiopharma.com/wp-content/uploads/2020/03/CUE-Merck-Autoimmune-Data.pdf.  Based upon the promising progress we believehave made through our biologic drugMerck collaboration to date, we expect to further develop a growing pipeline of autoimmune candidates will be able to realize the true potential of immune modulation. Throughthroughout 2021.

Additionally, we have expanded our proprietary CUE Biologics™ platform, we believe we are uniquely positioned to become a prominentreach into chronic autoimmune diseases with diverse and/or uncharacterized antigens by focusing on activating and leading player in immunotherapy, immuno-oncology, and autoimmune disease. While currently in preclinical development, our proprietary platform is intended to allow us to efficiently design and develop drug candidates that specifically and selectively engage disease relevantincreasing regulatory T cells for therapeutic affect, while minimizing or eliminating unwanted side effects. We have been aggressively seeking patent protectionre-setting immune balance. Our first candidate from this effort, CUE-401, incorporates two key signals, namely IL-2 and TGF-beta, for our pioneering innovationsdifferentiation and combinedexpansion of iTregs.

Furthermore, we are assessing the potential of developing programs from the Immuno-STAT platform for treating infectious diseases with the CUE-200 series through research being conducted by Dr. Steven Almo, a license agreement withco-founder of the company and Chair of Biochemistry at The Albert Einstein College of Medicine (“Einstein”), continueMedicine. Data supporting these applications were recently presented at the SITC meeting in November 2020; https://www.cuebiopharma.com/wp-content/uploads/2020/11/Immuno-STAT-SITC-2020-Poster.pdf.

Our Business Strategy

Our primary objective is to buildbecome a robust intellectual property portfolio. This portfolio includesleading biopharmaceutical company developing breakthrough, highly selective and differentiated biologics for safe and effective therapeutic immune modulation directly in patients having high unmet medical need. In order to achieve this objective, we are focused on the following strategies:

Advance and establish our IL-2-based CUE-100 series, as demonstrated by our lead Immuno-STAT program, CUE-101

Through CUE-101 we intend to demonstrate that IL-2 can be selectively and tolerably delivered to the specific cellular immune compartment that is relevant for anti-tumor immunity. This is in contrast to other approaches that are focused on systemic delivery of IL-2 variants with little specificity for the anti-tumor T cell repertoire.

We plan to execute clinical trials that are designed with a translational approach to demonstrate CUE-101’s ability to selectively activate and expand patients’ own endogenous HPV16-specific T cell repertoire to target, attack and kill tumor cells.

6


We plan to expand patient access and potentially enhance clinical outcomes by addressing the significant unmet patient need first by establishing foundational mechanistic evidence in the second line and beyond monotherapy Phase 1 clinical trial for HPV16-driven R/M HNSCC, then in first line therapy in combination with anti-PD1 therapy, where it is our intention to generate evidence of synergy with a checkpoint blockade. We also plan to further expand into newly diagnosed HPV16-driven R/M HNSCC with a Phase 1 neoadjuvant trial designed to study surgically excised tumors after the patients have received two to three dose regimens of CUE-101, potentially allowing us to gather further data that may demonstrate mechanistic evidence of selective T cell activation, proliferation and infiltration of tumor tissue resulting in tumor cell killing.

We are working to build a clinical data set that demonstrates the PK/PD, tolerability and anti-tumor effect of CUE-101 as a monotherapy and in combination with anti-PD-1 therapy in patients with HPV16-driven HNSCC.

Leverage our modular and versatile Immuno-STAT platform to generate and advance a pipeline of Immuno-STATs and Neo-STATs with strategic partnering to enable global patient reach

Within the CUE-100 series, we are expanding our clinical reach through a collaboration and strategic territory partnership with LG Chem, Ltd., or LG Chem, for CUE-101, CUE-102 and CUE-103 for Asian markets. Through this collaboration and partnership, we are able to reach patients within the Asian territory.

Beyond the IL-2-based CUE-100 series for addressing a broad range of cancers, we have a growing pipeline of therapeutic frameworks and programs designed to address the significant, unmet medical need for treating serious, life threatening indications, such as autoimmune disease and infectious disease.

The recent extension of our collaboration with Merck, encompassing two defined autoimmune indications, including type I diabetes, or T1D, allows us to further progress the CUE-300 series, which is focused on targeting antigen-specific T cells in autoimmune disease.

We continue to evaluate the mechanisms within the CUE-200 series via research being conducted at the Albert Einstein College of Medicine to demonstrate the ability to enhance T cell activation and/ or reverse T cell exhaustion, an area of critical need for infectious disease. Mechanistic data demonstrating proof-of-concept were recently disclosed at the SITC meeting in November 2020.

We will continue to selectively explore other opportunities to create value from the protein engineering platform and may further develop these programs with or without partners.

Expand and enhance our core technologycapabilities and Immuno-STAT platform for the engineering of biologics to selectively control T cell activity, which we call CUE Biologics™, a growing portfolio of precision immuno-modulatory drug candidates, and two supporting technologies we call MOD™ and viraTope™ that enable the discovery of costimulatory signaling molecules (ligands)

We view protein engineering and translational immunology as our core competencies, and to expand our competitive advantages, we plan to continue to invest in these areas to further optimize the platform for rapid and cost-effective drug development. We may also in-license, acquire, or invest in complementary businesses, technologies, products or assets.

Our Approach

The Immune System and T cell targeting peptides, respectively.Cell Immunity

 

BackgroundAs highlighted in the figure below, we believe a critical component of human health is achieving and maintaining a state of immune balance.  Imbalance of the immune system underscores many diseased states: susceptibility to cancers and infectious disease can be attributed to inadequate or compromised/attenuated immune responses, while autoimmune diseases result from an overactive immune response reacting against the host.


Restoring Immune Balance

 

The human immune system comprises a number of specialized cell types whichthat collectively function to identify and defend the body against foreign threats. Central toOne such specialized cell type, the proper functioninghuman T cell, is a subtype of a white blood cell that plays a central role in the immune systemsystem. During an immune response, T cells are the coordinated activities and communications between twoactivated via close encounters with a specialized cell type known as the antigen presenting cell, or APC. Prominent APC types antigen-presentinginclude dendritic cells, (“APCs”)macrophages, and TB cells. APCs serveThe primary function of an APC is to captureuptake antigens, primarily proteins, catabolize, (i.e., break them down into peptides) and break the proteins from foreign organisms, (e.g., bacteria and viruses), or abnormal proteins (e.g., from genetic mutationdisplay them on their cell-surface in cancer cells) into smaller fragments suitablecomplex with specialized molecules known as signals for scrutiny by the larger immune system, including T cells. In particular, APCs break down proteins into small peptide fragments, which are then paired with a class of host molecules called the major histocompatibility complex (“MHC”) and displayed on the cell surface. Cell surface displaymolecules or human leukocyte antigen, or MHC (HLA in humans). This critical function of an APC, also referred to as “antigen processing and presentation”, ultimately results in generation of the key molecular substrate – the peptide MHC together with a peptide fragment,complex (pMHC will also known as a T cell epitope, provides the underlying scaffold surveilledbe used to designate pHLA in humans) – that is recognized by T cells, allowing for specific recognition. The peptide fragments can be pathogen-derived, tumor-derived, or derived from natural host proteins (self-proteins). Moreover, APCs can recognize certain pathogen associated molecules, such as bacterial toxins, viral proteins, viral nucleic acids, that communicate the pathogenic threat to the APC. The APCs relay this information to T cells through additional costimulatory signals in order to generate a more effective response.

T cells recognize peptide-MHC (“pMHC”) complexes through a specialized cell surface receptor, the T cell receptor (“TCR”). The TCR is unique to eachvia its T cell receptor, or TCR.

The source of the antigen for the APC is vast and expansive: antigens from pathogens such as a consequence, eachviruses, bacteria and others activate T cells for protective immunity; antigens from tumor cells are key for robust anti-tumor T cell is highly specific for a particular pMHC target. In order to adequately address the universe of potential threats, a very large number (~10,000,000) of distinctresponses; and antigens from self-tissue are aberrantly recognized by autoreactive T cells with distinct TCRs exist inthat ultimately induce damage to the human body. Further, any given T cell, specific for a particular T cell peptide, is initially a very small fractionhost. Hence, the nature of the total T cell population. Although normally dormant and in limited numbers, T cells bearing specific TCRs can be readily activated and amplified by APCs to generate highly potent T cell responses that involve many millions of T cells. Such activated T cell responses are capable of attacking and clearing viral infections, bacterial infections, and other cellular threats including tumors, as illustrated below. Conversely, the broad, non-specific activation of overly active T cell responses against self or shared antigens can give rise to T cells inappropriately attacking and destroying healthy tissues or cells.

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Activated T cells target tumor cells for killing through engagement of the TCR with its cognate pMHC.

TCR engagement by its specific or cognate pMHC delivers an activation signal to the T cell and defines the specificity of the response. However, robust and effective T cell activation requires that the TCR signal be accompanied by additional signals fromcomplex on the APC collectively referred to as “costimulation.” The sum of these interactions directssets the quality and magnitudespecificity of the T cell response. Specific costimulatory,The intimate interactions between the T cells and APCs occur within a molecular interface known as the immunological or immune synapse (as shown in the figure below) wherein the TCR-pMHC engagement as well as coinhibitoryadditional accessary signals mayare sensed by T cells resulting in T cell activation or regulation. In essence, the immune synapse allows controlled engagement and selective activation of T cells through the presentation of two distinct signals: Signal 1, TCR engagement of the pMHC; and Signal 2, activating co-stimulatory (or co-inhibitory signals).  The core protein framework for the Immuno-STAT platform builds upon our ability to combine the key signals for T cell modulation (i.e., Signal 1 and Signal 2) into a singular molecular scaffold, as shown below.


Immuno-STAT Platform Framework

Signal 1: A stabilized peptide-major histocompatibility complex (pMHC), Class I or II, to selectively engage disease-relevant T cells by incorporating diverse antigenic peptides of interest and choosing different MHC (or HLA) alleles to provide broad coverage for global patient populations.

Signal 2: Distinct co-stimulatory or co-regulatory signals, including cytokines, cell-surface receptors, and other targeting modalities, to control the activity of disease-relevant T cells.

Fc Backbone: Well-characterized protein construct from human antibodies to provide stability and ease of manufacturability that can be deliveredengineered to dial in or out biological and effector functions.

While the elegant and dynamic nature of T cell-APC interactions is an essential component of immunity or tolerance (i.e., not reactive to self), it is often encumbered by many considerations including: (i) antigen availability and release for presentation by APCs; (ii) antigen uptake and processing efficiencies of an APC that generate the appropriate pMHC complex for the T cell; (iii) stability, amount and turnover of pMHC complexes displayed on the cell surface of an APC; (iv) the “right” kind of the APC phenotype for the desired biological outcome (e.g. activating versus tolerogenic); (v) effects of the local tissue/tumor microenvironment on the APC (e.g., immunosuppressive tumor microenvironments directly impede local APC function in the tumor lesion); and (vi) the absolute dependency on localization and encounter of the right T cell with the right APC in the individual.

These challenges could be potentially circumvented if the essential components for T cell activation (i.e., pMHC complex and appropriate co-stimulatory signals) are provided to the T cell through specific signaling molecules (ligands) interactingcells directly with their cognate receptors atno dependency on the interface of these two cells, shown below. Based uponAPCs. This is the particular naturecore focus of the pMHC and costimulatory signal(s),Immuno-STAT platform.

The Immuno-STAT: “Immune Responses, on Cue”

Through rational protein engineering, we are developing a proprietary class of Immuno-STAT drug product candidates to selectively modulate the activity of antigen-specific T cells directly in a patient’s body. Our Immuno-STATs modulate T cell may differentiate into a variety of cell types, each with a specialized function (e.g., Tc1, Tc2, Th1, Th2, Th17, Treg, Tr1, etc.). Hence communication between APCs and T cells must be capable of precisely identifying threats and generating a response of appropriate quality and magnitude. An insufficient T cell response may result in a persistent pathogenic infection,activity via two distinct signals, emulating or in“mimicking” the case of cancer, tumor persistence. Conversely, an excessive or inappropriate T cell response may damage the host acutely (e.g., acute viral hepatitis) or chronically through autoimmune disease (e.g., Type 1 diabetes, celiac disease, rheumatoid arthritis, Graves’ disease, etc.).

 

Illustration of the interaction between antigen presenting cells (“APCs”) and T cells. Stimulatory signals are shaded green and inhibitory signals are shaded red.

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Cancer is characterized by the uncontrolled proliferation of abnormal cells and is a leading cause of death in developed countries. Cancer cells arise when proteins responsible for regulating cell division, proliferation or death are altered and these changes can occur through several different mechanisms. Cancer cells may express particular proteins (antigens) at much higher levels than normal (collectively referred to as tumor associated antigens, e.g., PSA-1 and Wilms Tumor 1) or express oncogenic (tumor-causing) viral proteins that are responsible for transformation, producing so-called cancer “drivers”, such as HPV E7. Cells can also be rendered oncogenic by the damage of host proteins through mutation (e.g., p53 and KRAS), which result in the expression of cancer neoantigens. Regardless of the nature of oncogenesis, cancer cells can display on their cell surface antigenic peptides, which are often recognized bypresented naturally within the immune system.

In addition to being transformed, cancer cells havesynapse when the ability to evade or modulate immune surveillance. This “immune escape” can be a key factor in their growth, spread, and persistence. Cancer cells employ a variety of approaches to escape immune surveillance or to suppress the effects ofbody is mounting an immune response. One exampleWe accomplish this signaling through the fusion of this is observed when cancer cells evade a normal immune responseTCR targeting pMHC complex (i.e., Signal 1) with co-stimulatory signaling molecules (i.e., Signal 2). This co-engagement of signals through the TCR and co-stimulatory receptor mimics and recapitulates the signals encountered in nature by expressing cell surface molecules that interact with and inhibit the attacking immune cells. These inhibitory interactions, called “immune checkpoints,” provide the tumor with a shield or buffer from activated and tumor-specific T cells. Checkpoint pathway inhibitors are therapeutic antibodies in immuno-oncology that are designed to block the tumor’s inhibitory shield; they have demonstrated promising clinical results. Another mechanism by which tumors can turn down the immune response is by stimulating the production of CD4+ regulatory T cells (“Tregs”), whichupon successful interactions with APCs. Hence, the Immuno-STATs harness “nature’s cues” for antigen specificity, along with appropriate secondary activating or inhibitory signals, resulting in turn inhibit the killer CD8+ T cells that would normally attack the cancer. Thus, through one or more of these different pathways, the cancer cells manipulate and bias the local tumor microenvironment in favor of immune cell suppression. To extend and enhance the observed clinical benefits of therapeutic checkpoint blockade, a concurrent means of specifically activating and expanding a tumor-specific CD8+targeted T cell population is desired. Of interest, recent results from cancer trials that focus on activating a general (non-specific) immune response have shown that globally stimulated immune cells can attack “self” tissue, thereby triggering a therapeutically-induced autoimmune disease, frequently observed in patients as a consequence of their treatment and can limit further therapy.

In autoimmune and inflammatory diseases, components of the immune system are unable to effectively distinguish between foreign and “self” tissues and so the immune system mounts a response that can result in extensive destruction of normal tissue. Autoimmune and inflammatory diseases often occur in genetically predisposed individuals and can be triggered by select conditions, such as infection or tissue damage. The result is an immune response against healthy tissue, amounting to the second highest cause of chronic illness in the United States and a leading cause of death for women under 65.

In order to eliminate tumor cells and infectious agents, the immune system needs to be amplified, whereas for the effective treatment of autoimmune and inflammatory diseases, the immune response needs to be specifically suppressed. Certain T cell populations are known to be critical to the development and persistence of T cell-mediated autoimmune diseases. In the case of autoimmune diabetes, for example, effector T cells can kill insulin-producing cells of the pancreas through direct and indirect mechanisms. Once most insulin-producing cells have been destroyed by the aberrant T cell response, the patient is no longer able to regulate blood glucose levels and develops diabetes. In addition to disease-causing effector T cells (Teff), there exist populations of regulatory T cells (Tregs), which act to inhibit such dangerous responses in normal individuals. Tregs are able to inhibit the destructive activity of Teff and are part of the immune system’s control apparatus.

We believe that our technology can be used to specifically treat autoimmune disease. We are working on two different approaches: (1) the direct inhibition and/or deletion of the pathogenic autoimmune effector T cells and (2) the control of the effector T cells’ function through the expansion and activation of Tregs.

Immunotherapy

modulation.

During the last five years,decade, there has been substantial scientific progress in therapeutically modifying the function of immune cells, (“immunotherapies”), such as T cells, to either enhance tumor killing in the context of oncology, or protect tissue in the context of autoimmune disease.  Immunotherapies are therefore increasingly recognized as an essential aspectMuch of the emerging opportunities in the treatment of cancer and autoimmune disease. Despite the tremendous promise of these therapies, there are a number of continuing challenges. For example, most of the currently used cancer immunotherapies relyfocus has centered on non-specific and general activation of T cells or the inhibition of costimulatory pathways (e.g., checkpoint pathway inhibitors), both of whichapproaches that result in the global, non-specific stimulation of T cells. The globalbroad and nonspecific engagement by many current immunotherapeutics results in the activation of a large fraction of disease-irrelevant T cells, rather than selective activation of those T cells which can therapeutically affect the disease by virtue of their antigen-specific TCRs. The net effect of this approach is typically an extremely narrow therapeutic window in which many of the stimulated T cells are not selective towards the tumor, and often recognize “self antigens”. This results in significant toxicity and serious side effects and, in severe casesnon-specific/non-selective immune modulation (e.g., Proleukin™ and Yervoy™), fatalities. Similarly, for the treatment of autoimmune indications, previous immunotherapies have been non-specific and broadly suppress immune function (e.g., Humira™, cyclosporine and methotrexate) and thus potentially predispose patients to deadly infections, and cancer.

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Checkpoint pathwaycytokines, cytokine inhibitors, modulate the costimulatory pathways described and illustrated above by blocking the function of inhibitory receptors which would normally suppress the activation of T cells, so-called “immune checkpoints.” Checkpoint blockade is predominantly achieved through the use of monoclonal antibodies (“mAbs”) directed against the desired checkpoint protein (e.g., mAbs to PD1 or CTLA-4). These mAbs can block the checkpoint proteins such as programmed cell death-1 (e.g., PD-1, Pembrolizumab/ Keytruda (Merck)) and CTLA-4 (e.g., Yervoy/Ipilimumab (Bristol-Myers Squibb)), and hence reactivate the inhibited anti-cancer T cell responses and stimulate T cell proliferation. The checkpoint inhibitors, currently on the marketand bi-specifics) with significant challenges remaining to be addressed regarding specificity, efficacy and patient safety.  

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More recently in oncology, adoptive cell therapies (e.g., CAR-Ts, TCR-Ts or ACTs) have demonstrated significant and durable responses in some patients. However, immunotherapy with checkpoint inhibitors is still limited by modest to low response rates. For example, 34% of advanced melanoma patients respond to anti-PD-1 and 12% of advanced melanoma patients respond to anti-CTLA-4. To enhance the proportion of responding patients, strategies, such as combinations with other existing cancer therapies, are currently being explored. While these strategies haveshown promise severe side effects including potentially life threatening immune-related adverse events can affect upwards of 24% of patients using anti-CTLA-4 therapy alone, or 54% when used in combination with anti-PD-L1 therapy (e.g., Nivolumab).

An alternative approach to activate an immune response is through the use of bi-specific antibodies that concomitantly engage the TCR on a T cell and an antigen on the tumor cell, examples of which are BiTEs (e.g., Amgen) or Darts (e.g., Macrogenics). These bi-specific antibodies are distinct from the monoclonal antibodies described above in that they are engineered to simultaneously bind to two different types of antigen, rather than one. To activate the T cells, the bi-specific molecules are designed to engage a tumor antigen while also engaging a component of the T cell receptor, called CD3. Since CD3 is expressed on all T cells, dual engagement through bi-specific molecules results in a global, non-specific activationprocess requiring the extraction and modification of T cells at the tumor or wherever the antigen is expressed. The non-specific activation of large T cell subsets can give rise to significant toxicity, thereby significantly limiting the acceptable dose and therapeutic range of this approach.

An additional approach to activating an antitumor immune response is cytokine immunotherapy. Cytokines, such as recombinant interleukin-2 (IL-2), can directly stimulate immune effector cells leading to antitumor efficacy, but the clinical benefit with systemic administration is limited by induction of Tregs and by severe toxicities. Recently, concepts for tumor-targeted delivery of IL-2 have shown promise. A Phase 1 trial data with an IL-2 molecule having multiple releasable polyethylene glycol (PEG) chains, NKTR-214, is showing encouraging evidence of anti-tumor activity, and a favorable tolerability profile. The PEGylation leads to a slow release of active IL-2 and loss of IL-2 preferential binding to Tregs. The NKTR-214-induced immune cell changes promote immune cell tumor destruction, with increased numbers of proliferating CD8+ T cells and NK cells in the blood and tumor and accumulation of CD8+ T cells relative to T regulatory immune suppressive cells in tumors. A tumor-antigen-CEA-targeted IL-2 fusion protein also in phase I clinical testing, has been shown to increase natural killer and CD8+ T cells in tumors. These data support the concept of immune cell-specific IL-2 delivery, such as in CUE biologics that include IL-2 costimulatory molecules.

As described above, cancer cells can evade a normal immune response by expressing cell surface inhibitory molecules that interact with and suppress the attacking T cells within the tumor microenvironment. Consequently, more recent bi-specific approaches seek to decorate tumor cells with activating costimulatory signals to potentially overcome tumor resident immune cell suppression. This is achieved by targeting a tumor antigen with one arm and presenting a costimulatory signal for potential tumor resident T cell stimulation through the other. These bispecific molecules have been used in patients with, in some cases, good therapeutic results. However, there are significant limitations. For example, they must first localize to the tumor in order to exert their effects (e.g., those from Altor, Sutro, Covagen, Roche, and Amgen) and have the added limitation of engaging only the subset of T cells which successfully traffic to the tumor within the treatment window. Notably, CUE biologics are designed to engage T cells directly, not requiring tumor targeting, and thus allow for T cell priming and activation in the periphery (e.g., tumor draining lymph node) outside the suppressive tumor microenvironment. Lastly, the use of these tumor directed bi-specifics may be hampered by the drug’s short half life in patients, thus requiring continuous infusion.

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A different approach that has shown some promise in tumor therapy is to remove T cells from patients, activateactivating, stimulating, and stimulateexpanding them outside the body (ex(i.e., ex vivo), which expands them (usually over 7-14 days), and then infuse theminfusing large numbers of cells back into the patients. These methodspatients for potential therapeutic benefit.  While these approaches have demonstrated some encouraging and impressive clinical responses in several hematologic malignancies, and some solid cancers, they are termed cellular therapies, and include adoptive cell therapy (“ACT”) and chimeric antigen receptor T cell (“CAR-T”) therapy (e.g., those from Juno and Kite). At the outset, this is an individualized patient-specific approach. In ACT, native (un-modified) T cells are extracted and purified from a patient, expanded ex vivo and re-introduced to the patient in order to increase the number of T cells available to kill the tumor cell. Similarly, in CAR-T therapy, patient T cells are extracted and purified; however, distinct from ACT, patient T cells are genetically modified to target tumor-specific antigens through the use of chimeric antigen receptors (“CARs”) prior to patient infusion in an attempt to increase specificity. CARs are comprised of an external tumor-specific antibody fragment or engineered TCR (e.g., Adaptimmune) linked to cytoplasmic signaling domains for T cell activation such that upon binding of the tumor antigens, the engineered T cells proliferate and attack cancer cells.

CAR-T-based immunotherapy has demonstrated complete responses of greater than 80% in recent clinical trials of acute lymphoblastic leukemia (“ALL”) patients. However, potent CAR-T cell responses have producedalso associated with significant toxicities, including life threatening cytokine release syndromes (“CRS”) in 69%syndrome and induction of high burden ALL adults. Severe toxicities and deaths led to a halt in JCAR015, Juno’s lead CAR-T program, and potentially pose a safety challenge to the wider adoption of cellular therapies.self-reactivity. Moreover, thelabor-intensive technical requirements and expense associated with individualized T cell extraction, ex vivo amplification/modification,amplification /modification, and patient re-infusion represent significant scaling and cost challenges thatchallenges.  This is in addition to the rigorous procedures required to condition the patient prior to re-infusion might limit broad usage and eventual successful commercialization of this therapeutic modality. Despite these safety and scalability considerations, the recent demonstration of impressive clinical survival in patients treated with cellular therapies deserves serious attention.

Our Approach for Next Generation Immunotherapies

 

We have developed a proprietary platform for the designbelieve that our Immuno-STAT and developmentother protein engineering drug product candidates may offer important key features of biologic drugs for in vivo (e.g., directly in the patient’s body) T cell based immunotherapy. In the context of cancer, CUE Biologics are being designed to selectively activate T cells which recognize cancer antigens (e.g., peptides) expressed or amplified in cancer cells (tumor antigens or neoantigens). For the treatment of autoimmune diseases such as Type 1 diabetes, celiac disease, arthritispotential clinical differentiation and others, CUE Biologics are designed to selectively dampen disease-causing T cell responses directed against self-antigens.

CUE Biologics are designed to mimic the signals, or “cues”, of the immune system to generate highly focused T cell responses associated with disease. We accomplish this by the fusion of unique costimulatory signaling molecules (ligands) with a TCR targeting p-MHC complex (“pMHC”). This co-engagement of signals through the TCR and costimulatory receptor mimic and recapitulate the very signals delivered by APCs to T cells during an immune response. In this way CUE Biologics™ allow for the precise targeting of distinct signaling ligands exclusive to the T cell population of interest, resulting in targeted T cell modulation.

 

CUE BiologicsTM are designed to mimic Antigen Presenting Cells (“APCs”)

Our therapeutic approach is designed to be administered directly in patients (in vivo) which differs markedly from other T cell therapeuticadvantages over competing immunotherapy approaches, such as ACT, which requires patients’ T cells to be first harvested, then stimulated and expanded outside the body before being reinfused in an activated state. We believe CUE Biologics represent a breakthrough approach as a disease-specific biologic T cell modulator administered in vivo (in body) rather than the ex vivo (outside the body) approach deployed by current cellular immune therapies. Furthermore, we believe the desired pharmacological effect in patients will be more precisely controlled by directly administering CUE Biologics into the patient for selective modulation of disease relevant T cells.including:

 

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“Off-the-Shelf” and ready to use biologics that specifically target and selectively modulate disease relevant T cells;

 

Administration directly into the patient’s body without involving ex-vivo manipulation of T cells (e.g., cell therapy) or rigorous pre- and post- therapy conditioning of the patient;

Freedom from the barriers of natural antigen presentation via antigen presenting cells, APCs, or the phenotype of APC; and

Ability to target disease specific T cells with specificity, and selectively control the quantity and quality of a modulator/co-stimulator signal in contrast to global activation through systemic, non-selective signaling (e.g., rIL-2, bi-specifics, etc.).

 

TheTherapeutic Applications

An insufficient T cell response may result in susceptibility to cancers or chronic infectious diseases. Conversely, an aberrant overactive T cell response against self-tissue results in autoimmune disease. In each of the above diseased states, the desired therapeutic propertiesapproach should specifically target the dysregulated immune axis thereby providing the maximal potential for patient benefit.

In the context of cancer and chronic infectious disease, Immuno-STATs are designed to selectively activate disease-specific T cells.

For the treatment of autoimmune disease, Immuno-STATs are designed to selectively inhibit pathogenic autoreactive T cells.  In those autoimmune diseases where the antigen(s) remain unknown, or entail multiple antigens, we have developed a biologic that has demonstrated in early studies to provide a potent signal 2, IL2-TGFβ, to Tregs where active autoimmune disease involves the endogenous presence of “Signal 1”.

We plan to leverage the platform’s modularity and selective nature of Cue Biopharma’s drug candidates result fromversatility to design Immuno-STATs addressing the design and optimization of key functional parameters for a givenparticular therapeutic framework. Each framework harbors an MHC and one or more costimulatory element(s) optimized to drive a particular typeobjectives of T cell response, suchmodulation. We achieve this through the flexibility of designing the various components of Immuno-STATs, including different co-stimulatory/co-inhibitory signals across disease areas (e.g., cancer vs. autoimmune) and different specific targeting peptides associated with various indications (e.g., head and neck cancer vs. breast cancer); and different global patient populations via targeting distinct HLA alleles. The modularity of this unique platform, as stimulationhighlighted in the above figure, provides us the opportunity to generate therapeutic molecules across many different indications to serve distinct patient populations and expansionallows the design of a cytolyticnovel constructs incorporating structures having desired combined properties, e.g., IL2-TGF-β for Treg modulation.  The figure below exemplifies the platform modularity to accommodate diverse T cell responseepitopes for different disease indications, distinct activating or inhibitory secondary signals, and the incorporation of diverse HLA molecules.


Immuno-STAT Platform Flexibility and Modularity Accommodates T cell Antigens and Immuno-modulatory Signals

Potential Commercialization Advantages

In addition to kill cancer cells, or specific down-regulationthe selective control of T cell activity, we believe our Immuno-STAT platform provides us with several key points of potential superiority and inhibition indifferentiation over competing approaches:

Access to a broad set of disease targets (extracellular and intracellular antigens) and patient populations (diverse HLA types) providing access to broad patient reach with the ability to address diverse disease conditions;

Utilization of industry standard development and production process to support a cost-of-goods and supply chain similar to monoclonal antibodies providing for timely and efficient drug supply; and

Standard delivery format (IV, SubQ) with a convenient dosing schedule (weekly, monthly) for the patient that can be administered by specialists and community-based physicians.


Immuno-Oncology

CUE-100 Series

Drug product candidates developed within our CUE-100 framework selectively stimulate the context of autoimmune disease. The targetingIL-2 receptor, a potent activator of the pathway critical to the growth, expansion and survival of T cells. We have engineered the CUE-100 framework to activate specific T cell populations is dependentthrough pMHC targeting of TCRs and selective deployment of the IL-2 signal. The IL-2 component of the framework has been modified to minimize engagement of the high affinity IL-2 receptor alpha chain (CD25) and reduce the affinity on the specific peptide linkedbeta chain (CD122).  This enables our Immuno-STATs to harness the MHC. Notably, more than 75 peptides that are expressed by different solid tumors are currently described in the clinical literature. Thus, after finalizing a therapeutic framework (pMHC-ligand-Fc) we believe different tumors can be addressed by changing the targeting peptide, presenting the promise of greatly reducing the time and cost associated with the generation of new CUE molecules to take forward through IND-enabling studies and, potentially, into the clinic.

 

Illustration of use of different targeting peptides to address different tumor types

 

Illustration of use of different targeting peptides to address different indications

Using our CUE Biologics™ platform, we believe we will be able to design biologics that will have certain advantages over existing immunotherapies including increased specificity, reduced toxicity and greater manufacturability. As such, we believe our approach to designing and developing immuno-modulatory biologics represents a breakthrough, next-generation solution to realizing the promisecooperative nature of T cell based immunotherapies.

Competition

Immunotherapy technologies are advancing at a rapid pace and we anticipate competing with companies developing bi-specific antibodies (e.g., Amgen, Inc., Hoffmann-La Roche (Roche), Sutro Biopharma), CAR-T therapies (e.g., Novartis A.G., Juno Therapeutics, Kite Pharma, Inc.), checkpoint inhibitors (e.g., Bristol-Myers Squibb, Merck & Co. and Pfizer, Inc.), antibody drug conjugates (“ADCs”) (e.g., Seattle Genetics, Inc., ImmunoGen, Inc. and Sorrento Therapeutics), and targeted cytokines (Nektar/Bristol Myers Squibb, Roche) many of which have significantly greater financial and other resources than we have.

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CUE Biologics™ Drug Candidates

The relative effectiveness of immunotherapies depends on whether a relevant or optimal therapeutic mechanism to engage the immune system has been addressed by the therapy, and it is likely that different immune stimulatory mechanisms will be required to optimally address certain cancers over others. The versatility of the CUE Biologics™ platform allows access to multiple distinct mechanisms with a series of biologic frameworks addressing a variety of conditions and requirements. We have currently designed two promising therapeutic frameworks to support distinct and potent mechanisms of T cell activation: our pMHC/IL-2 based CUE-100 series (to enhance overall numbers ofsignaling via preferentially activating tumor specific T cells) and our pMHC/CD80:4-1BBL based CUE-200 series (to reinvigorate exhausted T cells). We expect to be able to target antigen-specificT-cells via the pMHC-TCR  binding/targeting without systemically activating other T cell populations, thereby potentially mitigating the dose-limiting toxicities associated with current IL-2-based therapies. This effect is supported by our emerging CUE-101 monotherapy clinical data, where we have successfully dosed this molecule up to 8 mg/kg in a varietysecond line and beyond R/M HNSCC patients. In contrast, other IL-2 variants, such as the variants of indications by a simple peptide exchange into validated CUE Biologics™ frameworks. the so-called “not-alpha” IL-2 modalities, have remained in the low μg/kg dosing concentrations.

We continue to evaluate additional constructs from which we will launch further framework series in both oncology and autoimmunity.

 

Illustration of CUE-100 and CUE-200 frameworks CUE-101

In furtherancebelieve the selective deployment of our efforts to designrationally designed and test various frameworks addressing a varietyengineered IL-2 molecules in context of conditions, we are developing and implementing a complementaryex vivo (outside the body) human cancer model assay system for testing and evaluating CUE Biologics™ molecules directly in cancer patient-derivedImmuno-STAT framework may provide superior differentiation over competing approaches focused on IL-2, including the “not-alpha” IL-2 variants wherein the modified IL-2 possesses no bias towards tumor-specific T cells. Theex vivo assays have graphic below summarizes some of the potential to provide a powerful tool for demonstrating human translatability by evaluating preclinical proofkey biological factors and considerations of mechanism and proof of concept directly in human samples, as well as for defining relevant metrics and critical parameters informing clinical application(s). Through this assay system, we have recently tested various epitopes (CMV and MelanA/MART, shown below) on the CUE-101 framework to support the versatility and robustness of our CUE Biologics™ platform.different approaches.

CUE-100 Series: Differentiation Over Existing Modalities Targeting IL-2

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Results from CUE-100 preliminary two-sample human ex vivo study, indicating treatment with CUE:CMV:IL-2 results in activation of antigen-specific T cells.

 

Results from CUE-100 human ex vivo study, indicating treatment with CUE-100 (MelanA/MART) results in activation of antigen-specific T cells in healthy donors and melanoma patients as measured by T cell expansion.

As exemplary of our CUE Biologics™ platform, we have begun development work on our anticipated first clinical candidate, CUE-101 (described below) and are utilizing our ex vivo assay capabilities to generate data for proof of concept with potent, tumor antigen-selective T cell activation. The ex vivo assays, utilizing clinical samples of peripheral blood mononuclear cells (“PBMCs”) for testing and evaluating CUE-101, are expected to provide data to support an IND submission and to inform our phase I study protocol and clinical development strategy. Human PBMCs, including those from cancer patients, are the most relevant model for characterizing the activity and specificity of CUE-101. These studies, investigating the drug levels and duration of drug exposure, for functional and molecular changes (PD effects) in target immune cells and in non-target cells will guide human dosing and PD biomarker monitoring in our phase I trial. In addition to providing potentially insightful data relating to the prospects of antitumor efficacy in patients, the assays are designed to define the drug exposure range for antitumor activity as well as provide evidence for clinical biomarker selection and the biopsy schedule for clinical proof of mechanism.

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CUE-101

Our current lead drugproduct candidate CUE-101, usesfrom the pMHC/IL-2 CUE-100 framework, and is a fusion of a variant form of the cytokine Interleukin-2 (IL-2)CUE-101, contains IL-2 and a T cell antigen (pMHC). The targetingpMHC composed of HLA-A*02:01 complexed with a dominant peptide contained in the pMHC that is currently used in CUE-101 is derived from the human papilloma virus E7 protein (HPV-E7). CUE-101, as shown in the figure below.  It is a single, covalently-assembledfusion protein biologic designed to target and activate antigen-specific T cells to fight HPV-driven cancers.

We have performed extensive in vitro and in vivo pre-clinical studies with CUE-101, which have been published in Clinical Cancer Research (Quayle et. al. CUE-101, a Novel HPV16 E7-pHLA-IL-2-Fc Fusion Protein, Enhances Tumor Antigen Specific T Cell Activation for the Treatment of HPV16-Driven Malignancies https://clincancerres.aacrjournals.org/content/early/2020/01/15/1078-0432.CCR-19-3354)

CUE-101 Clinical Development Plan

In September 2019, we dosed the first patient in a Phase 1 dose escalation clinical trial of CUE-101 for the treatment of HPV16-driven R/M HNSCC. This program is representative of the IL-2 based CUE-100 series for which we have generated a robust preclinical data package, including activation of human HPV specific T cells from human blood, as noted above. Our initial CUE-101 Phase 1 monotherapy trial focuses on R/M HNSCC, where patients will likely have received several lines of systemic therapy including checkpoint inhibition.  In the fourth quarter of 2020,we extended this Phase 1 clinical trial into the front-line R/M HNSCC setting to HPV-related cancers. Treatmentsevaluate the combination of CUE-101 with Merck’s anti-PD-1 therapy KEYTRUDA. This combination study will offer the opportunity to assess relevant biomarkers of CUE-101 activity in peripheral blood when administered as a first line therapy.  To date, we have generated promising early data sets from our Phase 1 monotherapy trial demonstrating dose dependent peripheral expansion of E7- specific CD8+ T cells as well as dose proportional pharmacokinetics. To date, CUE-101 has been well tolerated, demonstrating early signs of clinical activity, including signs of anti-tumor effect.  A synopsis of data observed were recently presented at the SITC meeting in November 2020; https://www.cuebiopharma.com/wp-content/uploads/2020/11/Pai_CUE-101-01_SITC-2020-Abstract-354.pdf. During the first half of 2021, we plan to expand patient enrollment in selected cohorts to generate additional data that will inform our selection of the recommended Phase 2 dose.


We view R/M HNSCC as an important first market opportunity for CUE-101 with the potential for accelerated approval. Head and neck cancer was the seventh most common cancer worldwide in 2018 (650,000 new cases and 330,000 deaths), accounting for 3% of all cancers (51,540 new cases) and just over 1.5% of all cancer deaths (10,030 deaths) in the United States alone and more than 20,000 deaths each year in the US and Europe combined. A majority of these cancers are driven by HPV-16, which carries the E7 antigen targeted by CUE-101. Despite treatment with current standards of care, approximately 50% of patients with HPV-relatedadvanced disease will experience recurrence and significant quality of life impact.  Patients with HPV-driven head and neck, cervical and genitoanal cancers represent are an important unmet clinical need which accountsand underscore the opportunity for approximately 24,600 casespromising new therapeutics.

Cases of cervical,HPV-associated oropharyngeal cancer, induced primarily by HPV type 16, are increasing, in North America and western Europe.  The fraction of head and neck and genitoanalcancers diagnosed as HPV-positive oropharyngeal cancers in the United States every year leadingrose from just 16% in the 1980s to approximately 9,000 deaths annually.more than 70% in the 2000s. In addition to HNSCC, we also intend to pursue expansion studies for cervical cancers which we view as an attractive opportunity with significant unmet need and potentially other HPV-driven cancers lead(e.g., anal, vulvar, etc.). Outside of the US and EU, we will work with our partner LG Chem to approximately 225,000 deaths worldwide each year.commercialize CUE-101 in Asia, if approved.

CUE-102

CUE-102 leverages the same CUE-100 framework with a pMHC derived from the Wilms’ Tumor protein, or WT1, an oncofetal antigen known to be over-expressed in a number of cancers, including solid tumors and hematologic malignancies. We have generated a comprehensive pre-clinical data set with CUE-102 to support our planned IND filing in the first half of 2022, highlights of which are shown in the figure below. We have observed ex-vivo expansion of WT1-specific T cells from primary human donors, and in vivo expansion of T cells in HLA-A02 transgenic mice treated with CUE-102. Importantly, we observed T cells expanded with CUE-102 activating polyfunctionality and cytotoxic killing of target cells, both of which are key attributes of a desirable anti-tumor T cell response.  These data were also presented at the SITC meeting in November 2020. In 2021, we plan to continue to progress with our IND enabling studies for this program in collaboration with our partner LG Chem.  Similar to CUE-101, CUE-102 is a fusion protein biologic built on the IL-2 based CUE-100 series designed to target and activate antigen-specific T cells to fight cancers—in the case of CUE-102, those overexpressing WT1.

WT1 is known to be expressed in more than 20 different cancers, including both solid tumors (e.g., ovarian, pancreatic, lung) and hematologic malignancies (e.g., acute myeloid leukemia, multiple myeloma, myelodysplastic syndromes).  Patients with WT1 associated cancers represent an important unmet clinical need and underscore the opportunity for promising new therapeutics.    

CUE-102: Expansion and Polyfunctionality of WT1-Specific T Cells


CUE-103

CUE-103 will also leverage the IL-2 based CUE-100 framework and target an antigen to be selected in collaboration with LG Chem.  We are currently in active discussions with LG Chem regarding the evaluation of several candidate tumor antigens to be selected for the CUE-103 drug product candidate.

KRAS G12V

We are also developing a CUE-100 series Immuno-STAT for targeting the KRAS G12V mutation, which generates a T cell epitope in the context of HLA-A11. This mutation is associated with many solid tumors including colorectal carcinoma, or CRC, lung cancer and pancreatic cancer. We believe the KRAS G12V T cell epitopeprovides a novel opportunity for therapeutic intervention of a primary tumor driver like KRAS. Data suggesting the feasibility of production of HLA-A11 Immuno-STATs and their functional activity on cells expressing T cell receptors specific for G12V were recently disclosed at the SITC meeting in November 2020 (https://www.cuebiopharma.com/wp-content/uploads/2020/11/Cemerski_CUE-100_series_SITC_poster_553_FINAL.pdf). These data further underscore the modularity of the Immuno-STAT platform by extending the application to include additional HLA alleles, in this case HLA-A11.

CUE-200 Framework

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The CUE-200 framework utilizes co-stimulatory cell surface receptors, including CD80 and/or 4-1BBL, to reactivate exhausted T cells and is designed to promote enhanced antigen-specific T cell activation and function for the treatment of chronic infectious diseases.  Both CD80/CD28 and 4-1BBL/4-1BB pathways have been implicated in enhancing anti-tumor T cell responses, including re-invigorating exhausted T cells. We see this as a unique opportunity to potentially harness and deploy these co-stimulatory signaling molecules to selectively modulate anti-tumor T cells.  We continue to evaluate these mechanisms within the CUE-200 series via research at the Albert Einstein College of Medicine. Early data supporting these potential applications were disclosed at the SITC meeting in November 2020; https://www.cuebiopharma.com/wp-content/uploads/2020/11/Immuno-STAT-SITC-2020-Poster.pdf.

Neo-STAT Platform

In addition to the Immuno-STAT biologics described above, engineered as fusion protein biologics requiring dedicated stable cell lines for production of good manufacturing practice, or GMP, material, we are also developing a next generation derivative approach, referred to as Neo-STAT™, that we expect could significantly enhance productivity and increase our drug candidate CUE-101flexibility, including targeting multiple tumor antigens, neo-antigens and post-translationally modified epitopes. A key focus of the Neo-STAT platform is to generate a “peptide-less” or “empty” MHC pocket within the Immuno-STAT scaffold of the CUE-100 series. We then deploy peptide-conjugation chemistry to covalently attach peptides to the Neo-STAT scaffold. To that end, Neo-STAT has the potential to provide patients withenhanced productivities and greater flexibility enabling the ability to generate therapeutic molecules targeting multiple tumor antigens, including post-translationally modified antigens (e.g., targeting of phospho-peptides from tumor cells), and to develop future strategies to deploy the Neo-STAT platform for personalized tumor neo-antigens. Importantly, the Neo-STAT framework should enable us to maximize our efficiencies – both from a more effectivecost- and safer alternative in treating their HPV-driven cancers. It is our current intention to file an IND for CUE-101 in the first quarter of 2019, provided the pre-IND efficacy and safety data generated supports continued development.

Our preclinical data, including a mouse animal model of HPV+ cancer, have generated encouraging results with monotherapy treatment with a murine CUE biologic comprised of IL-2 costimulatory and pMHC-HPV peptide domains. Tumor growth inhibition was observed with treatment in the HPV+ TC-1-Luc tumor model. Studies of this agent in combination with an anti-PD-1 antibody resulted in complete tumor regression in some animals. These results compare favorably to results achieved in the same preclinical study using IL-2 or anti-PD-1 therapy alone, where no regressions were observed. Notably, in the tumor-free mice from the treatment group “cured” by the murine CUE:IL-2 compound combination with anti-PD-1 antibody, immunologic memory was demonstrated whereby no tumor growth observed in animals following tumor cell injection.

 

Results from CUE-101 human ex vivo study demonstrating peptide selectivity in target T cell binding and engagement by comparing binding of CUE-101 versus CUE-100 (CMV) to disease specific HPV E711-20CD8 human T cells.timing-perspective.

 

We have profiled CUE-101 activitymade significant promising progress with our Neo-STAT platform, including proof of concept, or PoC, experiments demonstrating expansion and activation of primary human T cells with HLA-A02 Neo-STAT molecules deploying different T cell epitopes including tumor antigens (MART-1) or infectious antigens (CMV, SARS-Cov-2), as examples. We presented a detailed description on the protein engineering of the Neo-STAT platform at the Protein Engineering and Cell Therapy Summit, or PEGS, meeting in August 2020; https://www.cuebiopharma.com/wp-content/themes/cuebio/images/2020-PEGS-Poster.mp4. In 2021, we plan to continue to progress the Neo-STAT platform with specific efforts focused on generation of HLA-A02-based stable cell line to support our future GMP material and on peptide-conjugation process development to support the generation of our clinical grade material for future applications.


Neo-STATs and Immuno-STATs with the Same Antigenic Peptide Activate Peptide Specific CD8+ T Cells

Leveraging Immuno-STATs to address tumor resistance mechanisms through antigen presentation defects and HLA loss.

A significant and ongoing challenge in tumor antigen-specific T cells and PBMCs isolated from a healthy HPV+ human donor. These data demonstrate highly targeted engagement of CUE-101 specificallyimmunotherapy pertains to tumor resistance or escape mechanisms whereby a subset of tumors are able to evade T cell detection, by suppressing or downregulating the production of proteins involved in antigen specificprocessing and presentation of tumor antigens/epitopes to the adaptive immune system, including T cells. Among the escape mechanisms are changes or mutations of the antigen processing compartment (e.g., TAP transporters) or antigen presentation molecules (such as HLA or ß2-microglobulin), which make the tumor invisible to the anti-tumor T cells. The loss of immunogenicity of the tumor is an adaptive evolution of the cancer to avoid immune detection – a stage defined as the escape phase of cancer immuno-editing. It is estimated that upwards of 20%-30% of patients may have tumor cells utilizing this escape mechanism.

Our approach to addressing this escape mechanism takes advantage of related observations from detailed cellular analysis of human cancer tissues revealing the significant presence of CD8+ T cells (shown above)that are not specific for the tumor antigens but instead recognizing viral antigens (such as EBV, flu or CMV). These data further support that targeted engagement results inIn other words, a significant fraction of the protective memory anti-viral T cell receptor and IL-2 receptor activation as measured by increasesrepertoire localizes to the tumor tissue, likely in receptor signaling molecules. Furthermore, CUE-101 induces antigen specificresponse to chemotactic signals that are agnostic of specificity of the T cells.

Hence, we have investigated the opportunity to leverage the Immuno-STAT platform to generate therapeutic molecules to re-direct or “trick” the viral T cell activation-repertoire present in the tumor environment to recognize and cytotoxic T lymphocyte (CTL)- cell surface marker changes and CTL-activity as measured by drug-induced productionkill the cancer cells, including those that have lost the expression of IFNg, an established markerHLA molecules or the ability to present antigen effectively. We believe this approach has several unique advantages: (i) it circumvents the tumor’s lack of HLA or antigen presentation; (ii) it harnesses a pre-existing robust anti-viral protective T cell activationrepertoire within the host; (iii) it is an opportunity to alter the tumor microenvironment via localizing an active immune response; (iv) from a safety perspective, this approach is very distinct from other bispecific molecules that indiscriminately activate every T cell; and killing potential (shown below)(v) it leverages the clinical de-risking provided by CUE-101, especially as it relates to the IL-2 molecules.

The schematic below describes the generation of viral-specific Immuno-STATs that can be tethered to a tumor cell via binding to tumor cell-surface antigens (e.g., Trop2, PSMA, mesothelin etc). Lastly, CUE-101 has demonstrated expansion of antigen-specificThus, in this manner the tumor is coated with a viral Immuno-STAT to make it appear like a virally-infected cancer cell, which can then be recognized by the anti-viral T cells from donor PBMCs as a single agent. These results demonstrate antigen-specificthat populate the host and the tumor tissue and become activated by the Immuno-STAT IL-2 to kill the tumor cell. Through rational protein engineering we have generated early proof of concept, or PoC, molecules that provide us confidence with the applicability of these unique bispecific Immuno-STATs for cancer immuno-therapy. We call these “re-directed” Immuno-STATs, or RDI-STATs.

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Viral T Cell Redirection via RDI STATs : Immuno-STAT Framework with Tumor Targeting TAA

Redirected Immuno-STATs (RDI-STATs) can leverage the patient’s existing protective viral T cell activationrepertoire to target tumors, regardless of the tumor HLA expression.

All of the above applications of the Immuno-STAT and expansionNeo-STAT platform may benefit from the ongoing risk-reducing data generation via the current clinical studies with CUE-101, in human immune cells. The timing and magnitude of changes with drug treatment will guide selectionespecially as it relates to the tolerability profile of the most relevantengineered IL-2 variant and robust markers andthis novel biologics platform. This is due to the timingfact that the core framework of the CUE-100 series remains essentially the same for sampling in phase I patients treated with CUE-101.

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Results from CUE-101 human ex vivo study indicating treatment with CUE-101 (HPV-E7) results in highly specific activation of antigen-specific T cells in aeach drug candidate, except for the targeting peptide and MOD (IL-2) dependent manner as measured by interferon gamma release,epitope within the MHC pocket.

 

While this preclinical data fromex vivo analysisClinical risk-reduction of human T cells is highly encouraging, the data represent a single healthy HPV+ subject and may not be representativeCUE-100 Series via CUE-101 Clinical Studies Enables Broad Pipeline of results in samples from patients with HPV+ driven malignancies. As described below under “Business — Background,” cancer uses various mechanisms to suppress and alter the immune system. For example, it has been observed from clinical studies that some cancers, including HPV+ cancers, are capable of reducing and altering T cell populations. Therefore, we intend to further study CUE-101 inex vivo assays with blood derived from multiple HPV+ cancer patients to demonstrate activation and proliferation of HPV-E7 specific T cells. We will also continue to survey other drug constructs targeting various cancer epitopes and plan to select promising candidates for clinical development. It is our current intention to file an IND for CUE-101 by the first quarter of 2019, provided the pre-IND efficacy and safety data generated supports continued development.Platform Opportunities

 

 

 

Results from CUE-101 human ex vivo study, indicating treatment with CUE-101 results in expansionWe have implemented a strategy of antigen-specific T cells as a single agent

While CUE-101 targetsexploiting the HPV-E7 TCR in cervical/head and neck cancers, we believe our CUE Biologics™ platform may be used to target a large variety of alternative peptides which may allow us to address many tumors with high therapeutic need in the oncology patient population. In support of this, we have recently demonstrated highly potent efficacy in preclinical murine models targeting non-viral epitopes. These data together with the recent human ex vivo experiments using a melanoma specific epitope (MelanA/MART, shown above) in both healthy donor and melanoma patient samples support CUE-100 framework’s ability to activate distinct T cell populations via a simple amino acid peptide antigen exchange on an otherwise validated scaffold, which should reduce the time to clinic (and associated costs) of next-generation biologics. We are currently exploring multiple unique epitopes in the contextpotential applications of the CUE-100 series framework into multiple derivative constructs possessing specific properties and mechanistic activities to address diverse clinical conditions involving immune imbalance.  Through this approach, we have designed and engineered various biologic constructs each

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possessing desired activities with the potential for addressing underlying immune re-balancing to restore better health.  Through this approach, as depicted in human ex vivo assaysthe figure below, we have exploited the CUE-100 series to help guide prioritizationdevelop a growing pipeline of programs.Immuno-STATs for oncology, have created the derivative constructs of Neo-STAT and “re-directed” Immuno-STATs (or RDI-STATs) to address resistance mechanisms, and have utilized the frameworks modularity to engineer antigen-specific immune suppressors, (e.g, PD-L1) for treating autoimmune diseases (CUE-300 series) with known auto-antigens (such as T1D). We have also deployed the engineered IL-2 variant from the CUE-100 series to design a bi-specific molecule possessing both IL-2 and TGF-beta (CUE-400 series) for pathway specific modulation to stimulate iTregs in autoimmune diseases where the autoantigens are unknown or not well characterized. We believe these various derivatives have a reduced risk-profile due to the fact that CUE-101 has been well tolerated throughout the dose escalation Phase 1 study and, by implication, constructs designed/derivatized from this series have a lowered risk-profile.

Platform Development and Progress in Immuno-oncology


Platform Development and Progress in Auto-immune and inflammation


Autoimmune Disease

For applications in autoimmune, or AI, diseases, our strategy has focused on two broad themes of antigen-specific modulation and pathway-specific modulation for controlling autoreactive T cell responses. Both approaches complement each other and offer unique opportunities for selective immune re-set of the dysfunctional compartment. The antigen-specific approach is pertinent to diseases with restricted or well-characterized auto-antigens (such as type 1 diabetes, or T1D) and deploys the Immuno-STATs to directly modulate the autoreactive T cells. The pathway-specific approach exploits signals that can induce and sustain regulatory T cells, which can then control a broad population of autoreactive T cells. Hence, this approach may be more applicable to diseases with diverse unknown antigens. It is conceivable that the specific signals for antigen specific regulatory T cells, or Treg, induction could be deployed in an Immuno-STAT framework for generation of antigen-specific Tregs.

Approaches to Modulate Autoreactive T Cell Responses

 

Antigen-specific approach: CUE-300 Immuno-STAT Framework

The CUE-300 framework builds upon our antigen-specific approach for AI and has been focused on class II HLA alleles that are recognized by CD4+ T cells.  It has the potential to target a broad range of addressable autoimmune diseases by selectively modulating disease-associated CD4+ T cells so that healthy cells and tissue are protected from immune attack.

To inhibit autoimmune disease associated T cells, Immuno-STATs are engineered to work via two general strategies:

 

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Inhibition (or selective ablation) of autoreactive T cells by selectively delivering inhibitory signals; or

 

Selective expansion of antigen specific Tregs to control aberrant activation of autoreactive T cells.

 

Extension to Autoimmune Indications

In addition to oncology, we are expanding our technology’s reach to generate highly promising and novel immunotherapeutics for the treatment of debilitating autoimmune disorders. Autoimmune indications may be addressed with our technology through two general strategies: (1) depleting disease causing autoreactive T cells by selectively delivering inhibitory signals or (2) by delivering signals to induce and expand regulatory T cells, which subsequently act to inhibit disease-causing T cells.

CUE Biologics™Immuno-STAT frameworks for autoimmuneAI disease will be designed to influence a subset of T cells known as CD4 T cells. CD4 T cells recognize peptides in the context of MHC class II proteins. Therefore, prototypic CUE Biologics™Immuno-STAT frameworks in autoimmunity would rely on MHC class II recognition by CD4 T cells. This is distinct from the MHC class I recognition by CD8 T cells that is the basis of our current oncology pipeline. Both pathogenic (i.e., disease causing) and regulatory (disease limiting) CD4 T cell subsets are known to exist in autoimmune disease. Our CUE Biologics™ frameworks in autoimmunity will therefore be intended to treat autoimmune diseases by either depleting pathogenic CD4 T cells or amplifying regulatory CD4 T cell responses to specific disease relevant antigens. Potential autoimmune indications of interest include Type 1 diabetes, arthritis, autoimmune thyroiditis (e.g., Graves’ disease), celiac disease and CNS/neurological autoimmune disorders (e.g., multiple sclerosis, Parkinson’s disease, etc.).

 


Consistent with our planstrategy to establish strategicfocused partnerships with leading pharmaceutical or biotechnology organizations to enhance capacity and further our development efforts on selected programs, in November 2017 we entered into a Collaboration Agreementcollaboration agreement with Merck Sharp & Dohme Corp. (“Merck”) for a partnership to research and develop certain of our proprietary biologics that target certainfocus on two autoimmune diseases.diseases, type 1 diabetes, or T1D, and an undisclosed indication.  This agreement was recently extended through 2021 to support further development and identification of these targeted biologics.  We view this Collaboration Agreementcollaboration agreement as a component of our development strategy since it will allow us to advance ourthe CUE-300 series drug product candidates for selected autoimmune programs in partnership with a world class pharmaceutical company, while also providing us opportunities in autoimmune diseases beyond our partnered programs as well as continuing our focus on our more advanced cancer programs. For further information, see below “Business — Our Collaboration Agreement with Merck”.

 

MOD™During 2021, we will continue to generate data to support proof-of-mechanism and viraTope™ Technology Platformsinform the path forward for this program.  CUE-301 is an example of an Immuno-STAT designed for the modulation of CD4+ T cells under the Merck collaboration agreement. In this instance Immuno-STATs with the human class II MHC molecule, HLA-DR0401, or DR4, were generated along with an epitope from pro-insulin (a known autoantigen in type 1 diabetes) and PD-L1 molecule for selective down-modulation of CD4+ T cells reactive to the pro-insulin peptide. The Pro-Insulin-DR4-PD-L1 Immuno-STATs (CUE-301) selectively inhibited the activation and expansion of insulin-specific T cells. In contrast, Immuno-STAT molecules harboring a peptide from glutamic acid decarboxylase, or GAD, another autoantigen in type 1 diabetes, had no effect, hence demonstrating selectivity and specificity. These data are summarized in the graphic shown below.

 

Supporting our CUE Biologics™ platform are two companion discovery platforms: MOD™Framework and Selective Suppression of Proins-specific T cells In Vitro


Recently, we have demonstrated the in vivo activity with CUE-301 (Proins-DR4-PDL1 IST), as shown in the figure below. HLA-DR0401 transgenic mice were immunized with a costimulatory optimizationmixture of Proinsulin peptide (Proins 76-90, K88S) and discovery platform, and viraTope™, a T cell epitope discovery platform, both illustrated below.

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The design of CUE Biologics™ allows for incorporation of antigens and costimulatory molecules discovered throughfrom the MODTM platform to develop novel biologics to address new indications in oncology and autoimmune disorders.

We believe that the MOD™ technology platform has a unique ability to optimize existing costimulatory ligands for use in our biologics as well as discover as yet unknown costimulatory signaling molecules. The MOD™ platform represents a high throughput method for determining specific cell surface protein-protein interactions (e.g., signaling receptor:ligand pair(s)flu virus hemagglutinin protein (HA307-319). In brief, MOD™ allows for the detection of associations between distinct cell surface query proteins (i.e., ligands) and cell surface expression libraries (i.e., receptors) to first identify molecular engagements and further allows for the mechanistic dissection of complex biochemical function by screening large numbers of mutant molecules. Taken together, we believe that MOD™ can provide powerful tools to first define novel protein-protein interactions associated with T cell activation. Secondly, MOD™ is designed to allow us to modulate these signaling ligands through the rapid screening of mutants in order to dissect biochemical function and alter binding properties (i.e., altered affinities and specificities). A key component of our therapeutic design involves decreasing the binding of the costimulatory element while retaining its biological activity (i.e., affinity attenuation). Affinity attenuation allows the pMHC to drive the engagement with the target T cells and limits off-target engagement and associated collateral toxicity.

The viraTope™ platform addresses the historic difficulty of identifying disease associated T cell signatures through the monitoring of complex T cell repertoires. As discussed previously, at the core of the molecular events comprising a T cell-mediated immune response is the engagement of the T cell receptor (“TCR”) Following immunization, mice were treated with a small peptide antigen presented by an MHC molecule, referred to as a T cell epitope. This represents the immune system’s targeting mechanism and is a requisite molecular interaction forvehicle (left panel) or CUE-301 (right-panel, “IST dose”). T cell activation and function,expansion was determined at various days post-immunization/treatment via interferon-gamma ELISpot assay. As shown in the left panel, vehicle-treated mice raised comparable T cells to both Proins and formsHA. In contrast, as shown in the basisright panel, the mice treated with CUE-301 (“IST Treated Mice”) showed selective abrogation of our targeted immunotherapeutics (i.e., TCR targeting). The viraTope platform is designedthe Proins-specific T cells while still mounting a T cells response to achieve rapid, comprehensive, and quantitative immunomonitoring by interrogating primaryHA. These in vivo data suggest that selective modulation of T cells with ISTs can be achieved for applications in AI diseases.

Additional mechanistic datasets that further extend in vitro and in vivo observations were recently presented at an autoimmune meeting in January 2021; https://www.cuebiopharma.com/wp-content/uploads/2021/01/20201223_ASIT-Summit-2021.pdf.

Pathway-specific approach: CUE-400 series

The CUE-400 series is focused on the generation of a combinatorial librarynovel bispecific molecule for differentiation and expansion of pMHCiTregs for applications in conjunction with deep sequencing. viraTope’s™ libraries would queryautoimmune diseases, graft versus host disease, or GVHD, and transplantrejection.  The primary goals of developing the CUE-400 series of molecule is to harness signals that can generate large numbers of regulatory T cells, with all possible mimotopes, leaving cognate pMHC boundor Tregs, in the patient to their respectivecontrol a broad repertoire of autoreactive and inflammatory T cells. Deep sequencingThis is especially important in controlling aberrant activation of autoreactive (or allo-reactive) T cells in those conditions where the bound pMHC would comprehensively enumerate all T cell epitopes recognized by a given T cell sample. In this way, viraTope™ could allow the identificationantigen(s) are unknown or involves multiple antigens, or in chronic stages of novel epitopes differentially represented in diseased versus control patients and would further make the frequencies of all known and unknown T cell specificities accessible for prospective, in-study, and retrospective analyses of clinical trials. Thus, the ability to systematically identify the entire ensemble of epitopes for a given disease state represents a unique opportunity for the development of diagnostics and highly targeted therapeutics against infectiousautoimmune diseases autoimmunity and cancers.with extensive epitope spreading involving many different antigens. We believe that viraTope™ has the ability to comprehensivelyharnessing Tregs is an attractive opportunity for re-setting immune balance and quantitatively monitor T cell responses, which could lead to the discovery of novel drug candidates and biomarkers for internal use or to potentially license to strategic partners.restoring functional tolerance.

 

Our Business Strategyfocus has centered on expanding functional iTregs, which we believe offer untapped opportunities in autoimmune diseases and graft rejection. In contrast to natural Tregs, or nTregs, that are present in small numbers and constitutively express CD25 (IL-2R alpha), iTregs are derived from the vastly larger component of the normal CD4+ T cell repertoire that is CD25-negative. In contrast to CD25-biased IL-2 variants/muteins that are being pursued for nTregs, our approach incorporates both IL-2 and TGF-beta signals, which are needed for induction and expansion of iTregs.  Importantly, the IL-2 signal in our approach is not biased to CD25 (IL-2R alpha) receptor subunit since the vast majority of the peripheral CD4+ T cell repertoire does not express CD25. We believe that harnessing iTregs over nTregs may have several key advantages: (i) the numbers of nTregs is limited (~2-5% of the CD4+ T cell compartment) since they come differentiated from the thymus with a fixed TCR repertoire, while iTregs can be readily generated from the vast majority of the conventional CD4+ T cell compartment that is diverse and adaptable to the local microenvironment; (ii) from a therapeutic manipulation perspective, we believe the opportunity to convert pathogenic autoreactive T cell into a regulatory phenotype is an attractive opportunity for immune re-set and restoration of immune balance; and (iii) the differentiation of iTregs can be achieved directly in the patient’s body as long as the requisite two key modulators (IL-2 and TGF-beta) can co-localize to the same T cell. In chronic autoimmune diseases, autoreactive T cells are constantly recognizing self-antigens (i.e. Signal 1 of TCR engagement is perpetual), which provides us with an attractive opportunity to co-deliver the IL-2 and TGF-beta to these T cells to convert them into an iTreg phenotype.  


Harnessing structure-based rational protein engineering, we have generated the first molecule from our CUE-400 series, CUE-401, which is a novel IL-2-TGF-beta fusion protein. The structure of CUE-401 is shown below – it has one molecule of IL-2 fused to an Fc along with a masked TGF-beta molecule. Importantly, the IL-2 variant in CUE-401 has already demonstrated tolerability in the clinic since it is the same IL-2 variant that is present in our current clinical candidate CUE-101, albeit in a different valency (CUE-101 harbors 4 molecules of an affinity attenuated IL-2 along with bivalent tumor-peptide-HLA molecules to activate tumor-specific T cells).

 

Our primary objective isCUE-401: Opportunity to become a leading, next-generation immunotherapeutics/biopharmaceutical company developing highly highly selective biologics for precision immune modulation. We plan to do this through coordinatedEnhance Specificity and integrated strategic initiatives. Key elements of our strategy include:Selectivity

 

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We have demonstrated that CUE-401 generated iTregs from conventional CD4+ T cells (as measured by robust induction of the master Treg transcription factor FoxP3). As shown below, we were able to generate iTregs from conventional CD4+ T cells from healthy subjects as well as from patients suffering from autoimmune diseases (RA -rheumatoid arthritis; IBD – inflammatory bowel disease). Importantly, in preclinical models, CUE-401 generated iTregs in equivalent or higher numbers when compared to the recombinant wild-type IL-2 and TGF-beta cytokines (“+recombinant cytokines”, as noted in the figure below). Functional assessments have confirmed that these iTregs can suppress T cell responses. Ongoing studies in preclinical models provide additional support for in vivo conversion of iTregs upon single-dose administration of CUE-401.

 

·Modular and versatile platform allowing for efficient and rapid drug design, prototyping and optimization.   We plan to leverage our CUE Biologics™ platform’s modular capabilities to rapidly and efficiently develop our drug candidates. We believe our platform will provide a highly productive portfolio of promising clinical drug candidates aimed at specifically targeting disease relevant T cells for effective immune modulation. The modular design of our CUE Biologics™ platform provides the flexibility and versatility to construct drug frameworks comprised of various MOD combinations to elicit novel mechanisms of action. As described above under “Our Approach to Next Generation Immunotherapies,” after we establish a successful framework that uses a specific peptide to target a particular disease indication, we expect to be able to use that framework to target additional disease indications by changing the targeting peptide. Therefore, by leveraging the previous work done to establish a framework, we believe we will be able to significantly compress the timeline (by as much as six to twelve months) and capital requirements associated with the development of additional drug candidates.

Induction of iTregs in Healthy Subjects and Patients

 

·Using preclinical data and efficient Phase I clinical study design to accelerate the development process.   We recently demonstrated through ex vivo assays using human clinical samples that CUE:IL-2 activates T cells in an antigen specific manner. We plan to continue testing our biologic drug constructs in ex vivo studies with human clinical samples using various cancer relevant epitopes to demonstrate selective activation of T cells specific for various antigens spanning a range of oncology indications. We believe this approach provides meaningful validating data enhancing the quality of our preclinical data package for IND filing. This data also has the potential of increasing the probability for identifying relevant pharmacodynamic (“PD”) biomarkers for patient monitoring and as a potential surrogate marker of anti-tumor activity in the clinical setting. Furthermore, we believe these ex vivo studies will supplement and potentially reduce our reliance on preclinical animal models, providing a more cost and time efficient means of testing our drug candidates’ activities. Given the urgent medical needs we intend to address with our drug candidates, we are planning to design and conduct our Phase I clinical studies to generate safety data and a clinically meaningful data package around efficacy with the aim of approaching the FDA for an accelerated registration study.

 

·Using our process development and protein biochemistry capabilities as a competitive advantage.   We anticipate devoting significant resources to optimizing drug design and process development, including protein engineering and optimization, which are key components to maximizing the value of our current and future drug candidates. Through our core competencies and proprietary CUE Biologics™, MOD™ and viraTope™ technology platforms, we are designing and developing a growing intellectual property portfolio of novel and proprietary immune modulatory biologics. We believe our modular approach to designing biologics, coupled with the protein engineering and optimization capabilities offered by our platform technologies, should enable us to more rapidly and cost-effectively design and optimize potential drug candidates, as compared to more traditional preclinical development processes. Although we have yet to advance any of our drug candidates into the clinic, we believe this efficient preclinical development process positions us well to potentially establish a leading position in the discovery and development of promising next generation immunotherapies.

 

·Establishing key strategic partnerships with leading pharmaceutical companies.   We believe that our CUE Biologics™ platform offers the promise of enabling us to develop multiple drug candidates that address a variety of potential indications within oncology, autoimmune disease and infectious disease. Accordingly, as we continue to evolve and progress our drug candidates through preclinical and early clinical development, we plan to establish strategic partnerships with leading pharmaceutical or biotechnology organizations, such as our partnership with Merck pursuant to the Collaboration Agreement described below. We believe that this will allow us to further enhance our capabilities and capacities to discover and develop multiple, promising drug candidates for unmet medical needs in oncology and autoimmunity in a highly productive and cost-effective manner.

·Leveraging our relationships with Einstein, our scientific founders and other scientific advisors.
Our scientific founders and Einstein, as well as our renowned scientific and clinical advisors (“SAB/CABs”), have a history of seminal, pioneering discoveries and possess significant experience in oncology, immunotherapy, immunology, and biophysics, as well as clinical development. We plan to leverage our scientific founders’ and SAB/CABs’ scientific and clinical expertise and guidance as we develop our product pipeline and technologies.

In contrast to IL-2-directed approaches aiming to expand the limited number and repertoire of nTregs, we believe induction and conversion of the pathogenic autoreactive T cells into iTreg may offer a more meaningful and lasting benefit to the patient.

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Our License Agreement with Einstein

Our CUE Biologics™, viraTope™ and MOD™ platforms have all been developed from technology covered by core patent applications licensed to us from Albert Einstein College of Medicine (“Einstein”) pursuant toOn January 14, 2015, or the Effective Date, we entered into a license agreement, originally entered into on January 14, 2015 andas amended and restated on July 31, 2017 (the “Einstein License”). Theand as amended on October 30, 2018, or the Einstein License, coverswith Albert Einstein College of Medicine, or Einstein, for certain patent rights, or the Patents, relating to: (i) methods for high throughput receptor-ligand identification, which we refer to as our MOD™ platform orcore technology (ii) a cellular platform for rapid and comprehensivethe engineering of biologics to control T cell immunomonitoring, which we refer to as our viraTope™ platform or technology, (iii) CUE Fc fusion constructsactivity, precision, immune-modulatory drug product candidates, and uses thereof, which we refer to as our CUE Biologics™ platform or technology,two supporting technologies that enable the discovery of costimulatory signaling molecules (ligands) and (iv) variant PD-L1 polypeptides, T cell modulatory multimeric polypeptides and methods and uses thereof  (collectively, the “Patents”).targeting peptides. We hold aan exclusive worldwide exclusive license, with the right to sublicense, import, make, have made, use, provide, offer to sell, and sell all products, processes and services that use the Patents, including certain technology received from Einstein relatingrelated thereto, (“which we refer to as the Licensed Products”).

Products.

The Einstein License is a royalty-bearing license obligating us to pay a percentage of proceeds received from sales of categories of Licensed Products at low single digit rates. We have also agreed to share a portion of our proceeds that we derive from other agreements, like sublicense agreements, relating to Licensed Products that we may enter into. The percentage of such proceeds that we are required to pay Einstein ranges from the low to high teens,mid-teens, depending on how far we have developed a Licensed Product before we enter into an agreement relating to the Licensed Product. These percentages are reduced for sales of Licensed Products in countries where a competing product exists and for products or services involving the use or incorporation of technology received from Einstein relating to synapse for targeted T cell activation molecules, receptor ligand identification or platforms for T cell monitoring. In addition to our obligation to pay royalties based upon a percentage of proceeds from sales of Licensed Products, we have also agreed to pay Einstein annual maintenance fees. The maintenance payments are creditable against any royalty payments we pay under the Einstein License. As ofFor the year ended December 31, 2017,2020, we had paid $75,000 to Einstein an aggregate amount of  $125,000 in license signing and license maintenance fees under the Einstein License.

Under the Einstein License, we are also obligated to make milestone payments corresponding to: (i) approval of the first IND by the FDA or foreign equivalent for a Licensed Product; (ii) approval of any subsequent IND application or foreign equivalent for a “new indication” for a Licensed Product; (iii) initiation of Phase II2 clinical trials or foreign equivalent on a Licensed Product; (iv) initiation of Phase II2 clinical trials or foreign equivalent for a “new indication” for a Licensed Product; (v) initiation of Phase III3 clinical trials or foreign equivalent on a Licensed Product; (vi) initiation of Phase III3 clinical trials or foreign equivalent for a “new indication” for a Licensed Product,Product; (vii) the first commercial sale of a Licensed Product; (viii) the first commercial sale of each “new indication” for one of our previously approved Licensed Products; and (ix) cumulative sales of certain Licensed Products reaching certain threshold amounts. The aggregate amount of milestone payments made under the Einstein License may equal up to $1.85 million for each Licensed Product and up to $1.85 million for each new indication of a Licensed Product. Additionally, the aggregate amount of one-time milestone payments based on cumulative sales of all Licensed Products may equal up to $5.75 million.

  As of December 31, 2020, we had paid to Einstein an aggregate amount of$150,000 in milestone payments.

In addition to our obligations to make the cash payments to Einstein described above, under the Einstein License we were required to issueissued Einstein 671,572 shares of our Common Stock immediately prior to completion of the intialinitial public offering of our common stock completed on December 27, 2017.

The Einstein License commenced on January 14, 2015 and expires upon the expiration of our last obligation to make royalty payments to Einstein, unless terminated earlier under the provisions thereof. Under the Einstein License, we will be obligated to make royalty payments to Einstein, with respect to certain Licensed Products, for the longer of 15 years from the first sale of such products in each country or for the duration of any market exclusivity period granted by a regulatory agency for such product and, with respect to certain Licensed Products sold by sublicensees, the longer of 10 years from the first sale of such products in each country or for so long as the sublicensee agrees to pay royalties on such products. We have the right to terminate the Einstein License at any time upon sixty (60)60 days’ written notice to Einstein; provided, however, that we will lose intellectual property rights related to the Patents if we choose to terminate the Einstein License in this manner. Each party has the right to terminate the Einstein License if the other party is in default or breach of any condition of the Einstein License with a right to cure any such breach within sixty (60)60 days from receipt of notice of such default or breach, unless the other party has disputed the alleged breach in good faith. Either party can also terminate the Einstein License if the other party voluntarily files for bankruptcy or other similar insolvency proceedings, makes a general assignment for the benefit of creditors, or is the subject of an involuntary bankruptcy petition that is not dismissed within ninety (90)90 days. If we fail to pay any sum that is due and payable to Einstein within thirty (30)30 days after receiving written notice of our default from Einstein, then Einstein has the option of terminating the Einstein License unless we pay within forty-five (45)45 days of such notice all delinquent sums with interest.

Einstein may also terminate the Einstein License in the event we are convicted of certain felonies relating to the manufacture or use of Licensed Products.

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The Einstein License also obligates us to meet certain due diligence requirements, (the “Diligence Milestones”)or the Diligence Milestones, as follows:

 

·

update our research and development plan annually;


 

·

submit an IND application to the FDA or similar foreign regulatory agency within a number of years from the Effective Date;

 

·

initiate Phase I1 clinical trials on a Licensed Product within a number of years from the Effective Date;

 

·

initiate Phase II2 clinical trials on a Licensed Product within a number of years from the Effective Date;

 

·

initiate Phase III3 clinical trials on a Licensed Product within a number of years from the Effective Date;

 

·

submit an application for FDA approval to market and sell a Licensed Product within a number of years from the Effective Date;

 

·

have our first commercial sale of an FDA Licensed Product within a number of years from the Effective Date; and

 

·

spend a minimum amount per year on product development until our first commercial sale of a Licensed Product.

If we fail to meet any of the Diligence Milestones, Einstein will have the right to terminate the Einstein License if such Diligence Milestone is not satisfied within thirty (30) days from receiving a written notice of default from Einstein. Under certain circumstances and upon prior notice to Einstein, we may have the right to an additional extension of our Diligence Milestones if, despite our commercially reasonable efforts we are not able to satisfy the Phase II2 clinical trial Diligence Milestone or any subsequent Diligence Milestone. As of the date of this prospectus,report, we have met all required Diligence Milestones.

Our Collaboration Agreement with Merck

On November 14, 2017, we entered into an Exclusive Patent License and Research Collaboration Agreement, (the “Collaboration Agreement”)or the Merck Agreement, with Merck Sharp & Dohme Corp. (“Merck”) for a partnership to research and develop certain of ourthe Company’s proprietary biologics that target certain autoimmune disease indications, (the “Initial Indications”).or the Initial Indications. We view this CollaborationMerck Agreement as a component of our development strategy since it will allow us to advance our autoimmune programs in partnership with a world class pharmaceutical company, while also continuing our focus on our more advanced cancer programs. The research program outlined in the CollaborationMerck Agreement entails (1) our research, discovery and development of certain CUE Biologics™Immuno-STAT drug candidates up to the point of demonstration of certain biologically relevant effects, (“or Proof of Mechanism”)Mechanism, and (2) the further development by Merck of the CUE Biologics™Immuno-STAT drug product candidates that have demonstrated Proof of Mechanism, (the “Proposedor the Proposed Drug Product Candidates”)Candidates, up to the point of demonstration of all or substantially all of the properties outlined in such Proposed Drug Product Candidates’ profiles as described in the CollaborationMerck Agreement.

For the purposes of this collaboration, we have granted to Merck under the CollaborationMerck Agreement an exclusive license under certain of our patent rights, including a sublicense of patent rights licensed from Einstein, to the extent applicable to the specific CUE Biologics™Immuno-STAT drug product candidates that are elected to be developed by Merck. From the effective date of the Collaboration Agreement until the earlier of (i) the first achievement of Proof of Mechanism for a Cue Biologic™ drug candidate or (ii) 18 months after we notify the joint steering committee that the first Product Candidate has been synthesized under the research program, we are required to forebear from researching, developing or licensing to a third party rights related to any CUE Biologics™ drug candidate for the treatment of autoimmune diseases other than pursuant to the Collaboration Agreement. In addition, so long as Merck continues product development on a Proposed Drug Product Candidate, we are restricted from conducting any development activities within the Initial Indication covered by such Proposed Drug Product Candidate other than pursuant to the CollaborationMerck Agreement. The Company is not required to forbear at any time, however, from developing other Cue Biologics™ for use in therapeutic areas other than autoimmune diseases, e.g., for use in treating cancer or infectious diseases.

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In exchange for the licenses and other rights granted to Merck under the CollaborationMerck Agreement, we received a $2.5 million nonrefundable up-front payment and may be eligible to receive additional funding in developmental milestone payments, as well as tiered royalties if all research, development, regulatory and commercial milestones agreed upon by both parties are successfully achieved. Excluding the upfront payment described above, we are eligible to earn up to $101 million for the achievement of certain research and development milestones, $120 million for the achievement of certain regulatory milestones and $150 million for the achievement of certain commercial milestones, in addition to tiered royalties on sales, if all pre-specified milestones associated with multiple products across the primary disease indication areas are achieved. The CollaborationMerck Agreement requires us to use the first $2.7$2.5 million of milestone paymentspayment we receive under the agreement to fund contract research. The amount of the royalty payments is a percentage of product sales ranging in the single digits based on the amount of such sales.

As of December 31, 2020, we recorded approximately $2.2 million in collaboration revenue related to this agreement.

The term of the CollaborationMerck Agreement extends until the expiration of all royalty obligations following a product candidate’s receipt of marketing authorization, at which point Merck’s licenses and sublicenses granted under the agreement shall become fully paid-up, perpetual licenses and sublicenses, as applicable. Royalties on each product subject to the CollaborationMerck Agreement shall continue on a country-by-country basis until the expiration of the later of: (1) the last-to-expire patent claiming the compound on which such product is based and (2) a period of ten years after the first commercial sale of such product in such country.

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In November 2020, we extended the research collaboration terms of this agreement through December 31, 2021 to support further development and identification of targeted biologics for the treatment of autoimmune disease.     Notwithstanding the foregoing, Merck may terminate the CollaborationMerck Agreement at any time uponby providing us 30 days’ notice to the Company.notice. The CollaborationMerck Agreement may also be terminated by either party if the other party is in breach of its obligations thereunder and fails to cure such breach within 90 days after notice or by either party if the other party files for bankruptcy or other similar insolvency proceedings.

Our Collaboration Agreement with LG Chem

Effective November 6, 2018, we entered into a Collaboration, License and Option Agreement, or the LG Chem Agreement, with LG Chem, related to the development of Immuno-STATs focused in the field of oncology.

Pursuant to the LG Chem Agreement, we granted LG Chem an exclusive license to develop, manufacture and commercialize our lead product, CUE-101, as well as Immuno-STATs that target T-cells against two additional cancer antigens, or Drug Product Candidates, in Australia, Japan, Republic of Korea, Singapore, Malaysia, Vietnam, Thailand, Philippines, Indonesia, China (including Macau and Hong Kong) and Taiwan, which we refer to collectively as the LG Chem Territory. We retain rights to develop and commercialize all assets included in the LG Chem Agreement in the United States and in global markets outside of the LG Chem Territory. Under the LG Chem Agreement, we will engineer the selected Immuno-STATs for up to three alleles, which are expected to include the predominant alleles in the LG Chem Territory, thereby enhancing our market reach by providing for greater patient coverage of populations in global markets, while LG Chem will establish a chemistry, manufacturing and controls, or CMC, process for the development and commercialization of selected Drug Product Candidates. In addition, LG Chem has the option to select one additional Immuno-STAT for an oncology target, or an Additional Immuno-STAT, for an exclusive worldwide development and commercialization license. On December 18, 2019, we and LG Chem entered into a global license and commercialization agreement, which was amended on November 5, 2020. We refer to such agreement, as amended, as the Global License and Collaboration Agreement. The Global License and Collaboration Agreement supersedes the provisions of the LG Chem Agreement related to LG Chem’s option for an Additional Immuno-STAT but generally does not become effective unless and until LG Chem exercises its option, other than certain select provisions including the length of the option period and representations, warranties and covenants of the parties. If LG Chem exercises this option, which expires on April 30, 2021, then the other provisions of the Global License and Collaboration Agreement, including the license to the Additional Immuno-STAT from us to LG Chem and the terms and conditions for such license, will become effective. We will retain an option to co-develop and co-commercialize the additional program worldwide.  In an amendment effective November 5, 2020, we extended the time for LG Chem to exercise this option until April 30, 2021.

Under the terms of the LG Chem Agreement, LG Chem paid us a $5.0 million non-refundable, non-creditable upfront payment and purchased approximately $5.0 million of shares of our common stock at a price per share equal to a 20% premium to the volume weighted-average closing price per share over the 30 trading day period immediately prior to the effective date of the LG Chem Agreement. We are also eligible to receive additional aggregate payments of approximately $400 million if certain research, development, regulatory and commercial milestones are successfully achieved. In addition, the LG Chem Agreement also provides that LG Chem will pay us tiered single-digit royalties on net sales of commercialized Drug Product Candidates, or Collaboration Products, in the LG Chem Territory on a product-by-product and country-by-country basis, until the later of expiration of patent rights in a country, the expiration of regulatory exclusivity in such country, or ten years after the first commercial sale of a Collaboration Product in such country, subject to certain royalty step-down provisions set forth in the LG Chem Agreement.

Pursuant to the LG Chem Agreement, the parties will share research costs related to Collaboration Products, and LG Chem will provide CMC process development for selected Drug Product Candidates and potentially additional downstream manufacturing capabilities, including clinical and commercial supply for Collaboration Products.  In return for performing CMC process development, LG Chem is eligible to receive low-single digit percentage royalty payments on the sales of Collaboration Products sold in all countries outside the LG Chem Territory. Furthermore, should the parties enter into a Global License and Collaboration Agreement for an Additional Immuno-STAT, LG Chem will pay us a one-time, non-refundable, non-creditable upfront payment and we will be eligible to receive up to approximately $470 to $675 million in fees and milestone payments as well as tiered royalty payments on future global sales that range from high-single digit to mid-double digit percentages in the United States and mid-single to low-double digit percentages outside of the United States.  The amount of fees and milestone payments, as well as whether we receive royalty payments, will depend on when LG Chem nominates the Additional Immuno-STAT, the number of alleles selected by LG Chem and whether we exercise our option to co-develop and co-commercialize the additional program worldwide, in which case we would share costs and profits instead of receiving royalties and post-option-exercise milestones. As of December 31, 2020, we recorded approximately $5.5 million in collaboration revenue related to this agreement.

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The LG Chem Agreement includes various representations, warranties, covenants, indemnities and other customary provisions. LG Chem may terminate the LG Chem Agreement for convenience or change of control of us on a program-by-program, product-by-product or country-by-country basis, or in its entirety, at any time following the notice period set forth in the LG Chem Agreement. Either party may terminate the LG Chem Agreement, in its entirety or on a program-by-program, product-by-product or country-by-country basis, in the event of an uncured material breach. The LG Chem Agreement is also terminable by either party (i) upon the bankruptcy, insolvency or liquidation of the other party or (ii) for certain activities involving the challenge of certain patents controlled by the other party. Unless earlier terminated, the LG Chem Agreement will expire on a product-by-product and country-by-country basis upon the expiration of the applicable royalty term.

Our Intellectual Property

We believe that our current patents and patent applications and any future patents and other proprietary rights that we own, or control through licensing, are and will be essential to our business. We believe that these intellectual property rights will affect our ability to compete effectively with others. We also rely and will rely on trade secrets, know-how, continuing technological innovations and licensing opportunities to develop, maintain and strengthen our competitive position. We seek to protect these, in part, through confidentiality agreements with certain employees, consultants, advisors and other parties. Our success will depend in part on our ability, and the ability of our licensor, to obtain, maintain (including making periodic filings and payments) and enforce patent protection for our/their intellectual property, including those patents and patent applications to which we have secured exclusive rights.

We ownAs of December 31, 2020, we owned or havehad licensed 14fifty-two issued patents, thirty-five pending patent applications in the United States (including 11thirteen pending U.S. provisional patent applications), foureighteen pending international PCT applications and 34147 pending foreign patent applications intended to protect the intellectual property underlying our technology. Our patent applications describe certain features of our technologies, including our CUE Biologics™Immuno-STAT platform, our Neo-STAT platform, CAR-T and ex-vivo applications of our Immuno-STAT platform, as well as specific biologic molecules, drug product candidates viraTope™, MOD™ screening, MOD™ variants and combinationsmethods of MODs.treatment using our Immuno-STATs. We plan to spend considerable resources and focus in the future on obtaining U.S. and foreign patents. We have and will continue to actively protect our intellectual property. No assurances can be given that any of our patent applications will result in the issuance of a patent or that the examination process will not require us to narrow our claims. In addition, any issued patents may be contested, circumvented, found unenforceable or invalid, and we may not be able to successfully enforce our patent rights against third parties. No assurance can be given that others will not independently develop a similar or competing technology or design around any patents that may be issued to us. We intend to expand our international operations in the future and our patent portfolio, copyright, trademark and trade secret protections may not be available or may be limited in foreign countries.

Each of our patents, if and when granted, will generally have a term of 20 years from its respective U.S. non-provisional priority filing date, subject to available extensions. They are thus set to expire no earlier than dates ranging from 20322033 to 2037,2040, although there can be no assurance that any of the patent applicationapplications will be granted.

 

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Competition

Target MarketsWhile we believe that our drug product candidates, technology, knowledge and experience provide us with significant competitive advantages, we face competition from established and emerging pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research institutions, among others.

Furthermore, immunotherapy technologies are advancing at a rapid pace and we anticipate competing with companies developing bi-specific antibodies attempting to deliver T cell activating cytokines, such as IL-2 (e.g., Amgen Inc., or Amgen, Immunocore Holdings plc, or Immunocore, and Roche Holding AG, or Roche), cell therapies for activating or creating cancer-relevant T cells outside the patient’s body, i.e., ex vivo, (e.g., Bristol-Myers Squibb Company, or Bristol-Myers Squibb, Gilead Sciences, Inc., or Gilead, and Novartis AG, or Novartis), antibody-drug conjugates (e.g., Gilead, Roche, Seagen Inc., or Seattle Genetics), immune checkpoint inhibitors (e.g., Bristol-Myers Squibb, Merck, and Pfizer Inc., or Pfizer), and modified  cytokines, such as pegylated IL-2 for slower-release (e.g., Bristol-Myers Squibb/Nektar, who recently announced a combination study of BEMPEG plus KEYTRUDA in a Phase 2/3 clinical trial in first-line squamous cell carcinoma of the head and neck), as a means of reducing the unwanted collateral adverse effects of wild type IL-2, genetically-modified IL-2 for ablating the alpha subunit activity to reduce CD4 activation in favor of CD8 (e.g. Neoleukin Therapeutics, Inc., or Neoleukin, Roche, and Sanofi), and antigen-specific targeting of cytokines through nanoparticles (e.g., Neximmune). [We believe that our approach provides Cue with the competitive advantage of antigen-specific targeting of cytokines, such as IL-2 by engineering proteins with a targeting moiety, i.e, peptide-MHC, coupled to genetically modified cytokines, such as not-alpha IL2 for enhancing CD8 activation and attenuated Beta-subunit for biasing the peptide-MHC/TCR affinity, thereby providing cancer antigen specificity.

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We expect our lead product candidate, CUE-101, will compete with other product candidates for the treatment of HPV+ cancers. While there is currently no FDA-approved therapy that specifically targets HPV for HPV+ cancers, there are multiple product candidates in clinical development, including cell therapies (e.g., Gilead and Rubius Therapeutics, Inc., or Rubius), and cancer vaccines (e.g., BioNTech SE, or BioNTech, Hookipa Pharma Inc., or Hookipa Pharma, Inovio Pharmaceuticals, Inc., or Inovio, and ISA B.V., or ISA Pharma). Therapies not specific to HPV are also being developed to address HPV+ cancers, including immune checkpoint inhibitors as well as tumor infiltrating lymphocytes by Iovance Biotherapeutics, Inc., or Iovance Biotherapeutics.

Our initial focus andcorporate objective is to design, develop drug candidates for cervical/head and neck cancers, hepatocellular carcinomas,commercialize new products with superior efficacy, convenience, tolerability, and melanoma.safety. We expect any drug product candidate that we commercialize, either independently or with our future developmental roadmapstrategic partners, will also focuscompete with existing, market-leading products.

There are many companies focused on new drug candidates that target autoimmune disorders. We currently do not have any products that are developed such that they can be testedthe development of small molecules and antibodies for clinical trials or commercial use. According to published reports, in 2016 oncology drugs were an $87.5 billion global marketcancer treatment. Our core competitors include pharmaceutical and autoimmune drugs constituted a $47.8 billion global market.

Our Commercialization Strategy

We are a preclinical stage company without a history of revenue or manufacturing, late stage clinical development or marketing experience. Because late stage clinical development,biotech organizations, as well as establishingacademic research institutions, clinical research laboratories and government agencies that are pursuing research activities in the same therapeutic area. Many of our competitors have greater financial, technical and human resources than we do. Additionally, many competitors have greater experience in product discovery and development, obtaining FDA and other regulatory approvals, and commercialization capabilities, which may provide them with a full manufacturing and distribution structure, is expensive and time consuming, we intendcompetitive advantage.

We believe that our ability to explore alternative commercialization strategies, including:compete will depend on our ability to execute on the following objectives:

 

design, develop and commercialize products that are superior to other products in the market in terms of, among other things, safety, efficacy, convenience, or price;

·

developing

obtain patent and/or other proprietary protection for our processes and drug candidates throughproduct candidates;

obtain required regulatory approvals;

obtain favorable reimbursement, formulary and guideline status; and

collaborate with others in the earlier stages of clinical development with the objectives of rapid, cost effective risk reduction and value creation and then establishing strategic partnership for late stage clinicaldesign, development and subsequent commercialization;commercialization of our products.

·developing a robust pipeline of promising drug candidates at various stages of the development process to establish optionality and regular value inflection opportunities and revenue(s);

·strategically entering into co-development partnership(s) to retain potential for commercialization rights on selected drug candidate(s) and market opportunities; and

·partnering with industry participants to incorporate our technology into new and existing drugs.

 

We expectEstablished competitors may invest heavily to discover and develop novel compounds that partneringcould make our drug product candidates obsolete. In addition, any new product that competes with pharmaceutical an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and/or biotherapeutic companies may accelerate product acceptance intosafety in order to obtain approval, to overcome price competition and to be commercially successful. If we are not able to compete effectively, our target market areasbusiness will not grow and gain the salesour financial condition and marketing advantages of the partner’s distribution infrastructure. We intend to continue to strengthen our market position and solidify our leadership position in immunotherapy by continuing to improve our technology, broadening our clinical and therapeutic applications, identifying new clinical and therapeutic applications and forming strategic partnerships.

operations will suffer.

Government Regulation and Product Approval

Therapeutic products are subject to rigorous regulation by the U.S. Food and Drug Administration (the “FDA”) and other governmental agency regulations in the United States and in foreign countries. Noncompliance with applicable requirements can result in import detentions, fines, civil penalties, injunctions, suspensions or lossesLicensure of regulatory approvals or clearances, recall or seizure of products, operating restrictions, denial of export applications, governmental prohibitions on entering into supply contracts, and criminal prosecution. Failure to obtain regulatory approvals or the restriction, suspension or revocation of regulatory approvals or clearances, as well as any other failure to comply with regulatory requirements, would have a material adverse effect on our business, financial condition and results of operations. In connection with therapeutic approval, we will have to comply with the many requirements associated with preclinical and clinical trials, the FDA application process, the terms of any pre-certification protocols and agreements, FDA manufacturing requirements for prototypes, and testing. Upon approval of a Biologics License Application (“BLA”) and similar approvals in other jurisdictions, there will be additional regulation relating to the packaging, distribution, marking, marketing and claims of our potential products. These later regulations are not only found in federal regulation but many states and, of course, foreign countries.

The FDA Process

The FDA regulates the clinical testing and design of therapeutics to ensure that medical products distributed in the United States are safe and effective for their intended uses. The application process for a new therapeutic is highly regulated.

As a biopharmaceutical company that operates in the United States, we are subject to extensive regulation. Our potential products will be regulated as biologics. With this classification, commercial production of our potential products will need to occur in registered and licensed facilities in compliance with current good manufacturing procedures (“cGMP”) established by the FDA for biologics. The FDA categorizes human cell- or tissue-based products as either minimally manipulated or more than minimally manipulated, and has determined that more than minimally manipulated products require clinical trials to demonstrate product safety and efficacy and the submission of a BLA for marketing authorization.

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Products

Government authorities in the United States, (atat the federal, state and local levels)level, and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, manufacturing,manufacture, pricing, reimbursement, sales, quality control, approval, labeling, packaging, storage, record-keeping,recordkeeping, labeling, advertising, promotion, advertising, distribution, post-approvalmarketing, post‑approval monitoring and reporting, marketingand import and export and import of biopharmaceuticalpharmaceutical products, such as those we are developing. Our drug candidates must be approved by the FDA before they may be legally marketedincluding biological products. The processes for obtaining marketing approvals in the United States and by the appropriatein foreign regulatory agency before they may be legally marketed in a foreign country. Generally, our activities in other countries will be subject to regulation that is similar in nature and scope as that imposed in the United States, although there can be important differences. Additionally, some significant aspects of regulation in Europe are addressed in a centralized way, but country-specific regulation remains essential in many respects. The process for obtaining regulatory marketing approvals and thejurisdictions, along with subsequent compliance with appropriate federal, state, local and foreignapplicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.

 

U.S. Product Development Process

Licensure and Regulation of Biologics in the United States

In the United States, the FDA regulates pharmaceutical andour candidate products would be regulated as biological products, or biologics, under the Public Health Service Act, or the PHSA, and the Federal Food, Drug and Cosmetic Act, (the “FDCA”),or the Public Health Services Act (the “PHSA”)FDCA, and its implementing regulations. Products are also subject to other federal, stateregulations and local statutes and regulations.guidances. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failurefailure to comply with the applicable U.S. requirements at any time during the product development process, including non‑clinical testing, clinical testing, the approval process or after post‑approval process, may subject an applicant to delays in the conduct of the study, regulatory review and approval, and/or administrative or judicial sanctions. FDA sanctions could include, among other actions, refusalAn applicant seeking approval to approve pending applications, withdrawal of an approval,market and distribute a clinical hold, warning letters, product recalls or withdrawals from the market, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. The FDA has limited experience with commercial development of T cell therapies for cancer. The process required by the FDA before a biological product may be marketednew biologic in the United States generally involvesmust satisfactorily complete each of the following:following steps:

 

preclinical laboratory tests, animal studies and formulation studies all performed in accordance with the FDA’s Good Laboratory Practice regulations;

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·

completion of nonclinical laboratory teststhe manufacture, under current Good Manufacturing Practices, or cGMP, conditions, of the drug substance and animal studies accordingdrug product that the sponsor intends to Good Laboratory Practices (“GLPs”)use in human clinical trials along with required analytical and applicable requirements for the humane use of laboratory animals or other applicable regulations;stability testing;

 

·

submission to the FDA of an Investigational New Drug Application (an “IND”),IND application for human clinical testing, which must become effective 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-controlledwell‑controlled human clinical trials according to the FDA’s regulations commonly referred to as Good Clinical Practices (“GCPs”), and any additional requirements for the protection of human research patients and their health information, to establish the safety, potency, and efficacypurity of the product candidate for each proposed biological product for its intended use;indication, in accordance with current Good Clinical Practices, or GCP;

 

·

preparation and submission to the FDA of a Biologic License Application, or BLA, for a biologic product requesting marketing approval that includes substantive evidencefor one or more proposed indications, including submission of safety, purity,detailed information on the manufacture and potency from resultscomposition of nonclinical testingthe product in clinical development and clinical trials;proposed labelling;

 

review of the product by an FDA advisory committee, where appropriate or if applicable;

·

satisfactory completion of anone or more FDA inspectioninspections of the manufacturing facility or facilities, whereincluding those of third parties, at which the biological product, isor components thereof, are produced to assess compliance with current Good Marketing Practices (“cGMP”)cGMP requirements and to assure that the facilities, methods, and controls are adequate to preserve the biological product’s identity, strength, quality, and purity, and, if applicable, the FDA’s current Good Tissue Practices (“cGTPs”)good tissue practice for the use of human cellular and tissue products;

 

·

potential

satisfactory completion of any FDA auditaudits of the nonclinical studynon‑clinical and clinical trial sites that generatedto assure compliance with GCPs and the integrity of clinical data in support of the BLA; and

 

·

payment of user Prescription Drug User Free Act, or PDUFA, securing FDA reviewapproval of the BLA and approval, or licensure of the BLA.

new biologic product; and

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compliance with any post‑approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy, or REMS, and any post‑approval studies required by the FDA.

Preclinical Studies and Investigational New Drug Application

Before testing any biological drugbiologic product candidate including our drug candidates, in humans, the druga product candidate enters themust undergo preclinical testing stage.testing. Preclinical tests also referred to as nonclinical studies, include laboratory evaluations of product chemistry, toxicityformulation and formulation,stability, as well as animal studies to assessevaluate the potential safetyfor efficacy and activity of the drug candidate.toxicity in animal studies. The conduct of the preclinical tests and formulation of the compounds for testing must comply with federal regulations and requirements, including GLPs.requirements. The clinical trial sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, any available clinical data or literature and a proposed clinical protocol,are submitted to the FDA as part of the IND. Some preclinical testing may continue even after thean IND application.

An IND is submitted.an exemption from the FDCA that allows an unapproved product candidate to be shipped in interstate commerce for use in an investigational clinical trial and a request for FDA authorization to administer such investigational product to humans. The IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions regardingabout the product or conduct of the proposed clinical trials and places the trial, on a clinical hold withinincluding concerns that 30-day time period.human research subjects will be exposed to unreasonable health risks. In such athat case, the IND sponsor and the FDA must resolve any outstanding FDA concerns before the clinical trialtrials can begin. The FDA may also impose clinical holds onbegin or recommence.

As a biological drug candidate at any time before or during clinical trials due to safety concerns or non-compliance. If the FDA imposes a clinical hold, trials may not recommence without FDA authorization and then only under terms authorized by the FDA. Accordingly, we cannot be sure thatresult, submission of anthe IND willmay result in the FDA not allowing the trials to commence or allowing the trial to commence on the terms originally specified by the sponsor in the IND. If the FDA raises concerns or questions either during this initial 30‑day period, or at any time during the IND process, it may choose to impose a partial or complete clinical hold. 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. This order issued by the FDA would delay either a proposed clinical study or cause suspension of an ongoing study, until all outstanding concerns have been adequately addressed and the FDA has notified the company that investigations may proceed. This could cause significant delays or difficulties in completing planned clinical studies in a timely manner.

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Expanded Access to an Investigational Drug for Treatment Use

Expanded access, sometimes called “compassionate use,” is the use of investigational products outside of clinical trials to begintreat patients with serious or that, once begun, issuesimmediately 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 products for patients who may benefit from investigational therapies. FDA regulations allow access to investigational products 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 investigational product 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 treated; and the expanded use of the investigational drug for the requested treatment will not ariseinterfere initiation, conduct, or completion of clinical investigations that suspendcould support marketing approval of the product or terminateotherwise compromise the potential development of the product.

There is no obligation for a sponsor to make its drug products available for expanded access; however, as required by the 21st Century Cures Act, or the Cures Act, passed in 2016, if a sponsor has a policy regarding how it responds to expanded access requests, it must make that policy publicly available. Although these requirements were rolled out over time, they have now come into full effect. Sponsors are required to make such trials.policies publicly available upon the earlier of initiation of a Phase 2 or Phase 3 study; or 15 days after the investigational drug or biologic receives designation as a breakthrough therapy, fast track product, or regenerative medicine advanced therapy. 

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 products that have completed a Phase I 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 manufacturer to make its investigational products available to eligible patients as a result of the Right to Try Act.

Human Clinical Trials in Support of a BLA

Clinical trials involve the administration of the biological druginvestigational product candidate to healthy volunteers or patients with the disease to be treated under the supervision of a qualified investigators, generally physicians not employed by or under the trial sponsor’s control.principal investigator in accordance with GCP requirements. Clinical trials are conducted under study protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selectionstudy, inclusion and exclusion criteria, and the parameters to be used in monitoring safety, and the effectiveness criteria to monitor subject safety, including stopping rules that assure abe evaluated. A protocol for each clinical trial will be stopped if certain adverse events should occur. Each protocol and any subsequent protocol amendments to the protocol must be submitted to the FDA as part of the IND. Clinical trials

A sponsor who wishes to conduct a clinical trial outside the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. When a foreign clinical trial is conducted under an IND, all FDA IND requirements must be met unless waived. When a foreign clinical trial is not conducted and monitoredunder an IND, the sponsor must ensure that the trial complies with certain regulatory requirements of the FDA in order to use the trial as support for an IND or application for marketing approval. Specifically, the FDA requires that such trials be conducted in accordance with theGCP, including review and approval by an independent ethics committee and informed consent from subjects. The GCP requirements encompass both ethical and data integrity standards for clinical trials. The FDA’s regulations comprisingare intended to help ensure the GCP requirements, includingprotection of human subjects enrolled in non-IND foreign clinical trials, as well as the requirementquality and integrity of the resulting data. They further help ensure that all research patients provide informed consent. non-IND foreign trials are conducted in a manner comparable to that required for clinical trials in the United States.

Further, each clinical trial must be reviewed and approved by an independent institutional review board (an “IRB”)IRB either centrally or individually at or servicing each institution at which the clinical trial will be conducted. The IRB will consider, among other things, clinical trial design, patient informed consent, ethical factors, the safety of human subjects, and the possible liability of the institution. An IRB must operate in compliance with FDA regulations. The FDA, IRB, or the clinical trial sponsor may suspend or discontinue a clinical trial at any time for various reasons, including a finding that the clinical trial is chargednot being conducted in accordance with protectingFDA requirements or the welfaresubjects or patients are being exposed to an unacceptable health risk. Clinical testing also must satisfy extensive GCP rules and rights of trial participants and considers such items as whether the risks to individuals participating in therequirements for informed consent.

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Additionally, some clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the form and contentoverseen by an independent group of the informed consent that must be signedqualified experts organized by each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. sponsor, known as a data safety monitoring board, or DSMB. This group may recommend continuation of the study as planned, changes in study conduct, or cessation of the study at designated check points based on certain available data from the study to which only the DSMB has access. Finally, research activities involving infectious agents, hazardous chemicals, recombinant DNA, and genetically altered organisms and agents may be subject to review and approval of an Institutional Biosafety Committee in accordance with NIH Guidelines for Research Involving Recombinant or Synthetic Nucleic Acid Molecules.

Clinical trials also must be reviewed by an institutional biosafety committee (an “IBC”), a local institutional committee that reviews and oversees basic and clinical research conducted at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment.

Human clinical trialstypically are typically conducted in three sequential phases, thatbut the phases may overlap or be combined:combined. Additional studies may be required after approval.

 

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Phase 1. The biological product is clinical trials are initially introduced into human subjectsconducted in a limited population to test the product candidate for safety, (adverse effects), determine recommended Phase 2 dosingincluding adverse effects, dose tolerance, absorption, metabolism, distribution, excretion, and evaluate any signals of efficacy for specific targeted diseases. The initial human testing is often conductedpharmacodynamics in healthy humans or, on occasion, in patients, rather than in healthy volunteers, in the case of products for severe or life-threatening diseases, especially when the product is inherently toxic.such as cancer patients.

 

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Phase 2. The biological product is evaluated clinical trials are generally conducted in a limited patient population to identify possible adverse effects and safety risks, optimize dosing and preliminarily evaluate the efficacy of the product candidate for specific targeted diseases.indications and determine dose tolerance and optimal dosage. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more costly Phase 3 clinical trials.

 

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Phase 3. Clinical clinical trials proceed if the Phase 2 clinical trials demonstrate that a dose range of the product candidate is potentially effective and has an acceptable safety profile. Phase 3 clinical trials are undertaken inwithin an expanded patient population to further evaluate dosage, provide substantial evidence of clinical efficacy, and further test for safety in an expanded and diverse patient population at multiple, geographically dispersed clinical trial sitessites. A well‑controlled, statistically robust Phase 3 trial may be designed to further evaluate dosage, clinical efficacy, potency,deliver the data that regulatory authorities will use to decide whether or not to approve, and, safety. These clinical trialsif approved, how to appropriately label a biologic; such Phase 3 studies are intendedreferred to establish the overall risk to benefit ratio of the product and provide an adequate basis for product labeling.as “pivotal.”

 

Post-approvalIn some cases, the FDA may approve a BLA for a product candidate but require the sponsor to conduct additional clinical trials sometimesto further assess the product candidate’s safety and effectiveness after approval. Such post‑approval trials are typically referred to as Phase 4 clinical trials, may be conducted after initial marketing approval.trials. These clinical trialsstudies are used to gain additional experience from the treatment of patients in the intended therapeutic indication particularlyand to document a clinical benefit in the case of biologics approved under accelerated approval regulations. If the FDA approves a product while a company has ongoing clinical trials that were not necessary for long-term safety follow-up.

Duringapproval, a company may be able to use the data from these clinical trials to meet all phasesor part of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, andany Phase 4 clinical trial investigators. Annual progress reports detailingrequirement or to request a change in the resultsproduct labeling. Failure to exhibit due diligence with regard to conducting Phase 4 clinical trials could result in withdrawal of theapproval for products.

Information about clinical trials must be submitted within specific timeframes to the FDA. Written IND safety reports must be promptly submitted to the FDA, the National Institutes of Health and the investigatorsNIH for serious and unexpected adverse events, as well as any findings from other studies, tests in laboratory animals or in vitro testing that suggest a significant risk for human patients, or any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. The sponsor must submit an IND safety report within 15 calendar days after the sponsor determines that the information qualifies for reporting. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction within seven calendar days after the sponsor’s initial receipt of the information. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA or the sponsor orpublic dissemination on its data safety monitoring board may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research patients are being exposed to an unacceptable health risk, including risks inferred from other unrelated immunotherapy trials. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the biological product has been associated with unexpected serious harm to patients.ClinicalTrials.gov website.

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Human immunotherapy products are a new category of therapeutics. Because this is a relatively new and expanding area of novel therapeutic interventions, there can be no assurance as to the length of the trial period, the number of patients the FDA will require to be enrolled in the trials in order to establish the safety, efficacy, purity and potency of immunotherapy products, or that the data generated in these trials will be acceptable to the FDA to support marketing approval.

Concurrently with clinical trials, companies usually complete additional studies and must also develop additional information about the physical characteristics of the biological product as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. To help reduce the risk of the introduction of adventitious agents with use of biological products, the PHSA emphasizes the importance of manufacturing control for products whose attributes cannot be precisely defined. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things, the sponsor must develop methods for testing the identity, strength, quality, potency and purity of the final biological product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the biological drug candidate does not undergo unacceptable deterioration over its shelf life.

U.S. Review and Approval Processes

After the completion of clinical trials of a biological product, FDA approval of a BLA must be obtained before commercial marketing of the biological product. The BLA must include results of product development, laboratory and animal studies, human trials, information on the manufacture and composition of the product, proposed labeling and other relevant information. The FDA may grant deferrals for submission of data or full or partial waivers. The testing and approval processes require substantial time and effort and there can be no assurance that the FDA will accept the BLA for filing and, even if filed, that any approval will be granted on a timely basis, if at all.

Pediatric Studies

Under the Prescription Drug User Fee Act, as amended (the “PDUFA”), each BLA must be accompanied by a significant user fee. The FDA adjusts the PDUFA user fees on an annual basis. PDUFA also imposes an annual product fee for biological products and an annual establishment fee on facilities used to manufacture prescription biological products. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business. Additionally, no user fees are assessed on BLAs for products designated as orphan drugs, unless the product also includes a non-orphan indication.

Within 60 days following submission of the application, the FDA reviews a BLA submitted to determine if it is substantially complete before the agency accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission and may request additional information. In this event, the BLA must be resubmitted with the additional information. The resubmitted application also is 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 of the BLA. The FDA reviews the BLA to determine, among other things, whether the proposed product is safe, potent, and/or effective for its intended use, and has an acceptable purity profile, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, safety, strength, quality, potency and purity. The FDA may refer applications for novel biological products or biological products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. During the biological product approval process, the FDA also will determine whether a Risk Evaluation and Mitigation Strategy (“REMS”) is necessary to assure the safe use of the biological product. If the FDA concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS. The FDA will not approve a BLA without a REMS, if required.

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Before approving a BLA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. For immunotherapy products, the FDA also will not approve the product if the manufacturer is not in compliance with the cGTPs, to the extent applicable. These are FDA regulations and guidance documents that govern the methods used in, and the facilities and controls used for, the manufacture of human cells, tissues, and cellular and tissue based products (“HCT/Ps”), which are human cells or tissue intended for implantation, transplant, infusion, or transfer into a human recipient. The primary intent of the cGTP requirements is to ensure that cellular tissue based products are manufactured in a manner designed to prevent the introduction, transmission and spread of communicable disease. FDA regulations also require tissue establishments to register and list their HCT/Ps with the FDA and, when applicable, to evaluate donors through screening and testing. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure that the clinical trials were conducted in compliance with IND trial requirements and GCP requirements. To assure cGMP, cGTP and GCP compliance, an applicant must incur significant expenditure of time, money and effort in the areas of training, record keeping, production, and quality control.

Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data. If the agency decides not to approve the BLA in its present form, the FDA will issue a complete response letter that describes all of the specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified in the letter, or withdraw the application.

If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a risk management plan, or otherwise limit the scope of any approval. In addition, the FDA may require post-marketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed to further assess a biological product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialized.

In addition, under the Pediatric Research Equity Act (the “PREA”),of 2003, a BLA or supplement to a BLAthereto must contain data that are adequate to assess the safety and effectiveness of the product 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 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 products intended to treat a serious or life-threatening disease or condition, the FDA must, upon the request of an applicant, meet to discuss preparation of the initial pediatric study plan or to discuss deferral or waiver of pediatric assessments. In addition, FDA will meet early in the development process to discuss pediatric study plans with sponsors and FDA must meet with sponsors by no later than the end-of-phase 1 meeting for serious or life-threatening diseases and by no later than 90 days after FDA’s receipt of the study plan.

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The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers. Unless otherwise required by regulation,waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in the Food and Drug Administration Safety and Innovation Act, or FDASIA.  The FDA maintains a list of diseases that are exempt from PREA does not applyrequirements due to any product for an indication for whichlow prevalence of disease in the pediatric population. Congress amended the FDA Reauthorization Act of 2017, or FDARA. Previously, drugs that had been granted orphan drug designation has been granted. However, if only one indication for a product has orphan designation,were exempt from the requirements of the Pediatric Research Equity Act. Under the amended section 505B, beginning on August 18, 2020, the submission of a pediatric assessment, may stillwaiver or deferral will be required for any applicationscertain molecularly targeted cancer indications with the submission of an application or supplement to an application.

Compliance with cGMP Requirements

Before approving a BLA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in full compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. The PHSA emphasizes the importance of manufacturing control for products like biologics whose attributes cannot be precisely defined.

Manufacturers and others involved in the manufacture and distribution of products must also register their establishments with the FDA and certain state agencies. Both domestic and foreign manufacturing establishments must register and provide additional information to the FDA upon their initial participation in the manufacturing process. Any product manufactured by or imported from a facility that has not registered, whether foreign or domestic, is deemed misbranded under the FDCA. Establishments may be subject to periodic unannounced inspections by government authorities to ensure compliance with cGMPs and other laws. 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 may lead to a product being deemed to be adulterated.

Review and Approval of a BLA

The results of product candidate development, preclinical testing, and clinical trials, including negative or ambiguous results as well as positive findings, are submitted to the FDA as part of a BLA requesting license to market that samethe product. The BLA must contain extensive manufacturing information and detailed information on the composition of the product and proposed labeling as well as payment of a user fee. Under federal law, the submission of most BLAs is subject to an application user fee, which for federal fiscal year 2021 is $2,875,842 for an application requiring clinical data. The sponsor of a licensed BLA is also subject to an annual program fee, which for fiscal year 2021 is $336,432. Certain exceptions and waivers are available for some of these fees, such as an exception from the non-orphan indication(s).

Expedited Developmentapplication fee for products with orphan designation and Review Programs

a waiver for certain small businesses.

The FDA has various60 days after submission of the application to conduct an initial review to determine whether it is sufficient to accept for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission has been accepted for filing, the FDA begins an in‑depth review of the application. Under the goals and policies agreed to by the FDA under the PDUFA, the FDA has ten months in which to complete its initial review of a standard application and respond to the applicant, and six months for a priority review of the application. The FDA does not always meet its PDUFA goal dates for standard and priority BLAs. The review process may often be significantly extended by FDA requests for additional information or clarification. The review process and the PDUFA goal date may be extended by three months if the FDA requests or if the applicant otherwise provides additional information or clarification regarding information already provided in the submission within the last three months before the PDUFA goal date.

Under the PHSA, the FDA may approve a BLA if it determines that the product is safe, pure, and potent and the facility where the product will be manufactured meets standards designed to ensure that it continues to be safe, pure, and potent.  On the basis of the FDA’s evaluation of the application and accompanying information, including the results of the inspection of the manufacturing facilities and any FDA audits of non‑clinical and clinical trial sites to assure compliance with GCPs, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. If the application is not approved, the FDA will issue a complete response letter, which will contain the conditions that must be met in order to secure final approval of the application, and when possible will outline recommended actions the sponsor might take to obtain approval of the application. Sponsors that receive a complete response letter may submit to the FDA information that represents a complete response to the issues identified by the FDA. Such resubmissions are classified under PDUFA as either Class 1 or Class 2. The classification of a resubmission is based on the information submitted by an applicant in response to an action letter. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has two months to review a Class 1 resubmission and six months to review a Class 2 resubmission. The FDA will not approve an application until issues identified in the complete response letter have been addressed.

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The FDA may also refer the application to an advisory committee for review, evaluation, and recommendation as to whether the application should be approved. In particular, the FDA may refer applications for novel biologic products or biologic products that present difficult questions of safety or efficacy to an advisory committee. 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.

If the FDA approves a new product, it may limit the approved indications for use of the product. It may also require that contraindications, warnings or precautions be included in the product labeling. In addition, the FDA may call for post‑approval studies, including Phase 4 clinical trials, to further assess the product’s safety after approval. The agency may also require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, to help ensure that the benefits of the product outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patent registries. The FDA may prevent or limit further marketing of a product based on the results of post‑market studies or surveillance programs. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.

Fast Track, Breakthrough Therapy, Designation, priorityPriority Review and Regenerative Advanced Therapy Designations

The FDA is authorized to designate certain products for expedited review and accelerated approval, whichif they are intended to expediteaddress an unmet medical need in the treatment of a serious or simplifylife‑threatening disease or condition. These programs are referred to as fast track designation, breakthrough therapy designation, priority review designation and regenerative advanced therapy designation.

Specifically, the process for reviewing products, and/or provide for approval on the basis of surrogate endpoints. Even ifFDA may designate a product qualifies for fast track review if it is intended, whether alone or in combination with one or more other products, for the treatment of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or that the time period for FDA review or approval will not be shortened. Generally, products that may be eligible for these programs are those fora serious or life-threatening conditions, those withlife‑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 thosethe 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 offer meaningful benefits over existing treatments. For example, Fast Tracka 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, in 2012, Congress enacted FDASIA. This law established a process designed to facilitate the development and expedite thenew regulatory scheme allowing for expedited review of products to treat serious diseases and fill an unmet medical need. The requestdesignated as “breakthrough therapies.” A product may be made at the time of IND submission and generally no later than the pre-BLAdesignated as a breakthrough therapy if it is intended, either alone or pre-NDA meeting. The FDA will respond within 60 calendar days of receipt of the request. Breakthrough Therapy Designation is available forin combination with one or more other products, that are intended to treat a serious or life‑threatening disease or condition whereand 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 design the clinical trials in an efficient manner.

Third, the FDA may designate a product for priority review if it is a product that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. The FDA determines, on a clinicallycase‑by‑case basis, whether the proposed product represents a significant endpoint(s) overimprovement when compared with other available therapies. The requestSignificant improvement may be made atillustrated by evidence of increased effectiveness in the timetreatment of IND submissiona condition, elimination or substantial reduction of a treatment‑limiting product reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, and generally no later thanevidence of safety and effectiveness in a new subpopulation. A priority designation is intended to direct overall attention and resources to the end-of-Phase 2 meeting. The FDA will respond within 60 calendar daysevaluation of receiptsuch applications, and to shorten the FDA’s goal for taking action on a marketing application from ten months to six months.

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With passage of the request. Breakthrough Therapy Designation conveys all of the Fast Track program features along with more intensive FDA guidance and interaction and eligibility for rolling review and priority review. Priority review, which is requested at the time of BLA or NDA submission, is designed to give products that offer major advancesCures Act in treatment or provide a treatment where no adequate therapy exists an initial review within six months as compared to a standard review time of ten months. Although Fast Track, Breakthrough Therapy Designation and priority review do not affect the standards for approval,December 2016, Congress authorized the FDA will attempt to expediteaccelerate review of the application. Accelerated approval provides an earlierand 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 diseases,or life-threatening disease or condition and preliminary clinical evidence indicates that fill anthe product has the potential to address unmet medical needneeds 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 whichthat 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, orradiographic image, physical sign, usedor 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, such as an indirect or substitute measurement representing a clinically meaningful outcome. Discussionseffect on IMM. The FDA has limited experience with the FDA about the feasibility of anaccelerated approvals based on intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval typically begin earlywhere 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 approval of the product in order to identify, among other things, an appropriate endpoint. As a condition of approval, the FDA may require that a sponsorproducts for treatment of a product receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials.

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Orphan Drug Designation and Exclusivity

Undervariety of cancers in which the Orphan Drug Act, the FDA may grant orphan drug designation to a drug or biologic product intended to treat a rare disease or condition, whichgoal of therapy is generally a diseaseto improve survival or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United Statesdecrease morbidity and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug or biologic for this type of disease or condition will be recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before submitting an NDA or BLA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use will be disclosed publicly by the FDA; the posting will also indicate whether the drug or biologic is no longer designated as an orphan drug. More than one product candidate may receive an orphan drug designation for the same indication. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory reviewtypical disease course requires lengthy and sometimes large trials to demonstrate a clinical or survival benefit.

The accelerated approval process.

Ifpathway 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 product that has orphan drug designation subsequently receivescandidate approved on this basis is subject to rigorous post‑marketing compliance requirements, including the firstcompletion 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 approval for the disease for which it has such designation,to withdraw the product is entitled to seven years of orphanfrom the market on an expedited basis. All promotional materials for drug product exclusivity. During the seven-year exclusivity period, the FDA may not approve any other applications to market a product containing the same active moiety for the same disease, except in very limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. A product is clinically superior if it is safer, more effective or makes a major contribution to patient care. Thus, orphan drug exclusivity could block the approval of one of our potential products for seven years if a competitor obtains approval of the same product as defined by the FDA and we are not able to show the clinical superiority of our product candidate or if our product candidate’s indication is determined to be contained within the competitor’s product orphan indication. In addition, the FDA will not recognize orphan drug exclusivity if a sponsor fails to demonstrate upon approval that the product is clinically superior to a previouslycandidates approved product containing the same active moiety for the same orphan condition, regardless of whether or not the approved product was designated an orphan drug or had orphan drug exclusivity.

Post-Approval Requirements

Any potential products for which we receive FDA approvalsunder accelerated regulations are subject to continuing regulationprior review by the FDA.

Real-Time Oncology Review of Supplemental NDAs

Through its Oncology Center for Excellence, or OCE, the FDA including, among other things, record-keeping requirements, reportinghas established two pilot programs allowing for real-time review of adverse experiencessupplemental applications for previously approved oncology products. This approach will allow FDA to evaluate clinical data as soon as the results of a clinical trial become available with the product, providingobjective of reviewing and approving a new indication soon after an applicant files the application. The first of these pilot programs, Real-Time Oncology Review, or RTOR, focuses on early submission of data that are the most relevant to assessing the product’s safety and effectiveness. RTOR allows the FDA to review much of the data earlier, after the clinical trial results become available and the database is locked, but before the information is formally submitted to the agency.

The FDA has established several criteria to determine whether a supplemental application may be selected for RTOR. Those criteria include whether: the investigational product is likely to demonstrate substantial improvements over available therapy; the study design is straight forward, as determined by the review division and the OCE; the endpoints can be easily interpreted.  Applications with chemistry, manufacturing and control formulation changes and supplements with pharmacology/toxicology data are excluded from RTOR. In addition, submissions with greater complexity, including those with companion diagnostics, may also be excluded for the purposes of the pilot program. On the basis of these criteria, the appropriate FDA review division and OCE management will jointly decide whether the application can be selected for the RTOR pilot program.

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If the FDA determines that RTOR is an appropriate review pathway, the applicant can send pre-submission data to the agency under the original application two to four weeks after all patient data have been entered and locked in the database, and the applicant is ready to request FDA approval. The package should also include key raw and derived datasets, including safety/efficacy tables and figures, study protocol and amendments, and a draft of the package insert. The applicant must also submit key results, analysis, and datasets for other disciplines, if applicable. The FDA will then evaluate these materials for sufficiency and integrity so that it can analyze the data to properly address key regulatory questions. By the time the applicant submits the application to the FDA, the review team will have completed the analysis and be familiar with the data, and can conduct a more efficient, timely, and thorough review.

Post‑Approval Regulation

If regulatory approval for marketing of a product or new indication for an existing product is obtained, the sponsor will be required to comply with all regular post‑approval regulatory requirements as well as any post‑approval requirements that the FDA have imposed as part of the approval process. The sponsor will be required to report certain adverse reactions and production problems to the FDA, provide updated safety and efficacy information product sampling and distributioncomply with requirements concerning advertising and complying with FDA promotion and advertising requirements, which include, among others, standards for direct-to-consumer advertising, restrictions on promoting products for uses or in patient populations that are not described in the product’s approved uses (known as “off-label use”), limitations on industry-sponsored scientific and educational activities, and requirements for promotional activities involving the internet. Although physicians may prescribe legally available products for off-label uses, if the physicians deem to be appropriate in their professional medical judgment, it is FDA’s position that manufacturers may not market or promote such off-label uses.

In addition, quality control and manufacturing procedures must continue to conform to applicable manufacturing requirements after approval to ensure the quality and long-term stability of the product. We expect to rely on third parties for the production of clinical and commercial quantities of our potential products in accordance with cGMP regulations. cGMP regulations require among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP.labeling requirements. Manufacturers and other entities involved in the manufacture and distributioncertain of approved productstheir subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMP regulations, which impose certain procedural and other laws.documentation requirements upon manufacturers. Accordingly, the sponsor and its third‑party manufacturers must continue to expend time, money, and effort in the areaareas of production and quality control to maintain compliance with cGMP compliance. Discovery of problems with aregulations and other regulatory requirements.

A product after approval may result in restrictionsalso be subject to official lot release, meaning that the manufacturer is required to perform certain tests on a product, manufacturer, or holder of an approved BLA, including, among other things, recall or withdrawaleach lot of the product frombefore it is released for distribution. If the product is subject to official lot release, the manufacturer must submit samples of each lot, together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot, to the FDA. The FDA may in addition perform certain confirmatory tests on lots of some products before releasing the lots for distribution. Finally, the FDA will conduct laboratory research related to the safety, purity, potency, and effectiveness of pharmaceutical products.

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. In addition, changes to the manufacturing process are strictly regulated, and depending on the significance of the change, may require prior FDA approval before being implemented. Other types of changes to the approved product, such as adding new indications and claims, are also subject to further FDA review and approval.

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The FDA also may require post-marketing testing, known as Phase 4 testing, and surveillance to monitor the effects of an approved product. DiscoveryLater discovery of previously unknown problems with a product, including adverse events of unanticipated severity or thefrequency, or with manufacturing processes, or failure to comply with applicableregulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post‑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:

restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

fines, warning letters or holds on post‑approval clinical trials;

refusal of the FDA to approve pending applications or supplements to approved applications, 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.

The FDA requirementsstrictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Pharmaceutical products may be promoted only for the approved indications and in accordance with the provisions of the approved label. Although health care providers may prescribe products for off-label uses in their professional judgment, drug manufacturers are prohibited from soliciting, encouraging or promoting unapproved uses of a product. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off‑label uses, and a company that is found to have improperly promoted off‑label uses may be subject to significant liability.


The FDA strictly regulates the marketing, labeling, advertising and promotion of prescription drug products placed on the market. This regulation includes, among other things, standards and regulations for direct-to-consumer advertising, communications regarding unapproved uses, industry-sponsored scientific and educational activities and promotional activities involving the Internet and social media. Promotional claims about a drug’s safety or effectiveness are prohibited before the drug is approved. After approval, a drug product generally may not be promoted for uses that are not approved by the FDA, as reflected in the product’s prescribing information. In the United States, health care 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, FDA regulations impose rigorous restrictions on manufacturers’ communications, prohibiting the promotion of off-label uses. It may be permissible, under very specific, narrow conditions, for a manufacturer to engage in nonpromotional, non-misleading communication regarding off-label information, such as distributing scientific or medical journal information.

If a company is found to have promoted off-label uses, it may become subject to adverse public relations and administrative and judicial enforcement by the FDA, the DOJ, 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 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.

Orphan Drug Designation and Exclusivity

Orphan drug designation in the United States is designed to encourage sponsors to develop products intended for rare diseases or conditions. In the United States, a rare disease or condition is statutorily defined as a condition that affects fewer than 200,000 individuals in the United States or that affects more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making available the biologic for the disease or condition will be recovered from sales of the product in the United States.

Orphan drug designation qualifies a company for tax credits and market exclusivity for seven years following the date of the product’s marketing approval if granted by the FDA. An application for designation as an orphan product can have negative consequences,be made any time prior to the filing of an application for approval to market the product. A product becomes an orphan when it receives orphan drug designation from the Office of Orphan Products Development at the FDA based on acceptable confidential requests made under the regulatory provisions. The product must then go through the review and approval process like any other product.

A sponsor may request orphan drug designation of a previously unapproved product or new orphan indication for an already marketed product. In addition, a sponsor of a product that is otherwise the same product as an already approved orphan drug may seek and obtain orphan drug designation for the subsequent product for the same rare disease or condition if it can present a plausible hypothesis that its product may be clinically superior to the first drug. More than one sponsor may receive orphan drug designation for the same product for the same rare disease or condition, but each sponsor seeking orphan drug designation must file a complete request for designation.

If a product with orphan designation receives the first FDA approval for the disease or condition 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 receive orphan drug exclusivity. Orphan drug exclusivity means that the FDA may not approve another sponsor’s marketing application for the same product for the same indication for seven years, except in certain limited circumstances. If a product designated as an orphan drug ultimately receives marketing approval for an indication broader than what was designated in its orphan drug application, it may not be entitled to exclusivity.

The period of exclusivity begins on the date that the marketing application is approved by the FDA and applies only to the indication for which the product has been designated. The FDA may approve a second application for the same product for a different use or a second application for a clinically superior version of the product for the same use. The FDA cannot, however, approve the same product made by another manufacturer for the same indication during the market exclusivity period unless it has the consent of the sponsor or the sponsor is unable to provide sufficient quantities.

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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 protection to the term of any existing regulatory exclusivity, including adverse publicity, judicial or administrative enforcement, warning lettersthe non‑patent and orphan exclusivity. This six‑month exclusivity may be granted if a BLA sponsor submits pediatric data that fairly respond to a written request from the FDA mandated corrective advertising or communications with doctors, and civil or criminal penalties, among others. Newly discovered or developed safety or effectivenessfor such data. The data may require changesdo not need to a product’s approved labeling, includingshow the addition of new warnings and contraindications, and also may requireproduct to be effective in the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, orpediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s policies may change,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 could delay or prevent regulatory approval of our potential products under development.the FDA cannot approve another application.

U.S. Patent Term RestorationBiosimilars and Marketing Exclusivity

The 2010 Patient Protection and Affordable Care Act, which was signed into law in March 2010, included a subtitle called the Biologics Price Competition and Innovation Act (the “BPCIA”) amendedof 2009, or the PHSA to authorizeBPCIA. The BPCIA established a regulatory scheme authorizing the FDA to approve similar versions of innovative biologics, commonly known asbiosimilars and interchangeable biosimilars. A competitor seeking approval ofbiosimilar is a biosimilar must file an application to establish its molecule asbiological product that is highly similar to an approved innovator biologic, among other requirements. The BPCIA, however, barsexisting FDA-licensed “reference product.” As of January 1, 2021, the FDA from approvinghas approved 29 biosimilar applicationsproducts for use in the United States. No interchangeable biosimilars, however, have been approved. The FDA has issued several guidance documents outlining an approach to review and approval of biosimilars. Additional guidances are expected to be finalized by the FDA in the near term.

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 a reference product, the agency must find that the biosimilar 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.

Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date of approval of the reference product. The FDA may not approve a biosimilar product until 12 years after an innovator biologicalfrom the date on which the reference product receives initial marketing approval. This 12-year periodwas approved. Even if a product is considered to be a reference product eligible for exclusivity, another company could market a competing version of data exclusivity may be extended by six months, for a total of 12.5 years,that product if the FDA requests thatapproves a full BLA for such product containing the innovator company conduct pediatricsponsor’s own preclinical data and data from adequate and well‑controlled clinical investigationstrials to demonstrate the safety, purity, and potency of their product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. At this juncture, it is unclear whether products deemed “interchangeable” by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law. Since the passage of the product.

Depending upon the timing, duration and specifics of the FDA approval ofBPCIA, many states have passed laws or amendments to laws, including laws governing pharmacy practices, which are state-regulated, to regulate the use of our drug candidates, somebiosimilars.

Patent Term Restoration and Extension

A patent claiming a new biologic product, its method of our U.S. patents, if granted,use or its method of manufacture may be eligible for a limited patent term extension under the Drug Price Competition and Patent Term RestorationHatch‑Waxman Act, of 1984, commonly referred to as the Hatch-Waxman Act. The Hatch-Waxman Actwhich permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However,review. The restoration period granted on a patent covering a product is typically one‑half the time between the effective date of a clinical investigation involving human beings is begun and the submission date of an application, plus the time between the submission date of an application and the ultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent beyondpast a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of a BLA plus the time between the submission date of a BLA and the approval of that application. Only one patent applicable to an approved product is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent.patent in question. A patent that covers multiple products for which approval is sought can only be extended in connection with one of the approvals. The U.S. Patent and Trademark Office, in consultation with the FDA,USPTO reviews and approves the application for any patent term extension or restoration. restoration in consultation with the FDA.

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FDA Approval of Companion Diagnostics

In August 2014, the future, we mayFDA issued final guidance clarifying the requirements that will apply to approval of therapeutic products and in vitro companion diagnostics. According to the guidance, for restorationnovel drugs, a companion diagnostic device and its corresponding therapeutic should be approved or cleared contemporaneously by the FDA for the use indicated in the therapeutic product’s labeling. Approval or clearance of patent termthe companion diagnostic device will ensure that the device has been adequately evaluated and has adequate performance characteristics in the intended population. In July 2016, the FDA issued a draft guidance intended to assist sponsors of the drug therapeutic and in vitro companion diagnostic device on issues related to co-development of the products.  

The 2014 guidance also explains that a companion diagnostic device used to make treatment decisions in clinical trials of a biologic product candidate generally will be considered an investigational device, unless it is employed for onean intended use for which the device is already approved or cleared. If used to make critical treatment decisions, such as patient selection, the diagnostic device generally will be considered a significant risk device under the FDA’s Investigational Device Exemption, or IDE, regulations. Thus, the sponsor of our currently owned or licensed patent applications,the diagnostic device will be required to comply with the IDE regulations. According to the guidance, if granted,a diagnostic device and a product are to add patent life beyond its current expiration date,be studied together to support their respective approvals, both products can be studied in the same investigational study, if the study meets both the requirements of the IDE regulations and the IND regulations. The guidance provides that depending on the expected lengthdetails of the study plan and subjects, a sponsor may seek to submit an IND alone, or both an IND and an IDE.

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 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 applications are subject to an application fee. For federal fiscal year 2021, the standard fee is $365,657 and the small business fee is $91,414.

A clinical trial is typically required for a PMA application and, in a small percentage of cases, the FDA may require a clinical study in support of a 510(k) submission. A manufacturer that wishes to conduct a clinical study involving the device is subject to the FDA’s IDE regulation. The IDE regulation distinguishes between significant and non-significant risk device studies and the procedures for obtaining approval to begin the study differ accordingly. Also, some types of studies are exempt from the IDE regulations. A significant risk device presents a potential for serious risk to the health, safety, or welfare of a subject. Significant risk devices are devices that are substantially important in diagnosing, curing, mitigating, or treating disease or in preventing impairment to human health. Studies of devices that pose a significant risk require both FDA and an IRB approval prior to initiation of a clinical study. Non-significant risk devices are devices that do not pose a significant risk to the human subjects. A non-significant risk device study requires only IRB approval prior to initiation of a clinical study.

After a device is placed on the market, it remains subject to significant regulatory requirements. Medical devices may be marketed only for the uses and indications for which they are cleared or approved. Device manufacturers must also establish registration and device listings with the FDA. A medical device manufacturer’s manufacturing processes and those of its suppliers are required to comply with the applicable portions of the Quality System Regulation, which covers the methods and documentation of the design, testing, production, processes, controls, quality assurance, labeling, packaging and shipping of medical devices. Domestic facility records and manufacturing processes are subject to periodic unscheduled inspections by the FDA. The FDA also may inspect foreign facilities that export products to the United States.

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Regulation and Procedures Governing Approval of Medicinal Products in the European Union

In order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and other factors involveddistribution of products. Whether or not it obtains FDA approval for a product, an applicant will need to obtain the necessary approvals by the comparable foreign regulatory authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions. Specifically, the process governing approval of medicinal products in the filing ofEuropean Union generally follows the relevant BLA.

Pediatric exclusivity is another type of regulatory market exclusivitysame lines as in the United States. Pediatric exclusivity,It entails satisfactory completion of preclinical studies and adequate and well‑controlled clinical trials to establish the safety and efficacy of the product for each proposed indication. It also requires the submission to the relevant competent authorities of a marketing authorization application, or MAA, and granting of a marketing authorization by these authorities before the product can be marketed and sold in the European Union.

Clinical Trial Approval

Pursuant to the currently applicable Clinical Trials Directive 2001/20/EC and the Directive 2005/28/EC on GCP, a system for the approval of clinical trials in the European Union has been implemented through national legislation of the member states. Under this system, an applicant must obtain approval from the competent national authority of a European Union member state in which the clinical trial is to be conducted, or in multiple member states if granted, addsthe clinical trial is to be conducted in a number of member states. Furthermore, the applicant may only start a clinical trial at a specific study site after the competent ethics committee has issued a favorable opinion. The clinical trial application must be accompanied by an investigational medicinal product dossier with supporting information prescribed by Directive 2001/20/EC and Directive 2005/28/EC and corresponding national laws of the member states and further detailed in applicable guidance documents.

In April 2014, the EU adopted a new Clinical Trials Regulation (EU) No 536/2014, which is set to replace the current Clinical Trials Directive 2001/20/EC. The new Clinical Trials Regulation will become directly applicable to and binding in all 28 EU Member States without the need for any national implementing legislation. It will overhaul the current system of approvals for clinical trials in the EU. Specifically, the new legislation aims at simplifying and streamlining the approval of clinical trials in the EU. Under the new coordinated procedure for the approval of clinical trials, the sponsor of a clinical trial will be required to submit a single application for approval of a clinical trial to a reporting EU Member State (RMS) through an EU Portal. The submission procedure will be the same irrespective of whether the clinical trial is to be conducted in a single EU Member State or in more than one EU Member State.  

The Regulation was published on June 16, 2014 but has not yet become effective.  As of January 1, 2020, the website of the European Commission reported that the implementation of the Clinical Trials Regulation was dependent on the development of a fully functional clinical trials portal and database, which would be confirmed by an independent audit, and that 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. In late 2020, the EMA indicated that it plans to focus on the findings of a system audit; improving the usability, quality and stability of the clinical trial information system; and knowledge transfer to prepare users and their organizations for the new clinical trial system.  The EMA has indicated that the system will go live in December 2021.

Parties conducting certain clinical studies must, as in the U.S., 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 European Medicines Agency, or EMA, launched an initiative to facilitate development of drug product candidates in indications, often rare, for which few or no therapies currently exist. The 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 may qualify for earlier entry into the PRIME scheme than larger companies. Many benefits accrue to sponsors of drug 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 EMA contact and rapporteur from the Committee for Human Medicinal Products, or CHMP, or Committee for Advanced Therapies are appointed early in the PRIME scheme facilitating increased understanding of the product at the EMA’s Committee level. A kick-off meeting initiates these relationships and includes a team of multidisciplinary experts at the EMA to provide guidance on the overall development and regulatory strategies.

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Pediatric Studies

Applicants developing a new medicinal product must agree upon a Pediatric Investigation Plan, or PIP, with the EMA’s pediatric committee, or PDCO, and must conduct pediatric clinical trials in accordance with that PIP, unless a waiver 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 the 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 a later date.

Marketing Authorization

To obtain a marketing authorization for a product under the European Union regulatory system, an applicant must submit an MAA, either under a centralized procedure administered by the EMA or one of the procedures administered by competent authorities in European Union Member States (decentralized procedure, national procedure, or mutual recognition procedure). A marketing authorization may be granted only to an applicant established in the European Union. Regulation (EC) No 1901/2006 provides that prior to obtaining a marketing authorization in the European Union, an applicant must demonstrate compliance with all measures included in an EMA‑approved Pediatric Investigation Plan, or PIP, 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.

The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid for all EU member states. Pursuant to Regulation (EC) No. 726/2004, the centralized procedure is compulsory for specific 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, including products for the treatment of cancer. For products with a new active substance indicated for the treatment of other diseases and products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may be optional. Manufacturers must demonstrate the quality, safety, and efficacy of their products to the EMA, which provides an opinion regarding the MAA. The European Commission grants or refuses marketing authorization in light of the opinion delivered by the EMA.

Under the centralized procedure, the CHMP established at the EMA is responsible for conducting an initial assessment of a product. Under the centralized procedure in the European Union, the maximum timeframe for the evaluation of an MAA is 210 days, excluding clock stops when additional information or written or oral explanation is to be provided by the applicant in response to questions of the CHMP. Accelerated evaluation may be granted by the CHMP in exceptional cases, when a medicinal product is of major interest from the point of view of public health and, in particular, from the viewpoint of therapeutic innovation. If the CHMP accepts such a request, the time limit of 210 days will be reduced to 150 days, but it is possible that the CHMP may revert to the standard time limit for the centralized procedure if it determines that it is no longer appropriate to conduct an accelerated assessment.

Regulatory Data Protection in the European Union

In the European Union, new chemical entities approved on the basis 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 European Union 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 can be marketed until the expiration of the market exclusivity. The overall ten‑year period will be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to authorization, is held to bring a significant clinical benefit in comparison with existing therapies. Even if a compound is considered to be a new chemical entity so that the innovator gains the prescribed period of data exclusivity, another company may market another version of the product if such company obtained marketing authorization based on an MAA with a complete independent data package of pharmaceutical tests, preclinical tests and clinical trials.

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Patent Term Extensions in the European Union and Other Jurisdictions

The European Union also provides for patent term extension through Supplementary Protection Certificates, or SPCs. The rules and requirements for obtaining a SPC are similar to those in the United States. An SPC may extend the term of a patent for up to five years after its originally scheduled expiration date and can provide up to a maximum of fifteen years of marketing exclusivity for a drug. These periods can be extended for six additional months if pediatric exclusivity is obtained, which is described in detail below. Although SPCs are available throughout the European Union, sponsors must apply on a country-by-country basis. Similar patent term extension rights exist in certain other foreign jurisdictions outside the European Union.

Periods of Authorization and patent terms. This six-monthRenewals

A marketing authorization is valid for five years, in principle, and it may be renewed after five years on the basis of a reevaluation of the risk‑benefit balance by the EMA or by the competent authority of the authorizing member state. To that end, the marketing authorization holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization ceases to be valid. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five‑year renewal period. Any authorization that is not followed by the placement of the drug on the EU market (in the case of the centralized procedure) or on the market of the authorizing member state within three years after authorization ceases to be valid.

Regulatory Requirements after Marketing Authorization

Following approval, the holder of the marketing authorization is required to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of the medicinal product. These include compliance with the European Union’s stringent pharmacovigilance or safety reporting rules, pursuant to which post‑authorization studies and additional monitoring obligations can be imposed. In addition, the manufacturing of authorized products, for which a separate manufacturer’s license is mandatory, must also be conducted in strict compliance with the EMA’s GMP requirements and comparable requirements of other regulatory bodies in the European Union, which mandate the methods, facilities, and controls used in manufacturing, processing and packing of drugs to assure their safety and identity. Finally, the marketing and promotion of authorized products, including industry‑sponsored continuing medical education and advertising directed toward the prescribers of drugs and/or the general public, are strictly regulated in the European Union under Directive 2001/83EC, as amended.

Orphan Drug Designation and Exclusivity

Regulation (EC) No 141/2000 and Regulation (EC) No. 847/2000 provide that a product can be designated as an orphan drug 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 European Union when the application is made, or (2) a life‑threatening, seriously debilitating or serious and chronic condition in the European Union and that without incentives it is unlikely that the marketing of the drug in the European Union would generate sufficient return to justify the necessary investment. For either of these conditions, the applicant must demonstrate that there exists no satisfactory method of diagnosis, prevention, or treatment of the condition in question that has been authorized in the European Union or, if such method exists, the drug will be of significant benefit to those affected by that condition.

An orphan drug designation provides a number of benefits, including fee reductions, regulatory assistance, and the possibility to apply for a centralized European Union marketing authorization. Marketing authorization for an orphan drug leads to a ten‑year period of market exclusivity. During this market exclusivity period, neither the EMA nor the European Commission or the member states can accept an application or grant a marketing authorization for a “similar medicinal product.” A “similar medicinal product” is defined as a medicinal product containing a similar active substance or substances as contained in an authorized orphan medicinal product, and which runs fromis intended for the same therapeutic indication. The market exclusivity period for the authorized therapeutic indication may, however, be reduced to six years if, at the end of other exclusivity protection or patent term, may bethe fifth year, it is established that the product no longer meets the criteria for orphan drug designation because, for example, the product is sufficiently profitable not to justify market exclusivity.

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Pediatric Exclusivity

Products that are granted based ona marketing authorization with the voluntary completionresults of athe pediatric trialclinical trials conducted in accordance with the PIP are eligible for a six month extension of the protection 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 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.

Brexit and the Regulatory Framework in the United Kingdom

On June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the EU, commonly referred to as Brexit. Following protracted negotiations, the United Kingdom left the EU on January 31, 2020. Under the withdrawal agreement, there is a transitional period until December 31, 2020 (extendable by up to two years). On December 24, 2020, the United Kingdom and the European Union entered into a Trade and Cooperation Agreement. The agreement sets out certain procedures for approval and recognition of medical products in each jurisdiction. Since the regulatory framework for pharmaceutical products in the United Kingdom covering quality, safety and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales and distribution of pharmaceutical products is derived from EU directives and regulations, Brexit could materially impact the future regulatory regime which applies to products and the approval of drug product candidates in the UK, as the UK legislation now has the potential to diverge from EU legislation. It remains to be seen how Brexit will impact regulatory requirements for drug product candidates and products in the UK in the long-term. The MHRA has recently published detailed guidance for industry and organizations to follow from January 1, 2021 now the transition period is over, which will be updated as the UK’s regulatory position on medicinal products evolves over time.

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 European Economic Area, or 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 FDA-issued “Written Request”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 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.

Coverage, Pricing, and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any drug product candidates for which we may seek regulatory approval by the FDA or other government authorities. 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 any drug product candidates we may develop unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of such drug product candidates. Even if any drug product candidates we may develop are approved, sales of such drug product candidates 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 drug product candidates. The process for determining whether a trial.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, drug product candidates may not be considered medically necessary or cost effective. A decision by a third‑party payor not to cover any drug product candidates we may develop could reduce physician utilization of such drug product candidates once 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 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 reimbursement and coverage may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.

The containment of healthcare costs also has become a priority of federal, state and foreign governments and the prices of pharmaceuticals 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.

Outside the United States, ensuring adequate coverage and payment for any drug product candidates we may develop will face challenges. Pricing of prescription pharmaceuticals is subject to governmental control in many countries. Pricing negotiations with governmental authorities can extend well beyond the receipt of regulatory marketing approval for a product and may require us to conduct a clinical trial that compares the cost effectiveness of any drug product candidates we may develop to other available therapies. The conduct of such a clinical trial could be expensive and result in delays in our commercialization efforts.

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 product candidate to currently available therapies (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 products, 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 (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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Healthcare Law and Regulation

Healthcare providers and third‑party payors play a primary role in the recommendation and prescription of pharmaceutical 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, reporting of payments to physicians and teaching physicians and patient privacy laws and regulations and other healthcare laws and regulations that may constrain our business and/or financial arrangements. Restrictions under applicable federal and state healthcare laws and regulations, include the following:

the U.S. 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 healthcare 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, 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 federal civil monetary penalty and false statement laws and regulations relating to pricing and submission of pricing information for government programs, including penalties for knowingly and intentionally overcharging 340b eligible entities and the submission of false or fraudulent pricing information to government entities;

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal laws that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their respective implementing regulations, including the Final Omnibus Rule published in January 2013, which impose obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security, and transmission of individually identifiable health information;

the federal false statements statute, which 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 health care benefits, items or services;

the Foreign Corrupt Practices Act, 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;

the federal transparency requirements known as the federal Physician Payments Sunshine Act, under the Patient Protection and Affordable Care Act, or PPACA, as amended by the Health Care Education Reconciliation 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 U.S. Department of Health and Human Services, information related to payments and other transfers of value made by that entity to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; and

analogous state and foreign laws and regulations, such as state anti‑kickback and false claims laws, which may apply to healthcare items or services that are reimbursed by non‑governmental third‑party payors, including private insurers.

 

EmployeesSome 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 pharmaceutical manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures. 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 HIPAA, thus complicating compliance efforts.

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Healthcare Reform

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 other medical products, government control and other changes to the healthcare system in the United States. By way of example, the United States and state governments continue to propose and pass legislation designed to reduce the cost of healthcare. In March 2010, the United States Congress enacted the PPACA, which, among other things, includes changes to the coverage and payment for products under government health care programs.  In addition, other legislative changes 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 2030 under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act.  The American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. 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 drug 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 PPACA, 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 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 PPACA is an essential and inseverable feature of the PPACA, and therefore because the mandate was repealed as part of the Tax Cuts and Jobs Act, the remaining provisions of the PPACA are invalid as well. On December 18, 2019, the Court of Appeals for the Fifth Circuit court affirmed the lower court’s ruling that the individual mandate portion of the PPACA 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 PPACA.  Thereafter, the U.S. Supreme Court agreed to hear this case. Oral argument in the case took place on November 10, 2020.  On February 10, 2021, the Biden Administration withdrew DOJ’s support for this lawsuit.  A ruling by the Court is expected sometime this year. Litigation and legislation over the PPACA are likely to continue, with unpredictable and uncertain results.

The Trump Administration also took executive actions to undermine or delay implementation of the PPACA, including  directing federal agencies with authorities and responsibilities under the PPACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the PPACA 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 rescinded those orders and 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 PPACA 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 PPACA; and policies that reduce affordability of coverage or financial assistance, including for dependents.

The costs of prescription pharmaceuticals have also been the subject of considerable discussion in the United States To date, there have been several recent U.S. congressional inquiries, as well as proposed and enacted state and federal legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products.  To those ends, President Trump issued five executive orders intended to lower the costs of prescription drug products but it is unclear whether, and to what extent, these orders will remain in force under the Biden Administration.  Further, on September 24, 2020, the Trump Administration finalized a rulemaking allowing states or certain other non-federal government entities to submit importation program proposals to the FDA for review and approval. Applicants are required to demonstrate that their importation plans pose no additional risk to public health and safety and will result in significant cost savings for consumers.  The FDA has issued draft guidance that would allow manufacturers to import their own FDA-approved drugs that are authorized for sale in other countries (multi-market approved products).  

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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 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 drug product candidates or additional pricing pressures.

Additional Regulations

In addition to the foregoing, state, and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety and Health Act, the Resource Conservation and Recovery Act, and the Toxic Substances Control Act, affect our business. These and other laws govern the use, handling, and disposal of various biologic, chemical, and radioactive substances used in, and wastes generated by, operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. Equivalent laws have been adopted in third countries that impose similar obligations.

Human Capital

As of December 31, 2017,2020, we had 2850 full-time employees and two part-time employees. Substantially all of our employees are in Cambridge, Massachusetts. None of our employees are represented by a labor union or covered by a collective bargaining agreement, and we believe our relationship with our employees is good. Additionally, we utilize independent contractors and other third parties to assist with various aspects of our drug and product development.

We recognize the value of our employees and are committed to being a workplace that encourages respect, collaboration, communication, transparency, and integrity. We seek to hire employees with diverse backgrounds and perspectives. Our success starts and ends with having the best talent, and as a result, we are focused on attracting, developing and retaining our employees. We offer employees a competitive and comprehensive benefits package. We support employees attending industry conferences and obtaining professional licenses.  We use a variety of human capital measures in managing our business, including: workforce demographics; inclusion and diversity; and employee health and safety.

We are committed to the health and safety of our employees. During 2020, as a result of COVID-19 pandemic, we implemented additional safety protocols intended to help minimize the risk of virus transmission to our employees, including  the establishment of remote working standards, pausing all non-essential travel worldwide for our employees, and limiting employee attendance at industry events and in-person work-related meetings, to the extent those events and meetings are continuing.

Status as an Emerging Growth Company

We are an “emerging growth company” as that term is defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until. private companies (i.e., those that have not had a registration statement declared effective under the Securities Act of 1933, as amended, or the Securities Act, or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act) are required to comply with such new or revised financial accounting standards. The JOBS Act also provides that an emerging growth company can elect to opt out of the extended transition period provided by Section 102(b)(1) of the JOBS Act and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable. We have irrevocably elected to opt out of this extended transition period provided by Section 102(b)(1) of the JOBS Act. Even though we have elected to opt out of the extended transition period, we may still take advantage of all of the other provisions of the JOBS Act, which include, but are not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, the reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and the exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

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Item 1A. Risk Factors

 

We are subject to various risks that may materially harm our business, prospects, financial condition and results of operations. This discussion highlights some of the risks that may affect future operating results. These are the risks and uncertainties we believe are most important for you to consider. We cannot be certain that we will successfully address these risks. If we are unable to address these risks, our business may not grow, our stock price may suffer, and we may be unable to stay in business. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those faced by other companies in our industry or business in general, may also impair our business, prospects, results of operations and financial condition. The risks discussed below include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements.

 

Risks Related to Our Business

We are a preclinical stageclinical-stage biopharmaceutical company, have no history of generating commercial revenue, have a history of operating losses, and we may never achieve or maintain profitability.

 

We are a preclinical stage biopharmaceuticalclinical stage-biopharmaceutical company. We have a limited operating history, and only a preliminary business plan upon which investors may evaluate our prospects. We have never generated revenuesrevenue from product sales, and have a history of losses from operations. As of December 31, 2017,2020, we had an accumulated deficit of approximately $32,820,000.$153.3 million. Our ability to achieve commercial revenue-generating operations and, ultimately, achieve profitability will depend on whether we can obtain additional capital when we need it, complete the development of our technology, receive regulatory approval of our planned drug product candidates and find strategic collaborators that can incorporate our planned products candidates into new or existing drugs which can be successfully commercialized. There can be no assurance that we will ever generate commercial revenues or achieve profitability.

 

We currently do not have, and may never develop, any FDA-approved or commercialized products.

 

We currently do not have any products approved by the FDA or any other regulatory agency or any commercialized products and thus have never generated commercial revenue from product sales. We have not yet sought to obtain any regulatory approvals for any planned drug product candidates in the United States or in any foreign market. Therefore, any estimated timing for our planned drug product candidates to be commercialized would be highly speculative.

 

To date, we have invested substantial resources in an exclusive license with Albert Einstein College of Medicine (“Einstein”) that forms the foundation for our planned drug product candidates and potential applications. For us to develop any products that might ultimately be commercialized, we will have to invest further time and capital in research and product development, regulatory compliance and market development. Therefore, we and our licensor, prospective business partners and other collaborators may never develop any products that can be commercialized. All of our development efforts will require substantial additional funding, none of which may result in any commercial revenue. Our efforts may not lead to commercially successful products for a number of reasons, including:

 

·

we and our licensor, prospective business partners and other collaborators may not be able to complete research regarding, and nonclinical and clinical development of, our planned drug product candidates;

 

·

regulatory approvals and marketing authorizations may not be achieved for our planned drug product candidates, or the scope of the approved indication may be narrower than sought;

 

·

we and our licensor, prospective business partners and other collaborators may experience delays in our development program, clinical trials and the regulatory approval process;

 

·

our technology may not prove to be safe and effective in clinical trials or preclinical trialsstudies and our planned drug product candidates may have adverse side effects which outweigh any potential benefit to patients;

 

·

we may not be able to identify suitable collaborators to complete development or commercialization of our potential products;

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·

we may not be able to maintain, protect or expand our portfolio of intellectual property rights, including patents, trade secrets and know-how;

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·

any future products that are ultimately approved by the FDA or other regulatory bodies may not be commercially accepted in the marketplace by physicians or patients;

 

·

our

any future products that are ultimately approved by the FDA or other regulatory bodies may not be able to be manufactured in commercial quantities or at an acceptable cost;

 

·

physicians may not receive any reimbursement from third-party payors, or the level of reimbursement may be insufficient to support widespread adoption of any of our future products;products once approved by the FDA or other regulatory bodies; and

 

·

rapid technological change may make our technology and future productsdrug product candidates obsolete.

SignificantWe are substantially dependent on the success of our drug product candidates, only one of which is currently being tested in  clinical trials, and significant additional research and development and clinical testing will be required before we can potentially seek regulatory approval for or commercialize any of our drug product candidates.

 

We haveOur main focus and the investment of a significant portion of our efforts and financial resources has been in the development of our lead product candidate, CUE-101, for which we are currently actively conducting Phase 1 clinical trials. Our other drug product candidates are all at a pre-clinical stage. We expect that additional trials of CUE-101 will be required in our oncology preclinical development pipeline, butorder to gain approval by the FDA. Therefore, significant additional research and development activity and clinical testing are required before we and our collaborators will have a chance to achieve a commercially viable product from such candidates. Our research and development efforts remain subject to all of the risks associated with the development of new biopharmaceutical products and treatments based on immune modulation. Development of the underlying technology may be affected by unanticipated technical or other problems, among other research and development issues, and the possible insufficiency of funds needed in order to complete development of these drug product candidates. Safety, regulatory and efficacy issues, clinical hurdles or other challenges may result in delays and cause us to incur additional expenses that would increase our losses. If we and our collaborators cannot complete, or if we experience significant delays in developing, our potential therapeutics or products for use in potential commercial applications, particularly after incurring significant expenditures, our business may fail and investors may lose the entirety of their investment.

 

We have limited experience in conducting clinical trials and no history of conducting clinical trials or commercializing biotechnologybiologic products, which may make it difficult to evaluate the prospects for our future viability.

 

Our operations to date have been limited to financing and staffing our company, conducting research and developing our core technologies, and identifying and optimizing our lead product clinical candidates. Additionally, we have conducted limited clinical testing of one of our drug product candidates. Although we have recruited a team that has experience with clinical trials in the United States, as a company, we have nolimited experience conducting clinical trials in any jurisdiction and have not had previous experience commercializing drug product candidates or submitting an investigational new drug application (“IND”)IND or a Biologics License ApplicationBLA to the FDA or similar submissions to initiate clinical trials or obtain marketing authorization to foreign regulatory authorities. We cannot be certain that plannedcurrent clinical trials will begin or be completed on time, if at all, that our planned clinical trials will begin on time, if at all, or that our planned development programs would be acceptable to the FDA or other regulatory authorities, or that, if regulatory approval is obtained, our drug product candidates can be successfully commercialized. Clinical trials and commercializing our drug product candidates will require significant additional financial and management resources, and reliance on third-party clinical investigators, contract research organizations (“CROs”),CROs, consultants and collaborators. Relying on third-party clinical investigators, CROs or collaborators may result in delays that are outside of our control.

 

Furthermore, we may not have the financial resources to continue development of, or to enter into collaborations for, a product candidate if we experience any problems or other unforeseen events that delay or prevent regulatory approval of, or our ability to commercialize, drug product candidates, including:

 

·

negative or inconclusive results from our IND-enabling studies, clinical trials or the clinical trials of others forother drug product candidates similar to ours, leading to a decision or requirement to conduct additional preclinical testing or clinical trials or abandon a program;

 

·

delays in submitting INDs or comparable foreign applications or delays or failure in obtaining the necessary approvals from regulators to commence a clinical trial, or a suspension or termination of a clinical trial once commenced;

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·

conditions imposed by the FDA or a foreign regulatory authority regarding the number, scope or design of our clinical trials;

 

·

delays in enrolling patients in clinical trials;

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·

high drop-out rates of patients;

 

·

inadequate supply or quality of clinical trial materials or other supplies necessary to conduct our clinical trials;

 

·

greater than anticipated clinical trial costs;

 

·

poor effectiveness or unacceptable side effects of our drug product candidates during clinical trials;

 

·

unfavorable FDA or other regulatory agency inspection and review of a clinical trial site;

 

difficulty in establishing or managing relationships with CROs and clinical investigators;

·

failure of our third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all;

 

·

serious and unexpected drug-related side effects or other safety issues experienced by participants in our clinical trials or by individuals using drugs similar to our drug product candidates;

 

·

delays and changes in regulatory requirements, policy and guidelines, including the imposition of additional regulatory oversight around clinical testing generally or with respect to our technology in particular; or

 

·

varying interpretations of data by the FDA and foreign regulatory authorities.

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

Public health crises such as pandemics or similar outbreaks could adversely impact our business. In December 2019, a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019, or COVID-19, surfaced in Wuhan, China. Since then, COVID-19 has spread to countries around the world and has been declared a pandemic by the World Health Organization. The COVID-19 pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. Beginning in March 2020, we undertook precautionary measures to help minimize risk of virus transmission to our employees, including the establishment of remote working standards, pausing all non-essential travel worldwide for our employees, and limiting employee attendance at industry events and in-person work-related meetings, to the extent those events and meetings are continuing.

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

supply chain disruptions, making it difficult to order and receive materials needed for development of our drug product candidates;

delays or disruptions in the manufacture of our drug product candidates by contract manufacturing organizations and vendors along their supply chain;

government responses, including orders that make it difficult to remain open for business, and other seen and unforeseen actions taken by government agencies;

absenteeism or loss of employees at our Company, or at our collaborator companies, due to health reasons or government restrictions, that are needed to develop, validate, manufacture and perform other necessary functions for our operations;

delays or difficulties in enrolling patients in our clinical trials;

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

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increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19, being forced to quarantine, or otherwise;

interruption of key clinical trial activities due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures;

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

equipment failures, loss of utilities and other disruptions that could impact our operations or render them inoperable; and

effects of a local or global recession or depression that could harm the international banking system and limit our access to capital.

In January 2021, we were notified by our contract manufacturing organization, or CMO, that the manufacture of our cGMP material for the CUE-102 drug candidate would be delayed by approximately six weeks due to the invocation of the Defense Production Act, or DPA, which gives priority to the manufacture of vaccines and other drug products used to prevent or treat COVID-19.  The delay in the manufacturing of our CUE-102 cGMP batch impacted the expected filing date of the CUE-102 IND that was planned for the fourth quarter of 2021. The CUE-102 IND is now expected to be filed in the first half of 2022 based on the revised CUE-102 cGMP manufacturing date provided by our CMO. Despite our efforts to manage and remedy these impacts, their ultimate impact depends on factors beyond our knowledge or control, including the duration and severity of the outbreak, as well as third-party actions taken to contain its spread and mitigate its public health effects. Additionally, the anticipated economic consequences of the COVID-19 pandemic have adversely impacted financial markets, resulting in high share price volatility, reduced market liquidity, and substantial declines in the market prices of the securities of many publicly traded companies. Volatile or declining markets for equities could adversely affect our ability to raise capital when needed through the sale of shares of common stock or other equity or equity-linked securities. If these market conditions persist when we need to raise capital, and if we are able to sell shares of our common stock under then prevailing market conditions, we might have to accept lower prices for our shares and issue a larger number of shares than might have been the case under better market conditions, resulting in significant dilution of the interests of our stockholders.

These and other factors arising from the COVID-19 pandemic could worsen in the United States or locally at the location of our offices or clinical trials, each of which could further adversely impact our business generally, and could have a material adverse impact on our operations and financial condition and results.

 

We have never dosed any of our product candidates in humans. Our current or planned clinical trials or those of our collaborators may reveal significant adverse events, toxicities or other side effects not seen in our preclinical studies and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of our drug product candidates.

In order to obtain marketing approval for any of our biologic drug product candidates, we must demonstrate the safety, purity, and efficacy of the product candidate for the relevant clinical indication or indications through preclinical studies and clinical trials as well as additional supporting data. If our drug product candidates are associated with undesirable side effects in preclinical studies or clinical trials or have characteristics that are unexpected, we may need to interrupt, delay or abandon their development or limit development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective.

 

We are conducting Phase 1 clinical trials for our lead product candidate, CUE-101, but otherwise we have not yet initiatedconducted any clinical trials or dosed any of our product candidates in humans.trials. We have conducted various preclinical studies of our drug product candidates, but we do not know the predictive value of these studies for humans, and we cannot guarantee that any positive results in preclinical studies will successfully translate to human patients. It is not uncommon to observe results in human clinical trials that are unexpected based on preclinical testing, and many drug product candidates fail in clinical trials despite promising preclinical results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their drug product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for their products. Human patients in clinical trials may suffer significant adverse events or other side effects not observed in our preclinical studies, including, but not limited to, immunogenic responses, organ toxicities such as liver, heart or kidney or other tolerability issues or possibly even death. The observed potency and kinetics of our planned drug product candidates in preclinical studies may not be observed in human clinical trials. If clinical trials of our planned drug product candidates fail to demonstrate efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our planned drug product candidates.


If significant adverse events or other side effects are observed in any of our future clinical trials, we may have difficulty recruiting patients to the clinical trial, patients may drop out of our trial, or we may be required to abandon the trial or our development efforts of that product candidate altogether. We, the FDA or other applicable regulatory authorities, or an Institutional Review Board (“IRB”) may suspend clinical trials of a product candidate at any time for various reasons, including a belief that subjects in such trials are being exposed to unacceptable health risks or adverse side effects. Some potential therapeutics developed in the biotechnology industry that initially showed therapeutic promise in early-stage studies have later been found to cause side effects that prevented their further development. Even if the side effects do not preclude the drug from obtaining or maintaining marketing approval, undesirable side effects may inhibit market acceptance of the approved product due to its tolerability versus other therapies. Any of these developments could materially harm our business, financial condition and prospects.

 

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Further, if any of our drug product candidates obtains marketing approval, toxicities associated with our drug product candidates may also develop after such approval and lead to a requirement to conduct additional clinical safety trials, additional warnings being added to the labeling, significant restrictions on the use of the product or the withdrawal of the product from the market. We cannot predict whether our drug product candidates will cause toxicities in humans that would preclude or lead to the revocation of regulatory approval based on preclinical studies or early stage clinical testing. However, any such event, were it to occur, would cause substantial harm to our business and financial condition and would result in the diversion of our management’s attention.

Success in preclinical studies or early clinical trials may not be indicative of results obtained in later trials.

Results from preclinical studies or early clinical trials are not necessarily predictive of future clinical trial results, and interim results of a clinical trial are not necessarily indicative of final results. Our drug product candidates may fail to show the desired safety and efficacy in clinical development despite demonstrating positive results in preclinical studies or having successfully advanced through initial clinical trials or preliminary stages of clinical trials. There can be no assurance that the results seen in preclinical studies for any of our drug product candidates ultimately will result in success in clinical trials or that results seen in Phase 1 or 2 trials will be replicated in Phase 3 trials.

There is a high failure rate for drugs and biologic products proceeding through clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in preclinical testing and earlier-stage clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may experience regulatory delays or rejections as a result of many factors, including changes in regulatory policy or requirements during the period of our product candidate development. Any such delays could materially and adversely affect our business, financial condition, results of operations and prospects.

 

We plan to seek collaborations or strategic alliances. However, we may not be able to establish such relationships, and relationships we have established may not provide the expected benefits.

 

OnNovember 14,2017, weenteredinto the Merck AgreementunderwhichMerckwill partner withusinthedevelopment ofspecificImmuno-STATstargetingcertainautoimmunediseases. Pursuant totheMerck Agreement,Merckwillacquirerightstodevelop,commercializeandsell specific Immuno-STATsrelatingto certain autoimmunediseaseand,inexchangeforsuchrights,hasagreedtomakepayments tousthatincludealicensingfee,milestonepaymentsandsalesroyalties. The Merck Agreement was amended in November 14, 2017,2020 to extend the research term through December 31, 2021.

Effective November 6, 2018, we entered into an Exclusive Patent License and Research Collaborationthe LG Chem Agreement, (“Collaboration Agreement”) with Merck Sharpe & Dohme Corp. (“Merck”) under which Merck will partner with us infor the development of our CUE Biologics™ targeting certain autoimmune diseases.Immuno-STATs focused in the field of oncology. Pursuant to the collaboration agreement, Merck will acquireLG Chem Agreement, we have granted certain exclusive license rights to develop, commercialize and sell CUE Biologics™ relating to autoimmune diseaseLG Chem in Australia and in exchange for such rights,certain countries in Asia and LG Chem has agreed to provide certain services to us and to make payments to us that include a licensing fee,fees, milestone payments and sales royalties.  This agreement does Theseagreementsdonotcommit Merck or LG Chem to a long-term relationship, and itthey may disengage with us at any time upon 30 days’ notice.time.

 

Additionally, we plan to seek strategic alliances or collaborations with other third parties that we believe will complement or augment our development and commercialization efforts with respect to our planned drug product candidates and any future drug product candidates that we may develop. In addition, we currently do not have sales, marketing, manufacturing or distribution capabilities or arrangements. In order to commercialize our potential products, we plan to seek development and marketing partners or sublicensees to obtain necessary marketing, manufacturing and distribution capabilities.

 


Any of these relationships may require us to incur non-recurring and other charges, give up certain rights relating to our intellectual property and research and development activities, increase our near and long-term expenditures, issue securities that dilute our existing stockholders, issue debt which may require liens on our assets and which will increase our monthly expense obligations, or disrupt our management and business. Moreover, we may not be successful in our efforts to establish additional strategic partnerships or other alternative arrangements for our planned drug product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our planned drug product candidates as having the requisite potential to demonstrate safety, purity, and efficacy. If we are unable to establish additional strategic partnerships or other alternative arrangements to develop our drug product candidates, the costs for us to independently develop our drug product candidates may be higher than we currently anticipate, which could materially harm our business prospects, financial condition and results of operation.

 

Further, collaborations involving our planned drug product candidates are subject to numerous risks, which may include the following:

 

·

our collaborators may have significant discretion in determining the efforts and resources that they will apply to our collaboration as compared to their other then-existing collaborations;

 

·

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

 

·

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

 

·

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

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·a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of each of our potential products;

 

·

our collaborators may not properly maintain or defend our intellectual property rights in accordance with the terms of our contractual arrangements with them or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to other potential liability;

 

·

disputes may arise between us and a collaborator that cause the delay or termination of the research, development or commercialization of our drug product candidates, or that result in costly litigation or arbitration that diverts our managements’ attention and our other resources;

 

·

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

 

·

our collaborators may own or co-own intellectual property covering our potential products that results from our collaboration with them, and in such case, we would not have the exclusive right to commercialize such intellectual property without our collaborators’ involvement and consent.

As a result, we may not be able to realize the benefit of collaboration agreements, strategic partnerships or licenses of our technology or potential products, which could delay our product development timelines or otherwise adversely affect our business. We also cannot be certain that, following a strategic transaction or license, we will achieve sufficient revenue or net income to justify such transaction. Any delays in entering into new collaborations or strategic partnership agreements related to our planned drug product candidates could delay the development and commercialization of our planned drug product candidates in certain geographies for certain indications, which would harm our business prospects, financial condition, and results of operations.

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Our Collaboration Agreementcollaboration agreements with Merck containsand LG Chem contain exclusivity and forbearance provisions that restrict our research and development activities.

We have granted to Merck under the CollaborationMerck Agreement an exclusive license under certain of our patent rights, including a sublicense of patent rights licensed from Einstein, to the extent applicable to the specific CUE Biologics™Immuno-STAT that are elected to be developed by Merck. From the effective date of the Collaboration Agreement until the earlier of (i) the first achievement of demonstration of certain biologically relevant effectsMerck for a Cue Biologic™ drug candidate (“Proof of Mechanism”) or (ii) 18 months after we notify the joint steering committee that the first product candidate has been synthesized under the research program, we are required to forebear from researching, developing or licensing to a third party rights related to any CUE Biologics™ drug candidate for the treatment of autoimmune diseases other than pursuant to the Collaboration Agreement. In addition, sotwo initial indications.  So long as Merck continues product development on a CUE Biologics™ drug candidate that has demonstrated Proof of Mechanism (a “ProposedProposed Drug Product Candidate”),Candidate for an initial indication, we are restricted from conducting any development activities within the initial indication covered by such Proposed Drug Product Candidate (each, an “Initial Indication”) other than pursuant to the CollaborationMerck Agreement.

Additionally, we have granted to LG Chem under the LG Chem Agreement an exclusive license to develop, manufacture and commercialize CUE-101, as well as the Drug Product Candidates, in the LG Chem Territory. Under the LG Chem Agreement, the Company will engineer the selected Immuno-STAT for up to three alleles, which are expected to include the predominant alleles in the LG Chem Territory, while LG Chem will establish a CMC process for the development and commercialization of Drug Product Candidates. In addition, LG Chem has the option to select one additional Immuno-STAT for an oncology target up to April 30, 2021 for an exclusive worldwide development and commercialization license.

These restrictions on our development, manufacturing, and commercialization activities could impact our ability to successfully develop certain drug product candidates, for the Initial Indications, which could harm our future business prospects for commercializing drugs for those Initial Indications.

drug product candidates.

We may not be successful in our efforts to identify additional drug product candidates. Due to our limited resources and access to capital, we must prioritize development of certain drug product candidates; these decisions may prove to be wrong and may adversely affect our business.

Although we intend to explore other therapeutic opportunities, in addition to the drug product candidates that we are currently developing, we may fail to identify successful drug product candidates for clinical development for a number of reasons. If we fail to identify additional potential drug product candidates, our business could be materially harmed.

Research programs to pursue the development of our planned drug product candidates for additional indications and to identify new drug product candidates and disease targets require substantial technical, financial and human resources whether or not they are ultimately successful. Our research programs may initially show promise in identifying potential indications and/or drug product candidates, yet fail to yield results for clinical development for a number of reasons, including:

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·

the research methodology used may not be successful in identifying potential indications and/or drug product candidates;

 

·

our key platform technologies, CUE Biologics™, MOD™, and viraTope™technology, Immuno-STAT Biologics, may not adequately enable us to design, discover and validate drug product candidates;

 

·

potential drug product candidates may, after further study, be shown to have harmful adverse effects or other characteristics that indicate they are unlikely to be effective drugs; or

 

·

it may take greater human and financial resources than we will possess to identify additional therapeutic opportunities for our drug product candidates or to develop suitable potential drug product candidates through internal research programs, thereby limiting our ability to develop, diversify and expand our drug portfolio.

 

Because we have limited financial and human resources, we intend to initially focus on research programs and drug product candidates for a limited set of indications. As a result, we may forego or delay pursuit of opportunities with other drug product candidates or for other indications that later prove to have greater commercial potential or a greater likelihood of success. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.

 

Accordingly, there can be no assurance that we will ever be able to identify additional therapeutic opportunities for our drug product candidates or to develop suitable potential drug product candidates through internal research programs, which could materially adversely affect our future growth and prospects. We may focus our efforts and resources on potential drug product candidates or other potential programs that ultimately prove to be unsuccessful.

 


We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.

 

The biopharmaceutical industry is characterized by intense competition and rapid innovation. Our competitors may be able to develop other compounds or drugs that are able to achieve similar or better results than our drug product candidates. Our competitors may include major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, and universities and other research institutions. Many of our competitors have substantially greater financial, technical and other resources than we have, such as a larger research and development staff and experienced marketing and manufacturing organizations, established relationships with CROs and other collaborators, as well as established sales forces. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors, either alone or with collaborative partners, may succeed in developing, acquiring or licensing on an exclusive basis drug or biologic products that are more effective, safer, more easily commercialized or less costly than our drug product candidates or may develop proprietary technologies or secure patent protection and, in turn, exclude us from technologies that we may need for the development of our technologies and potential products.

 

In the field of immunotherapeutics, we will face significant competition from other companies, many of which have greater resources than we have. Immunotherapy technologies are advancing at a rapid pace and we anticipate competing with the largest pharmaceutical companies in the world, such as F. Hoffman-La Roche AG (Roche)developing bi-specific antibodies (e.g., Novartis A.G.Amgen, Immunocore and Roche), Johnson & Johnson,cell therapies (e.g., Bristol-Myers Squibb, Gilead and Novartis), antibody-drug conjugates (e.g., Gilead, Roche, Seattle Genetics), immune checkpoint inhibitors (e.g., Bristol-Myers Squibb, Merck & Co, as well as smaller biopharmaceutical companies like Acceleron Pharma, Inc.and Pfizer), Five Prime Therapeutics, Inc.and targeted cytokines (e.g., Juno Therapeutics, Inc., Kite Pharma, Inc., Apitope International N.V., Seattle Genetics, Inc., Immatics Biotechnologies GmbH, Sutro Biopharma, Inc., ImmunoGen, Inc., Zyngenia, Inc., Immunocore Limited,Bristol Myers Squibb/Nektar, Neoleukin, Roche and Covagen A.G., which are all currently conducting research in immunotherapeutics and allSanofi) many of which have significantly greater financial and humanother resources than we currently have.

 

Even if we obtain regulatory approval of any of our drug product candidates, we may not be the first to market, and that may negatively affect the price or demand for our drug product candidates. Additionally, we may not be able to implement our business plan if the acceptance of our drug product candidates is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our drug product candidates, or if physicians switch to other new drug or biologic products or choose to reserve our drug product candidates for use in limited circumstances. Furthermore, a competitor could obtain orphan product exclusivity from the FDA with respect to such competitor’s product. If such competitor product is determined to be the same product as one of our drug product candidates, we may be prevented from obtaining approval from the FDA for such product candidate for the same indication for seven years, except in limited circumstances, and we may be subject to similar restrictions under non-U.S. regulations.

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If we lose key management personnel, or if we fail to recruit additional highly skilled personnel, our ability to identify and develop new or next generation drug product candidates will be impaired, could result in loss of markets or market share and could make us less competitive.

 

We are highly dependent upon the principal members of our management team, including Daniel Passeri, M.Sc., our Chief Executive Officer, Anish Suri, our President and Chief ExecutiveScientific Officer, Ronald Seidel, Ph.D.,Kenneth Pienta, our Executive VP of Research and Development, Rodolfo Chaparro, Ph.D., our Executive VP of Immunology,Acting Chief Medical Officer, and other members of our scientific and clinical advisory team, including Steven Almo, Ph.D., the Chairman of our Scientific and Clinical Advisory Board. Our team has significant experience and knowledge of oncology drug discovery and development, T cell modulation, protein biochemistry and immunological assays, and the loss of any current or future team member could impair our ability to design, identify, and develop new intellectual property and drug product candidates and new scientific or product ideas. Additionally, if we lose the services of any of these persons, we would likely be forced to expend significant time and money in the pursuit of replacements, which may result in a delay in the development of our drug product candidates and the implementation of our business plan and plan of operations and diversion of our management’s attention. We can give no assurance that we could find satisfactory replacements for our current and future key scientific and management employees on terms that would not be unduly expensive or burdensome to us.

 

To induce valuable personnel to remain at our Company,company, in addition to salary and cash incentives, we have providedgranted stock options and restricted stock units that vest over time. Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. Although we have employment agreements with our key employees, these employment agreements provide for at-will employment, which means that these employees could leave our employment at any time, for or without cause. We do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other employees. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level and senior managers as well as junior, mid-level and senior scientific and medical and scientific personnel.

 


Our internal computer systems, or those used by third-party CROs, manufacturers or other contractors or consultants, may fail or suffer security breaches.

 

Despite the implementation of security measures, our internal computer systems and those of our future CROs, manufacturers and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and unauthorized access.telecommunication and electrical failures, cyberattacks or cyber-intrusions, loss of funds or information from phishing or other fraudulent schemes, attachments to emails, persons inside our organization, or persons with access to systems inside our organization or those with whom we do business. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Increased security threats and more sophisticated cybercrimes and cyberattacks pose a potential risk to the security and availability of our internal computer systems, networks and services, including those used by third-party CROs, manufacturers or other contractors or consultants, as well as the confidentiality, availability and integrity of our data and the data of potential trial participants or patients, employees and others. Although to our knowledge we have not experienced any such material system failure or security breach to date, if such an event were to occur, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from future clinical trials 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 were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information (such as individually identifiable health information), we could incur significant liabilities and the further development and commercialization of our drug product candidates could be delayed. In addition, the foreign, federal and state regulatory environment surrounding information security and privacy is increasingly demanding, with frequent imposition of new and changing requirements. Compliance with changes in privacy and information security laws and standards may result in significant expense due to increased investment in technology and the development of new operational processes.

 

Risks Related to Our Reliance on Third Parties

We rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our drug product candidates and our business could be substantially harmed.

We rely upon and plan to continue to rely upon third-party CROs for execution of our clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs, including Catalent Pharma Solutions, LLC, or Catalent, are required to comply with FDA laws and regulations regarding current good clinical practice, or GCP, for all of our products in clinical development. Regulatory authorities enforce GCP through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicable GCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot be certain that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with product produced under cGMP regulations. While we work closely with our CROs on the manufacturing process for our drug product candidates, including quality audits, we generally do not control the implementation of the manufacturing process of, and are completely dependent on, our CROs for compliance with GMP regulatory requirements and for manufacture of both active drug substances and finished drug products. In addition, portions of the clinical trials for our drug product candidates may be conducted outside of the United States, which will make it more difficult for us to monitor CROs and perform visits of our clinical trial sites and will force us to rely heavily on CROs to ensure the proper and timely conduct of our clinical trials and compliance with applicable regulations, including GCP. Failure to comply with applicable regulations in the conduct of the clinical trials for our drug product candidates may require us to repeat clinical trials, which would delay the regulatory approval process.

Some of our CROs have an ability to terminate their respective agreements with us if, among other reasons, it can be reasonably demonstrated that the safety of the subjects participating in our clinical trials warrants such termination, if we make a general assignment for the benefit of our creditors or if we are liquidated. If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our preclinical and clinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our drug product candidates. Consequently, our results of operations and the commercial prospects for our drug product candidates would be harmed, our costs could increase substantially and our ability to generate revenue could be delayed significantly.

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Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

We rely completely on third parties to manufacture our preclinical and clinical drug supplies for our drug product candidates.

We rely completely on third parties to manufacture clinical drug supplies for our drug product candidates. If we were to experience an unexpected loss of supply of our drug product candidates for any reason, whether as a result of manufacturing, supply or storage issues or otherwise, we could experience disruptions in supply or delays, suspensions or terminations of clinical trials or regulatory submissions. We do not currently have nor do we plan to acquire the infrastructure or capability internally to manufacture our preclinical and clinical drug supplies and we lack the resources and the capability to manufacture any of our drug product candidates on a clinical or commercial scale. The facilities used by our contract manufacturers or other third-party manufacturers to manufacture our drug product candidates, including Catalent, must obtain and maintain approval by the FDA. While we work closely with our third-party manufacturers on the manufacturing process for our drug product candidates, including quality audits, we generally do not control the implementation of the manufacturing process of, and are completely dependent on, our contract manufacturers or other third-party manufacturers for compliance with cGMP regulatory requirements and for manufacture of both active drug substances and finished drug products. If our contract manufacturers or other third-party manufacturers cannot successfully manufacture material that conforms to applicable specifications and the strict regulatory requirements of the FDA or others, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities and we may not have sufficient access to supplies, which could significantly and adversely affect our operations.

In addition, we have no control over the ability of our contract manufacturers or other third-party manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve, or withdraws approval for, these facilities for the manufacture of our products and drug product candidates, we may need to find alternative manufacturing facilities, which would significantly impact our ability to commercialize, develop, or obtain or maintain regulatory approval for our products and drug product candidates.

We also rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our drug product candidates for our clinical trials. There are a limited number of suppliers for raw materials that we use to manufacture our products and drug product candidates and we may need to assess alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce our drug product candidates for our clinical trials. We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. Moreover, we currently do not have any agreements for the commercial production of these raw materials. Although we generally do not begin a clinical trial unless we believe we have a sufficient supply of a product candidate to complete the clinical trial, any significant delay in the supply of a product candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to replace a contract manufacturer or other third-party manufacturer could considerably delay completion of our clinical trials, product testing and potential regulatory approval of our drug product candidates.

Reliance on third-party manufacturers entails additional risks, including the possible breach of manufacturing agreements by the third party, the possible misappropriation of our proprietary information -- further discussed below under “Risks Related to Intellectual Property and Other Legal Matters” -- and the possible termination or non-renewal of an agreement by a third party at a time that is costly or inconvenient for us.

We expect to continue to depend on contract manufacturers or other third-party manufacturers for the foreseeable future. We may, however, be unable to enter into agreements or do so on commercially reasonable terms for potential future drug product candidates, which could have a material adverse impact upon our business.

We rely on certain sole sources of supply for our drug product candidates and any disruption in the chain of supply may cause delays in developing, obtaining approval for, and commercializing our drug product candidates.

Currently, we use Catalent as a sole source of supply for manufacturing clinical supply of our lead product candidate, CUE-101.  If we experience multiple successive batch failures, or if supply from Catalent is otherwise interrupted, there could be a significant disruption in our product candidate supply. Any alternative vendor would need to be qualified through an IND supplement, which could result in delay of our clinical trials of CUE-101. rely on sole sources of supply for the preclinical and clinical supply of materials.

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The manufacturing processes for CUE-101 and our other drug product candidates are complex, and it may difficult or impossible to finalize appropriate processes for the scaled manufacture of the drug product candidates.  These factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of any of our drug product candidates; cause us to incur higher costs; or prevent us from commercializing them successfully. Furthermore, if our suppliers fail to deliver the required clinical or commercial quantities of active pharmaceutical ingredient on a timely basis and at commercially reasonable prices and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed.

Risks Related to Intellectual Property and Other Legal Matters

If we or our licensor areis unable to protect our/our or its intellectual property, then our financial condition, results of operations and the value of our technology and potential products could be adversely affected.

Patents and other proprietary rights are essential to our business, and our ability to compete effectively is dependent upon the proprietary nature of our technologies. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop, maintain and strengthen our competitive position. We seek to protect these, in part, through confidentiality agreements with certain employees, consultants and other parties. Our success will depend in part on the ability of ourselves and our licensor(s) to obtain, to maintain (including making periodic filings and payments) and to enforce patent protection for its intellectual property, particularly those patent applications and other intellectual property to which we have secured exclusive rights. We and our licensor(s) may not successfully prosecute or continue to prosecute the patent applications which we have licensed. Even if patents are issued in respect of pending patent applications, we or our licensor(s) may fail to maintain these patents, may determine not to pursue litigation against entities that are infringing upon these patents, or may pursue such enforcement less aggressively than we ordinarily would. Without adequate protection for the intellectual property that we own or license, others may be able to offer substantially identical products for sale, which could unfavorably affect our competitive business position and harm our business prospects. Even if issued, patents may be challenged, invalidated, or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the length of the term of patent protection that we may have for our potential products.

 

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Filing, prosecuting, maintaining and defending patents on drug product candidates in all countries throughout the world could be prohibitively expensive for us, and our intellectual property rights in some non-U.S. countries can have a different scope and strength than do those in the United States. In addition, the laws of certain non-U.S. countries do not protect intellectual property rights to the same extent as U.S. federal and state laws do. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing drugs made using our inventions in and into the United States or non-U.S. jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own drugs and further, may export otherwise infringing drugs to non-U.S. jurisdictions where we have patent protection, but where enforcement rights are not as strong as those in the United States. These drugs may compete with our drug product candidates and our patent rights or other intellectual property rights may not be effective or adequate to prevent them from competing.

 

Many U.S.-based companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of some countries do not favor the enforcement of patents, trade secrets and other intellectual property, particularly those relating to biopharmaceutical products, which could make it difficult in those jurisdictions for us to stop the infringement or misappropriation of our patents or other intellectual property rights, or the marketing of competing drugs in violation of our proprietary rights. Proceedings to enforce our patent and other intellectual property rights in non-U.S. jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business.

 

Furthermore, such proceedings could put our patents at risk of being invalidated, held unenforceable or interpreted narrowly, could put our patent applications at risk of not issuing, and could provoke third parties to assert claims of infringement or misappropriation against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop.


If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and potential products could be adversely affected.

In addition to our licensed technology, we rely (and will continue to rely) upon, among other things, unpatented proprietary technology, processes, trade secrets, trademarks, and know-how. Any involuntary disclosure to or misappropriation by third parties of our confidential or proprietary information could enable competitors to duplicate or surpass our technological achievements, potentially eroding our competitive position in our market. We seek to protect confidential or proprietary information in part by confidentiality agreements with our employees, consultants and third parties. While we require all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information and technology to enter into confidentiality agreements, we cannot be certain that this know-how, information and technology will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. These agreements may be terminated or breached, and we may not have adequate remedies for any such termination or breach. Furthermore, these agreements may not provide meaningful protection for our trade secrets and know-how in the event of unauthorized use or disclosure. To the extent that any of our staff was previously employed by other pharmaceutical, medical technology or biotechnology companies, those employers may allege violations of trade secrets and other similar claims in relation to their former employee’s therapeutic development activities for us. Any dispute involving such employees may result in liabilities to us.

 

If we fail to comply with our obligations in the agreements under which we license development or commercialization rights to products or technology from third parties, we could lose license rights that are important to our business.

 

We hold an exclusive license from Einstein to intellectual property relating to identification of novel immunomodulators, novel epitopes, and novel immunotherapy drugs. This license imposes various developmental milestone obligations on us. If we fail to comply with any obligations under the license agreement and fail to cure such noncompliance, Einstein will have the right to terminate the agreement and our license. The existing patent applications or future patents to which we have rights based on our agreements with Einstein may be too specific and narrowly construed to prevent third parties from developing or designing around the protection provided by these patents. Additionally, we may lose our rights to the anticipated patents and patent applications we license in the event of termination of the license agreement. There is no assurance that we will be successful in meeting all of the milestones in the future on a timely basis or that this important license agreement will not be terminated for other reasons, depriving us of significant rights. The termination of this license agreement would have a material adverse effect on our financial condition, results of operations, and prospects.

 

If we are unable to patent and protect the intellectual property used in our potential products, others may be able to copy our innovations, which may impair our ability to compete effectively in our markets.

 

The strength of our anticipated patents will involve complex legal and scientific matters and can be uncertain. As of December 31, 2017,described above under “Business - Our Intellectual Property,” we own or have licensed 14license a number of pending patent applications in the United States (including 11 pending U.S. provisional patent applications), four pending international PCT applications and 34 pending foreign patent applications intended to protect the intellectual property underlying our technology. Our patent applications describe certain features of our technologies, including our CUE Biologics™ platform and specific biologic molecules and drug candidates, viraTope™, MOD™ screening, MOD™ variants and MOD™ combinations.applications. Our anticipated patents may be challenged or fail to result in issued patents and anticipated patents may be too specific and narrowly construed to prevent third parties from developing or designing around the protections provided by our intellectual property and in that event we may lose competitive advantage and our business may suffer. Further, the patent and patent applications that we license or have filed may fail to result in issued patents or the claims may need to be amended. Even after amendment, a patent may not issue. In that event, we may not obtain the exclusive use of the intellectual property that we seek, and we may lose competitive advantage, which could result in harm to our business.

 

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

Filing, prosecuting, maintaining and defending patents on product candidates in all countries throughout the world could be prohibitively expensive for us, and our intellectual property rights in some non-U.S. countries can have a different scope and strength than do those in the United States. In addition, the laws of certain non-U.S. countries do not protect intellectual property rights to the same extent as U.S. federal and state laws do. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing drugs made using our inventions in and into the United States or non-U.S. jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own drugs and further, may export otherwise infringing drugs to non-U.S. jurisdictions where we have patent protection, but where enforcement rights are not as strong as those in the United States. These drugs may compete with our product candidates and our patent rights or other intellectual property rights may not be effective or adequate to prevent them from competing.

Many U.S.-based companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of some countries do not favor the enforcement of patents, trade secrets and other intellectual property, particularly those relating to biopharmaceutical products, which could make it difficult in those jurisdictions for us to stop the infringement or misappropriation of our anticipated patents or other intellectual property rights, or the marketing of competing drugs in violation of our proprietary rights. Proceedings to enforce our patent and other intellectual property rights in non-U.S. jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business.

Furthermore, such proceedings could put our anticipated patents at risk of being invalidated, held unenforceable or interpreted narrowly, could put our patent applications at risk of not issuing, and could provoke third parties to assert claims of infringement or misappropriation against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop.

Litigation or third-party claims of intellectual property infringement or challenges to the validity of our anticipated patents would require us to use resources to protect our technology and may prevent or delay our development, regulatory approval or commercialization of our drug product candidates.

 

If we are the target of claims by third parties asserting that our potential products or intellectual property infringe upon the rights of others, we may be forced to incur substantial expenses or divert substantial employee resources from our business.

If successful, those claims could result in our having to pay substantial damages or could prevent us from developing one or more drug product candidates. Further, if a patent infringement suit is brought against us or our collaborators, we or they could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit.

 


If we or our collaborators experience patent infringement claims, or if we elect to avoid potential claims others may be able to assert, we or our collaborators may choose to seek, or be required to seek, a license from the third party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or our collaborators were able to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into license agreements on acceptable terms. This could harm our business significantly. The cost to us of any litigation or other proceeding, regardless of its merit, and even if resolved in our favor, could be substantial. Some of our competitors may be able to bear the costs of such litigation or proceedings more effectively than we can because of their having greater financial and human resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Intellectual property litigation and other proceedings may, regardless of their merit, also absorb significant management time and employee resources.

 

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Although we are not currently aware of any litigation or other proceedings or third-party claims of intellectual property infringement, the therapeutic industry is characterized by many suits regarding patents and other intellectual property rights. Other parties may in the future allege that our activities infringe upon their patents or that we are employing their proprietary technology without authorization. We may not have identified all the patents, patent applications or published literature that affect our business either by blocking our ability to commercialize our potential products, by preventing the patentability of one or more aspects of our potential products or those of our licensor or by covering the same or similar technologies that may affect our ability to market our potential products. In addition, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our drug product candidates, and we have done so from time to time. We may fail to obtain future licenses at a reasonable cost or on reasonable terms, if at all. In that event, we may be unable to further develop and commercialize one or more of our drug product candidates, which could harm our business significantly.

Some intellectual property that we have in-licensed may have been discovered through government funded programs and thus may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies. Compliance with such regulations may limit our exclusive rights and limit our ability to contract with non-U.S. manufacturers.

The majority of the intellectual property rights we have licensed are generated through the use of U.S. government funding and are therefore subject to certain federal regulations. As a result, the U.S. government may have certain rights to intellectual property embodied in our current or future drug product candidates pursuant to the Bayh-Dole Act of 1980, or Bayh-Dole Act. These U.S. government rights in certain inventions developed under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”). The U.S. government also has the right to take title to these inventions if we, or the applicable licensor, fail to disclose the invention to the government and fail to file an application to register the intellectual property within specified time limits. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require us or the applicable licensor to expend substantial resources. In addition, the U.S. government requires that any products embodying the subject invention or produced through the use of the subject invention be manufactured substantially in the United States. The manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. manufacturers may limit our ability to contract with non-U.S. product manufacturers for products covered by such intellectual property. To the extent any of our current or future intellectual property is generated through the use of U.S. government funding, the provisions of the Bayh-Dole Act may similarly apply.

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

Patents have a limited lifespan. In the U.S., if all maintenance fees are timely paid, the normal statutory term of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Further, normal statutory patent terms may be limited in the U.S. in the event there is a determination that the claims in different patents are directed to obvious variants of the same invention, which can negatively impact the normal statutory patent term. Even if patents covering our drug product candidates are obtained, once the patent life has expired for a product candidate, we may be open to competition from competitive medications, including generic medications. Given the amount of time required for the development, testing and regulatory review of new drug product candidates, patents protecting such drug product candidates might expire before or shortly after such drug product candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing drug product candidates similar or identical to ours.

Depending upon the timing, duration and conditions of any FDA marketing approval of our drug product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments, and similar legislation in the European Union. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. However, we may not receive an extension if we fail to exercise due diligence during the testing phase or regulatory review process, fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. Only one patent per approved product can be extended, the extension cannot extend the total patent term beyond 14 years from approval, and the scope of protection is not the full scope of the claims but is instead limited to the approved drug, a method for using it or a method for manufacturing it may be extended. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for the applicable product candidate will be shortened and our competitors may obtain approval to market competing products sooner. As a result, our revenue from applicable products could be reduced. Further, if this occurs, our competitors may take advantage of our investment in development and trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case, and our competitive position, business, financial condition, results of operations, and prospects could be materially harmed.

 

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our drug product candidates.

 

We will face an inherent risk of product liability as a result of the clinical testing of our drug product candidates and will face an even greater risk if we commercialize any drugs. For example, we may be sued if our drug product candidates cause or are perceived to cause injury or death or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. 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 or foreign consumer protection laws. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our drug product candidates. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

 

·

decreased demand for our potential drugs;

 

·

injury to our reputation and significant negative media attention;

 

·

withdrawal of clinical trial participants and inability to continue clinical trials;

 

·

initiation of investigations by regulators;

 

·

costs to defend the related litigation;

 

·

a diversion of management’s time and our resources;

 

·

substantial monetary awards to trial participants or patients;

 

·

product recalls, withdrawals or labeling, marketing or promotional restrictions;


 

·

loss of revenue;

 

financial cost;

·financial cost;

 

·

exhaustion of any available insurance and our capital resources; and

 

·

the inability to commercialize any product candidate.

Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of drugs we develop, alone or with collaborators. Our insurance policies may also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our insurance coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements with any future collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.

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We may be subject to securities litigation, which is expensive and could divert management attention.

 

The price of our common stock may be volatile, and in the past companies that have experienced volatility in the market price of their common stock have been subject to an increased incidence of securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

 

Risks Related to Government Regulation

 

We are subject to regulation in respect of our research and federal funding.

 

Because our licensor has conducted research under federal grants and we may conduct further research under federal grants, we will be subject to federal regulation in how we conduct our research and the agreement terms relating to those grants. There are also ethical guidelines promulgated by various governments and research institutions that we are required to follow in respect of our research. These guidelines are orientated towards research and experimentation involving humans and animals. Failure to follow the regulations, agreement terms and accepted scientific practices would jeopardize our grants and our results and the use of the results in further research and approval circumstances. Because our licensor has used federal funding, the government retains a “march-in” right in connection with these grants, which is the right to grant additional licenses to practice inventions developed from grant funding. The exercise of these “march-in” rights could result in decreased demand for our future products, which could have a material adverse effect on our results of operations and financial condition. In addition, any failure to comply with applicable laws or regulations could harm our business and divert our management’s attention.

 

WeEven if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming, and uncertain and may prevent us from obtaining approvals for the commercialization of any of our drug product candidates. If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize, or will be delayed in commercializing, our drug product candidates, and our ability to generate revenue will be materially impaired.

Any of our drug product candidates and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, and distribution, are subject to stringent domestic and foreign therapeutic and drugcomprehensive regulation in respect of any potential products. The regulatory approval processes ofby the FDA and other comparable regulatory authorities outsidein the United States are lengthy, time-consuming and inherently unpredictable.by comparable authorities in other countries. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate in a given jurisdiction. We have not received approval to market any drug product candidates from regulatory authorities in any jurisdiction. We have only limited experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on third-party CROs to assist us in this process. Securing regulatory approval requires the submission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the biologic product candidate’s safety, purity, and potency. Securing regulatory approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Any unfavorable regulatory action may materially and adversely affect our future financial condition and business operations.

Our potential products, further development activities and manufacturing and distribution, once developed and determined, will be subject to extensive and rigorous regulation by numerous government agencies, including the FDA and comparable foreign agencies. To varying degrees, each of these agencies monitors and enforces our compliance with laws and regulations governing the development, testing, manufacturing, labeling, marketing, distribution, and the safety and effectiveness of our drugs. drug product candidates may not be effective, may be only moderately effective, or may prove to have undesirable or unintended side effects, toxicities, or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use.

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

Finally, disruptions at the FDA and comparable foreign bodiesother agencies may prolong the time necessary for new products, drugs to be reviewed and/or for enhancements, expansion of the indications or modifications to existing products, could:

·take a significant, indeterminate amount of time;

·require the expenditure of substantial resources;

·involve rigorous preclinical and clinical testing, and possibly post-market surveillance;

·involve modifications, repairs or replacements of our potential products;

·require design changes of our potential products;

·result in limitations on the indicated uses of our potential products; or

·result in our never being granted the regulatory approval we seek.

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Any of these occurrences may cause our operations or potential for success to suffer, harm our competitive standing and result in further losses thatapproved by necessary government agencies, which would adversely affect our financial condition. We willbusiness. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have ongoing responsibilities underhad to furlough critical employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA and international regulations, both before and after a product is approved and commercially released. Compliance with applicable regulatory requirements is subject to continualtimely review and is monitored rigorously through periodic inspections by the FDA. If the FDA were to conclude that there is non-compliance with applicable laws or regulations, or that any ofprocess our potential therapeutics are ineffective or pose an unreasonable health risk, the FDA could ban such drugs, detain or seize such drugs, order a recall, repair, replacement, or refund of purchases of such drugs, or require us to notify health professionals and others that the drugs present unreasonable risks of substantial harm to the public health. Additionally, the FDA may impose other operating restrictions, enjoin and restrain certain violations of applicable law pertaining to therapeutics and assess civil or criminal penalties against us, our officers, our employees, or our collaborative partners. The FDA has increased its scrutiny of the therapeutic industry and U.S. and foreign governments are expected to continue to scrutinize the industry closely with inspections and possibly enforcement actions by the FDA or other agencies. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively commercializing our potential products. In addition, negative publicity and product liability claims resulting from any adverse regulatory actionsubmissions, which could have a material adverse effect on our financial conditionbusiness.  The Trump Administration also took several executive actions that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and resultsoversight activities.

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

Failure to obtain marketing approval in foreign jurisdictions would prevent any of our drug product candidates from being marketed in such jurisdictions, which, in turn, would materially impair our ability to generate revenue.

In order to market and sell any of our drug product candidates in the European Union and many other foreign jurisdictions, we or our 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 regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We or these third parties may not obtain approvals from regulatory authorities outside the 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 United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our medicines in any jurisdiction, which would materially impair our ability to generate revenue.

Additionally, we could face heightened risks with respect to seeking marketing approval in the United Kingdom as a result of the recent withdrawal of the United Kingdom from the European Union, commonly referred to as Brexit. Pursuant to the formal withdrawal arrangements agreed between the United Kingdom and the European Union, the United Kingdom withdrew from the European Union, effective December 31, 2020. On December 24, 2020, the United Kingdom and European Union entered into a Trade and Cooperation Agreement.  The agreement sets out certain procedures for approval and recognition of medical products in each jurisdiction. Since 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 Union directives and regulations, Brexit could materially impact the future regulatory regime that applies to products and the approval of drug product candidates in the United Kingdom. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing any drug 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 any drug product candidates, which could significantly and materially harm our business.

 


We may seek orphan drug status or breakthrough therapy designation for one or more of our drug product candidates, but even if eithersuch designation is granted, we may be unable to maintain any benefits associated with orphan drug status or breakthrough therapy designation, including market exclusivity.exclusivity that prevents the FDA or the EMA from approving other competing products.

 

Under the Orphan Drug Act, the FDA may grantdesignate a product as an orphan designation todrug if it is a drug or biologic intended to treat a rare disease or condition or for which there is no reasonable expectation thatcondition. A similar regulatory scheme governs approval of orphan products by the cost of developing and making availableEMA in the United States a drug or biologic for a disease or condition will be recovered from sales in the United States for that drug or biologic. IfEuropean Union. Generally, if a product that hascandidate with an orphan drug designation subsequently receives the first FDAmarketing approval for the diseaseindication for which it has such designation, the product is entitled to orphan producta period of marketing exclusivity, which means thatprecludes the FDA may not approve any other applications, including a full Biologics License Application, to marketor the same drug or biologicEMA from approving another marketing application for the same product for the same therapeutic indication for that time period. The applicable period is seven years except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. In 2012, the FDA established a Breakthrough Therapy Designation which is intended to expedite the development and review of products that treat serious or life-threatening conditions.

We may seek orphan drug status for one or more of our products candidates, but the FDA may not approve any such request. Even if the FDA grants orphan drug status to one or more of our product candidates, exclusive marketing rights in the United States and ten years in the European Union. The exclusivity period in the European Union can be reduced to six years if a product no longer meets the criteria for orphan drug designation, in particular if the product is sufficiently profitable so that market exclusivity is no longer justified.

In order for the FDA to grant orphan drug exclusivity to one of our products, the agency must find that the product is indicated for the treatment of a condition or disease with a patient population of fewer than 200,000 individuals annually in the United States. The FDA may be limitedconclude that the condition or disease for which we seek orphan drug exclusivity does not meet this standard. Even if we seek FDA marketing approval for an indication broader than the orphan designated indication. Additionally, any product candidate that initially receivesobtain orphan drug status designation,exclusivity for a product, that exclusivity may lose such designationnot effectively protect the product from competition because different products can be approved for the same condition. In addition, even after an orphan drug is approved, the FDA can subsequently approve the same product for the same condition if the FDA concludes that the later product is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug exclusivity may also be lost if the FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantitiesquantity of the product to meet the needs of the patients with the rare disease or condition. In addition, we may seek breakthrough therapy designation for one or more of our product candidates, but there can be no assurance that we will receive such designation. In addition, others may obtain orphan drug status for products addressing the same diseases or conditions as products we are developing, thus limiting our ability to compete in the markets addressing such diseases or conditions for a significant period of time.

 

We may seek fast-track designation or breakthrough therapy and priority review programs for our drug product candidates. Even if received, fast-track designationour drug product candidates receive one or more of these designations, the product candidate may not actually leadbe subject to a faster review process.

process nor does any such designation assure approval of our drug product candidates.

We aim to benefit from the FDA’s fast track, breakthrough therapy and accelerated approval processes.priority review programs. However, our drug product candidates may not receive an FDA fast-track designation, breakthrough therapy designation, or priority review. Without fast-track designation, submitting a new drug application, or NDA,BLA, and getting through the regulatory process to gain marketing approval is a lengthy process. Under fast-track designation, the FDA may initiate review of sections of a fast-track drug’s NDABLA before the application is complete. However, the FDA’s time period goal for reviewing an application does not begin until the last section of the NDABLA is submitted. Additionally, 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.

The FDA has also established breakthrough therapy designation, which is for a product that 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 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 design the clinical trials in an efficient manner. We may seek breakthrough therapy designation for one or more of our drug product candidates, but there can be no assurance that we will receive such designation.

Under the FDA policies, a drugproduct candidate is eligible for priority review, or review within a six-month time frame from the time a complete NDABLA is accepted for filing, if the drugproduct candidate provides a significant improvement compared to marketed drugs in the treatment, diagnosis or prevention of a disease. A fast-track or breakthrough therapy designated drug candidate would ordinarily meet the FDA’s criteria for priority review.

 

The fast-trackFDA has broad discretion with respect to whether or not to grant these designations to a product candidate, so even if we believe a particular product candidate is eligible for such designation or status, the FDA may decide not to grant it. Moreover, any such designation does not necessarily mean a faster regulatory review process or necessarily confer any advantage with respect to licensure compared to conventional FDA procedures. As a result, while we may seek and receive these designations for our drug product candidates, if obtained,we may not actually lead toexperience a faster development process, review process and aor approval compared to conventional FDA procedures. In addition, the FDA may withdraw these designations if it believes that the designation is no longer supported by data from our clinical development program.  A delay in the review process or in the approval of our potential products will delay revenue from their potential sales and will increase the capital necessary to fund these product development programs.

 

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To obtain the necessary approval of our potential products, as a precondition, there will have to be conducted various preclinical and clinical tests, all of which will be costly and time consuming, and may not provide results that will allow us to seek regulatory approval.

 

The number of preclinical and clinical tests that will be required for regulatory approval varies depending on the disease or condition to be treated, the method of treatment, the nature of the drug, the jurisdiction in which approval is sought and the applicable regulations. Regulatory agencies can delay, limit or deny approval of a product for many reasons. For example, regulatory agencies may:

 

·

not deem a therapeutic to be safe or effective;

 

·

interpret data from preclinical and clinical testing differently than we do;

 

·

not approve the manufacturing processes;

 

·

conclude that our drugproduct candidate does not meet quality standards for durability, long-term reliability, biocompatibility, compatibility, or safety; and

 

·

change their approval policies or adopt new regulations.

 

The FDA may make requests or suggestions regarding conduct of any clinical trials, resulting in an increased risk of difficulties or delays in obtaining regulatory approval in the United States. Foreign regulatory agencies may similarly have the ability to influence any clinical trials occurring outside the United States. Any of these occurrences could prove materially harmful to our operations and business.

 

Even if a potential therapeutic is ultimately approved bywe, or any collaborators we may have, obtain marketing approvals for any of our drug product candidates, the various regulatory authorities, itterms of approvals and ongoing regulation of our products could require the substantial expenditure of resources and may be approved onlylimit how we, or they, manufacture and market our products, which could materially impair our ability to generate revenue.

Any product candidate for narrow indications which may render it commercially less viable.

Even if a potential therapeutic of ours is approved, it may not be approved for the indications that are necessary or desirable for successful commercialization. Our preference will be towe obtain as broad an indication as possible for use in connectionmarketing approval, along with the particular diseasemanufacturing processes, post-approval clinical data, labeling, advertising, and treatmentpromotional activities for which it is designed. However, the final classification may be more limited than originally sought. The limitation on use may make the product commercially less viable and more difficult, if not impractical, to market.

Therefore, we may not obtain the revenues that we seek in respect of the proposed product, and we may not be able to become profitable and provide an investment return to our investors.

Even if we receive regulatory approval of our product candidates, wesuch medicine, will be subject to ongoing regulatory obligationscontinual requirements of and continued regulatory review which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our product candidates.

Any regulatory approvals that we receive for our product candidates will require surveillance to monitorby the safety and efficacy of the product candidate. The FDA or foreign regulatory agencies may also require a risk evaluation and mitigation strategy in order to approve our product candidates, which could entail requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for our product candidates will be subject to extensive and ongoing regulatory requirements.authorities. These requirements include submissions of safety and other post-marketing information and reports, registration as well as continuedand listing requirements, cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, and requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the medicine 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.

Accordingly, assuming we, or any collaborators we may have, receive marketing approval for one or more of our drug product candidates, we, and such collaborators, and our and their contract manufacturers will continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance, and quality control. If we and such collaborators are not able to comply with post-approval regulatory requirements, we and such collaborators could have the marketing approvals for our products withdrawn by regulatory authorities and our, or such collaborators’, ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance with current good manufacturing processes (“cGMPs”)post-approval regulations may have a negative effect on our business, operating results, financial condition, and current good clinical practices (“cGCPs”)prospects.

Any product candidate for which we obtain marketing approval could be subject to restrictions or withdrawal from the market, and we may be subject to substantial penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our medicines, when and if any clinical trialsof them are approved.

The FDA and other regulatory agencies closely regulate the post-approval marketing and promotion of medicines to ensure that they are marketed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA and other regulatory agencies impose stringent restrictions on manufacturers’ communications regarding off-label use, and if we conduct post-approval. Laterdo not market our medicines for their approved indications, we may be subject to enforcement action for off-label marketing by the FDA and other federal and state enforcement agencies, including the Department of Justice. Violation of the Federal Food, Product, and Cosmetic Act and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription products may also lead to investigations or allegations of violations of federal and state health care fraud and abuse laws and state consumer protection laws.

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In addition, later discovery of previously unknown problems with our product candidates, including adverse events of unanticipated severity or frequency, or with our third-partymedicines, manufacturers, or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:yield various results, including:

 

restrictions on such medicines, manufacturers, or manufacturing processes;

·

restrictions on the labeling or marketing of a medicine;

restrictions on the distribution or manufacturinguse of our product candidates, a medicine;

requirements to conduct post-marketing clinical trials;

receipt of warning or untitled letters;

withdrawal of the productmedicines from the market, or voluntary or mandatory product recalls;

market;

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·

fines, warning letters or holds on clinical trials;

·

refusal by the FDA to approve pending applications or supplements to approved applications filed by usthat we submit;

recall of medicines;

fines, restitution, or disgorgement of profits or revenue;

suspension or revocationwithdrawal of licensemarketing approvals;

 

suspension of any ongoing clinical trials;

·

product seizure or detention, or

refusal to permit the import or export of our product candidates; andmedicines;

 

product seizure; and

·

injunctions or the imposition of civil or criminal penalties.

 

The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our drug product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any approval that we may have obtained and we may not achieve or sustain profitability.  Further, any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize any drug product candidates we develop and adversely affect our business, financial condition, results of operations, and prospects.

 

Unfavorable pricingOur relationships with healthcare providers, physicians, and third-party payors will be subject to applicable anti-kickback, fraud and abuse, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, and diminished profits and future earnings.

Healthcare providers, physicians, and third-party reimbursement practicespayors play a primary role in the recommendation and prescription of any of our drug product candidates for which we obtain marketing approval. Our future arrangements with third-party payors and customers may 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 our medicines for which we obtain marketing approval. Restrictions under applicable federal and state healthcare reform initiatives could harmlaws and regulations include the following:

the federal healthcare anti-kickback statute prohibits, among other things, persons 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 and state healthcare programs such as Medicare and Medicaid;

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the federal False Claims Act imposes criminal and civil penalties, including 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 or approval from Medicare, Medicaid, or other government payors that are false or fraudulent or making a false statement to avoid, decrease, or conceal an obligation to pay money to the federal government, with potential liability including mandatory treble damages and significant per-claim penalties;

the federal Health Insurance Portability and Accountability Act of 1996, as further amended by the Health Information Technology for Economic and Clinical Health Act, which imposes certain requirements, including mandatory contractual terms, with respect to safeguarding the privacy, security, and transmission of individually identifiable health information without appropriate authorization by entities subject to the rule, such as health plans, health care clearinghouses, and health care providers;

the federal false statements statute, which 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;

the federal transparency requirements under the federal Physician Payment Sunshine Act, which requires manufacturers of drugs, devices, biologics, and medical supplies to report to the Department of Health and Human Services information related to payments and other transfers of value to physicians and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations; and

analogous state laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and certain state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures.

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the laws described above or any other government regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in government health care programs, such as Medicare and Medicaid, imprisonment, and the curtailment or restructuring of our operations, any of which could adversely affect our business, financial condition, results of operations, and prospects.

The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order, or use of medicinal products is prohibited in the future.European Union. The provision of benefits or advantages to physicians is also governed by the national anti-bribery laws of European Union Member States, such as the UK Bribery Act 2010. Infringement of these laws could result in substantial fines and imprisonment.

Payments made to physicians in certain European Union Member States must be publicly disclosed. Moreover, agreements with physicians often must be the subject of prior notification and approval by the physician’s employer, his or her competent professional organization, and/or the regulatory authorities of the individual European Union Member States. These requirements are provided in the national laws, industry codes, or professional codes of conduct applicable in the European Union Member States. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines, or imprisonment.

Efforts to ensure that our business arrangements with third parties 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, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil, or administrative sanctions, including exclusions from government funded healthcare programs. Liabilities they incur pursuant to these laws could result in significant costs or an interruption in operations, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

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If commercial third-party payors or government payors fail to provide coverage or adequate reimbursement, our revenue and prospects for profitability would be harmed.

 

There is increasing pressure on biotechnology companies to reduce healthcare costs. In the United States, these pressures come from a variety of sources, such as managed care groups and institutional and government purchasers. Increased purchasing power of entities that negotiate on behalf of federal healthcare programs and private sector beneficiaries could increase pricing pressures in the future. Such pressures may also increase the risk of litigation or investigation by the government regarding pricing calculations. The biotechnology industry will likely face greater regulation and political and legal actions in the future.

 

There is increased uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the principal decisions about reimbursement for new products are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, as CMS decides whether and to what extent a new product will be covered and reimbursed under Medicare. Private payors tend to follow CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement. Adverse pricing limitations may hinder our ability to recoup our investment in one or more future drug product candidates, even if our future drug product candidates obtain regulatory approval. Adverse pricing limitations prior to approval will also adversely affect us by reducing our commercial potential. Our ability to commercialize any potential products successfully also will depend in part on the extent to which reimbursement for these products and related treatments becomes available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers, pharmacy benefit managers, and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels.

 

A significant trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that coverage and reimbursement will be available for any product that we commercialize in the future and, if reimbursement is available, what the level of reimbursement will be. Reimbursement may impact the demand for, or the price of, any product for which we obtain marketing approval in the future. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate that we successfully develop.

 

There may be significant delays in obtaining reimbursement for approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA or regulatory authorities in other countries. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment rates may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for lower cost products that are already reimbursed and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government funded and private payors for future products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize potential products and our overall financial condition.

Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our drug product candidates and affect the prices we may obtain for any products that are approved in the United States or foreign jurisdictions.

In the 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 prevent or delay marketing approval of our drug product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any drug product candidates for which we obtain marketing approval. The pharmaceutical industry has been a particular focus of these efforts and have been significantly affected by legislative initiatives. 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 receive for any FDA approved product.

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In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. In addition, this legislation provided authority for limiting the number of drugs that will be covered in any therapeutic class. Cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for any approved products. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA. In addition, other legislative changes have been proposed and adopted since the PPACA 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 2029 unless additional Congressional action is taken. The Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, suspended the 2% Medicare sequester from May 1, 2020 through December 31, 2020, and extended the sequester by one year, through 2030. The American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our drug 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 PPACA, 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, or the “TCJA, 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. On December 18, 2019, the Court of Appeals for the Fifth Circuit 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.  Thereafter, the U.S. Supreme Court agreed to hear this case. Oral argument in the case took place on November 10, 2020.  On February 10, 2021, the Biden Administration withdrew the federal government’s support for overturning the ACA.  A ruling by the Court is expected sometime this year. 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. This Executive Order also directs the U.S. Department of Health and Human Services to create a special enrollment period for the Health Insurance Marketplace in response to the COVID-19 pandemic.


The prices of prescription pharmaceuticals in the United States and foreign jurisdictions is 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 also been the subject of considerable discussion in the United States.  To date, there have been several recent U.S. congressional inquiries, as well as proposed and enacted state and federal legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for products.  To those ends, President Trump issued several executive orders intended to lower the costs of prescription drug products. Certain of these orders are reflected in recently promulgated regulations, including an interim final rule implementing President Trump’s most favored nation model, but such final rule is currently subject to a nationwide preliminary injunction.  It remains to be seen whether these orders and resulting regulations will remain in force during the Biden Administration.  Further, on September 24, 2020, the Trump Administration finalized a rulemaking allowing states or certain other non-federal government entities to submit importation program proposals to the FDA for review and approval. Applicants are required to demonstrate that their importation plans pose no additional risk to public health and safety and will result in significant cost savings for consumers.  The FDA has issued draft guidance that would allow manufacturers to import their own FDA-approved drugs that are authorized for sale in other countries (multi-market approved products).  

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 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 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 drug product candidates or additional pricing pressures.

In countries outside of the United States, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. 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 candidate 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 business could be harmed, possibly materially.

Compliance with the HIPAA security, privacy and breach notification regulations may increase our costs.

The HIPAA privacy, security and breach notification regulations, including the expanded requirements under HITECH, establish comprehensive federal standards with respect to the uses and disclosures of protected health information, or PHI, by health plans, healthcare providers and healthcare clearinghouses, in addition to setting standards to protect the confidentiality, integrity and security of PHI. The regulations establish a complex regulatory framework on a variety of subjects, including:

 

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the circumstances under which uses and disclosures of PHI are permitted or required without a specific authorization by the patient, including but not limited to treatment purposes, activities to obtain payments for our services, and our healthcare operations activities;

a patient’s rights to access, amend and receive an accounting of certain disclosures of PHI;

requirements to notify individuals if there is a breach of their PHI;

the contents of notices of privacy practices for PHI;

administrative, technical and physical safeguards required of entities that use or receive PHI; and

the protection of computing systems maintaining electronic PHI.


We have implemented practices intended to meet the requirements of the HIPAA privacy, security and breach notification regulations, as required by law. We are required to comply with federal privacy, security and breach notification regulations as well as varying state privacy, security and breach notification laws and regulations, which may be more stringent than federal HIPAA requirements. In addition, for healthcare data transfers from other countries relating to citizens of those countries, we must comply with the laws of those countries. The federal privacy regulations restrict our ability to use or disclose patient identifiable data, without patient authorization, for purposes other than payment, treatment, healthcare operations and certain other specified disclosures such as public health and governmental oversight of the healthcare industry.

HIPAA provides for significant fines and other penalties for wrongful use or disclosure of PHI, including potential civil and criminal fines and penalties. Computer networks are always vulnerable to breach and unauthorized persons may in the future be able to exploit weaknesses in the security systems of our computer networks and gain access to PHI. Additionally, we share PHI with third-parties who are legally obligated to safeguard and maintain the confidentiality of PHI. Unauthorized persons may be able to gain access to PHI stored in such third-parties computer networks. Any wrongful use or disclosure of PHI by us or such third-parties, including disclosure due to data theft or unauthorized access to our or our third-parties computer networks, could subject us to fines or penalties that could adversely affect our business and results of operations. Although the HIPAA statute and regulations do not expressly provide for a private right of damages, we could also incur damages under state laws to private parties for the wrongful use or disclosure of confidential health information or other private personal information.

Compliance with global privacy and data security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and process data globally, and the failure to comply with such requirements could subject us to significant fines and penalties, which may have a material adverse effect on our business, financial condition or results of operations.

The regulatory framework for the collection, use, safeguarding, sharing, transfer and other processing of information worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Globally, virtually every jurisdiction in which we operate has established its own data security and privacy frameworks with which we must comply. For example, the collection, use, disclosure, transfer, or other processing of personal data regarding individuals in the European Union, including personal health data, is subject to the EU General Data Protection Regulation, or the GDPR, which took effect across all member states of the European Economic Area, or EEA, in May 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 increases our obligations with respect to clinical trials conducted in the EEA by expanding the definition of personal data to include coded data and requiring changes to informed consent practices and more detailed notices for clinical trial subjects and investigators. In addition, the GDPR also imposes strict rules on the transfer of personal data to countries outside the European Union, including the United States and, as a result, increases the scrutiny that clinical trial sites located in the EEA should apply to transfers of personal data from such sites to countries that are considered to lack an adequate level of data protection, such as the United States. The GDPR also permits data protection authorities to require destruction of improperly gathered or used personal information and/or impose substantial fines for violations of the GDPR, which can be up to four percent of global revenues or €20 million, whichever is greater, and it 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. In addition, the GDPR provides that European Union member states may make their own further laws and regulations limiting the processing of personal data, including genetic, biometric or health data.  

Similar actions are either in place or under way in the United States. There are a broad variety of data protection laws that are applicable to our activities, and a wide range of enforcement agencies at both the state and federal levels that can review companies for privacy and data security concerns based on general consumer protection laws. The Federal Trade Commission and state Attorneys General all are aggressive in reviewing privacy and data security protections for consumers. New laws also are being considered at both the state and federal levels. For example, the California Consumer Privacy Act—which went into effect on January 1, 2020—is creating similar risks and obligations as those created by GDPR, though the Act does exempt certain information collected as part of a clinical trial subject to the Federal Policy for the Protection of Human Subjects (the Common Rule). Many other states are considering similar legislation. A broad range of legislative measures 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.

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Given the breadth and depth of changes in data protection obligations, preparing for and complying with these requirements is rigorous and time intensive and requires significant resources and a review of our technologies, systems and 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 and significant fines and penalties against us and could have a material adverse effect on our business, financial condition or results of operations.

 

Our employees, principal investigators, consultants, and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants, and partners. Misconduct by these parties could include intentional failures to comply with FDA regulations or the regulations applicable in the European Union and other jurisdictions, provide accurate information to the FDA, the European Commission, and other regulatory authorities, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately, or disclose unauthorized activities to us. In particular, sales, marketing, and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business arrangements. Such misconduct also could involve the improper use of information obtained in the course of clinical trials or interactions with the FDA or other regulatory authorities, which could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of conduct applicable to all of our employees, but 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 government investigations or other actions or lawsuits stemming from a failure to comply with these laws 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, financial condition, results of operations, and prospects, including the imposition of significant fines or other sanctions.

Laws and regulations governing any international operations we may have in the future may preclude us from developing, manufacturing and selling certain drug product candidates outside of the United States and require us to develop and implement costly compliance programs.

We are subject to numerous laws and regulations in each jurisdiction outside the United States in which we operate. The creation, implementation and maintenance of international business practices compliance programs is costly and such programs are difficult to enforce, particularly where reliance on third parties is required.

The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the Department of Justice. The SEC is involved with enforcement of the books and records provisions of the FCPA.

Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.

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Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. Our expansion outside of the United States has required, and will continue to require, us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling certain drugs and drug candidates outside of the United States, which could limit our growth potential and increase our development costs. The failure to comply with laws governing international business practices may result in substantial penalties, including suspension or debarment from government contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to suspension of the right to do business with the U.S. government until the pending claims are resolved. Conviction of a violation of the FCPA can result in long-term disqualification as a government contractor. The termination of a government contract or relationship as a result of our failure to satisfy any of our obligations under laws governing international business practices would have a negative impact on our operations and harm our reputation and ability to procure government contracts. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.

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 have a material adverse effect on the success of our business.

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

These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions and we may not have sufficient (or any) insurance to cover any such costs.

 

Risks Related to Owning Our Common Stock, Our Financial Results and Our Need for Financing

 

We anticipate future losses and negative cash flow, and it is uncertain if or when we will become profitable.

 

We do not expect to generate any commercial revenues until we successfully complete development of our first potential products and we are able to successfully commercialize them through sales and licensing. We have not yet demonstrated our ability to generate commercial revenue, and we may never be able to produce commercial revenues or operate on a profitable basis. As a result, we have incurred losses since our inception and expect to experience operating losses and negative cash flow for the foreseeable future. Our planned drug product candidates may never be approved or become commercially viable. Even if we and our collaborators are able to commercialize our technology, which may include licensing, we may never recover our research and development expenses.

 

We expect to require additional financing to support our growth and ongoing operations. Additional capital may be difficult to obtain, restrict our operations, require us to relinquish rights to our technologies or drug product candidates, encumber our assets and result in ongoing debt service cost, or result in additional dilution to our stockholders.

 

Our business will require additional capital for implementation of our long termlong-term business plan and product development and commercialization. As we require additional funds, we may seek to fund our operations through the sale of additional equity securities, debt financing and/or strategic collaboration agreements. We cannot be sure that additional financing from any of these sources will be available when needed or that, if available, the additional financing will be obtained on favorable terms.

 

Our future funding requirements will depend on many factors, including, but not limited to:

 

·

the progress, timing, scope and costs of our clinical trials, including the ability to timely enroll patients in our planned and potential future clinical trials;

 

·

the outcome, timing and cost of regulatory approvals by the FDA and comparable regulatory authorities, including the potential that the FDA or comparable regulatory authorities may require that we perform more studies than those that we currently expect;

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·

the number and characteristics of drug product candidates that we may in-license and develop;

 

·

our ability to successfully commercialize our drug product candidates;

 

·

the amount of sales and other revenues from drug product candidates that we may commercialize, if any, including the selling prices for such potential products and the availability of adequate third-party reimbursement;

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·

selling and marketing costs associated with our potential products, including the cost and timing of expanding our marketing and sales capabilities;

 

·

the terms and timing of any potential future collaborations, licensing or other arrangements that we may establish;

 

·

cash requirements of any future acquisitions and/or the development of other drug product candidates;

 

·

the costs of operating as a public company;

 

·

the cost and timing of completion of commercial-scale, outsourced manufacturing activities;

 

·

the time and cost necessary to respond to technological and market developments;

 

·

any disputes which may occur between us and Einstein, employees, collaborators or other prospective business partners; and

 

·

the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

 

If we raise additional funds by selling shares of our common stock or other equity-linked securities, the ownership interest of our current stockholders will be diluted. We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or drug product candidates or to grant licenses on terms that may not be acceptable to us. If we raise additional funds through debt financing, we may have to grant a security interest on our assets to the future lenders, our debt service costs may be substantial, and the lenders may have a preferential position in connection with any future bankruptcy or liquidation involving the company.

 

If we are unable to raise additional capital when needed, we may be required to curtail the development of our technology or materially curtail or reduce our operations. We could be forced to sell or dispose of our rights or assets. Any inability to raise adequate funds on commercially reasonable terms could have a material adverse effect on our business, results of operation and financial condition, including the possibility that a lack of funds could cause our business to fail and the Company to dissolve and liquidate with little or no return to investors.

 

We are an “emerging growth company” under the JOBS Act and we cannot be certain ifa “smaller reporting company,” and the reduced disclosure requirements applicable to emerging growth companies willand smaller reporting companies may make our common stock less attractive to investors.

We are an “emerging growth company,” or EGC, as defined in the Jumpstart Our Business Startups ActJOBS Act. We will remain an EGC until the earlier of: (i) the last day of 2012 (the “JOBS Act”),the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the date of our initial public offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which means the last day of the first fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30. For so long as we remain an EGC, we are permitted and we may take advantage of certainintend to rely on exemptions from various reportingcertain disclosure requirements that are applicable to other public companies that are not “emergingEGCs. These exemptions include:

not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

reduced disclosure obligations regarding executive compensation;

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved; and

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an exemption from compliance with the requirement of the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor’s report on the financial statements.

In addition, the JOBS Act provides that an EGC may take advantage of an extended transition period for complying with new or revised accounting standards. This allows an EGC to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not EGCs.

We are also a smaller reporting company, and we will remain a smaller reporting company until the fiscal year following the determination that our voting and non-voting common shares held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenues are less than $100 million during the most recently completed fiscal year and our voting and non-voting common shares held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter. Similar to emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”),companies, smaller reporting companies have reduced disclosure obligations, regardingsuch as an exemption from providing selected financial data and an ability to provide simplified executive compensation in our periodic reportsinformation and proxy statements, and exemptions fromonly two years of audited financial statements.

We have elected to take advantage of certain of the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors willreduced reporting obligations. Investors may find our common stock less attractive because we may relyas a result of our reliance on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

 

We will remain an “emerging growth company” for up to five years following the initial public offering of our common stock, although we will lose that status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three year period, or if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30.

Our status as an “emerging growth company” under the JOBS Act may make it more difficult to raise capital as and when we need it.

Because of the exemptions from various reporting requirements provided to us as an “emerging growth company,” we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our reporting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.

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Our stock price can be volatile and investors may have difficulty selling their shares.

 

Our common stock is currently listed on the Nasdaq Capital Market under the symbol “CUE.” The price of our common stock may fluctuate significantly in response to market and other factors, some of which are beyond our control, including those listed in this “Item 1A. Risk Factors” section and other, unknown factors. Our stock price may also be affected by:

 

·

setbacks with respect to our research and development programs;

 

·

announcements of therapeutic innovations or new products by us or our competitors;

 

·

adverse actions taken by regulatory agencies with respect to our clinical trials;

 

·

any adverse changes to our relationship with collaborators;

 

·

results of internal and external studies and clinical trials;

 

·

result of our business development efforts;

 

·

variations in the level of expenses related to our existing drug product candidates or preclinical and clinical development programs;

 

·

any intellectual property infringement actions in which we may become involved;

 

·

variations in our results of operations;

 

·

press reports, whether or not true, about our business;

 

·

additions to or departures of our management;

 

·

release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares or our common stock;

 

·

sales or perceived potential sales of additional ordinary shares or our common stock;

 

·

sales of our common stock by us, our executive officers and directors or our stockholders in the future; and

 

·

general economic and market conditions and overall fluctuations in the U.S. equity markets.

 


Any of these factors may result in large and sudden changes in the volume and trading price of our common stock. In addition, the stock market, in general, and small pharmaceutical and biotechnology companies have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors beyond our control may negatively affect the market price of our common stock, regardless of our actual operating performance, and cause the price of our common stock to decline rapidly and unexpectedly.

 

If securities or industry analysts do not publish research reports about our business, or if they issue an adverse opinion about our business, the price of our securities and trading volume could decline.

 

The trading market for our securities is influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage byone securities and industry analysts.analyst providing research coverage. If no or few analysts commence research coverage of us, or one or more of the analysts who cover us issues an adverse opinion about our company, the price of our securities would likely decline. If one or more of these analysts ceases research coverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price of our securities or trading volume to decline.

 

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We have not paid dividends in the past and have no immediate plans to pay dividends.

 

We plan to reinvest all of our earnings, to the extent we have earnings, in order to further develop our technology and potential products and to cover operating costs. We do not plan to pay any cash dividends with respect to our securities in the foreseeable future. We cannot assure you that we would, at any time, generate sufficient surplus cash that would be available for distribution to the holders of our common stock as a dividend.

Concentration of ownership among our executive officers, directorsOur ability to use net operating loss carryforwards and significant stockholders may prevent new investors from influencing significant corporate decisions.

All decisions with respectresearch tax credits to the management of the company will be made by our board of directors and our officers, who beneficially own approximately 16.6% of our common stock at December 31, 2017, as calculated in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such percentage includes the approximately 10.2% of our common stock beneficially owned by MDB Capital Group, LLC (“MDB”), which served as the underwriter in our initial public offering and placement agent in previous private placements of our common stock, and of which three of our seven directors are employees. As a result, management and MDB will be able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of the company or changes in management, in each case, which other stockholders might find favorable, and will make the approval of certain transactions difficult without the support of these significant stockholders.

A significant portion of our total outstanding shares of common stock is restricted from immediate resale butreduce future tax payments may be sold into the market in the near future. This could cause the market price of our securities to drop significantly, even if our business is doing well.limited or restricted.

Sales of a substantial number of shares of our common stock in the public market could occur in the future. These sales,We have generated significant net operating loss carryforwards, or the perception in the market that the holders of a large number of securities intend to sell shares, could reduce the market price of our common stock. We currently have outstanding 19,459,194 shares of common stock. Of these outstanding shares, approximately 10,638,484 are restricted under securities lawsNOLs, and research and development tax credits, or R&D credits, as a result of lock-up agreements but will beour incurrence of losses and our conduct of research activities since inception. We generally are able to be resoldcarry NOLs and R&D credits forward to reduce our tax liability in future years. However, our ability to utilize the NOLs and R&D credits is subject to the rules of Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, respectively. Those sections generally restrict the use of NOLs and R&D credits after an “ownership change.” An ownership change occurs if, among other things, the stockholders (or specified groups of stockholders) who own or have owned, directly or indirectly, 5% or more of a corporation’s common stock or are otherwise treated as 5% stockholders under Section 382 of the code and the United States Treasury Department regulations promulgated thereunder increase their aggregate percentage ownership of that corporation’s stock by more than 50 percentage points over the lowest percentage of the stock owned by these stockholders over the applicable testing period. In the event of an ownership change, Section 382 imposes an annual limitation on the amount of taxable income a corporation may offset with NOL carry forwards and Section 383 imposes an annual limitation on the amount of tax a corporation may offset with business credit (including the R&D credit) carry forwards.

We may have experienced an “ownership change” within the meaning of Section 382 in the near future. We also intend to register all shares of common stockpast and there can be no assurance that we may issue under our equity compensation plans. Once we register these shares, they can be freely soldwill not experience additional ownership changes in the public market upon issuancefuture. As a result, our NOLs and once vested,business credits (including the R&D credit) may be subject to 180-limitations and 365-day lock-up periods under certain lock-up agreements.we may be required to pay taxes earlier and in larger amounts than would be the case if our NOLs or R&D credits were freely usable.

 

We expect to continue to incur significant costs as a result of being a public company that reports to the Securities and Exchange Commission and our management will be required to devote substantial time to meet compliance obligations.

 

As a public company reporting to the Securities and Exchange Commission, (“SEC”),or the SEC, we incur significant legal, accounting and other expenses. We are subject to reporting requirements of the Exchange Act and the Sarbanes-Oxley Act, of 2002 (the “Sarbanes-Oxley Act”), as well as rules subsequently implemented by the SEC that impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. In addition, there are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Wall Street Reform and Protection Act that increase public companies’ legal and financial compliance costs, make some activities more difficult, time-consuming or costly and may also place undue strain on personnel, systems and resources. Our management and other personnel are expected to devote a substantial amount of time to these compliance initiatives. In addition, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers.

 

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Our charter documents and Delaware law may inhibit a takeover that stockholders consider favorable.

 

Provisions of our amended and restated certificate of incorporation, (the “Certificateor the Certificate of Incorporation”)Incorporation, and our amended and restated bylaws, (the “Bylaws”)or the Bylaws, and applicable provisions of Delaware law may delay or discourage transactions involving an actual or potential change in control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. The provisions in our Certificate of Incorporation and Bylaws:

 

·

authorize our board of directors to issue preferred stock without stockholder approval and to designate the rights, preferences and privileges of each class; if issued, such preferred stock would increase the number of outstanding shares of our common stock and could include terms that may deter an acquisition of us;

 

·

limit who may call stockholder meetings;

 

·

do not provide for cumulative voting rights;

 

·

provide that all vacancies may be filled only by the affirmative vote of a majority of directors then in office, even if less than a quorum;

 

·

provide that stockholders must comply with advance notice procedures with respect to stockholder proposals and the nomination of candidates for director;

 

·

provide that stockholders may only amend our Certificate of Incorporation and Bylaws upon a supermajority vote of stockholders; and

 

·

provide that the Court of Chancery of the State of Delaware will be the exclusive forum for certain legal claims.

 

In addition, Section 203 of the Delaware General Corporation Law may limit our ability to engage in any business combination with a person who beneficially owns 15% or more of our outstanding voting stock unless certain conditions are satisfied. This restriction lasts for a period of three years following the share acquisition. These provisions may have the effect of entrenching our management team and may deprive you of the opportunity to sell your shares to potential acquirers at a premium over prevailing prices. This potential inability to obtain a control premium could reduce the price of our common stock.

 

Our Certificate of Incorporation provides, subject to certain exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.

 

Our Certificate of Incorporation provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; (3) any action asserting a claim against us, any director or our officers and employees arising pursuant to any provision of the Delaware General Corporation Law, our Certificate of Incorporation or our Bylaws, or as to which the Delaware General Corporation Law confers exclusive jurisdiction on the Court of Chancery; or (4) any action asserting a claim against us, any director or our officers or employees that is governed by the internal affairs doctrine. The choice of forum provisions will not apply to claims arising under the Securities Act, the Exchange Act, or any other claim for which federal courts have exclusive jurisdiction. Any person or entity purchasing or otherwise acquiring any interest in shares of our common stock shall be deemed to have notice of and to have consented to the provisions of our Certificate of Incorporation described above. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision that will be contained in our Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition and results of operations.

 

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If we are unable to implement and maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our securities may decrease.

 

Beginning with our annualAs a public company, we are required to maintain internal control over financial reporting and to report for the year ending December 31, 2018,any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act will requirerequires that we evaluate and determine the effectiveness of our internal control over financial reporting and provide a management report on our internal control over financial reporting which following ourreporting. Until such time as we are no longer being an “emerging growth company,” mustour auditors will not be attestedrequired to byattest as to our independent registered public accounting firm.internal control over financial reporting.

 

If we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal control over financial reporting is effective or, once required, provide an attestation report from our independent registered public accounting firm, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could decrease. We could also become subject to stockholder or other third-party litigation as well as investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources and could result in fines, trading suspensions or other remedies.

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Item 1B. Unresolved Staff Comments

 

Not applicable.

 

Item 2. Properties

 

Our principal office is located in Cambridge, Massachusetts. We currently lease approximately 11,500 square feet of office and laboratory space at a monthly rate of $177,500 under a lease that is due to expire in April 2018. We recently leased additional laboratory space concurrent with this lease for a monthly rate of $50,000.

We have entered into a license agreement that commences May 2018 pursuant to which we will lease approximately 19,800 square feet of office and laboratory space in Cambridge, Massachusetts.space.  We expect to use this space as our new principal executive offices and for general office, research and development, and laboratory uses. The monthly rent payments due under this licenselease agreement will be approximately $297,500$375,000 for the first 18 monthsremainder of the term and increase to approximately $388,400 for the remaining 18 months of thelease term, which expires on April 30, 2021.in June 2022.  We also lease additional laboratory space consisting of three procedure and holding rooms. The monthly payments due under this lease agreement will be approximately $61,000 for the remainder of the lease term which expires in June 2022.

 

 

We are not currently a party to any pending legal proceedings that we believe will have a material adverse effect on our business or financial conditions. We may, however, be subject to various claims and legal actions arising in the ordinary course of business from time to time.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Price Range and Holders of Common Stock

Our shares of common stock have been listed on the Nasdaq Capital Market under the symbol “CUE” since January 2, 2018. Prior to that date, there was no public trading market for our common stock.

On March 22, 2018 the last reported sale price of our common stock was $16.47.

  

As of March 22, 2018,1, 2021, there were 203approximately 39 registered holders of record of our common stock.

Dividend Policy

We have never paid cash dividends on our securities and we do not anticipate paying any cash dividends on our shares of common stock in the foreseeable future. We intend to retain any future earnings for reinvestment in our business. Any future determination to pay cash dividends will be at the discretion of our board of directors, and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as our board of directors deems relevant.

Recent Sales of Unregistered Securities

The following represents a summary of unregistered securities issued by the Company during the time period covered by this report. The Company issued these stock options exercisable for shares of its common stock under its 2016 Omnibus Incentive Plan and 2016 Non-employee Equity Incentive Plan.

·Effective March 15, 2017, we granted to certain employees options to purchase an aggregate of 173,000 shares of common stock at an exercise price of $5.00 per share, each with a term of seven years and vesting over four years in eight equal semi-annual installments.

·Effective April 17, 2017, we granted to Ken Pienta, our Chief Medical Officer, options to purchase 150,000 shares of our common stock at an exercise price of $5.00 per shares, with a term of seven years and vesting in annual installments over a four-year period.

·Effective June 14, 2017, we granted to certain employees options to purchase an aggregate of 220,000 shares of our common stock at an exercise price of $5.00 per share, each with a term of seven years and vesting over four years in eight equal semi-annual installments.

·Effective June 14, 2017, we granted to Peter Kiener, our Chairman, an option to purchase 60,000 shares of our common stock at an exercise price of $5.00 per share, with a term of seven years and vesting over five years in equal annual installments.

·Effective June 14, 2017, we granted to Ulrich Weidle, a senior scientific advisor, an option to purchase 100,000 shares of our common stock at an exercise price of $5.00 per share, with a term of seven years and vesting over four years in equal annual installments.

·Effective December 27, 2017, we granted to certain employees options to purchase an aggregate of 136,000 shares of common stock at an exercise price of $7.50 per share, each with a term of seven years and vesting over four years in eight equal semi-annual installments.

All of the stock options described above were granted in reliance upon an available exemption from the registration requirements of the Securities Act, including those contained in Rule 701 promulgated under Section 3(b) of the Securities Act. Among other things, we relied on the fact that, under Rule 701, companies that are not subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act are exempt from registration under the Securities Act with respect to certain offers and sales of securities pursuant to “compensatory benefit plans” as defined under that rule. We believe that all of the options described above were issued pursuant qualifying “compensatory benefit plans”.

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Effective December 27, 2017, the Company granted to Colin Sandercock, its Senior Vice President, General Counsel and Secretary, under its 2016 Omnibus Incentive Plan (i) an option to purchase 150,000 shares of our common stock at an exercise price of $7.50 per share, with a term of seven years and vesting over four years in eight equal semi-annual installments and (ii) an option to purchase 100,000 shares of our common stock at an exercise price of $7.50 per share, with a term of seven years and vesting upon the achievement of certain performance goals. We intend to file a registration statement on Form S-8 to register the issuance of the shares issuable upon exercise of these options prior to any such issuance being made.

Use of Proceeds from Registered Securities

On December 14, 2017, our Registration Statement on Form S-1, as amended (File No. 333-220550), was declared effective by the SEC and our Registration Statement on Form S-1 (File No. 333-222211) became effective upon filing with SEC on December 21, 2017. These registration statements, collectively, registered a maximum aggregate $70,000,000 of our common stock in connection with our initial public offering, pursuant to which we sold 8,820,710 shares of common stock at a price to the public of $7.50 per share. The offering closed on December 27, 2017, generating net proceeds of approximately $61.9 million after deducting underwriting commissions of approximately $3.5 million and other offering expenses of $830,000 payable by us. The offering terminated before all of the securities registered on the registration statements had been sold. MDB Capital Group, LLC, of which Christopher Marlett and Anthony DiGiandomenico, are co-founders and owners, served as the underwriter for the offering. No payments were made by us, directly or indirectly, to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates, other than underwriting commission paid to MDB Capital Group and payments in the ordinary course of business to officers for salaries and to non-employee directors as compensation for board or board committee service.

There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on December 21, 2017.

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Item 6. Selected Financial Data

 

The data set forth below should be read in conjunction with Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s Financial Statements and notes thereto.Not applicable.

 

Statement of Operations Data:

  Year Ended 
  December 31, 
  2017  2016  2015 
Revenue $-  $-  $- 
Operating expenses:            
General and administrative  4,333,542   1,970,488   425,081 
Research and development  18,900,328   5,687,847   1,503,649 
Total operating expenses  23,233,870   7,658,335   1,928,730 
Loss from operations  (23,233,870)  (7,658,335)  (1,928,730)
Interest income  35   52   - 
Net loss $(23,233,835) $(7,658,283) $(1,928,730)
Net loss per common share – basic and diluted $(2.16) $(1.03) $(0.34)
Weighted average common shares outstanding – basic and diluted  10,732,449   7,433,433   5,658,282 

Balance Sheet Data:

  2017  2016 
Cash $63,533,649  $14,925,820 
Certificate of deposit  50,068   50,033 
Working capital  59,718,357   14,070,638 
Total assets  66,953,834   16,278,617 
Total stockholders’ equity  61,607,178   15,174,640 

 

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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 financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K.

Overview

The Company is an innovativeWe are a clinical-stage biopharmaceutical company developingengineering a novel and proprietary class of biologic drugsinjectable biologics to selectively engage and modulate targeted T cells directly within the patient’s body. We believe our proprietary Immuno-STAT™ (Selective Targeting and Alteration of T Cells) platform will allow us to harness the fullest potential of an individual’s intrinsic immune repertoire for restoring health while avoiding the deleterious side-effects of broad immune activation (for immuno-oncology or infectious immunity) or broad immune suppression (for autoimmunity and inflammation). In addition to the selective modulation of T cell activity, we believe Immuno-STATs offer several key points of potential differentiation over competing approaches, including modularity and versatility providing broad disease coverage, manufacturability, and convenient administration.

Through rational protein engineering, we leverage the humanmodular and versatile nature of the Immuno-STAT platform to design drug product candidates for selective immune system to treat a broad range of cancersmodulation in cancer, chronic infectious disease, and autoimmune disorders.disease. To address the needs of these clinical indications, we have developed four biologic series within the Immuno-STAT platform: CUE-100, CUE-200, CUE-300, and CUE-400, each specifically designed through rational engineering to possess distinct signaling modules for desired biological mechanisms that may be applied across many diseases.  The Company’s corporate officesCUE-100 series exploits rationally engineered IL-2 in context of the core Immuno-STAT framework for selective activation of targeted tumor-specific T cells, while the CUE-200 series is focused on cell surface receptors including CD80 and/or 4-1BBL to address T cell exhaustion associated with chronic infections. The CUE-300 series, being developed for autoimmune diseases, incorporates the inhibitory PDL1 co-modulator for selective inhibition of the autoreactive T cell repertoire. This approach is pertinent for autoimmune diseases with known, well characterized, limited or few autoantigens, such as type 1 diabetes. The CUE-400 series, for autoimmune diseases with diverse or unknown autoantigens, represents a novel class of bispecific molecules that can selectively and research facilitieseffectively expand induced regulatory T cells, or iTregs. We categorize these molecules as “pathway-specific modulators,” or PSM. The first candidate, CUE-401, incorporates the two key biological signals that are located in Cambridge, Massachusetts.necessary for generation of iTregs, namely IL-2 and TGF-beta. Based on structure-based rational protein engineering, both IL-2 and TGF-beta have been affinity tuned to maintain on-target engagement while minimizing systemic toxicities.

The Company’sOur drug product candidates are currently in various stages of clinical and preclinical development, and the Company’swhile we believe that these candidates hold potential value, our activities are subject to significant risks and uncertainties. The Company hasWe have not yet commenced any commercial revenue-generating operations, does not have anylimited cash flows from operations, and will need to raiseaccess additional capital to itsfund our growth and ongoing business operations.

Coronavirus (COVID-19) Pandemic

The COVID-19 outbreak, which the World Health Organization has classified as a pandemic, has prompted governments and regulatory bodies throughout the world to issue “stay-at-home” or similar orders, and enact restrictions on the performance of “non-essential” services, public gatherings and travel.

Beginning in March 2020, we undertook precautionary measures intended to help minimize the risk of virus transmission to our employees, including the establishment of remote working standards, pausing all non-essential travel worldwide for our employees, and limiting employee attendance at industry events and in-person work-related meetings, to the extent those events and meetings are continuing. We also established policies and procedures for all personnel who enter our company premises.   The policies and procedures we implemented are consistent with the rules and guidelines recommended by the Centers for Disease Control and Prevention, Commonwealth of Massachusetts and the City of Cambridge.  To date, we do not believe these actions have had a significant negative impact on our productivity or our operations. However, these actions or additional measures we may undertake may ultimately delay progress of our developmental goals or otherwise negatively affect our business. In addition, third-party actions taken to contain the spread of the novel coronavirus, SARS-CoV-2, and mitigate public health effects may negatively affect our business.

In January 2021, we were notified by our contract manufacturing organization, or CMO, that the manufacture of our cGMP material for the CUE-102 drug candidate would be delayed by approximately six weeks due to the invocation of the Defense Production Act, or DPA, which gives priority to the manufacture of vaccines and other drug products used to prevent or treat COVID-19.  The delay in the manufacturing of our CUE-102 cGMP batch impacted the expected filing date of the CUE-102 IND that was planned for the fourth quarter of 2021. The CUE-102 IND is now expected to be filed in the first quarter of 2022 based on the revised CUE-102 cGMP manufacturing date provided by our CMO.

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Plan of Operation

The Company’sOur technology is in the development phase. The Company believesWe believe that itsour licensed platforms have the potential for creating a robustdiverse pipeline of drug product candidates addressing multiple medical indications. The Company intendsWe intend to maximize the value and probability of commercialization of its CUE Biologics™ immunotherapeuticsour Immuno-STAT drug product candidates by focusing on research, testing, optimizing,optimization, conducting pilot studies, performing early stage clinical development and potentially partnering for more extensive, later stages of clinical development, as well as seeking extensive patent protection and intellectual property development.

Since the Company iswe are a development stagedevelopment-stage company, the majority of itsour business activities to date and itsour planned future activities will be devoted to furtherfurthering research and development.

A fundamental part of the Company’sour corporate development strategy is to establish one or more strategic partnerships with leading pharmaceutical or biotechnology organizations that will allow the Companyus to more fully exploit the potential of itsour technology platform, such as the one with Merckthose described below under the headingheadings “Collaboration Agreement with Merck.”

Merck” and “Collaboration with LG Chem”.

Critical Accounting Policies and Significant Judgments and Estimates

The followingOur management’s discussion and analysis of our financial condition and results of operations is based upon the Company’son our financial statements, which have been prepared in conformityaccordance with generally accepted accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of America (“GAAP”). Certain accounting policiesour financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements, and the reported revenue and expenses during the reported periods. We evaluate these estimates and judgments, including those described below, on an ongoing basis. We base our estimates on historical experience, known trends and events, contractual milestones and various other factors that we believe are particularly important toreasonable under the understanding ofcircumstances, the Company’s financial position and results of operationswhich form the basis for making judgments about the carrying value of assets and require the application of significant judgment by management or can be materially affected by changes from period to period in economic factors or conditionsliabilities that are outside of the Company’s control. As a result, these issues are subject to an inherent degree of uncertainty. In applying these policies, management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on the Company’s historical operations, the future business plans and the projected financial results, the terms of existing contracts, trends in the industry, and information availablenot readily apparent from other outside sources. For a more complete description ofActual results may differ from these estimates under different assumptions or conditions.

While the Company’s significant accounting policies seeare more fully described in Note 32 to our consolidated financial statements appearing elsewhere in this Form 10-K, we believe that the estimates, assumptions and judgments involved in the following accounting policies may have the greatest potential impact on the financial statements, so we consider these to be our critical accounting policies and estimates. There were no material changes to our critical accounting policies and estimates as of December 31, 2020.

Revenue Recognition

We follow the provisions of Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers.  We generate revenue solely through collaboration arrangements with strategic partners for the development and commercialization of drug product candidates.  The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods and/or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and/or services. To determine the appropriate amount of revenue to be recognized for arrangements that we determine are within the scope of ASC 606, we perform the following steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) each performance obligation is satisfied.

We recognize collaboration revenue under certain of our license or collaboration agreements that are within the scope of ASC 606. Our contracts with customers typically include promises related to licenses to intellectual property and research and development services.  If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgement to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. Accordingly, the transaction price is generally comprised of a fixed fee due at contract inception and variable consideration in the form of milestone payments due upon the achievement of specified events and tiered royalties earned when customers recognize net sales of licensed products. We measure the transaction price based on the amount of consideration to which we expect to be entitled in exchange for transferring the promised goods and/or services to the customer. We utilize the “most likely amount” method to estimate the amount of variable consideration, to predict the amount of consideration to which we will be entitled for our two open contracts. Amounts of variable consideration are included in this report.the transaction price to the extent that it is probable

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that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. At the inception of each arrangement that includes development and regulatory milestone payments, we evaluate whether the associated event is considered probable of achievement and estimates the amount to be included in the transaction price using the most likely amount method. Currently, we have one contract with an option to acquire additional goods and/or services in the form of additional research and development services for additional drug product candidates.

Research and Development Costs

Research and development expenses consist primarily of compensation costs, fees paid to consultants, outside service providers and organizations (including research institutes at universities), facility costs, and development and clinical trial costs with respect to the Company’sour drug product candidates.

Research and development expenses incurred under contracts are expensed ratably over the life of the underlying contracts, unless the achievement of milestones, the completion of contracted work, or other information indicates that a different expensing schedulepattern of expense recognition is more appropriate. Other research and development expenses are charged to operations as incurred. Payments made pursuant to research and development contracts are initially recorded as research and development contract advances in the Company’sour balance sheet and then charged to research and development expenses in the Company’s statementour consolidated statements of operations and comprehensive loss as those contract services are performed. Expenses incurred under research and development contracts in excess of amounts advanced are recorded as research and development contract liabilities in the Company’sour balance sheet, with a corresponding charge to research and development expenses in the Company’s statementour consolidated statements of operations.

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operations and comprehensive loss.

Nonrefundable advance payments for future research and development activities pursuant to an executory contractual arrangement are recorded as advances as described above. Nonrefundable advance payments are recognized as an expense as the related services are performed. The Company evaluatesWe evaluate whether it expectswe expect the services to be rendered at each quarter end and year end reporting date. If the Company doeswe do not expect the services to be rendered, the advance payment is charged to expense. To the extent that a nonrefundable advance payment is for contracted services to be performed within 12 months from the reporting date, such advance is included in current assets; otherwise, such advance is included in non-current assets.

The Company evaluatesWe evaluate the status of itsour research and development agreements and contracts, and the carrying amount of the related assets and liabilities, at each quarter end and year end reporting date, and adjusts the carrying amounts and their classification on the balance sheet as appropriate.

Research and Development Funding Arrangements

The Company’s proprietary biologics are at an early stage and will require substantial time and funding to continue development. There can be no assurances that any of the Company’s biologics will ultimately become commercially viable product candidates. In order to finance its research and development programs, the Company may periodically enter into collaboration agreements with third parties that provide funding for certain aspects of the Company’s ongoing research and development activities. The Company considers various factors in determining the appropriate accounting treatment for such collaboration agreements, including, among others, the risks of and costs associated with the research and development program being funded, the stage of development of the proprietary biologics subject to the research and development program, the likelihood at initiation that the collaboration arrangement will result in an economically successful outcome to the third party, the continuing involvement of the Company in the research and development program and the expenditure of the funds, the transfer of the financial risk associated with the research and development program to the third party, the intended use of the funds and any restrictions thereon, and the probability of any repayment obligations or other forms of consideration if the proprietary biologics subject to the research and development program are not successfully developed and commercialized.

In accordance with ASC 730-20-25-8, to the extent that a collaboration agreement results in a substantive and genuine transfer of financial risk to a third party funding source because any economic benefit that the third party may receive depends solely on the research and development program successfully developing commercially viable product candidates having future economic benefit (which is uncertain at the initiation of the collaboration agreement), the Company will account for such collaboration agreement as a contract to perform research and development services for a third party. The funds received from the third party under such a collaboration agreement will initially be recorded as a deferred credit in the Company’s balance sheet. As the related contractual research and development costs are incurred, the applicable amount of the deferred credit will be credited to operations and will be classified as an offset to such research and development costs in the Company’s statement of operations.

Patent Expenses

The Company is the exclusive worldwide licensee of, and has patent applications pending for, numerous domestic and foreign patents. Due to the significant uncertainty associated with the successful development of one or more commercially viable product candidates based on the Company’s research efforts and any related patent applications, all patent costs, including patent-related legal fees, filing fees and other costs are charged to operations as incurred. Patent expenses are included in general and administrative expenses in the Company’s statement of operations.

Reclassification

Certain comparative figures for the years ended 2016 and 2015 have been adjusted to correct the classification of patent legal costs and intellectual property management fees from research and development expenses to general and administrative expenses. During the years ended December 31, 2016 and 2015, patent legal costs of $366,131 and $178,697, and intellectual property management fees of $90,000 and $38,182, aggregating $456,131 and $216,879, respectively, were reclassified from research and development costs to general and administrative costs. These changes did not impact loss from operations or net loss.

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Licensing Fees and Costs

Licensing fees and costs consist primarily of costs relating to the acquisition of the Company’s license agreement with the Albert Einstein College of Medicine, a division of Yeshiva University (“Einstein”), including related royalties, maintenance fees, milestone payments and product development costs. Licensing fees and costs are charged to operations as incurred.

Stock-Based Compensation

The CompanyWe periodically issues stock optionsissue stock-based awards to officers, directors, employees, Scientific and Clinical Advisory Board members, non-employees and consultants for services rendered. Such issuances vest and expire according to terms established at the issuance date.

Stock-based payments to officers, directors, members of our Scientific and Clinical Advisory Board, non-employees and outside consultants and employees, including grants of employee stock options, are recognized in the financial statements based on their grant date fair values. Stock option grants, which are generally time-vested, are measured at the grant date fair value and charged to operations on a straight-line basis over the service period, which generally approximates the vesting period. term. We also grant performance-based awards periodically to our officers. We recognize compensation costs related to performance awards over the requisite service period if and when we conclude that it is probable that the performance condition will be achieved.    

The fair value of stock options and restricted stock units is determined utilizing the Black-Scholes option-pricing model, which is affected by several variables, including the risk-free interest rate, the expected dividend yield, the life of the equity award, the exercise price of the stock option as compared to the fair value of the common stock on the grant date, and the estimated volatility of the common stock over the term of the equity award.1

Stock options granted to members of the Company’s Scientific and Clinical Advisory Board, non-employees and outside advisors and consultants are revalued each reporting period to determine the amount to be recorded as an expense in the respective period. As the stock options vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value already recorded and the value on the date of vesting.

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Until the Company haswe have established a trading markethistory for itsour common stock that approximates the expected term of the options, estimated volatility is based on the average historical volatilities of comparable public companies in a similar industry. The expected dividend yield is based on the current yield at the grant date; the Company haswe have never declared or paid dividends and hashave no plans to do so for the foreseeable future. As permitted by Staff Accounting Bulletin No. 107, due to the Company’sour lack of history and option activity, management utilizeswe utilize the simplified method to estimate the expected term of options at the date of grant. The fair value of common stock is determined by reference to either recent or anticipated cash transactions involving the sale of the Company’sour common stock.

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The Company recognizesWe recognize the fair value of stock-based compensation in general and administrative expenses and in research and development expenses in the Company’s statementour consolidated statements of operations and comprehensive loss, depending on the type of services provided by the recipient of the equity award. The Company issuesWe issue new shares of common stock to satisfy stock option exercises.

Income Taxes

The Company accountsWe account for income taxes under an asset and liability approach for financial accounting and reporting for income taxes. Accordingly, the Company recognizeswe recognize deferred tax assets and liabilities for the expected impact of differences between the financial statements and the tax basis of assets and liabilities.

The Company accountsWe account for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by GAAP. The tax effects of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority as of the reporting date. If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits of the position are recognized.

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The Company recordsWe record a valuation allowance to reduce itsour deferred tax assets to the amount that is more likely than not to be realized. In the event the Company waswe were to determine that itwe would be able to realize itsour deferred tax assets in the future in excess of its recorded amount, an adjustment to the deferred tax assets would be credited to operations in the period such determination was made. Likewise, should the Companywe determine that itwe would not be able to realize all or part of itsour deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to operations in the period such determination was made.

The Company isWe are subject to U.S. Federalfederal and Massachusetts state income taxes. As the Company’sour net operating losses have yet to be utilized, all previous tax years remain open to examination by Federalfederal and state taxing authorities in which the Companywe currently operates.operate.

The Company recognizesWe recognize interest accrued relative to unrecognized tax benefits in interest expense and penalties in operating expense.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the valueA discussion of transferred goods or services as they occurrecent accounting pronouncements is included in the contract. ASU 2014-09 also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The FASB has issued ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, and ASU 2016-20, all of which clarify certain implementation guidance within ASU 2014-09. ASU 2014-09 is effective for reporting periods beginning after December 15, 2017, with early adoption permitted. Entities will be able to transitionNote 2 to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company will adopt the provisions of ASU 2014-09 in the quarter beginning January 1, 2018. As the Company is unlikely to generate any sustainable operating revenues in the next several years, the adoption of ASU 2014-09 is not currently expected to have any impact on the Company’s financial statement presentation or disclosures.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. ASU 2015-17 was effective forconsolidated financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted as of the beginning of an interim or annual reporting period. The Company adopted the provisions of ASU 2015-17 in the quarter beginning January 1, 2017. The adoption of ASU 2015-17 did not have any impactthis Annual Report on Company’s financial statement presentation or disclosures.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires a lessee to record a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, on the balance sheet for all leases with terms longer than 12 months, as well as the disclosure of key information about leasing arrangements. ASU 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. ASU 2016-02 requires classification of all cash payments within operating activities in the statement of cash flows. Disclosures are required to provide the amount, timing and uncertainty of cash flows arising from leases. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company will adopt the provisions of ASU 2016-02 in the quarter beginning January 1, 2019. The Company generally does not finance purchases of property and equipment, but does lease its operating facilities. While the Company is continuing to assess the potential impact of ASU 2016-02, it currently expects that most of its lease commitments will be subject to ASU 2016-02 and accordingly, upon adoption will be recognized as lease liabilities and right-of-use assets in the Company’s balance sheet.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 requires, among other things, that all income tax effects of awards be recognized in the statement of operations when the awards vest or are settled. ASU 2016-09 also allows for an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and allows for a policy election to account for forfeitures as they occur. ASU 2016-09 was effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted for any entity in any interim or annual period. The Company adopted the provisions of ASU 2016-09 in the quarter beginning January 1, 2017. The adoption of ASU 2016-09 did not have any impact on the Company’s financial statement presentation or disclosures.

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In July 2017, the FASB issued Accounting Standards Update No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The guidance in ASU 2017-11 can be applied using a full or modified retrospective approach. The adoption of ASU 2017-11 is not currently expected to have any impact on the Company’s financial statement presentation or disclosures.

Management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.

Acquisition of Trademark

On May 4, 2017, the Company entered into a settlement agreement with Cue BioLogics, LLC, an unrelated party, to acquire all right, title and interest in and to the CUE BIOLOGICS mark, and any derivative mark incorporating CUE, throughout the world, together with all associated goodwill and common law rights appurtenant thereto, including, but not limited to, any right, title and interest in any corporate name, company name, business name, trade name, dba, domain name, or other source identifier incorporating CUE (collectively, the “CUE BIOLOGICS Mark”), in exchange for a cash payment by the Company of  $175,000.

Accounting Standards Codification (“ASC”) 350-30-20 defines a defensive intangible asset as an acquired intangible asset in a situation in which an entity does not intend to actively use the asset but intends to hold (lock up) the asset to prevent others from obtaining access to the asset. The Company determined that the acquired intangible asset met the definition of a defensive intangible asset and has therefore accounted for the $175,000 payment to Cue BioLogics, LLC for the CUE BIOLOGICS Mark as an acquired intangible asset.

As the Company can renew the underlying rights to the CUE BIOLOGICS trademark indefinitely at nominal cost, this acquired intangible asset has been classified as a non-amortizable intangible asset in Company’s balance sheet at December 31, 2017. The Company evaluates the status of this intangible asset for amortization and impairment at each quarter end and year end reporting date.Form 10-K.

 

Significant Contracts and Agreements Related to Research and Development Activities

Einstein License Agreement

On January 14, 2015, the Companywe entered into a license agreement, as amended and restated on July 31, 2017 (the “Einstein License”),and as amended on October 30, 2018, or the Einstein License, with Albert Einstein College of Medicine, or Einstein, for certain patent rights (the “Patents”) relating to the Company’sour core technology platform for the engineering of biologics to control T cell activity, precision, immune-modulatory drug candidates, and two supporting technologies that enable the discovery of costimulatory signaling molecules (ligands) and T cell targeting peptides.

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The Company holdsWe hold an exclusive worldwide license, with the right to sublicense, import, make, have made, use, provide, offer to sell, and sell all products, processes and services that use the patents covered by the Einstein License, including certain technology received from Einstein related thereto, (the “Licensed Products”).or the Licensed Products. Under the Einstein License, the Company iswe are required to:

 

·

Pay royalties and amounts based on certain percentage of proceeds, as defined in the Einstein License, from sales of Licensed Products includingand sublicense agreements.

 

·

Pay escalating annual maintenance fees, which are non-refundable, but are creditable against the amount due to Einstein for royalties.

 

·

Make significant payments based upon the achievement of certain milestones, as defined in the Einstein License. At December 31, 2017, none2020, one of these milestones had been achieved, by the Company.as we had filed an investigational new drug application, or IND, in 2019.

 

·

Incur minimum product development costs per year until the first commercial sale of the first Licensed Product.

The Company wasWe were in compliance with itsour obligations under the Einstein License at December 31, 20172020 and 2016.2019.

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The Einstein License expires upon the expiration of the last obligation to make royalty payments to Einstein which may be due with respect to certain Licensed Products, unless terminated earlier under the provisions thereof. The Einstein License includes certain termination provisions if the Company failswe fail to meet itsour obligations thereunder.

The Company accountsWe account for the costs incurred in connection with the Einstein License in accordance with ASC 730, Research and Development.Development. For the years ended December 31, 2017, 2016,2020 and 2015,2019, costs incurred with respect to the Einstein License aggregated $5,084,708, $31,250,$75,000 and $127,336$565,659, respectively. Such costs are included in research and development costs in the consolidated statements of operations.

operations and comprehensive loss.

Pursuant to the Einstein License, the Companywe issued to Einstein 671,572 shares of our common stock of the Company in connection with the consummation of the initial public offering of itsour common stock on December 27, 2017. Under

See “Our License Agreement with Einstein” under Part I, Item 1 of the Annual Report on Form 10-K for additional discussion of the Einstein License, the Company must also use its best efforts to file a registration statement covering the resale of the 671,572 shares issued to Einstein no later than 180 days after the consummation of such offering.

The Company accounted for the issuance of these shares in accordance with ASC 730, Research and Development, as a charge to research and development expenses in the statements of operations at their aggregate fair value of $5,036,789, as the Patents acquired from Einstein are for use in the Company’s research and development activities exclusively with respect to its core technology platform, have no alternative future use by the Company, and therefore no separate economic value.

Service Agreement

On October 1, 2015, the Company entered into a service agreement (the “Service Agreement”) with Einstein to support the Company’s ongoing research and development activities. The initial term of the Service Agreement was for three months, which was amended in February 2016 to extend it for the period of time deemed necessary to complete the services pursuant to the terms of the Service Agreement. For the years ended December 31, 2017, 2016, and 2015, costs incurred with respect to the Service Agreement aggregated $0, $80,000, and $200,000, respectively. Such costs are included in research and development expenses in the statements of operations.

Agreements with Catalent Pharma Solutions, LLC

Catalent Pharma Solutions, LLC (“Catalent”) is a global provider of drug delivery technology and development solutions for drugs, biologics and consumer health products.

On March 7, 2017, the Company entered into an agreement with Catalent for Catalent to provide services on a sequential milestone basis with respect to the development and manufacture of the Company’s lead drug candidate, CUE-101. The services under the agreement are designed to support the preparation and filing of an Investigational New Drug Application with the United States Food and Drug Administration to allow for the commencement of a Phase 1 clinical trial of CUE-101 in the United States. The Company incurred total direct costs under this agreement aggregating $2.4 million during the year ended December 31, 2017 and currently estimates that it will incur an additional $2.4 of such costs during the year ended December 31, 2018. The Company expects that certain of these payments will consist of nonrefundable advance payments for which the Company anticipates receiving the contracted services within 12 months from the date of payment. Management periodically reviews and updates the project’s estimated budget and timeline.

54

On July 5, 2017, the Company entered into a separate Master Services Agreement with Catalent that outlines the terms and conditions under which Catalent will provide contract services with respect to the Company’s research and development activities for a period of five years. The Company may terminate this agreement without cause upon 90 days’ prior written notice. Unless and until terminated, this agreement will automatically be extended for successive one-year periods.

With respect to the $2.4 million of total direct costs the Company had incurred as of December 31, 2017, $1.6 million was charged to research and development expenses in the statement of operations for the year ended December 31, 2017, representing 8.4% of research and development expenses for such period. The remaining $0.8 million of such costs estimated to be incurred is reflected as research and development contract advances in the condensed balance sheet at December 31, 2017. The Company expects to receive the services related to such advance payments by May 31, 2018. Accordingly, advance payments at December 31, 2017 are classified as a current asset and are expected to be charged to research and development expenses in the statement of operations through June 30, 2018.

License.

Collaboration Agreement with Merck

On November 14, 2017, we entered into an Exclusive Patent License and Research Collaboration Agreement, (the “Collaboration Agreement”)or the Merck Agreement, with Merck Sharp & Dohme Corp. (“Merck”), or Merck, for a partnership to research and develop certain of our proprietary biologics that target certain autoimmune disease indications, (the “Initial Indications”).or the Initial Indications. We view this Collaborationthe Merck Agreement as a component of our development strategy since it will allow us to advance our autoimmune programs in partnership with a world class pharmaceutical company, while also continuing our focus on our more advanced cancer programs. The research program outlined in the CollaborationMerck Agreement entails (1) our research, discovery and development of certain CUE Biologics™Immuno-STAT drug candidates up to the point of  demonstration of certain biologically relevant effects, (“or Proof of Mechanism”)Mechanism, and (2) the further development by Merck of the CUE Biologics™Immuno-STAT drug candidates that have demonstrated Proof of Mechanism, (the “Proposedor the Proposed Drug Product Candidates”)Candidates, up to the point of demonstration of all or substantially all of the properties outlined in such Proposed Drug Product Candidates’ profiles as described in the CollaborationMerck Agreement.

For the purposes of this collaboration, we have granted to Merck under the CollaborationMerck Agreement an exclusive license under certain of our patent rights, including a sublicense of patent rights licensed from Einstein, to the extent applicable to the specific CUE Biologics™Immuno-STAT that are elected to be developed by Merck. From the effective date of the Collaboration Agreement until the earlier of  (i) the first achievement of Proof of Mechanism for a CUE Biologics™ drug candidate or (ii) 18 months after we notify the joint steering committee that the first Product Candidate has been synthesized under the research program, we are required to forebear from researching, developing or licensing to a third party rights related to any CUE Biologics™ drug candidate for the treatment of autoimmune diseases other than pursuant to the Collaboration Agreement. In addition, soSo long as Merck continues product development on a Proposed Drug Product Candidate, we are restricted from conducting any development activities within the Initial Indication covered by such Proposed Drug Product Candidate other than pursuant to the CollaborationMerck Agreement. The Company is not required to forbear at any time, however, from developing other CUE Biologics™ for use in therapeutic areas other than autoimmune diseases, e.g., for use in treating cancer or infectious diseases.

In exchange for the licenses and other rights granted to Merck under the CollaborationMerck Agreement, Merck paid to us a $2.5 million nonrefundable up-front payment. Additionally, we may be eligible to receive funding in developmental milestone payments, as well as tiered royalties, if all research, development, regulatory and commercial milestones agreed upon by both parties are successfully achieved. Excluding the up-front payment described above, we are eligible to earn up to $101 million for the achievement of certain research and development milestones, $120 million for the achievement of certain regulatory milestones and $150 million for the achievement of certain commercial milestones, in addition to tiered royalties on sales, if all pre-specified milestones associated with multiple products across the primary disease indication areas are achieved. The CollaborationMerck Agreement requires us to use the first $2.7$2.5 million of milestone payments we receive under the agreement to fund contract research. The amount of the royalty payments is a percentage of product sales ranging in the single digits based on the amount of such sales.

55

  We recorded approximately $177,000 in revenue for the year ended December 31, 2020 related to the Merck Agreement, compared to $874,000 for the year ended December 31, 2019.

The term of the CollaborationMerck Agreement extends until the expiration of all royalty obligations following a product candidate’s receipt of marketing authorization, at which point Merck’s licenses and sublicenses granted under the agreement shall become fully paid-up, perpetual licenses and sublicenses, as applicable. Royalties on each product subject to the CollaborationMerck Agreement shall continue on a country-by-country basis until the expiration of the later of: (1) the last-to-expire patent claiming the compound on which such product is based and (2) a period of ten years after the first commercial sale of such product in such country.

On November 18, 2020, we entered into a First Amendment to the Merck Agreement, or the Amendment, with Merck. Pursuant to rights granted to Merck under the Merck Agreement, the Amendment extends the term of the research program under the Merck Agreement for an additional year, until December 31, 2021. Under the terms of the Amendment, Merck will reimburse us for specified expenses and provide additional financial research support to further study and develop preclinical biologics with the objective of identifying clinical candidates subject, in each case, to specified maximum amounts, with any amounts in excess of such maximum amounts to be borne by us. On November 18, 2020, we earned a milestone payment related to this Amendment in the amount of $300,000. The $300,000 milestone payment was recorded as a contract liability upon receipt.  We will recognize revenue related to this milestone payment pursuant to our revenue recognition policy in relation to the performance of our obligations related to the development of Immuno-STAT drug candidates under the arrangement.

Notwithstanding the foregoing, Merck may terminate the83


See “Our Collaboration Agreement at any time upon 30 days’ noticewith Merck” under Part I, Item 1 of the Annual Report on Form 10-K for additional discussion of the Merck Agreement.

Collaboration Agreement with LG Chem

Effective November 6, 2018, we entered into a collaboration agreement with LG Chem, Ltd., or LG Chem, which we refer to as the LG Chem Agreement, related to the Company.development of Immuno-STATs focused in the field of oncology.

Pursuant to the LG Chem Agreement, we granted LG Chem an exclusive license to develop, manufacture and commercialize our lead product, CUE-101, as well as Immuno-STATs that target T cells against two additional cancer antigens, or Drug Product Candidates, in Australia, Japan, Republic of Korea, Singapore, Malaysia, Vietnam, Thailand, Philippines, Indonesia, China (including Macau and Hong Kong) and Taiwan, which we refer to collectively as the LG Chem Territory. On December 20, 2018, we reported the selection of Wilms Tumor 1, or WT1, as the first target antigen for a Product Candidate under the LG Chem Agreement.  We retain rights to develop and commercialize all assets included in the LG Chem Agreement in the United States and in global markets outside of the LG Chem Territory. Under the LG Chem Agreement, we will engineer the selected Immuno-STATs for up to three alleles, which are expected to include the predominant alleles in the LG Chem Territory, thereby enhancing our market reach by providing for greater patient coverage of populations in global markets, while LG Chem will establish a chemistry, manufacturing and controls, or CMC, process for the development and commercialization of selected Drug Product Candidates. The LG Chem Agreement provided LG Chem with the option to select one additional Immuno-STAT for an oncology target, or an Additional Immuno-STAT, for an exclusive worldwide development and commercialization license. On December 18, 2019, we and LG Chem entered into a global license and commercialization agreement, which was amended on November 5, 2020. We refer to such agreement, as amended, as the Global License and Collaboration Agreement. The Global License and Collaboration Agreement may also be terminated by either party ifsupersedes the provisions of the LG Chem Agreement related to LG Chem’s option for an Additional Immuno-STAT but generally does not become effective unless and until LG Chem exercises its option, other than certain select provisions including the length of the option period and representations, warranties and covenants of the parties. If LG Chem exercises this option, which expires on April 30, 2021, then the other partyprovisions of the Global License and Collaboration Agreement, including the license to the Additional Immuno-STAT from us to LG Chem and the terms and conditions for such license, will become effective. We will retain an option to co-develop and co-commercialize the additional program worldwide.

Under the terms of the LG Chem Agreement, LG Chem paid us a $5.0 million non-refundable, non-creditable upfront payment and purchased approximately $5.0 million of shares of our common stock at a price per share equal to a 20% premium to the volume weighted-average closing price per share over the 30 trading day period immediately prior to the effective date of the LG Chem Agreement. We are also eligible to receive additional aggregate payments of approximately $400 million if certain research, development, regulatory and commercial milestones are successfully achieved. On May 16, 2019, we earned a $2.5 million milestone payment for the U.S. Food and Drug Administration, or FDA’s, acceptance of the IND for our lead drug candidate, CUE-101, pursuant to the LG Chem Agreement. In addition, the LG Chem Agreement also provides that LG Chem will pay us tiered single-digit royalties on net sales of commercialized Drug Product Candidates, or Collaboration Products, in the LG Chem Territory on a product-by-product and country-by-country basis, until the later of expiration of patent rights in a country, the expiration of regulatory exclusivity in such country, or ten years after the first commercial sale of a Collaboration Product in such country, subject to certain royalty step-down provisions set forth in the LG Chem Agreement.  On December 7, 2020, we earned a $1.25 million milestone payment on the selection of a pre-clinical candidate pursuant to the LG Chem Agreement.  The $1.25 million milestone payment was recorded as a contract liability upon receipt. We will recognize revenue related to this milestone payment pursuant to our revenue recognition policy in relation to the performance of our obligations related to the development of the selected pre-clinical candidate under the arrangement.

Pursuant to the LG Chem Agreement, the parties will share research costs related to Collaboration Products, and LG Chem will provide CMC process development for selected Drug Product Candidates and potentially additional downstream manufacturing capabilities, including clinical and commercial supply for Collaboration Products.  In return for performing CMC process development, LG Chem is eligible to receive low-single digit royalty payments on the sales of Collaboration Products sold in breachall countries outside the LG Chem Territory. Furthermore, should LG Chem exercise its option for an Additional Immuno-STAT, LG Chem will pay us a one-time, non-refundable, non-creditable upfront payment and we will be eligible to receive up to approximately $470 to $675 million in fees and milestone payments as well as tiered royalty payments on future global sales that range from high-single digits to mid-double digit teens in the United States and mid-single to low-double digits outside of its obligations thereunderthe United States.  The amount of fees and failsmilestone payments, as well as whether we receive royalty payments, will depend on when LG Chem nominates the Additional Immuno-STAT Biologic, the number of alleles selected by LG Chem and whether we exercise our option to cure such breach within 90 days after notice or by either party ifco-develop and co-commercialize the other party filesadditional program worldwide, in which case we would share costs and profits instead of receiving royalties and post-option-exercise milestones. For the years ended December 31, 2020 and 2019, we recognized approximately $2,978,000 and $2,584,000, respectively, in collaboration revenue related to this agreement.

84


See “Our Collaboration Agreement with LG Chem” under Part I, Item 1 of the Annual Report on Form 10-K for bankruptcy or other similar insolvency proceedings.

additional discussion of the LG Chem Agreement.

Results of Operations

Collaboration Revenue

We have not generated commercial revenue from product sales. To date, we have generated collaboration revenue from the Merck Agreement and LG Chem Agreement.

Operating Expenses

The CompanyWe generally recognizesrecognize operating expenses as they are incurred in two general categories, general and administrative expenses and research and development expenses. The Company’sOur operating expenses also include non-cash components related to depreciation and amortization of property and equipment, trademark, and stock-based compensation, which are allocated, as appropriate, to general and administrative expenses and research and development expenses.

General and administrative expenses consist of salaries and related expenses for executive, legal, finance, human resources, information technology and administrative personnel, as well as professional fees, insurance costs, and other general corporate expenses. Management expectsWe expect general and administrative expenses to increase in future periods as the Company addswe add personnel and incursincur additional expenses related to an expansion of itsour research and development activities and itsour operation as a public company, including higher legal, accounting, insurance, compliance, compensation and other expenses.

Research and development expenses consist primarily of compensation expenses, fees paid to consultants, outside service providers and organizations (including research institutes at universities), facility expenses, and development and clinical trial expenses with respect to the Company’sour drug product candidates. The Company chargesWe charge research and development expenses to operations as they are incurred. Management expectsWe expect research and development expenses to increase in the future as the Company increases itswe increase our efforts to develop technology for potential future products based on itsour technology and research.

Years Ended December 31, 2017, 20162020 and 20152019

The Company’sOur consolidated statements of operations and comprehensive loss for the years ended December 31, 2017, 2016,2020 and 20152019, as discussed herein are presented below.

 

  Years Ended December 31, 
  2017  2016  2015 
Revenue $  $  $ 
Operating expenses:            
General and administrative  4,333,542   1,970,488   425,081 
Research and development  18,900,328   5,687,847   1,503,649 
Total operating expenses  23,233,870   7,658,335   1,928,730 
Loss from operations  (23,233,870)  (7,658,335)  (1,928,730)
Interest income  35   52    
Net loss $(23,233,835) $(7,658,283) $(1,928,730)

56

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

Collaboration revenue

 

$

3,154,325

 

 

$

3,458,331

 

Operating expenses:

 

 

 

 

 

 

 

 

General and administrative

 

 

14,651,205

 

 

 

12,740,093

 

Research and development

 

 

33,545,705

 

 

 

27,487,485

 

Total operating expenses

 

 

48,196,910

 

 

 

40,227,578

 

Loss from operations

 

 

(45,042,585

)

 

 

(36,769,247

)

Other income:

 

 

 

 

 

 

 

 

Interest income, net

 

 

463,914

 

 

 

482,790

 

Total other income

 

 

463,914

 

 

 

482,790

 

Loss before provision for income taxes

 

 

(44,578,671

)

 

 

(36,286,457

)

Provision for income taxes

 

 

(206,250

)

 

 

(412,500

)

Net loss

 

$

(44,784,921

)

 

$

(36,698,957

)

 

 

 

 

 

 

 

 

 

 

Collaboration Revenue

Collaboration revenue totaled $3,154,325 and $3,458,331 for the years ended December 31, 2020 and 2019, respectively. This decrease was due to a revised estimate of our progress under the LG Chem Agreement during the year ended December 31, 2020, which resulted in a decrease to collaboration revenue of approximately $47,000 during the fourth quarter of 2020. Upon the preclinical candidate selection of A02 Allele pursuant to the LG Chem Agreement, we reimbursed LG Chem final costs of approximately $68,000 related to the termination of the A24 Allele funding. We also recorded a decrease to collaboration revenue of approximately $79,000 during the fourth quarter of 2020 related to the Merck Amendment, which extended the term and revised budgeted costs for an additional year through December 31, 2021.


General and Administrative

General and administrative expenses totaled $4,333,542approximately $14,651,000 and $1,970,488$12,740,000 for the years ended December 31, 20172020 and 2016,2019, respectively. This increase of $2,363,054approximately $1,911,000 was due primarily to higher stock-based compensation related to executive management and legal fees offset by a decrease in travel expenses as the growth of the Company and its activities.COVID-19 pandemic continued to hamper business travel throughout 2020. We expect our general and administrative expenses to continue to increase as we continue to expand our operations. General and administrative expenses for the year ended December 31, 2017 consisted of2020 included expenses related to employee and board compensation of $1,075,099, stock based compensation of $1,022,962,$3,875,000, professional and consulting fees of $1,194,552,$4,483,000, rent of $244,678,$1,082,000, insurance of $256,000, stock-based compensation of $4,094,000, investor relations of $275,000, travel of $31,000, depreciation and amortization of $15,163, travel of  $176,585,$97,000, and other expenses of $604,503. $458,000.

General and administrative expenses for the year ended December 31, 20162019 included expenses related to employee and board compensation of $368,711,approximately $3,547,000, professional and consulting fees of $768,586,$4,663,000, rent of $117,691,$965,000, insurance of $448,000, stock-based compensation of $2,109,000, investor relations of $200,000, travel of $179,000, depreciation and amortization of $4,630, stock-based compensation of $439,366, investor relations of $88,629, travel of $63,746,$115,000, and other expenses of $119,129.$514,000.

Research and Development

GeneralResearch and administrativedevelopment expenses totaled $1,970,488approximately $33,546,000 and $425,081$27,487,000 for the years ended December 31, 20162020 and 2015,2019, respectively. This increase of $1,545,407 approximately $6,059,000 was due primarily to the growth of the Companyhigher laboratory and its activities. General and administrative expenses for the year ended December 31, 2016 included expenses related to employee and board compensation of $368,711, professional and consulting fees of $768,586, rent of $117,691, depreciation and amortization of $4,630,drug substance manufacturing costs, stock-based compensation of $439,366, investor relations of $88,629,expense and clinical expenses, offset by a decrease in travel of $63,746, and other expenses of $119,129. General and administrative expenses foras the year ended December 31, 2015 consisted of expenses relatedCOVID-19 pandemic continued to employee and board compensation of $42,000, professional and consulting fees of $288,156, rent of $42,455, depreciation and amortization of $1,238,hamper business travel of $9,948, and other expenses of $41,284.

Research and Development

Research and development expenses totaled $18,900,328 and $5,687,847 for the years ended December 31, 2017 and 2016, respectively. This increase of $13,212,481 was due primarily to the growth of the Company and its activities.. We expect our research and development expenses to continue to increase as we expand our development activities.  Research and development expenses for the year ended December 31, 20172020 included expenses related to employee and Scientific and Clinical Advisory Board compensation of $3,014,833, stock-based compensation of $1,752,401$7,886,000, depreciation and amortization of $404,405,$960,000, stock-based compensation of $6,387,000, research and laboratory expenses of $6,213,721,$8,420,000, rent of $1,730,911,$3,511,000, licensing fees of $5,136,118,$99,000, other professional fees of $531,000, clinical expenses of $4,264,000, travel of $27,000, insurance expense of $666,000, and other expenses of $647,939. $795,000.       

Research and development expenses for the year ended December 31, 20162019 included expenses related to employee and Scientific and Clinical Advisory Board compensation of $1,330,625,$6,997,000, depreciation and amortization of $197,455,$885,000, stock-based compensation of $450,190,$4,412,000, research and laboratory expenses of $2,651,771,$6,500,000, rent of $846,818,$3,509,000, licensing fees of $69,465,$658,000, other professional fees of $103,407,$1,271,000, clinical expenses of $2,053,000, travel of $128,000, insurance expense of $234,000, and other expenses of $38,116.$840,000.

Interest Income

Research and development expenses totaled $5,687,847 and $1,503,649 for the years ended December 31, 2016 and 2015, respectively. This increase of $4,184,198Interest income was due primarily to the growth of the Company and its activities. Research and development expenses$463,914 for the year ended December 31, 2016 included expenses related2020, as compared to employee and Scientific and Clinical Advisory Board compensation of $1,330,625, depreciation and amortization of $197,455, stock-based compensation of  $450,190, research and laboratory expenses of  $2,651,771, rent of  $846,818, licensing fees of  $69,465, other professional fees of  $103,407, and other expenses of  $38,116. Research and development expenses$482,790 for the year ended December 31, 2015 included expenses related to employee and Scientific and Clinical Advisory Board compensation of $415,683, depreciation and2019.  The decrease in interest income was from higher amortization of $43,577, researchdiscounts received on certain of our marketable securities offset by interest income earned on the investment of an increased portion of our cash in cash equivalents and laboratory expenses of $628,198, rent of $319,091, licensing fees of $94,167, and other expenses of $2,933.

Loss from Operations

The Company’s loss from operations was $23,233,870marketable securities during 2020.  Interest income for the year ended December 31, 2017, as2020 included $80,110 in expense resulting from amortization of discounts received on certain of our marketable securities, compared to $7,658,335$64,078 of other income for the year ended December 31, 2016.2019.

Foreign Withholding Taxes

The Company’s loss from operations was $7,658,335Provision for income tax for the year ended December 31, 2016, as2020 was comprised of $206,250 in foreign income tax expense on the LG Chem milestone payment, compared to $1,928,730 for the year ended December 31, 2015.

57

Interest Income

Interest income was $35 for the year ended December 31, 2017, as compared to $52 for the year ended December 31, 2016.

2019 comprised of $412,500.

Net Loss

As a result of the foregoing, the Company’sour net loss was $23,233,835$44,784,921 for the year ended December 31, 2017,2020, as compared to $7,658,283$36,698,957 for the year ended December 31, 2016.

The Company’s net loss was $7,658,283 for the year ended December 31, 2016, as compared to $1,928,730 for the year ended December 31, 2015.

2019.

Liquidity and Capital Resources—December 31, 2017 and December 31, 2016Resources

The Company hasWe have financed itsour working capital requirements primarily through private and public offerings of equity securities and cash received in December 2017 from Merck in connection with the Collaboration Agreement.and LG Chem under their respective collaboration agreements. At December 31, 20172020 and December 31, 2016, the Company2019, we had unrestricted cash, cash equivalents and a certificate of depositmarketable securities totaling $63,583,717$84,868,683 and $14,975,853,$59,409,955, respectively, available to fund the Company’sour ongoing business activities. Additional information concerning the Company’sour financial condition and results of operations is provided in the financial statements included in this report.

86


The amounts that the Companywe actually spendsspend for any specific purpose may vary significantly and will depend on a number of factors, including, but not limited to, the Company’sour research and development activities and programs, clinical testing, regulatory approval, market conditions, and changes in or revisions to the Company’sour business strategy and technology development plans. Investors

On January 4, 2019, we filed a universal shelf registration statement on Form S-3 with the SEC, or the 2019 Shelf, to register for sale from time to time up to $150 million of our common stock, preferred stock, debt securities, warrants and/or units in one or more offerings (File No. 333-229140). This registration statement became effective on February 3, 2019.

In June 2019, we entered into an “at-the-market”, or ATM, equity offering sales agreement, or the June 2019 Sales Agreement, with Stifel Nicolaus & Company, Inc., or Stifel, to sell shares of our common stock for aggregate gross proceeds of up to $30 million, from time to time, through an “at-the-market” equity offering program under which Stifel acts as sales agent.   As of December 31, 2020, we had sold a total of 3,584,945 shares of common stock under the June 2019 Sales Agreement for proceeds of approximately $29.4 million, net of commissions paid, but excluding estimated transaction expenses. Due to the issuance and sale of all the shares of common stock subject thereto, the June 2019 Sales Agreement terminated in accordance with its terms.  

In November 2019, we entered into an ATM equity offering sales agreement, or the November 2019 Sales Agreement, with Stifel to sell shares of our common stock for aggregate gross proceeds of up to $20 million, from time to time, through an “at-the-market” equity offering program under which Stifel acts as sales agent.   As of December 31, 2020, we had sold a total of 1,729,110 shares of common stock under the November 2019 Sales Agreement for proceeds of approximately $19.6 million, net of commissions paid, but excluding estimated transaction expenses. Due to the issuance and sale of all the shares of common stock subject thereto, the November 2019 Sales Agreement terminated in accordance with its terms.

In March 2020, we entered into an ATM equity offering sales agreement, or the March 2020 Sales Agreement, with Stifel to sell shares of our common stock for aggregate gross proceeds of up to $35 million, from time to time, through an “at-the-market” equity offering program under which Stifel acts as sales agent. As of December 31, 2020, we had sold a total of 1,824,901 shares of common stock under the March 2020 Sales Agreement for proceeds of approximately $34.3 million, net of commissions paid, but excluding estimated transaction expenses. Due to the issuance and sale of all the shares of common stock subject thereto, the March 2020 Sales Agreement terminated in accordance with its terms.

The shares of common stock sold under the June 2019 Sales Agreement, November 2019 Sales Agreement and the March 2020 Sales Agreement were made pursuant to the 2019 Shelf.

On June 22, 2020, we filed a registration statement on Form S-3ASR, which became automatically effective upon filing with the SEC (File No. 333-239357), or the 2020 Shelf, to register for sale from time to time up to $300 million of our common stock, preferred stock, debt securities, warrants, rights and/or units in one or more offerings.

In June 2020, we entered into an ATM equity offering sales agreement, or the June 2020 Sales Agreement, with Stifel to sell shares of our common stock for aggregate gross proceeds of up to $40 million, from time to time, through an “at-the-market” equity offering program under which Stifel acts as sales agent.  The sales agreement will be relying onterminate upon the judgmentearliest of the Company’s management regarding the application of the proceeds from(a) the sale of $40 million of shares of our common stock or (b) the Company’stermination of the June 2020 Sales Agreement by us or Stifel. As of December 31, 2020, we had sold 1,192,000 shares of common stock.

stock under the June 2020 Sales Agreement for proceeds of approximately $22.4 million, net of commissions paid, but excluding estimated transaction expenses. The Company believes that its existing cash resources will be sufficientshares of common stock sold under the June 2020 Sales Agreement are made pursuant to fund the Company’s projected operating requirements for at least the next 12 months based on current operating plans. Until the Company is able to generate sustainable revenues that generate operating profitability and positive operating cash flows, the Company expects to finance its future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. However, there can be no assurances that the Company will be able to obtain additional financing on acceptable terms and in the amounts necessary to fully fund its future operating requirements, if at all. If the Company is unable to obtain sufficient cash resources to fund its operations, the Company may be forced to reduce or discontinue its operations entirely.

2020 Shelf.

If the Company issueswe issue additional equity securities to raise funds, the ownership percentage of the Company’sour existing stockholders would be reduced. New investors may demand rights, preferences or privileges senior to those of existing holders of the Company’sour common stock. If the Company issueswe issue debt securities, the Companywe may be required to grant security interests in itsour assets, could have substantial debt service obligations, and lenders may have a senior position (compared to stockholders) in any potential future bankruptcy or liquidation of the Company.liquidation. Additionally, corporate collaboration and licensing arrangements may require us to incur non-recurring and other charges, give up certain rights relating to our intellectual property and research and development activities, increase our nearnear- and long-term expenditures, issue securities that dilute our existing stockholders, issue debt which may require liens on our assets and which will increase our monthly expense obligations, or disrupt our management and business.

 


Cash Flows

The following table summarizes our changes in cash, cash equivalents, and restricted cash for the year ended December 31, 2020 and 2019:

 

 

 

 

December 31,

 

 

2020

 

 

2019

 

Net cash provided by (used in):

 

 

 

 

 

 

 

Operating activities

$

(32,494,034

)

 

$

(30,796,910

)

Investing activities

 

4,455,874

 

 

 

3,446,823

 

Financing activities

 

58,614,263

 

 

 

50,789,765

 

Net increase in cash, cash equivalents, and restricted cash

$

30,576,103

 

 

$

23,439,678

 

Operating Activities

During the year ended December 31, 2017, the Company2020, we used cash of $12,191,514approximately $32,494,000 in operating activities, as compared to $5,968,411$30,797,000 of cash used in operating activities during the year ended December 31, 2016. The difference between cash2019. Cash used in operating activities and net lossduring the year ended December 31, 2020 consisted primarily of our net loss of approximately $44,785,000, and increases of approximately $662,000 in accounts receivable, $563,000 in other non-cash charges, $381,000 in prepaid expenses, $5,000 in other assets, and $4,203,000 in operating lease right-of-use asset. Cash used was partially offset by increases of approximately $503,000 in research and development contract liabilities, $4,679,000 in operating lease liability, $741,000 in accounts payable, and $560,000 in accrued expenses, as well as non-cash charges of approximately $1,057,000 in depreciation and amortization, $10,481,000 in stock-based compensation expense, and changes$84,000 in amortization of premium/discount on purchased securities.

Cash used during the year ended December 31, 2019 of approximately $30,797,000 consisted primarily of our net loss of approximately $36,699,000, increases of approximately $755,000 in accounts receivable, and $1,560,000 in deposits, decreases of approximately $1,153,000 in accounts payable, and $4,278,000 in operating lease liability, and a non-cash charge of $72,000 in amortization of premium/discount on purchased securities. Cash used was partially offset by decreases of approximately $487,000 in prepaid expenses and other current assets, $4,355,000 in operating lease right-of-use assets, and $124,000 in other assets, increases of approximately $439,000 in accrued expenses, and $929,000 in research and development contract liabilities, and $5,036,789 attributable to the issuancenon-cash charges of commonapproximately $811,000 in depreciation and amortization, $6,521,000 in stock to Albert Einstein University pursuant to the Einstein license agreement.

58

based compensation, and $54,000 for loss on disposal of fixed assets.

Investing Activities

During the year ended December 31, 2017, the Company used2020, we generated cash of $1,204,977 inapproximately $4,456,000 from investing activities, consisting of $1,029,942 for the purchase of office and laboratory equipment, $175,000 for the purchase of the CUE BIOLOGICS Mark and $35 with respectcompared to interest earned on the certificate of deposit. Duringapproximately $3,447,000 generated by investing activities during the year ended December 31, 2016,2019. Cash generated during the Company used cashyear ended December 31, 2020 consisted primarily of $516,012 in investing activities, consistingapproximately $15,000,000 for the redemption of $515,979 forshort-term investments offset by the purchase of officeproperty and laboratory equipment of approximately $595,000 and $33 with respect to interest earned on the certificatepurchase of deposit.

marketable securities of $9,949,000. We generated cash during the year ended December 31, 2019, of approximately $3,447,000 which consisted primarily of approximately $18,500,000 for the redemption of short-term investments, and $127,500 cash received for the sale of lab equipment, offset by the purchase of property and equipment of approximately $46,000 and the purchase of short-term investments of $15,134,000.

Financing Activities

During the year ended December 31, 2017, the Company2020, we generated cash from financing activities of $62,004,320, consisting of the net proceeds from the Company’s initial public offering and $61,995,312, $8,008 from the exercise of stock options, $1,000 from the sale of underwriters warrants. Duringapproximately $58,614,000, compared to approximately $50,790,000 generated in financing activities during the year ended December 31, 2016,2019. Cash generated during the Company generatedyear ended December 31, 2020 consisted primarily of cash from financing activities of $15,005,036, consisting of the net proceeds from the December 2016 common stock sold through our ATM sales agreements with Stifel of approximately $56,682,000, net of underwriting commissions and fees, and the exercise of common stock options of approximately $2,203,000, and restricted stock awards net of taxes withheld of $271,000. Compared to cash generated during the year ended December 31, 2019 primarily of cash proceeds from the common stock sold through our ATM sales agreements with Stifel of approximately $48,999,000, net of underwriting commissions and fees, and the exercise of common stock options of approximately $1,882,000, and restricted stock awards net of taxes withheld of $91,000.

88


Funding Requirements

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of our Immuno-STAT platform, continue ongoing and initiate new clinical trials of and seek marketing approval for our drug product candidates. In addition, we expect to incur additional costs associated with operating as a public company. Our expenses will also increase if, and as, we:

continue the clinical development of CUE-101;

leverage our programs to advance our other drug product candidates into preclinical and clinical development;

seek regulatory approvals for any drug product candidates that successfully complete clinical trials;

seek to discover and develop additional drug product candidates;

establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any drug product candidates for which we may obtain marketing approval and intend to commercialize on our own or jointly;

hire additional clinical, quality control and scientific personnel;

expand our manufacturing, operational, financial and management systems;

increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;

maintain, expand and protect our intellectual property portfolio;

acquire or in-license other drug product candidates and technologies; and

incur additional legal, accounting and other expenses in operating as a public company.

We believe that our existing cash resources as of December 31, 2020 will enable us to fund our operating requirements for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

We will need to raise additional capital or incur indebtedness to continue to fund our operations in the future. 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. If we are unable to raise additional funds when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts, or grant rights to develop and market drug product candidates that we would otherwise prefer to develop and market ourselves, which could adversely affect our business prospects, and we may be unable to continue our operations. Because of numerous risks and uncertainties associated with research, development and commercialization of drug product candidates, we are unable to estimate the exact amount of our working capital requirements. Factors that may affect our planned future capital requirements and accelerate our need for additional working capital include the following:

the progress, timing, scope and costs of our clinical trials, including the ability to timely enroll patients in our planned and potential future clinical trials;

the outcome, timing and cost of regulatory approvals by the FDA and comparable regulatory authorities, including the potential that the FDA or comparable regulatory authorities may require that we perform more studies than those that we currently expect;

the number and characteristics of drug product candidates that we may in-license and develop;

our ability to successfully commercialize our drug product candidates;

the amount of sales and other revenues from drug product candidates that we may commercialize, if any, including the selling prices for such potential products and the availability of adequate third-party reimbursement;

89


selling and marketing costs associated with our potential products, including the cost and timing of expanding our marketing and sales capabilities;

the terms and timing of any potential future collaborations, licensing or other arrangements that we may establish;

cash requirements of any future acquisitions and/or the development of other drug product candidates;

the costs of operating as a public company;

the cost and timing of completion of commercial-scale, outsourced manufacturing activities;

the time and cost necessary to respond to technological and market developments;

any disputes which may occur between us and Einstein, employees, collaborators or other prospective business partners; and

the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

A change in the outcome of any of these or other variables with respect to the development of any of our drug product candidates could significantly change the costs and timing associated with the development of that product candidate. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of public or private placement.equity offerings, debt financings, collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties and grants from organizations and foundations. If we raise additional funds by selling shares of our common stock or other equity-linked securities, the ownership interest of our current stockholders will be diluted. We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or drug product candidates or to grant licenses on terms that may not be acceptable to us. If we raise additional funds through debt financing, we may have to grant a security interest on our assets to the future lenders, our debt service costs may be substantial, and the lenders may have a preferential position in connection with any future bankruptcy or liquidation.

If we are unable to raise additional capital when needed, we may be required to curtail the development of our technology or materially curtail or reduce our operations. We could be forced to sell or dispose of our rights or assets. Any inability to raise adequate funds on commercially reasonable terms could have a material adverse effect on our business, results of operation and financial condition, including the possibility that a lack of funds could cause our business to fail, dissolve and liquidate with little or no return to investors.

Principal Commitments

Leased Facilities

On July 29, 2015, the CompanyJanuary 18, 2018, we entered into an operating lease agreement for itsour laboratory and office space in Cambridge, Massachusetts for the period from AugustMay 1, 20152018 through April 30, 2018.2021, or the Laboratory and Office Lease. The lease contains escalating payments during the lease period. The Company recordsUpon execution of this lease agreement, we prepaid three months of rent, two of which will be held in escrow and credited against future rent payments and the other of which was applied to the first month’s rent. We also prepaid seven and one half months’ rent pursuant to an amendment to the lease agreement executed on June 18, 2018. We record monthly rent expense on thea straight-line basis, equal to the total of the lease payments over the lease term divided by the number of months of the lease term.

On July 30, 2015, the CompanyJune 18, 2018, we entered into an operating lease agreement, as amended, for dedicated vivarium space for the period from August 1, 2015 through March 31, 2018.

On November 14, 2016, June 28, 2017, and January 16, 2018, the Company entered into amendmentsamendment to the operating lease agreementLaboratory and Office Lease that each provided the Companyprovide us with additionala reduction in rental fees for our office and laboratory space. These amendments were effective beginning December 1, 2016 and July 1, 2017, and January 16, 2018, respectively, and continue through the expirationspace in exchange for prepayment of a portion of the lease on April 30, 2018.

On January 16, 2018, the Company entered into an amended lease agreement that provided the Company with additional laboratory space.fees. This amendment was effective beginning on January 16,May 15, 2018 and continues throughexpires on April 14, 2021. The monthly rent payment due under the expirationLaboratory and Office Lease is currently $330,550 until April 2021 and will increase to $375,174 for the remainder of the lease on April 30, 2018.term.

90


On January 22,September 20, 2018, the Companywe entered into an operating lease agreement for additional laboratory space to commence followingat 21 Erie Street, Cambridge, Massachusetts for the expirationperiod from October 15, 2018 through April 14, 2021, or the Additional Laboratory Lease. The lease contains escalating payments during the lease period. The monthly rental rate under the Additional Laboratory Lease was $72,600 for the first 12 months and $78,600 for the remainder of is currentthe term. Upon execution of this lease agreement, described above withwe prepaid 12 months’ rent pursuant to the lease agreement executed on September 20, 2018.

On September 19, 2019, we entered into a term continuing untilsecond amendment to the Additional Laboratory Lease that removed one holding room from the additional laboratory space. The amendment was effective beginning on October 1, 2019 and expires on April 30,14, 2021. The monthly rental rate under the lease agreement is $297,495 for the first 18 months and $388,396Additional Laboratory Lease decreased from $78,600 to $58,995 for the remainder of the lease term.

On June 24, 2020, we entered into a second amendment to the Laboratory and Office Lease. Pursuant to the termsamendment (1) the term of the lease agreement,was extended to June 14, 2022 and (2) the Company prepaid three months’monthly rental rate for the last 14 months of rent payments upon entering into the lease agreement.term was increased to $375,174. We determined that the amendment should be accounted for as a lease modification under Accounting Standards Codification 842, Leases, or ASC 842, not as a separate contract, with an effective date of lease modification of May 14, 2020. At the effective date of modification, we recorded an adjustment to the right-of-use asset and lease liability in the amount of approximately $4,826,000.

On July 20, 2020, we entered into a third amendment to the Additional Laboratory Lease. Pursuant to the amendment the term of the lease was extended to June 14, 2022. We determined that the amendment should be accounted for as a lease modification under ASC 842, not as a separate contract, with an effective date of lease modification of August 4, 2020, when the agreement was fully executed. At the effective date of modification, we recorded an adjustment to the right-of-use asset and lease liability in the amount of approximately $813,000.

Einstein License Agreement and Einstein Service Agreement

The Company’s commitments with respect to the Einstein License and the Service Agreement are summarized above at “Significant Contracts and Agreements Related to Research and Development Activities”.

 

Agreements with Catalent

The Company’s commitments with respect to its agreements with Catalent are summarized above at “Significant Contracts and Agreements Related to Research and Development Activities”.

Contractual Commitments and Other Commitments

The following table sets forth the Company’s estimated fixed obligations and commitments to make future payments under existing contracts at December 31, 2017. This table excludes potential milestone and royalty payments due under our Einstein License.

59

     Payments Due by Period 
     Less Than        More Than 
Description Total  One Year  1 - 3 Years  3 - 5 Years  5 Years 
  (in thousands) 
Operating lease obligations  1,004,000   1,004,000   -   -   - 
Total $1,004,000  $1,004,000  $-  $-  $- 

Off-Balance Sheet Transactions

At December 31, 2017, the Company2020, we did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Market risk representsAs a smaller reporting company, as defined by Rule 12b-2 of the risk of loss that may result fromExchange Act, we are not required to provide the change in value of financial instruments due to fluctuations in their market price. Market risk is inherent in all financial instruments. The primary quantifiable market risk associated with our financial instruments is sensitivity to changes in interest rates. Interest rate risk represents the potential loss from adverse changes in market interest rates. The primary objective of our investment activities is to preserve principal while maximizing our income from investments and minimizing our market risk. As of December 31, 2017, our portfolio of financial instruments consisted of cash and certificates of deposit. Due to the short term nature of these financial instruments, we believe there is no material exposure to interest rate risk, and/or credit risk, arising from our portfolio of financial instruments.information under this item.

Our assets and liabilities are denominated in U.S. dollars. Consequently, we have not considered it necessary to use foreign currency contracts or other derivative instruments to manage changes in currency rates. We do not now, nor do we plan to, use derivative financial instruments for speculative or trading purposes. However, these circumstances might change.

Item 8. Financial Statements and Supplementary Data.

Our financial statements and the related notes, together with the Report of Independent Registered Public Accounting Firm thereon, are set forth beginning on page F-1 of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, management performed, with the participation of our principal executive and principal financial officers, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures. Based on the evaluation, our principal executive and principal financial officers concluded that, as of December 31, 2020, our disclosure controls and procedures were effective.

91


Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f).  Management evaluated the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control Integrated Framework (the 2013 Framework).  Based on this assessment, our management concluded that, as of December 31, 2020, our internal control over financial reporting was effective based on those criteria.  All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  There were no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

This annual report does not include an attestation report of our registered public accounting firm due to the transition period established by the JOBS Act for emerging growth companies.

Item 9B. Other Information.

On March 4, 2021, we entered into a third amended and restated employment agreement with Mr. Passeri, our Chief Executive Officer, or the Passeri Employment Agreement, which amends and restates the second amended and restated employment agreement dated February 10, 2020 and pursuant to which, among other things, the parties agreed to remove the annual renewal provision and the right of Mr. Passeri to receive a severance payment if he resigns during the first renewal period.  The Passeri Employment Agreement provides that Mr. Passeri shall continue to be employed as our Chief Executive Officer.  The term of the Passeri Employment Agreement continues in effect until terminated in accordance with its terms.  Mr. Passeri’s employment under the Passeri Employment Agreement shall terminate on the first to occur of the following (i) upon 10 days’ prior written notice by us to Mr. Passeri of termination due to Mr. Passeri’s disability (as defined in the Passeri Employment Agreement), (ii) automatically upon Mr. Passeri’s death, (iii) immediately upon written notice by us to Mr. Passeri of a termination for cause (as defined in the Passeri Employment Agreement), (iv) upon written notice by Mr. Passeri to us of a termination for good reason (as defined in the Passeri Employment Agreement), (v) immediately upon written notice by us to Mr. Passeri of an involuntary termination without cause (other than for death or disability) or (vi) upon 60 days’ prior written notice by Mr. Passeri to us of Mr. Passeri’s voluntary termination without good reason.  

The Passeri Employment Agreement provides that Mr. Passeri shall receive an initial annual base salary of $515,000 and is eligible to receive an annual incentive bonus of up to 50% of his base salary based upon achievement of performance-based objectives established by our board of directors.  The Passeri Employment Agreement also provides that Mr. Passeri received an option to purchase 150,000 shares of common stock and 150,000 restricted stock units, which represent the contingent right to receive an equal number of shares of common stock, under our 2016 Omnibus Incentive Plan.

The payments and other benefits that Mr. Passeri is eligible to receive upon termination of his employment pursuant to the Passeri Employment Agreement are the same as those described in “Compensation and Other Information Concerning Directors and Officers—Employment Agreements and Change of Control Arrangements—Employment Agreements—Daniel R. Passeri” in our definitive proxy statement filed with the SEC on May 29, 2020.  Our obligation to make those payments and provide those benefits is conditioned upon Mr. Passeri signing and delivering a release of claims and agreement not to compete with us for 12 months post-employment.

Mr. Passeri executed a non-competition agreement in the form attached to the Passeri Employment Agreement as a condition of his continued employment.

A copy of the Passeri Employment Agreement is filed as Exhibit 10.26 to this Annual Report on Form 10-K, and the foregoing description of the terms of the Passeri Employment Agreement is qualified in its entirety by reference to such exhibit.


PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this Item is incorporated by reference to our Definitive Proxy Statement on Schedule 14A relating to our 2021 annual meeting of stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 11. Executive Compensation

The information required by this Item is incorporated by reference to our Proxy Statement on Schedule 14A relating to our 2021 annual meeting of stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.

The information required by this Item is incorporated by reference to our Proxy Statement on Schedule 14A relating to our 2021 annual meeting of stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

The information required by this Item is incorporated by reference to our Proxy Statement on Schedule 14A relating to our 2021 annual meeting of stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 14. Principal Accountant Fees and Services

The information required by this Item is incorporated by reference to our Proxy Statement on Schedule 14A relating to our 2021 annual meeting of stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

60

INDEX TO FINANCIAL STATEMENTS

Page

Page

ReportReports of Independent Registered Public Accounting Firm

F-2

Consolidated Balance Sheets at December 31, 20172020 and 20162019

F-3

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2017, 20162020 and 20152019

F-4

Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2017, 20162020 and 20152019

F-5

Consolidated Statement of Cash Flows for the years ended December 31, 2017, 20162020 and 20152019

F-6

Notes to the Consolidated Financial Statements

F-7

F-1

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMF-1


Report of Independent Registered Public Accounting Firm

 

To the Stockholders and the Board of Directors and Stockholders of

Cue Biopharma, Inc.

 

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Cue Biopharma, Inc. and its Subsidiary (the “Company”)Company) as of December 31, 20172020 and 2016, and2019, the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the three years in the periodthen ended, December 31, 2017, and the related notes to the consolidated financial statements (collectively, referred to as the “financial statements”)financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the three years in the periodthen ended, December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

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

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. 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 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 included performing procedures to assess the risks of material misstatement of the 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Gumbiner Savett Inc.RSM US LLP

We have served as the Company’sCompany's auditor since 2016.2018.

Santa Monica, California

Boston, Massachusetts

March 29, 20189, 2021

 


F-2


CUE BIOPHARMA, INC.

CONSOLIDATED BALANCE SHEETS

 

  December 31, 
  2017  2016 
ASSETS        
Current assets:        
Cash $63,533,649  $14,925,820 
Certificate of deposit  50,068   50,033 
Research and development contract advances  852,376    
Prepaid expenses and other current assets  403,420   162,398 
Deposits, short-term  225,500    
Total current assets  65,065,013   15,138,251 
Property and equipment, net  1,690,539   1,023,366 
Deposits     117,000 
Trademark  175,000    
Long-term services contract  23,282    
Total assets $66,953,834  $16,278,617 
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable and accrued expenses $1,329,124  $549,963 
Accrued compensation and related expenses  857,315   408,559 
Research and development contract liabilities  623,853    
Research and development collaboration agreement – deferred credit  2,500,000    
Current portion of deferred rent  36,364   109,091 
Total current liabilities  5,346,656   1,067,613 
Deferred rent, net of current portion     36,364 
Total liabilities  5,346,656   1,103,977 
Commitments and contingencies        
Stockholders’ equity:        
Preferred Stock, $0.001 par value, authorized – 10,000,000 shares; issued and outstanding – none      
Common stock, $0.001 par value; authorized – 50,000,000 shares; issued and outstanding – 19,459,194 shares and 10,635,684 shares at December 31, 2017 and 2016, respectively  19,460   10,636 
Common stock to be issued  671    
Additional paid-in capital  94,407,895   24,751,017 
Accumulated deficit  (32,820,848)  (9,587,013)
Total stockholders’ equity  61,607,178   15,174,640 
Total liabilities and stockholders’ equity $66,953,834  $16,278,617 

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

74,866,133

 

 

$

44,290,030

 

Marketable securities

 

 

10,002,550

 

 

 

15,119,925

 

Accounts receivable

 

 

1,417,482

 

 

 

754,898

 

Prepaid expenses and other current assets

 

 

1,241,239

 

 

 

860,107

 

Total current assets

 

 

87,527,404

 

 

 

61,024,960

 

Property and equipment, net

 

 

2,108,024

 

 

 

1,846,922

 

Operating lease right-of-use

 

 

6,774,229

 

 

 

5,337,026

 

Deposits

 

 

2,572,476

 

 

 

2,572,476

 

Restricted cash

 

 

150,000

 

 

 

150,000

 

Other long term assets

 

 

401,667

 

 

 

673,625

 

Total assets

 

$

99,533,800

 

 

$

71,605,009

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,070,303

 

 

$

882,666

 

Accrued expenses

 

 

2,787,211

 

 

 

2,227,352

 

Research and development contract liability, current portion

 

 

6,681,025

 

 

 

4,097,443

 

Operating lease liability, current portion

 

 

4,777,427

 

 

 

4,447,787

 

Total current liabilities

 

 

16,315,966

 

 

 

11,655,248

 

Research and development contract liability, net of current portion

 

 

1,937,575

 

 

 

4,017,894

 

Operating lease liability, net of current portion

 

 

2,368,787

 

 

 

1,347,971

 

Total liabilities

 

 

20,622,328

 

 

 

17,021,113

 

Commitments and contingencies (NOTE 14)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, authorized – 10,000,000 shares; issued and

   outstanding – NaN

 

 

 

 

 

 

Common stock, $0.001 par value; authorized – 100,000,000 shares; issued and

   outstanding – 30,351,366 shares and 26,562,178 shares at December 31, 2020

   and 2019, respectively

 

 

30,351

 

 

 

26,562

 

Additional paid in capital

 

 

232,159,029

 

 

 

163,067,773

 

Accumulated other comprehensive income (loss)

 

 

7,131

 

 

 

(10,321

)

Accumulated deficit

 

 

(153,285,039

)

 

 

(108,500,118

)

Total stockholders’ equity

 

 

78,911,472

 

 

 

54,583,896

 

Total liabilities and stockholders’ equity

 

$

99,533,800

 

 

$

71,605,009

 

 

See accompanying notes to consolidated financial statements.

F-3

F-3

CUE BIOPHARMA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

 Years Ended December 31, 

 

Years Ended December 31,

 2017  2016  2015 

 

2020

 

 

2019

 

 

Revenue $  $  $ 

Collaboration revenue

 

$

3,154,325

 

 

$

3,458,331

 

 

Operating expenses:            

 

 

 

 

 

 

 

 

 

General and administrative  4,333,542   1,970,488   425,081 

 

 

14,651,205

 

 

 

12,740,093

 

 

Research and development  18,900,328   5,687,847   1,503,649 

 

 

33,545,705

 

 

 

27,487,485

 

 

Total operating expenses  23,233,870   7,658,335   1,928,730 

 

 

48,196,910

 

 

 

40,227,578

 

 

Loss from operations  (23,233,870)  (7,658,335)  (1,928,730)

 

 

(45,042,585

)

 

 

(36,769,247

)

 

Interest income  35   52    

Other income:

 

 

 

 

 

 

 

 

 

Interest income, net

 

 

463,914

 

 

 

482,790

 

 

Total other income

 

 

463,914

 

 

 

482,790

 

 

Loss before provision for income taxes

 

$

(44,578,671

)

 

$

(36,286,457

)

 

Provision for income taxes

 

 

(206,250

)

 

 

(412,500

)

 

Net loss $(23,233,835) $(7,658,283) $(1,928,730)

 

 

(44,784,921

)

 

 

(36,698,957

)

 

Unrealized gains from available-for-sale securities

 

 

17,452

 

 

 

637

 

 

Comprehensive loss

 

$

(44,767,469

)

 

$

(36,698,320

)

 

Net loss per common share – basic and diluted $(2.16) $(1.03) $(0.34)

 

$

(1.56

)

 

$

(1.66

)

 

Weighted average common shares outstanding – basic and diluted  10,732,449   7,433,433   5,658,282 

 

 

28,688,625

 

 

 

22,041,792

 

 

 

See accompanying notes to consolidated financial statements.

F-4

F-4

CUE BIOPHARMA, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Years Ended December 31, 2017, 20162020 and 20152019

 

  Common Stock  

Common Stock

(to be issued)

  

Additional

Paid-in

  Accumulated  

Total
Stockholders’

 
  Shares  Par Value  Shares  Par Value  Capital  Deficit  Equity 
Common stock issued to founders  3,649,000  $3,649     $  $  $  $3,649 
Common stock issued in private placement  3,703,704   3,704         9,996,296      10,000,000 
Costs incurred in connection with private placement of common stock              (1,911,529)     (1,911,529)
Proceeds from sale of placement agent warrants              1,000      1,000 
Fair value of warrants issued in connection with private placement of common stock              773,941      773,941 
Net loss                 (1,928,730)  (1,928,730)
Balance, December 31, 2015  7,352,704   7,353         8,859,708   (1,928,730)  6,938,331 
Common stock issued in private placement  3,282,980   3,283         16,411,617      16,414,900 
Costs incurred in connection with private placement of common stock              (1,409,864)     (1,409,864)
Stock-based compensation              889,556      889,556 
Net loss                 (7,658,283)  (7,658,283)
Balance, December 31, 2016  10,635,684   10,636         24,751,017   (9,587,013)  15,174,640 
Common stock issued in initial public offering  8,820,710   8,821         66,146,472      66,155,293 
Costs incurred in connection with initial public offering              (8,396,661)     (8,396,661)
Stock-based compensation              2,775,363      2,775,363 
Common stock to be issued pursuant to license agreements        671,572   671   5,036,118      5,036,789 
Proceeds from sale of placement agent warrants              1,000      1,000 
Fair value of warrants issued in connection with initial public offering of common stock              4,086,581      

4,086,581

Exercise of stock options  2,800   3         8,005      8,008 
Net loss                 (23,233,835)  (23,233,835)
Balance, December 31, 2017  19,459,194  $19,460   671,572  $671  $94,407,895  $(32,820,848) $61,607,178 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Par

Value

 

 

Additional Paid-in

Capital

 

 

Accumulated Other Comprehensive

Income (Loss)

 

 

Accumulated

Deficit

 

 

Total Stockholders’

Equity

 

Balance, December 31, 2018

 

 

20,697,453

 

 

$

20,697

 

 

$

105,762,891

 

 

$

(10,958

)

 

$

(71,801,161

)

 

$

33,971,469

 

Issuance of common stock from public offerings, net of underwriter commissions and fees

 

 

5,314,055

 

 

 

5,314

 

 

 

48,993,593

 

 

 

 

 

 

 

 

 

48,998,907

 

Stock-based compensation

 

 

 

 

 

 

 

 

6,520,982

 

 

 

 

 

 

 

 

 

6,520,982

 

Exercise of stock options

 

 

485,105

 

 

 

485

 

 

 

1,881,388

 

 

 

 

 

 

 

 

 

1,881,873

 

Issuance of common stock upon cashless exercise of warrants, net of shares withheld

 

 

44,319

 

 

 

45

 

 

 

(45

)

 

 

 

 

 

 

 

 

 

Restricted stock awards

 

 

33,333

 

 

 

33

 

 

 

(21

)

 

 

 

 

 

 

 

 

12

 

Repurchase of restricted stock awards

 

 

(12,087

)

 

 

(12

)

 

 

(91,015

)

 

 

 

 

 

 

 

 

(91,027

)

Unrealized gains from available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

637

 

 

 

 

 

 

637

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36,698,957

)

 

 

(36,698,957

)

Balance, December 31, 2019

 

 

26,562,178

 

 

 

26,562

 

 

 

163,067,773

 

 

 

(10,321

)

 

 

(108,500,118

)

 

 

54,583,896

 

Issuance of common stock from public offerings, net of underwriter commissions and fees

 

 

3,016,901

 

 

 

3,017

 

 

 

56,679,219

 

 

 

 

 

 

 

 

 

56,682,236

 

Stock-based compensation

 

 

 

 

 

 

 

 

10,480,782

 

 

 

 

 

 

 

 

 

10,480,782

 

Exercise of stock options

 

 

454,497

 

 

 

454

 

 

 

2,202,607

 

 

 

 

 

 

 

 

 

2,203,061

 

Issuance of common stock upon cashless exercise of warrants, net of shares withheld

 

 

278,179

 

 

 

278

 

 

 

(278

)

 

 

 

 

 

 

 

 

 

Restricted stock awards

 

 

56,665

 

 

 

57

 

 

 

(40

)

 

 

 

 

 

 

 

 

17

 

Repurchase of restricted stock awards

 

 

(17,054

)

 

 

(17

)

 

 

(271,034

)

 

 

 

 

 

 

 

 

(271,051

)

Unrealized gains from available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

17,452

 

 

 

 

 

 

17,452

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,784,921

)

 

 

(44,784,921

)

Balance, December 31, 2020

 

 

30,351,366

 

 

$

30,351

 

 

$

232,159,029

 

 

$

7,131

 

 

$

(153,285,039

)

 

$

78,911,472

 

 

See accompanying notes to consolidated financial statements.

F-5

F-5

CUE BIOPHARMA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

  Years Ended December 31, 
  2017  2016  2015 
Cash flows from operating activities:            
Net loss $(23,233,835) $(7,658,283) $(1,928,730)
Adjustments to reconcile net loss to net cash used in operating activities:            
Common stock to be issued pursuant to license agreements  5,036,789       
Depreciation and amortization  419,568   202,085   44,815 
Deferred rent  (109,091)  65,910   79,545 
Stock-based compensation  2,775,363   889,556    
Loss on disposal of property plant and equipment  10,677       
Changes in operating assets and liabilities:            
(Increase) decrease in –            
Research and development contract advances  (852,376)      
Prepaid expenses and other current assets  (264,304)  (110,951)  (51,447)
Deposits  (108,500)  (18,500)  (98,500)
Increase (decrease) in –            
Accounts payable and accrued expenses  561,586   372,148   177,815 
Accrued compensation and related expenses  448,756   289,624   118,935 
Research and development contract liabilities  623,853       
Research and development collaboration agreement – deferred credit  2,500,000       
Net cash used in operating activities  (12,191,514)  (5,968,411)  (1,657,567)
Cash flows from investing activities:            
Increase in certificate of deposit  (35)  (33)  (50,000)
Acquisition of trademark  (175,000)      
Purchases of property and equipment  (1,029,942)  (515,979)  (754,287)
Net cash used in investing activities  (1,204,977)  (516,012)  (804,287)
Cash flows from financing activities:            
Proceeds from issuance of common stock to founders        3,649 
Proceeds from private placements of common stock     16,414,900   10,000,000 
Proceeds from sale of placement agent and underwriters warrants  1,000      1,000 
Proceeds from the initial public offering of common stock  66,155,293       
Proceeds from the exercise of stock options  8,008       
Cash payments made for costs incurred in connection with sale of common stock  (4,159,981)  (1,409,864)  (1,137,588)
Net cash provided by financing activities  62,004,320   15,005,036   8,867,061 
Cash:            
Net increase  48,607,829   8,520,613   6,405,207 
Balance at beginning of year  14,925,820   6,405,207    
Balance at end of year $63,533,649  $14,925,820  $6,405,207 
Supplemental disclosures of cash flow information:            
Cash paid for –            
Interest $  $  $ 
Income taxes $  $  $ 
Non-cash investing and financing activities:            
Fair value of warrants issued in connection with issuance of common stock $4,086,581  $  $773,941 
Public offering costs included in accounts payable or accrued expenses $150,099  $  $ 
Purchases of property and equipment in accounts payable or accrued expenses $67,477  $  $ 

 

 

Years Ended December 31,

 

 

2020

 

 

2019

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(44,784,921

)

 

$

(36,698,957

)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,057,458

 

 

 

810,782

 

 

Stock-based compensation

 

 

10,480,782

 

 

 

6,520,982

 

 

Loss on disposal of fixed asset

 

 

 

 

 

54,274

 

 

Other non cash charges

 

 

(563,232

)

 

 

 

 

Amortization of premium/discount on purchased securities

 

 

83,694

 

 

 

(72,464

)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Account receivable

 

 

(662,584

)

 

 

(754,898

)

 

Prepaid expenses and other current assets

 

 

(381,132

)

 

 

487,182

 

 

Operating lease right-of-use asset

 

 

(4,202,480

)

 

 

4,354,810

 

 

Other assets

 

 

(4,971

)

 

 

123,437

 

 

Deposits

 

 

 

 

 

(1,559,704

)

 

Accounts payable

 

 

741,265

 

 

 

(1,152,688

)

 

Accrued expenses

 

 

559,859

 

 

 

439,290

 

 

Research and development contract liability

 

 

503,263

 

 

 

928,588

 

 

Operating lease liability

 

 

4,678,965

 

 

 

(4,277,544

)

 

Net cash used in operating activities

 

 

(32,494,034

)

 

 

(30,796,910

)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(595,259

)

 

 

(46,353

)

 

Redemption of short term investments

 

 

15,000,000

 

 

 

18,500,000

 

 

Purchases of marketable securities

 

 

(9,948,867

)

 

 

(15,134,324

)

 

Cash received from sale of fixed asset

 

 

 

 

 

127,500

 

 

Net cash provided by investing activities

 

 

4,455,874

 

 

 

3,446,823

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Proceeds from the public offering of common stock, net of underwriter's commission and fees

 

 

56,682,236

 

 

 

48,998,907

 

 

Issuance of restricted stock awards

 

 

17

 

 

 

12

 

 

Restricted stock repurchase at vesting to cover taxes

 

 

(271,051

)

 

 

(91,027

)

 

Proceeds from the exercise of stock options

 

 

2,203,061

 

 

 

1,881,873

 

 

Net cash provided by financing activities

 

 

58,614,263

 

 

 

50,789,765

 

 

Net increase in cash, cash equivalents, and restricted cash

 

 

30,576,103

 

 

 

23,439,678

 

 

Cash, cash equivalents, and restricted cash at beginning of year

 

 

44,440,030

 

 

 

21,000,352

 

 

Cash, cash equivalents, and restricted cash at end of year

 

$

75,016,133

 

 

$

44,440,030

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

 

Cash paid for –

 

 

 

 

 

 

 

 

 

Income taxes

 

$

 

 

$

412,500

 

 

Purchases of property and equipment in accounts payable or accrued expenses

 

$

446,372

 

 

$

 

 

Operating lease modification

 

$

5,639,000

 

 

$

 

 

 

See accompanying notes to consolidated financial statements.

F-6

F-6

CUE BIOPHARMA, INC.

 

NOTES TO FINANCIAL STATEMENTS

Years Ended December 31, 2017, 20162020 and 20152019

1.

1.

Organization and Basis of Presentation

Cue Biopharma, Inc. (the “Company”) was incorporated in the State of Delaware on December 31, 2014 under the name Imagen Biopharma, Inc., and completed its organization, formation and initial capitalization activities effective as of January 1, 2015. In October 2016, the Company changed its name to Cue Biopharma, Inc. The Company’s corporate office and research facilities are located in Cambridge, Massachusetts.

On January 14, 2015, in order to implement its business plans, the Company entered into a license agreement with the Albert Einstein College of Medicine, a division of Yeshiva University (“Einstein”), for certain patent rights, as described in Note 5.

The Company is a pre-clinicalclinical-stage biopharmaceutical company that is developingengineering a novel and proprietary class of biologic drugs forinjectable biologics to selectively engage and modulate targeted T cells within the selective modulation of the human immune systempatient’s body to treat a broad range of cancers, chronic infectious diseases, and autoimmune disorders.

Reclassifications

Certain comparative figuresThe Company is in the development stage and has incurred recurring losses and negative cash flows from operations. As of December 31, 2020, the Company had unrestricted cash, cash equivalents and marketable securities of approximately $84.9 million.  Management believes that current cash, cash equivalents and marketable securities on hand at December 31, 2020 are sufficient to fund operations for at least the years ended 2016next twelve months from the date of issuance of these financial statements; however, the future viability of the Company is dependent on its ability to raise additional capital to finance its operations and 2015 have been adjusted to correct the classification of patent legal costs and intellectual property management fees fromfund increased research and development expensescosts in order to generalseek approval for commercialization of its drug product candidates. The Company’s failure to raise capital as and administrative expenses. Duringwhen needed would have a negative impact on its financial condition and its ability to pursue its business strategies as this capital is necessary for the Company to perform the research and development activities required to develop the Company’s drug product candidates in order to generate future revenue streams.

2.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements for the years ended December 31, 20162020 and 2015, patent legal costs2019, have been prepared in accordance with the rules and regulations of $366,131the Securities and $178,697 Exchange Commission (the “SEC”) and intellectual propertyGenerally Accepted Accounting Principles in the United States (“U.S. GAAP”) for financial information, which prescribes elimination of all significant intercompany accounts and transactions in the accounts of the Company and its wholly owned subsidiary, Cue Biopharma Securities Corporation, Inc., which was incorporated in the Commonwealth of Massachusetts in December 2018. In the opinion of management, fees of $90,000 and $38,182, aggregating $456,131 and $216,879, respectively, were reclassified from research and development costs to general and administrative costs. These changes did not impact loss from operations or net loss.

Risks and Uncertainties

The Company’s operationsthese financial statements reflect all adjustments which are subject tonecessary for a number of factors that may affect its operating results and financial condition. Such factors include, but are not limited to: the Company’s ability to determine candidates for clinical testing, the results of clinical testing and trial activitiesfair statement of the Company’s product candidates,financial position and results of its operations, as of and for the periods presented.

Public Offerings

In June 2019, the Company entered into an “at-the-market” (“ATM”) equity offering sales agreement (the “June 2019 ATM Agreement”) with Stifel Nicolaus & Company, Inc. (“Stifel”) to sell shares of the Company’s abilitycommon stock for aggregate gross proceeds of up to obtain regulatory approval$30 million, from time to market its product candidates, the Company’s intellectual property, competition from products manufactured and sold or being developed by other companies, the pricetime, through an ATM equity offering program under which Stifel acted as sales agent.  As of and demand for, the Company’s product candidates if approved for sale, the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its product candidates, and the Company’s ability to raise capital.

The Company currently has no commercially approved product candidates and there can be no assurance that the Company’s research and development programs will be successfully commercialized. Developing and commercializing a product requires significant time and capital and is subject to regulatory review and approval, as well as competition from other biotechnology and pharmaceutical companies. The Company operates in an environment of rapid change and is dependent upon the continued services of its employees and consultants and obtaining and protecting its intellectual property.

2.Initial Public Offering

On December 27, 2017,31, 2020, the Company completed an initial public offering (“IPO”) of its common stock, which resulted in the sale of 8,820,710had sold 3,584,945 shares of common stock atunder the June 2019 ATM Agreement for proceeds of approximately $29.4 million, net of commissions paid, but excluding transaction expenses, and terminated this equity offering upon completion.  

In November 2019, the Company entered into an ATM equity offering sales agreement with Stifel (the “November 2019 ATM Agreement”) to sell shares of the Company’s common stock for aggregate gross proceeds of up to $20 million, from time to time, through an ATM equity offering program under which Stifel acted as sales agent.  As of December 31, 2020, the Company had sold 1,729,110 common shares under the November 2019 ATM Agreement for proceeds of approximately $19.6 million, net of commissions paid, but excluding estimated transaction expenses, and terminated this equity offering upon completion.     

F-7


In March 2020, the Company entered into an ATM equity offering sales agreement with Stifel (the “March 2020 ATM Agreement”) to sell shares of the Company’s common stock for aggregate gross proceeds of up to $35 million, from time to time, through an ATM equity offering program under which Stifel would act as sales agent. As of December 31, 2020, the Company had sold a pricetotal of 1,824,901 shares of common stock under the March 2020 ATM Agreement for proceeds of approximately $34.3 million, net of commissions paid, but excluding estimated transaction expenses. Due to the publicissuance and sale of $7.50 per share.all the shares of common stock subject thereto, the March 2020 ATM Agreement terminated in accordance with its terms.

In June 2020, the Company entered into an ATM equity offering sales agreement with Stifel (the “June 2020 ATM Agreement”) to sell shares of the Company’s common stock for aggregate gross proceeds of up to $40 million, from time to time, through an ATM equity offering program under which Stifel acts as sales agent.  The June 2020 ATM Agreement will terminate upon the earliest of (a) the sale of $40 million of shares of the Company’s common stock or (b) the termination of the June 2020 ATM Agreement by the Company or Stifel. As of December 31, 2020, the Company had sold 1,192,000 shares of common stock under the June 2020 ATM Agreement for proceeds of approximately $22.4 million, net of commissions paid, but excluding estimated transaction expenses.

Consolidation

The accompanying consolidated financial statements include the Company and its wholly owned subsidiary, Cue Biopharma Securities Corporation, Inc. The Company received net proceeds fromhas eliminated all intercompany transactions for the IPO of $61.9 million after deducting underwriting discounts, commissions, and offering costs incurred by the Company.years presented.

 

3.Summary of Significant Accounting Policies

Reclassifications

 

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

Use of Estimates

The preparation of financial statements in conformity with United States Generally Accepted Accounting Principles (“GAAP”)U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates include estimates related to revenue, the accounting for potential liabilities and accrued expenses, the assumptions utilized in valuing stock-based compensation issued for services, the realization of deferred tax assets, and the impairment ofuseful life with respect to long-lived assets and intangibles. Actual results could differ from those estimates.

F-7

Cash Concentrations

The Company maintains its cash balances with a financial institution in Federally-insured accounts and may periodically have cash balances in excess of insurance limits. The Company maintains its accounts with a financial institution with a high credit rating. The Company has not experienced any losses to date and believes that it is not exposed to any significant credit risk on cash.

Cash and Cash Equivalents

The Company considers all liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents.  The Company currently invests available cash in money market funds.

Marketable Securities

Marketable securities consist of investments with original maturities greater than ninety days and less than one year from the balance sheet date.  The Company classifies all of its investments as available-for-sale securities.  Accordingly, these investments are recorded at fair value, which is based on quoted market prices. Unrealized gains are recognized and are included in other comprehensive income (loss). Realized gains are recognized and determined on a specific identification basis and are included in other income (loss) on the income statement. Amortization and accretion of discounts and premiums is recorded in interest income. The Company currently invests in United States Treasury obligations.

F-8


Restricted Cash

The Company purchased a $50,000$150,000 certificate of deposit to collateralize a credit card account with a commercial bank that was classified as short-term certificate of deposit as of December 31, 2017 and 2016.2020.

Property and Equipment

Property and equipment is recorded at cost. Major improvements are capitalized, while maintenance and repairs are charged to expense as incurred. Gains and losses from disposition of property and equipment are included in income and expense when realized. Amortization of leasehold improvements is provided using the straight-line method over the shorter of the lease term or the useful life of the underlying assets. Depreciation of property and equipment is provided using the straight-line method over the following estimated useful lives:

 

Laboratory equipment

5 years

Computer equipment

3 years

Computer equipment3 years

Furniture and fixtures

3-8 years

 

The Company recognizes depreciation and amortization expense in general and administrative expenses and in research and development expenses in the Company’s consolidated statements of operations and comprehensive loss, depending on how each category of property and equipment is utilized in the Company’s business activities.

Trademark

Trademark consists of the Company’s right, title and interest in and to the CUE BIOLOGICS Mark, and any derivative mark incorporating CUE, throughout the world, together with all associated goodwill and common law rights appurtenant thereto, including, but not limited to, any right, title and interest in any corporate name, company name, business name, trade name, dba, domain name, or other source identifier incorporating CUE.

As the Company can renew the underlying rights to the CUE BIOLOGICS Mark indefinitely at nominal cost, this acquired intangible asset has been classified as a non-amortizable intangible assetcomponent of other long term assets, having a useful life of 15 years. The Company recorded $11,666 and $11,667 in amortization related to the Company’s balance sheettrademark at December 31, 2017. 2020 and 2019, respectively.

Revenue Recognition

The Company evaluatesfollows the statusprovisions of this intangible assetAccounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”).  The Company generates revenue solely through collaboration arrangements with strategic partners for amortizationthe development and impairment atcommercialization of drug product candidates.  The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods and/or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and/or services. To determine the appropriate amount of revenue to be recognized for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following steps: (i) Identify the contract(s) with the customer, (ii) Identify the performance obligations in the contract, (iii) Determine the transaction price, (iv) Allocate the transaction price to the performance obligations in the contract and (v) Recognize revenue when (or as) each quarter end and year end reporting date.

Research and Development Funding Arrangements

performance obligation is satisfied.

The Company’s proprietary biologics are at an early stage and will require substantial time and funding to continue development. There can be no assurances that anyCompany recognizes collaboration revenue under certain of the Company’s biologics will ultimately become commercially viable product candidates. In orderlicense or collaboration agreements that are within the scope of ASC 606. The Company’s contracts with customers typically include promises related to finance itslicenses to intellectual property and research and development programs,services.  If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company may periodically enter into collaboration agreementsrecognizes revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with third parties that provide funding for certain aspectsother promises, the Company utilizes judgement to assess the nature of the Company’s ongoing researchcombined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, development activities.if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. Accordingly, the transaction price is generally comprised of a fixed fee due at contract inception and variable consideration in the form of milestone payments due upon the achievement of specified events and tiered royalties earned when customers recognize net sales of licensed products. The Company considers various factorsmeasures the transaction price based on the amount of consideration to which it expects to be entitled in determiningexchange for transferring the appropriate accounting treatment for such collaboration agreements, including, among others, the risks of and costs associated with the research and development program being funded, the stage of development of the proprietary biologics subjectpromised goods and/or services to the research and development program,customer. The Company utilizes the likelihood at initiation that“most likely amount” method to estimate the collaboration arrangementamount of variable consideration, to predict the amount of consideration to which it will result in an economically successful outcome to the third party, the continuing involvementbe entitled for its one open contract. Amounts of the Companyvariable consideration are included in the research and development program and the expenditure of the funds, the transfer of the financial risk associated with the research and development program to the third party, the intended use of the funds and any restrictions thereon, and the probability of any repayment obligations or other forms of consideration if the proprietary biologics subject to the research and development program are not successfully developed and commercialized.

F-8

In accordance with ASC 730-20-25-8,transaction price to the extent that it is probable that a collaboration agreement resultssignificant reversal in a substantivethe amount of cumulative revenue recognized will not occur when the uncertainty associated with the

F-9


variable consideration is subsequently resolved. At the inception of each arrangement that includes development and genuine transfer of financial risk to a third party funding source because any economic benefit that the third party may receive depends solely on the research and development program successfully developing commercially viable product candidates having future economic benefit (which is uncertain at the initiation of the collaboration agreement),regulatory milestone payments, the Company will account for such collaboration agreement as aevaluates whether the associated event is considered probable of achievement and estimates the amount to be included in the transaction price using the most likely amount method. Currently, the Company has one contract with an option to performacquire additional goods and/or services in the form of additional research and development services for additional drug product candidates which it evaluated and determined that it was not a third party. The funds received frommaterial right related to the third party under such a collaboration agreement will initially be recorded as a deferred credit in the Company’s balance sheet. As the related contractual research and development costs are incurred, the applicable amount of the deferred credit will be credited to operations and will be classified as an offset to such research and development costs in the Company’s statement of operations.LG Chem agreement.

Research and Development Expenses

Research and development expenses consist primarily of compensation costs, fees paid to consultants, outside service providers and organizations (including research institutes at universities), facility costs, and development and clinical trial costs with respect to the Company’s drug product candidates.

Research and development expenses incurred under contracts are expensed ratably over the life of the underlying contracts, unless the achievement of milestones, the completion of contracted work, or other information indicates that a different expensing schedulepattern of performance is more appropriate.  Other research and development expenses are charged to operations as incurred.

F-9

Payments made pursuant to research and development contracts are initially recorded as research and development contract advances in the Company’s balance sheet and then charged to research and development expenses in the Company’s statement of operations as those contract services are performed. Expenses incurred under research and development contracts in excess of amounts advanced are recorded as research and development contract liabilities in the Company’s balance sheet, with a corresponding charge to research and development expenses in the Company’s statement of operations.

Nonrefundable advance payments for future research and development activities pursuant to an executory contractual arrangement are recorded as advances as described above. Nonrefundable advance payments are recognized as an expense as the related services are performed. The Company evaluates whether it expects the services to be rendered at each quarter end and year end reporting date. If the Company does not expect the services to be rendered, the advance payment is charged to expense. Nonrefundable advance payments for research and development services are included in prepaid and other current assets on the balance sheet.  To the extent that a nonrefundable advance payment is for contracted services to be performed within 12 months from the reporting date, such advance is included in current assets; otherwise, such advance is included in non-current assets.

The Company evaluates the status of its research and development agreements and contracts, and the carrying amount of the related assets and liabilities, at each quarter end and year end reporting date, and adjusts the carrying amounts and their classification on the balance sheet as appropriate.

 

Patent Expenses

The Company is the exclusive worldwide licensee of, and has patent applications pending for, numerous domestic and foreign patents. Due to the significant uncertainty associated with the successful development of one or more commercially viable drug product candidates based on the Company’s research efforts and any related patent applications, all patent costs, including patent-related legal fees, filing fees and other costs are charged to operations as incurred. For the years ended December 31, 2017, 2016,2020 and 2015,2019, patent expenses were $592,262, $366,131,$1,879,000 and $178,697,$1,934,000, respectively. Patent expenses are included in general and administrative expenses in the Company’s statementconsolidated statements of operations.operations and comprehensive loss.

Licensing Fees and Costs

Licensing fees and costs consist primarily of costs relating to the acquisition of the Company’s license agreement with Einstein, including related royalties, maintenance fees, milestone payments and product development costs. Licensing fees and costs are charged to operations as incurred.

Long-Lived Assets

The Company reviews long-lived assets, consisting of property and equipment and a trademark, for impairment at each fiscal year end or when events or changes in circumstances indicate the carrying value of these assets may exceed their current fair values. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the assets. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The Company has not historically recorded any impairment to its long-lived assets. In the future, if events or market conditions affect the estimated fair value to the extent that a long-lived asset is impaired, the Company will adjust the carrying value of these long-lived assets in the period in which the impairment occurs. During the yearsyear ended December 31, 2017, 20162019, the Company sold lab equipment with a net book value of approximately $181,000 that was being decommissioned and 2015 the company disposed of equipment totaling $15,993, $0 and $0, resulting inrecognized a loss of $10,677, $0approximately $54,000. There were 0 sales of lab equipment or capital equipment during the year ended December 31, 2020.

F-10


Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-02, Leases (ASC 842) (“ASU-2016-02”), which supersedes the existing guidance for lease accounting, Leases (ASC 840). ASU 2016-02 requires a lessee to record a right-of-use asset and $0, respectively.a corresponding lease liability, for most lease arrangements on the balance sheet.  Under the standard, disclosure of key information about leasing arrangements to assist users of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases are required. The standard is effective for fiscal years beginning after December 15, 2018.

Rent Expense and Deferred Rent Liability

Operating lease agreements which contain provisions for future rent increases or periods in which rent payments are reduced or abated are recorded in monthly rent expenseThe adoption of ASC 842 on January 1, 2019 resulted in the amountrecognition of approximately $9,692,000 of right-of-use asset and $9,347,000 of lease liabilities on the total payments overCompany’s balance sheet.  The adoption did not have a material net impact on the lease term divided by the numberCompany’s consolidated statements of months of the lease term. The difference between rent expense recorded and the amount paid is creditedoperations or chargedaccumulated deficit. Please refer to a deferred rent liability account. The current portion of deferred rent is included in current liabilities, and the remaining amount is shown in the balance sheet as a non-current liability. Accordingly, rent expense is recorded on a straight-line basis.Note 14 for more detail.

F-10

Stock-Based Compensation

The Company periodically issues stock optionsstock-based awards to officers, directors, employees, Scientific and Clinical Advisory Board members, non-employees and consultants for services rendered. Such issuances vest and expire according to terms established at the issuance date.

Stock-based payments to officers, directors, members of the Company’s Scientific and Clinical Advisory Board, non-employees and outside consultants and employees, including grants of employee stock options, are recognized in the financial statements based on their grant date fair values. Stock option grants, which are generally time-vested, are measured at the grant date fair value and charged to operations on a straight-line basis over the service period, which generally approximates the vesting period. term. The Company also grants performance-based awards periodically to officers of the Company. The Company recognizes compensation costs related to performance awards over the requisite service period if and when the Company concludes that it is probable that the performance condition will be achieved.  

The fair value of stock options and restricted stock units is determined utilizing the Black-Scholes option-pricing model, which is affected by several variables, including the risk-free interest rate, the expected dividend yield, the life of the equity award, the exercise price of the stock option as compared to the fair value of the common stock on the grant date, and the estimated volatility of the common stock over the term of the equity award.

Stock options granted to members of the Company’s Scientific and Clinical Advisory Board, non-employees and outside consultants are revalued each reporting period to determine the amount to be recorded as an expense in the respective period. As the stock options vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value already recorded and the value on the date of vesting.

TheThe risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Until the Company has established a trading markethistory for its common stock that approximates the expected term of the options, estimated volatility is based on the average historical volatilities of comparable public companies in a similar industry. The expected dividend yield is based on the current yield at the grant date; the Company has never declared or paid dividends and has no plans to do so for the foreseeable future. As permitted by Staff Accounting Bulletin No. 107, due to the Company’s lack oflimited trading history and option activity, management utilizes the simplified method to estimate the expected term of options at the date of grant. The fair value of common stockexercise price is determined by reference to either recent or anticipated cash transactions involvingbased on the salefair value of the Company’s common stock.stock at the date of grant. The Company accounts for forfeitures as they occur in accordance with ASU 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), and reverses previously recognized stock compensation costs in the period that the award is forfeited.

occur.

The Company recognizes the fair value of stock-based compensation in general and administrative expenses and in research and development expenses in the Company’s statementstatements of operations, depending on the type of services provided by the recipient of the equity award. The Company issues new shares of common stock to satisfy stock option exercises.

Income Taxes

The Company accounts for income taxes under an asset and liability approach for financial accounting and reporting for income taxes. Accordingly, the Company recognizes deferred tax assets and liabilities for the expected impact of differences between the financial statements and the tax basis of assets and liabilities.

The Company accounts for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by U.S. GAAP. The tax effects of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority as of the reporting date. If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits of the position are recognized.

F-11


The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. In the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of its recorded amount, an adjustment to the deferred tax assets would be credited to operations in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to operations in the period such determination was made.

The Company is subject to U.S. Federalfederal and Massachusetts state income taxes. As the Company’s net operating losses have yet to be utilized, all previous tax years remain open to examination by Federalfederal and state taxing authorities in which the Company currently operates.

The Company recognized approximately, $206,250 and $412,500 of income tax expense related to the foreign taxes withheld from an upfront payment received from LG Chem, Ltd. (“LG Chem”) pursuant to a collaboration agreement with LG Chem (the “LG Chem Agreement”) during the year ended December 31, 2020 and 2019, respectively.

The Company recognizes interest accrued relative to unrecognized tax benefits in interest expense and penalties in operating expense. During the years ended December 31, 2017, 20162020 and 2015,2019, the Company did not recognize any income tax related interest and penalties. The Company did not have any accruals for income tax related interest and penalties at December 31, 20172020 and 2016.2019.

F-11

Comprehensive Income (Loss)

Components of comprehensive income or loss, including net income or loss, are reported in the financial statements in the period in which they are recognized. ComprehensiveOther comprehensive income or loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income (loss) and other comprehensive income (loss) are reported net of any related tax effect to arrive at comprehensive income (loss). Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. The Company did not have any itemsCompany’s only element of other comprehensive income (loss) for the years ended December 31, 2017, 2016loss in all periods presented, other than its net loss, was unrealized gains and 2015.losses on available-for-sale securities.

Earnings (Loss) Per Share

The Company’s computation of earnings (loss) per share (“EPS”) for the respective periods includes basic and diluted EPS. Basic EPS is measured as the income (loss) attributable to common stockholders divided by the weighted average number of common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares that would result from the exercise of outstanding stock options and warrants as if they had been exercised at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. Basic and diluted loss per common share is the same for all periods presented because all outstanding stock options and warrants are anti-dilutive.

At December 31, 2017, 20162020 and 2015,2019, the Company excluded the outstanding securities summarized below, which entitle the holders thereof to acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive. The common stock to be issued is not included in the calculation of earnings per share.

 

 December 31, 

 

December 31,

 

 2017  2016  2015 

 

2020

 

 

2019

 

Common stock warrants  1,252,441   370,370   370,370 

 

 

861,969

 

 

 

1,189,827

 

Common stock options  2,732,221   1,663,221    

 

 

5,030,899

 

 

 

4,793,253

 

Nonvested restricted stock units

 

 

230,002

 

 

 

66,667

 

Total  3,984,662   2,033,591   370,370 

 

 

6,122,870

 

 

 

6,049,747

 

 


Fair Value of Financial Instruments

The authoritative guidance with respect to fair value established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels and requires that assets and liabilities carried at fair value be classified and disclosed in one of three categories, as presented below.

Level 1.   Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active-exchange traded securities and exchange-based derivatives.

Level 2.   Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange based derivatives, mutual funds, and fair-value hedges.

Level 3.   Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity to develop its own assumptions. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded non-exchange-based derivatives and commingled investment funds and are measured using present value pricing models.

The Company determines the levelFinancial assets and liabilities are classified in the fair value hierarchy within which each fair value measurement falls in itstheir entirety based on the lowest level of input that is significant to the fair value measurementmeasurement. The Company has determined that its financial assets are currently classified within Level 1 and that its financial liabilities are currently all classified within Level 3 in its entirety.the fair value hierarchy. In determining the appropriate levels, the Company performs an analysis of the assets and liabilities at each reporting period end.

F-12

There were no financial instrumentsThe Company had $72,943,275 in cash equivalents and $10,002,550 in short-term marketable securities that were measured and recorded at fair value on the Company’s balance sheet at December 31, 20172020.  The Company had $39,303,609 in cash equivalents and 2016.

$15,119,925 in short-term marketable securities that were measured and recorded at fair value on the Company’s balance sheet at December 31, 2019.

The carrying value of financial instruments (consisting of cash, a certificate of deposit, accounts payable, accrued compensation and accrued expenses) is considered to be representative of their respective fair values due to the short-term nature of those instruments.

Recent Accounting Pronouncements

In May 2014,June 2016, the FASB issued ASU No. 2016-13, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”)Instruments- Credit Losses: Measurement of Credit Losses on Financial Instruments (ASC 326) (CECL). ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current GAAP and replace it with a principle based approachThe standard requires entities to measure all expected credit losses for determining revenue recognition. ASU 2014-09 will require that companies recognize revenuefinancial assets held at the reporting date based on the value of transferred goods or services as they occur in the contract. ASU 2014-09 also will require additional disclosure about the nature, amount, timinghistorical experience, current conditions and uncertainty of revenuereasonable and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.supportable forecasts. The FASB has issued ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, and ASU 2016-20, all of which clarify certain implementation guidance within ASU 2014-09. ASU 2014-09standard is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted. Entities will be able to transition to2022, including interim reporting periods within each annual reporting period, for smaller reporting companies. The Company is still evaluating the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company will adopt the provisionsimpact of ASU 2014-09 in the quarter beginning January 1, 2018. As the Company is unlikely to generate any sustainable operating revenues in the next several years, the adoption of ASU 2014-09 is not currently expected to have any impact2016-13 on the Company’s consolidated financial statement presentation or disclosures.statements, if any.

 

In November 2015,December 2019, the FASB issued Accounting Standards UpdateASU No. 2015-17, 2019-12, “Income Taxes (Topic(ASC 740): Balance Sheet Classification of DeferredSimplifying the Accounting for Income Taxes (“ASU 2015-17”). ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. ASU 2015-17,” which is intended to simplify various aspects related to accounting for income taxes. The pronouncement is effective for financial statements issuedfiscal years, and for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted the provisions of ASU 2015-17 in the quarter beginning January 1, 2017. The adoption of ASU 2015-17 did not have any impact on Company’s financial statement presentation or disclosures.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires a lessee to record a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, on the balance sheet for all leases with terms longer than 12 months, as well as the disclosure of key information about leasing arrangements. ASU 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. ASU 2016-02 requires classification of all cash payments within operating activities in the statement of cash flows. Disclosures are required to provide the amount, timing and uncertainty of cash flows arising from leases. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. ASU 2016-02 is effective for fiscal years, beginning after December 15, 2018, including interim periods within those fiscal years. Early application is2020, with early adoption permitted. The Company will adopt the provisions of ASU 2016-02 in the quarter beginning January 1, 2019. The Company generally does not finance purchases of property and equipment, but does lease its operating facilities. While the Company is continuing to assess the potential impact of ASU 2016-02, it currently expects that most of its lease commitments will be subject to ASU 2016-02 and accordingly, upon adoption will be recognized as lease liabilities and right-of-use assets in the Company’s balance sheet.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 requires, among other things, that all income tax effects of awards be recognized in the statement of operations when the awards vest or are settled. ASU 2016-09 also allows for an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and allows for a policy election to account for forfeitures as they occur. ASU 2016-092019-12 is effective for us beginning in the fiscal years beginning afteryear ending December 15, 2016, including interim periods within those fiscal years.31, 2021. The Company adopted the provisions of ASU 2016-09is currently in the quarter beginning January 1, 2017. The adoptionprocess of ASU 2016-09 did not have any impactevaluating the effects of this pronouncement on the Company’s financial statement presentation or disclosures.

F-13

In July 2017, the FASB issued Accounting Standards Update No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The guidance in ASU 2017-11 can be applied using a full or modified retrospective approach. The adoption of ASU 2017-11 is not currently expected to have any impact on the Company’s financial statement presentation or disclosures.

statements.

Management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.

 


3.

Fair Value

The Company accounts for its financial assets and liabilities using fair value measurements. The authoritative accounting guidance defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. 

The following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of December 31, 2020 and 2019 and indicate the level of the fair value hierarchy utilized to determine such fair value:

 

 

Fair Value Measurements as of

December 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair

Value

 

Cash equivalents

 

$

72,943,275

 

 

$

 

 

$

 

 

$

72,943,275

 

Marketable securities

 

 

 

 

 

10,002,550

 

 

 

 

 

 

10,002,550

 

Total

 

$

72,943,275

 

 

$

10,002,550

 

 

$

 

 

$

82,945,825

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements as of

December 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair

Value

 

Cash equivalents

 

$

39,303,609

 

 

$

 

 

$

 

 

$

39,303,609

 

Marketable securities

 

 

 

 

 

15,119,925

 

 

 

 

 

 

15,119,925

 

Total

 

$

39,303,609

 

 

$

15,119,925

 

 

$

 

 

$

54,423,534

 

As of December 31, 2020 and 2019, the Company’s cash equivalents that are invested in money market funds valued using Level 1 inputs for identical securities.  The Company measures the fair value of marketable securities that are invested in United States Treasury securities using Level 2 inputs and primarily relies on quoted prices in active markets for similar marketable securities. During the year ended December 31, 2020 and 2019, there were 0 transfers between Level 2 and Level 3.

4.

Marketable Securities

As of December 31, 2020 and 2019, the fair value of available-for-sale marketable securities by type of security was as follows:

 

 

December 31, 2020

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

U.S. Treasury Securities

 

$

9,995,419

 

 

$

7,131

 

 

$

 

 

$

10,002,550

 

 

 

$

9,995,419

 

 

$

7,131

 

 

$

 

 

$

10,002,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

U.S. Treasury Securities

 

$

15,130,246

 

 

$

 

 

$

(10,321

)

 

$

15,119,925

 

 

 

$

15,130,246

 

 

$

 

 

$

(10,321

)

 

$

15,119,925

 


At December 31, 2020, marketable securities consisted of $10,002,550 of investments that mature within twelve months. The Company recorded an unrealized gain on investments of $17,452 for the year ended December 31, 2020. At December 31, 2019, the Company marketable securities consisted of $15,119,925 of investments that mature within twelve months. The Company recognized an unrealized gain on investments of $637 for the year ended December 31, 2019.

5.

Property and Equipment

Property and equipment as of December 31, 20172020 and 20162019 is summarized as follows:

 

 December 31, 

 

December 31,

 

 2017  2016 

 

2020

 

 

2019

 

Laboratory equipment $2,205,410  $1,194,473 

 

$

4,148,426

 

 

$

3,587,559

 

Furniture and fixtures  9,606   1,832 

 

 

93,321

 

 

 

93,321

 

Computer equipment  82,958   44,166 

 

 

267,837

 

 

 

192,092

 

Leasehold improvements  53,718   29,795 

Construction in progress

 

 

405,019

 

 

 

 

  2,351,692   1,270,266 

 

 

4,914,603

 

 

 

3,872,972

 

Less accumulated depreciation and amortization  (661,153)  (246,900)

Less accumulated depreciation

 

 

(2,806,579

)

 

 

(2,026,050

)

Net property and equipment $1,690,539  $1,023,366 

 

$

2,108,024

 

 

$

1,846,922

 

 

Depreciation and amortization expense for the yearsyear ended December 31, 2017, 2016 and 20152020 was included in the statementconsolidated statements of operations and comprehensive loss as follows, excluding trademark amortization of $11,666 and amortization of capitalized license expenses of $265,263.Depreciation expense for the year ended December 31, 2019 was included in the consolidated statements of operations and comprehensive loss as follows, excluding trademark amortization of $11,667.

 

 

Years Ended December 31,

 

 

2020

 

 

2019

 

 

General and administrative

 

$

20,301

 

 

$

60,974

 

 

Research and development

 

 

760,228

 

 

 

738,140

 

 

Total

 

$

780,529

 

 

$

799,114

 

 

During the year ended December 31, 2019, the Company sold lab equipment with an acquisition cost of $320,778 and accumulated depreciation of $139,003, and realized a loss of $54,274. The Company did 0t sell lab equipment or other capital equipment during the year ended December 31, 2020.

6.

Accrued Expenses

Accrued expenses as of December 31, 2020 and 2019 is summarized as follows:

 

  Years Ended December 31, 
  2017  2016  2015 
General and administrative $15,163  $4,630  $1,238 
Research and development  404,405   197,455   43,577 
Total $419,568  $202,085  $44,815 

 

 

December 31,

 

 

 

2020

 

 

2019

 

Accrued compensation

 

$

1,963,983

 

 

$

1,575,821

 

Contract manufacturing services

 

 

108,880

 

 

 

150,250

 

Professional Services

 

 

326,028

 

 

 

383,910

 

Contract research services

 

 

388,320

 

 

 

117,371

 

 

 

$

2,787,211

 

 

$

2,227,352

 

 

5.Einstein License and Service Agreement

 

7.Einstein License and Service Agreement

License Agreement

On January 14, 2015, the Company entered into a license agreement, as amended on June 2, 2015 (the “Einstein License”), with Albert Einstein College of Medicine (“Einstein”) for certain patent rights (the “Patents”) relating to the Company’s core technology platform for the engineering of biologics to control T-cellT cell activity, precision, immune-modulatory drug candidates, and two2 supporting technologies that enable the discovery of costimulatory signaling molecules (ligands) and T-cell targeting peptides. On July 31, 2017, the Company entered into an amended and restated license agreement which modified certain obligations of the parties under the Einstein License.

F-14

Under the Einstein License, the Company holds an exclusive worldwide license, with the right to sublicense, import, make, have made, use, provide, offer to sell, and sell all products, processes and services that use the Patents,patents covered by the Einstein License, including certain technology received from Einstein relating thereto (the “Licensed Products”). Under the Einstein License, the Company is required to:

 

·

Pay royalties and amounts based on certain percentage of proceeds, as defined in the Einstein License, from sales of Licensed Products includingand sublicense agreements.

 

·

Pay escalating annual maintenance fees, as follows: $25,000 on January 14, 2017; $50,000 on each of January 14, 2018 and 2019; $75,000 on each of January 14, 2020 and 2021; and $100,000 on January 14, 2022 and each year thereafter. Annual maintenance feeswhich are nonrefundable, but are creditable against the amount due to Einstein for royalties during the 12 month period following each of the due dates for annual maintenance fees.royalties.

 

·

Make significant payments up to $5,000,000 based upon the achievement of certain milestones, as defined in the Einstein License. Payments made upon achievement of milestones are nonrefundable and are not creditable against any other payment due to Einstein. At December 31, 2017, none2020, $150,000 had been paid by the Company towards achievement of these milestones had been achieved by the Company.milestones.

 

·

Incur a minimum of $250,000 per year of product development costs until the first commercial sale of the first licensed product.

The Company was in compliance with its obligations under the Einstein License at December 31, 20172020 and 2016.

2019.

The Einstein License expires upon the expiration of the Company’s last obligation to make royalty payments to Einstein which may be due with respect to certain Licensed Products, unless terminated earlier under the provisions thereof. The Einstein License includes certain termination provisions if the Company fails to meet its obligations thereunder.

ThePursuant to the Einstein License, required the Company to issueissued to Einstein a specified number of shares of common stock of the Company on a fully diluted, as converted basis, depending on the achievement of (1) a funding threshold and (2) a liquidity event, each as defined in the Einstein License. The funding threshold was achieved through the completion of the June 15, 2015 private placement as described in Note 8. A liquidity event includes, but is not limited to, an initial public offering of shares of the Company’s common stock; a merger with a public reporting company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or a company whose shares are listed on a non-U.S. exchange or an affiliate thereof; a merger, consolidation, reorganization, or similar transaction whereby the Company’s stockholders immediately prior to the consummation of the transaction will own less than the majority of the voting power of the resulting corporation after the consummation of the transaction; or a sale of substantially all of the Company’s assets. Accordingly, the Company was required to issue 671,572 shares of the Company’s common stock to Einstein immediately prior toin connection with the consummation of anthe initial public offering by the Companyof its common stock on December 27, 2017. The common stock issued to Einstein upon the occurrence of a liquidity event has certain registration rights, as described in Note 11.

The Company accounted for the issuance of these shares as a charge to research and development expenses in the statement of operations at their aggregate fair value of $5,036,789 on the date of issuance, in accordance with ASC 730, Research and Development, as the Patents acquired from Einstein are for use in the Company’s research and development activities exclusively with respect to its core technology platform and have no alternative future use by the Company, and therefore no separate economic value. The shares issuable in connection with Einstein License were recorded as common stock to be issued at December 31, 2017, and were issued on January 9, 2018.

The Company accounts for the costs incurred in connection with the Einstein License in accordance with ASC 730, Research and Development.Development. For the years ended December 31, 2017, 2016,2020 and 2015,2019, costs incurredaggregated $75,000 and $565,659, respectively resulting from LG milestone payments earned with respect to the Einstein License aggregated $5,084,708, $31,250,License. For the years ended December 31, 2020 and $127,336, respectively,2019, $75,000 and are$50,000 were included in research and development expenses in the consolidated statements of operations.

Service Agreement

On October 1, 2015,operations and comprehensive loss. As of December 31, 2020, the Company entered into a service agreement (the “Service Agreement”) with Einstein to support the Company’s ongoing research and development activities. The initial termcapitalized $416,855 net of the Service Agreement was for three months, which was amended in February 2016 to extend it for the period of time deemed necessary to complete the services pursuant to the terms of the Service Agreement. For the years ended December 31, 2017, 2016, and 2015, costs incurredamortization with respect to the Service Agreement aggregated $0, $80,000,Einstein License pursuant to ASC 606 and $200,000, respectively,ASC 340-40, Other Assets and are includedDeferred Costs: Contracts with Customers in researchprepaid expenses and developmentother current assets. As of December 31, 2019, the Company capitalized $525,554 with respect to the Einstein License pursuant to ASC 606 and ASC 340. The Company recorded $265,262 and $260,292 in prepaid expenses in the statement of operations.and other current assets and other long term assets, respectively.

 

F-15


6.Acquisition of Trademark

On May 4, 2017, the Company entered into a settlement agreement with Cue BioLogics, LLC, an unrelated party, to acquire all right, title and interest in and to the CUE BIOLOGICS mark, and any derivative mark incorporating CUE, throughout the world, together with all associated goodwill and common law rights appurtenant thereto, including, but not limited to, any right, title and interest in any corporate name, company name, business name, trade name, dba, domain name, or other source identifier incorporating CUE (collectively, the “CUE BIOLOGICS Mark”), in exchange for a cash payment by the Company of  $175,000.

Accounting Standards Codification (“ASC”) 350-30-20 defines a defensive intangible asset as an acquired intangible asset in a situation in which an entity does not intend to actively use the asset but intends to hold (lock up) the asset to prevent others from obtaining access to the asset. The Company determined that the acquired intangible asset met the definition of a defensive intangible asset and has therefore accounted for the $175,000 payment to Cue BioLogics, LLC for the CUE BIOLOGICS Mark as an acquired intangible asset.

7.8.Stock-Based Compensation

Effective March 23, 2016, the Company adopted the 2016 Omnibus Incentive Plan (the “Omnibus Plan”) and the 2016 Non-Employee Equity Incentive Plan (the “Non-Employee Plan”), which are intended to allow the Company to compensate and retain the services of key employees, non-employees, Scientific and Clinical Advisory Board members, and outside advisors and consultants. The plans are under the administration of the Company’s Board of Directors. Under the plans, the Company, at its discretion, may grant stock option awards to certain employees and non-employees through March 23, 2026. The Omnibus Plan and the Non-Employee Plan provide for the grant of a total of 2,000,000 shares of common stock and 500,000 shares of common stock, respectively.

On August 13, 2017, the Company’s Board of Directors approved an amendment and restatement of the Company’s 2016 Omnibus Incentive Plan to increase the number of shares authorized for issuance under such plan by 800,000 shares, from 2,000,000 shares to 2,800,000 shares, subject to stockholder approval of such amendment within 12 months following board approval thereof. The Company’s stockholders approved the plan in December 2017. Additionally, on May 17, 2019, the Company’s Board of Directors approved Amendment No. 1 to the Omnibus Plan to increase the number of shares that may be issued as incentive stock options under the plan, which the Company’s stockholders approved on August 6, 2019. The 2016 Omnibus Incentive Plan, as amended and restated, provides that on the first day of each fiscal year of the Company during the period beginning in fiscal year ended December 31, 2018 and ending on the second day of fiscal year ending December 31, 2027, the number of shares of common stock authorized to be issued under such plan shall be increased by an amount equal to the lesser of (i) the number of shares necessary such that the aggregate number of shares available to be issued under the plan equals 20% of the number of fully diluted outstanding shares on such date (assuming the conversion of all outstanding shares of preferred stock and other outstanding convertible securities and exercise of all outstanding options and warrants to purchase shares) and (ii) an amount to be determined by the Company’s Board of Directors.

Pursuant to the plans, during the year ended December 31, 2017,2020, the Company granted stock options to purchase 1,089,000981,800 shares of the Company’s common stock of which 150,000 were granted to members of the Scientific and Clinical Advisory Board, 60,000 to independent members of the Company’s Board of Directors, 100,000 to independent consultants, 385,000 to members of management, and 394,000 to other employees. The220,000 restricted stock options granted to independent members of the Board of Directors, members of the Scientific and Clinical Advisory Board, and independent consultants were non-qualified stock options, whereas all other stock options were incentive stock options.units.  At December 31, 2017,2020, stock options for 2,362,2214,459,301 shares of common stock and 320,000 restricted stock units had been granted and 437,779750,325 shares of common stock were reserved for future grants under the Omnibus Plan, and stock options for 370,000481,600 shares of common stock had been granted and 130,0005,400 shares of common stock were reserved for future grants under the Non-Employee Plan. In the aggregate, at December 31, 2017,2020, stock options for a total of 2,732,2214,940,901 shares of common stock and 320,000 restricted stock units had been granted and 567,779755,725 shares of common stock were reserved for future grants. Such grants are accounted for as share-based compensation in accordance with ASC 718, Compensation - Stock Compensation, and ASC 505-50, Equity-Based Payments to Non-Employees.Non-Employees.

 

Stock Option Valuation

For stock options requiring an assessment of value during the years ended December 31, 20172020 and 2016,2019, the fair value of each stock option award was estimated using the Black-Scholes option-pricing model utilizing the following assumptions:

 

F-16

 

 

December 31,

 

 

 

2020

 

 

2019

 

Risk-free interest rate

 

0.38 to 1.56%

 

 

1.75 to 2.58%

 

Expected dividend yield

 

0%

 

 

0%

 

Expected volatility

 

93.4-99.6%

 

 

88.0-94.0%

 

Expected life

 

5.5 to 6.25 years

 

 

4.0 to 6.25 years

 

  December 31, 
  2017   2016 
Risk-free interest rate 1.71 to 2.22%  1.07 to 2.25%
Expected dividend yield  0%  0%
Expected volatility  80.9-83.0%  104% to 112%
Expected life  3.2 to 7 years   4.25 to 7 years 

 

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected term of the stock option award; as permitted by Staff Accounting Bulletin 107, due to insufficient history of stock option activity, management has utilized the simplified approach to estimate the expected term of the stock options, which represents the period of time that stock options granted are expected to be outstanding; the expected volatility is based upon historical volatilities of comparable companies in a similar industry; and the expected dividend yield based upon the Company’s current dividend rate and future expectations.

F-17


A summary of stock option activity for the years ended December 31, 20172020 is as follows:

 

 Number of
Shares
  Weighted
Average
Exercise
Price
  Weighted 
Average
Remaining
Contractual
Life
(in Years)
 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Life

(in Years)

 

Stock options outstanding at December 31, 2016  1,663,221  $2.86   6.22 

Stock options outstanding at December 31, 2018

 

 

4,540,321

 

 

$

7.08

 

 

 

5.16

 

Granted  1,089,000   5.89     

 

 

1,288,100

 

 

 

 

 

 

 

 

 

Exercised  (2,800)  2.86     

 

 

(485,105

)

 

 

 

 

 

 

 

 

Cancelled  (17,200)  2.86     

 

 

(550,063

)

 

 

 

 

 

 

 

 

Stock options outstanding at December 31, 2017  2,732,221  $4.07   5.76 
Stock options exercisable at December 31, 2017  566,284  $3.05   5.08 

Stock options outstanding at December 31, 2019

 

 

4,793,253

 

 

$

7.10

 

 

 

5.64

 

Granted

 

 

981,800

 

 

 

17.31

 

 

 

 

 

Exercised

 

 

(454,497

)

 

 

4.86

 

 

 

 

 

Cancelled

 

 

(289,657

)

 

 

10.14

 

 

 

 

 

Stock options outstanding at December 31, 2020

 

 

5,030,899

 

 

$

9.10

 

 

 

5.51

 

Stock options exercisable at December 31, 2020

 

 

2,920,318

 

 

$

7.05

 

 

 

4.03

 

 

The Company recognized, $2,775,363$8,861,760 and $889,556$6,208,949, in stock-based compensation during the years ended December 31, 20172020 and 2016, respectively.2019, respectively related to stock option activity. As of December 31, 2017,2020, total unrecognized stock-based compensation was approximately $8,900,000,$15,605,021, which is expected to be recognized as an operating expense in the Company’s statementconsolidated statements of operations and comprehensive loss through June 2022.

 

A summary of the exercise prices of common stock options outstanding and exercisable at December 31, 2017 is as follows:

F-17

Exercise Prices Options
Outstanding
(Shares)
  Options
Exercisable
(Shares)
 
$2.86  1,643,221   517,159 
$5.00  703,000   

49,125

 
$7.50  386,000    
   2,732,221   566,284 

 

The aggregate intrinsic value of exercisable but unexercised in-the-money stock options at December 31, 20172020 was approximately $2,522,000,$16,869,399 based on a weighted average exercise price of $7.05 per share. The aggregate intrinsic value of options is calculated as the difference of the market close price of $12.51 on December 31, 2020, and the weighted average exercise price of $7.05, with a weighted average remaining contractual term of 4.03 years.

The aggregate intrinsic value of exercisable but unexercised in-the-money stock options at December 31, 2019 was approximately $19,471,155, based on a weighted average exercise price of $6.26 per share at December 31, 2019.

Option Amendments- Modification of Incentive Stock Options

During the year ended December 31, 2020, the following event resulted in the amendment to terms of outstanding stock option awards:

On January 22, 2020, an employee who was employed for a particular role pursuant to an employment agreement that prescribed certain separation benefits to the employee was separated from that role.  Per the employment agreement, upon termination (i) all unvested stock options would accelerate and become vested as of the termination date, and (ii) the options would remain exercisable, to the extent applicable, following the date of termination for the period prescribed in the equity award plan. As of January 21, 2020, the terminated employee held outstanding options to purchase an aggregate of 215,000 shares of the Company's common stock at a weighted average exercise price of $6.22 per share, including unvested options to purchase 94,375 shares at a weighted average exercise price of $7.83 per share. On January 21, 2020, the unvested portion of the outstanding options vested, and the post-employment option exercise period was extended from 90 days, as prescribed to the equity award plan, to 12 months from the date of the termination. In May 2020, the final separation agreement was amended to extend the post-employment option exercise period from 12 months to 36 months.

The Company calculated the change in stock-based compensation cost associated with the previously described stock option modifications pursuant to the applicable guidance in ASC 718. The change in compensation cost was determined by calculating the difference between (a) the estimated fair value of $7.50 per share oneach option award immediately prior to the modifications and (b) the estimated fair value of each option award immediately after the modifications. The fair value of each option award immediately prior to and immediately after modification was estimated using the Black-Scholes option-pricing model to determine an incremental fair value, consistent with and in accordance with the Company’s existing accounting policy for stock compensation. The total additional compensation cost associated with the previously described modifications was determined to be approximately $344,850, which was expensed in the year ended December 31, 2017.2020.

 


Restricted Stock Units

On October 3, 2019, the Company granted 100,000 restricted stock units (“RSUs”) with time-based vesting conditions to certain executives. During the year ended December 31, 2019, the Company awarded 100,000 RSUs at an average grant date fair value of $7.53 per share. The RSUs vest in three substantially equal installments beginning on grant date, and annually thereafter. Compensation expense is recognized on a straight-line basis.

On February 5, 2020, the Company granted 150,000 RSUs with time-based vesting conditions to an executive officer. One-half of the RSUs vest on September 30, 2021, and the balance vest on March 31, 2022, subject to the recipient’s continued service on each applicable vesting date. On March 31, 2020, the Company granted 50,000 RSUs with time-based vesting conditions to an executive officer. The RSUs vest in three substantially equal installments beginning on the grant date, and annually thereafter, subject to the recipient’s continued service on each applicable vesting date. Compensation expense is recognized on a straight-line basis.

On August 21, 2020, the Company granted 20,000 RSUs with time-based vesting conditions to an executive officer.  The RSUs vest in three substantially equal installments beginning on the grant date, and annually thereafter, subject to the recipient’s continued service on each applicable vesting date. Compensation expense is recognized on a straight-line basis.

The following table summarizes the RSU activity for the under the Omnibus Plan for the year ending December 31, 2020:

Restricted Securities

Number of Shares

 

 

Weighted Average Grant Date Fair Value Per Share

 

Nonvested balance as of December 31, 2019

 

66,667

 

 

$

7.53

 

Granted

 

220,000

 

 

 

17.96

 

Vested/Released

 

(56,665

)

 

 

10.94

 

Forfeited

 

 

 

 

 

Nonvested balance at December 31, 2020

 

230,002

 

 

$

16.66

 

The Company recognized $1,619,022 and $312,032 in stock-based compensation during the years ended December 31, 2020 and 2019, respectively, related to restricted stock unit activity. As of December 31, 2020, total unrecognized stock-based compensation was approximately $2,772,845, which is expected to be recognized as an operating expense in the Company’s consolidated statements of operations and comprehensive loss through June 2022.

Stock-based Compensation

Stock-based compensation for the years ended December 31, 20172020 and 20162019 was included in the statementconsolidated statements of operations and comprehensive loss as follows:

 

 December 31, 

 

December 31,

 2017 2016 

 

2020

 

 

2019

 

 

General and administrative $1,022,962  $439,366 

 

$

4,093,542

 

 

$

2,109,335

 

 

Research and development  1,752,401   450,190 

 

 

6,387,240

 

 

 

4,411,647

 

 

Total $2,775,363  $889,556 

 

$

10,480,782

 

 

$

6,520,982

 

 

 

There

9.

Warrants

The Company has 2 tranches of common stock warrants outstanding at December 31, 2020. The first tranche was no stock-based compensation expenseexercisable for 370,370 shares of common stock issued on June 15, 2015 with an exercise price of $2.70 per share.  These warrants were issued with a 7 year term and expire on June 15, 2022.  The second tranche was exercisable for 882,071 shares of common stock issued on December 27, 2017 with an exercise price of $9.38 per share.  These warrants were issued with a 5 year term and expire on December 26, 2022. The intrinsic value of exercisable but unexercised in-the-money common stock warrants at December 31, 2020 was approximately $3,187,000 based on a fair value of $12.51 per share on December 31, 2020.

F-19


Each tranche of warrants was evaluated under ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging, and the Company determined that equity classification was appropriate.

The following table summarizes common stock warrant activity for the year ended December 31, 2015.2020:

 

8.Stockholders’ Equity

 

 

Warrant Issued

June 15, 2015

Tranche 1

 

 

Warrant Issued

December 27, 2017

Tranche 2

 

 

Total

 

Balance at December 31, 2019

 

 

322,259

 

 

 

867,568

 

 

 

1,189,827

 

Issued via cashless exercises

 

 

(227,184

)

 

 

(50,995

)

 

 

(278,179

)

Withheld as payment to cover issued shares

 

 

(22,464

)

 

 

(27,215

)

 

 

(49,679

)

Balance at December 31, 2020

 

 

72,611

 

 

 

789,358

 

 

 

861,969

 

 

10.

Revenue Recognition

The Company recognizes collaboration revenue under certain of the Company’s license or collaboration agreements that are within the scope of ASC 606. The Company’s contracts with customers typically include promises related to licenses to intellectual property and research and development services.  If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgement to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company’s contracts may include options to acquire additional goods and/or services.

The terms of the Company’s arrangements with customers typically include the payment of one or more of the following: (i) non-refundable, up-front payment, (ii) development, regulatory and commercial milestone payments, (iii) future options and (iv) royalties on net sales of licensed products. Accordingly, the transaction price is generally comprised of a fixed fee due at contract inception and variable consideration in the form of milestone payments due upon the achievement of specified events and tiered royalties earned when customers recognize net sales of licensed products. The Company measures the transaction price based on the amount of consideration to which it expects to be entitled in exchange for transferring the promised goods and/or services to the customer. The Company utilizes the “most likely amount” method to estimate the amount of variable consideration, to predict the amount of consideration to which it will be entitled for its one open contract. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Milestone payments that are not within the control of the Company or the licensee, such as those dependent upon receipt of regulatory approval, are not considered to be probable of achievement until the triggering event occurs. At the end of each reporting period, the Company reevaluates the probability of achievement of each milestone and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue and net loss in the period of adjustment.

For arrangements that include sales-based royalties, including milestone payments based upon the achievement of a certain level of product sales, the Company recognizes revenue upon the later of: (i) when the related sales occur or (ii) when the performance obligation to which some or all of the payment has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any development, regulatory or commercial milestones or royalty revenue resulting from any of its collaboration arrangements. Consideration that would be received for optional goods and/or services is excluded from the transaction price at contract inception.

The Company allocates the transaction price to each performance obligation identified in the contract on a relative standalone selling price basis, when applicable. However, certain components of variable consideration are allocated specifically to one or more particular performance obligations in a contact to the extent both of the following criteria are met: (i) the terms of the payment relate specifically to the efforts to satisfy the performance obligation or transfer the distinct good or service and (ii) allocating the variable amount of consideration entirely to the performance obligation or the distinct good or service is consistent with the allocation objective of the standard whereby the amount allocated depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services. The Company develops assumptions that require judgement to determine the standalone selling price for each performance obligation identified in each contract. The key assumptions utilized in determining the standalone selling price for each performance obligation may include forecasted revenues, development timelines, estimated research and development costs, discount rates, likelihood of exercise and probabilities of technical and regulatory success.

F-20


Revenue is recognized based on the amount of the transaction price that is allocated to each respective performance obligation when or as the performance obligation is satisfied by transferring a promised good and/or service to the customer. For performance obligations that are satisfied over time, the Company recognizes revenue by measuring the progress toward complete satisfaction of the performance obligation using a single method of measuring progress which depicts the performance in transferring control of the associated goods and/or services to the customer. The Company uses input methods to measure the progress toward the complete satisfaction of performance obligations satisfied over time. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue and net loss in the period of adjustment. The Company measures progress toward satisfaction of the performance obligation over time as effort is expended.

On November 14, 2017, the Company entered into a collaboration agreement (the “Merck Agreement”) with Merck Sharp & Dohme Corp. (“Merck”) for a partnership to research and develop certain of the Company’s proprietary biologics that target certain autoimmune disease indications (the “Initial Indications”). The Company views the Merck Agreement as a component of its development strategy since it will allow the Company to advance its autoimmune programs in partnership with a world class pharmaceutical company, while also continuing its focus on its more advanced cancer programs. The research program outlined in the Merck Agreement entails (1) the Company’s research, discovery and development of certain Immuno-STATTM drug candidates up to the point of demonstration of certain biologically relevant effects (“Proof of Mechanism”) and (2) the further development by Merck of the Immuno-STAT drug candidates that have demonstrated Proof of Mechanism (the “Proposed Drug Product Candidates”) up to the point of demonstration of all or substantially all of the properties outlined in such Proposed Drug Product Candidates’ profiles as described in the Merck Agreement.

In exchange for the licenses and other rights granted to Merck under the Merck Agreement, Merck paid to the Company a $2.5 million nonrefundable up-front payment. Additionally, the Company may be eligible to receive funding in developmental milestone payments, as well as tiered royalties, if all research, development, regulatory and commercial milestones agreed upon by both parties are successfully achieved. Excluding the up-front payment described above, the Company is eligible to earn up to $101 million for the achievement of certain research and development milestones, $120 million for the achievement of certain regulatory milestones and $150 million for the achievement of certain commercial milestones, in addition to tiered royalties on sales, if all pre-specified milestones associated with multiple products across the primary disease indication areas are achieved. The Merck Agreement requires the Company to use the first $2.5 million  milestone payment it receives under the agreement to fund contract research. The amount of the royalty payments is a percentage of product sales ranging in the single digits based on the amount of such sales.

As it relates to the Merck Agreement, the Company recognized the upfront payment associated with its one open contract as a contract liability upon receipt of payment as it requires deferral of revenue recognition to a future period until the Company performs its obligations under the arrangement. Amounts expected to be recognized as revenue within the twelve months following the balance sheet date are classified in current liabilities. Amounts not expected to be recognized as revenue within the twelve months following the balance sheet date are classified as contract liabilities, net of current portion. The Company determined that there was one performance obligation: consisting of the license and research development services.  Thus, the transaction price of $2.5 million was allocated to the single performance obligation.

On November 18, 2020, the Company entered into a First Amendment to the Merck Agreement (the “Amendment”) with Merck. Pursuant to rights granted to Merck under the Merck Agreement, the Amendment extends the term of the research program under the Merck Agreement for an additional year, until December 31, 2021. Under the terms of the Amendment, Merck will reimburse the Company for specified expenses and provide additional financial research support to further study and develop preclinical biologics with the objective of identifying clinical candidates subject, in each case, to specified maximum amounts, with any amounts in excess of such maximum amounts to be borne by the Company. On November 18, 2020, the Company earned a milestone payment related to this Amendment in the amount of $300,000. The $300,000 milestone payment was recorded as a contract liability upon receipt. The Company will recognize revenue related to this milestone payment pursuant to its revenue recognition policy in relation to the performance of its obligations related to the development of Immuno-STAT drug candidates under the arrangement.

Aside from the $300,000 milestone payment earned to date, the Company does not believe that any variable consideration should be included in the transaction price at December 31, 2020.  Such assessment considered the application of the constraint to ensure that estimates of variable consideration would be included in the transaction price only to the extent the Company had a high degree of confidence that revenue would not be reversed in a subsequent reporting period. The Company will re-evaluate the transaction price, including the estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as other changes in circumstances occur by assessing the effort and expense expended during the period.  For the year ended December 31, 2020, the Company recognized approximately $177,000 in collaboration revenue related to this agreement and recorded short and long-term research and development liabilities on its balance sheet dated December 31, 2020 of $606,771 and $0, respectively. For the year ended December 31, 2019, the Company recognized approximately $874,000 in collaboration revenue related to this agreement and recorded short and long-term research and development liabilities on its balance sheet dated December 31, 2019 of $483,515 and $0, respectively.

F-21


On November 6, 2018, the Company entered into the LG Chem Agreement with LG Chem related to the development of the Company’s Immuno-STATs focused in the field of oncology.  Pursuant to the LG Chem Agreement, the Company granted LG Chem an exclusive license to develop, manufacture and commercialize the Company’s lead product, CUE-101, as well as Immuno-STATs that target T cells against two additional cancer antigens, in certain Asian countries (the “LG Chem Territory”).  Pursuant to a global license and collaboration agreement, dated December 18, 2019, as amended on November 5, 2020, LG Chem has the option to elect one additional Immuno-STAT for an oncology target on or prior to April 30, 2021 for a worldwide development and commercialization license, and the Company will retain an option to co-develop and co-commercialize the additional program worldwide.  The Company retains rights to develop and commercialize all assets included in the agreement in the United States and in global markets outside of Asia.  In exchange for the licenses and other rights granted to LG Chem under the LG Chem Agreement, LG Chem made a $5.0 million equity investment in common stock of the Company and a $5.0 million nonrefundable upfront cash payment.  The Company is also eligible to receive up to an additional $400 million in research, development, regulatory and sales milestones.  In addition, the LG Chem Agreement also provides that LG Chem will pay the Company tiered single-digit percentage royalties on net sales of commercialized drug product candidates in the LG Chem Territory.  

On May 16, 2019, LG Chem paid the Company a $2.5 million milestone payment for the FDA acceptance of the IND for the Company’s lead drug candidate, CUE-101, pursuant to the LG Chem Agreement.  The $2.5 million milestone payment was recorded as a contract liability upon receipt of payment as it requires deferral of revenue recognition to a future period until the Company performs its obligations under the arrangement. Of the $2.5 million milestone payment, approximately $412,500 was recognized as tax withholding, shown as income tax expense on the consolidated statements of operations and comprehensive loss.

On December 7, 2020, the Company earned a $1.25 million milestone payment on the selection of a pre-clinical candidate pursuant to the LG Chem Agreement.  The $1.25 million milestone payment was recorded as a contract liability upon receipt. Revenue related to this milestone payment will be recognized by the Company pursuant to the Company’s revenue recognition policy in relation to the performance of its obligations related to the development of this pre-clinical candidate. Of the $1.25 million milestone payment, approximately $206,250 was withheld as payment of foreign tax withholding and shown as income tax expense on the consolidated statement of operations and comprehensive loss.

The Companyrecorded short and long-term research and development liabilities on its balance sheet dated of $6,074,254 and $1,937,575, respectively, for the year ended December 31, 2020.

Aside from the $3.75 million milestone payments earned to date, the Company does not believe that any variable consideration should be included in the transaction price as of December 31, 2020.  Such assessment considered the application of the constraint to ensure that estimates of variable consideration would be included in the transaction price only to the extent the Company had a high degree of confidence that revenue would not be reversed in a subsequent reporting period. The Company will re-evaluate the transaction price, including the estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as other changes in circumstances occur.  For the years ended December 31, 2020 and 2019, the Companyrecognized revenue of approximately $2,978,000 and $2,584,000, respectively, related to the LG Chem Agreement.

The Company considered the capitalization of contract costs under the guidance in ASC 340.  There were no contract costs identified in the Merck Agreement.  As it related to the LG Chem Agreement, the Company capitalized license expenses of approximately $907,600 as of December 31, 2020, pursuant to the Einstein License which requires the Company to pay a percentage of sublicenses related to the Company’s patent rights for components of its core technology that is licensed from Einstein. This amount is comprised of approximately $438,000 of capitalized license expenses related to the upfront payment received from LG Chem in December 2018, approximately $313,000 in capitalized license expenses related to the milestone payment received in June 2019, and approximately $156,600 in capitalized license expenses related to the milestone payment received in December 2020, net of accumulated amortization of approximately $490,700.  For the year ended December 31, 2020, approximately $416,900 was included in prepaid expenses and other short-term assets and $0 is included in other long-term assets.

`

11.

Stockholders’ Equity

Preferred Stock

The Company has authorized a total of 10,000,000 shares of preferred stock, par value $0.001 per share, noneNaN of which were outstanding at December 31, 20172020 and 2016.2019. The Company’s Board of Directors has the authority to issue preferred stock and to determine the rights, preferences, privileges, and restrictions, including voting rights.

F-22


Common Stock

The Company has authorized a total of 50,000,000100,000,000 shares of common stock, par value $0.001 per share, of which 19,459,19430,351,366 shares and 10,635,68426,562,178 shares were issued and outstanding at December 31, 20172020 and 2016,2019, respectively.

June 15, 2015 Private Placement of Common Stock.   On June 15, 2015, the Company sold 3,703,704 shares of common stock in a private placement to accredited investors at $2.70 per share, resulting in gross cash proceeds of  $10,000,000. Direct costs of the private placement consisted of a 10% placement agent fee to the placement agent, MDB Capital Group, LLC (“MDB”) (see Note 9), of  $1,000,000, and related legal fees and reimbursable expenses of  $137,588. In conjunction with this private placement, the Company issued warrants to the placement agent to purchase 370,370 shares of common stock, exercisable at issuance for a period of seven years at $2.70 per share, for a cash consideration of  $1,000. The placement agent warrants had a fair value of $773,941, calculated pursuant to the Black-Scholes option-pricing model. Issuance costs of the private placement, including the fair value of placement agent warrants of  $773,941, aggregated $1,911,529 and were charged directly to additional paid-in capital. The common stock sold and the placement agent warrants issued in this private placement have certain registration rights, as described in Note 11.

December 22, 2016 Private Placement of Common Stock.   On December 22, 2016, the Company sold 3,282,980 shares of common stock in a private placement to accredited investors at $5.00 per share, resulting in gross cash proceeds of $16,414,900. Direct costs of the private placement consisted of a placement agent fee to the placement agent, MDB, of  $1,320,745 and related legal fees and reimbursable expenses of  $89,119. Issuance costs of the private placement aggregated $1,409,864 and were charged directly to additional paid-in capital. The common stock sold in this private placement has certain registration rights, as described in Note 11.

Down Round Protection. The Company provided investors in the December 22, 2016 private placement of common stock with certain limited protections resulting from one or more issuances of shares of common stock at a per share purchase price below that was paid by the investors in the private placement, terminating on December 31, 2019. If the Company issued additional shares of common stock without consideration, or for consideration per share less than the effective per share price deemed to be in effect immediately prior to such issuance, then concurrently with such issuance, the Company was required to issue to each investor, for no additional consideration additional shares of common stock as specified in the private placement memorandum.

Pursuant to an Irrevocable Waiver and Amendment to Securities Purchase Agreements entered into on December 4, 2017, the Majority Investors in the December 2016 private placement agreed that no shares shall be issuable pursuant to these anti-dilution rights in connection with any issuance of common stock occurring after the Company’s initial public offering.

12.

F-18

Common Stock Warrants

In conjunction with the private placement of common stock on June 15, 2015 at $2.70 per share, the Company issued warrants to the placement agent to purchase 370,370 shares of common stock, exercisable at issuance for a period of seven years at $2.70 per share, for a cash consideration of  $1,000. MDB assigned approximately one-half of the warrants to its employees, two of which are officers or directors of the Company. The placement agent warrants have standard anti-dilution protections and cashless exercise rights. The placement agent warrants have certain registration rights, as described in Note 11.

The placement agent warrants were valued pursuant to the Black-Scholes option-pricing model at $773,941, based on the following inputs: risk-free interest rate — 2.11%; expected dividend yield — 0%; expected volatility — 88%; expected life — 7 years; fair value of common stock — $2.70 per share. The expected volatility was determined by reference to the volatility factors of several comparable bio pharmaceutical public companies. These warrants were considered a cost of the private placement offering.

In conjunction with the initial public offering of common stock on December 27, 2017 at $7.50 per share, the Company issued warrants to the underwriter, MDB, to purchase 882,071 shares of common stock, exercisable at issuance for a period of five years at $9.38 per share, for a cash consideration of $1,000. MDB assigned 12,500 warrants to the independent underwriter, Feltl and Company, Inc, and 36,259 shares to Paulson Investment Company LLC for underwriting services. MDB also assigned approximately one half of the remaining warrants to its employees, two of which are current officers or directors of the Company. The underwriters warrants have standard anti-dilution protections and cashless exercise rights. The placement agent warrants have certain registration rights, as described in Note 11.

The underwriters warrants were valued pursuant to the Black-Scholes option-pricing model at $4,086,581, based on the following inputs: risk-free interest rate — 2.22%; expected dividend yield — 0%; expected volatility — 81.6%; expected life — 5 years; fair value of common stock — $7.50 per share. The expected volatility was determined by reference to the volatility factors of several comparable bio pharmaceutical public companies. These warrants were considered a cost of the initial public offering.

A summary of warrant activity for the year ended December 31, 2017 is as follows:

  Number of
Shares
  Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Contractual
Life (in
Years)
 
Warrants outstanding at December 31, 2016  370,370  $2.70     
Issued  882,071   9.38     
Exercised          
Expired          
Warrants outstanding at December 31, 2017  1,252,441  $7.40   4.8 
Warrants exercisable at December 31, 2017  1,252,441  $7.40   4.8 

The intrinsic value of exercisable but unexercised in-the-money common stock warrants at December 31, 2017 was approximately $1,778,000, based on a fair value of $7.50 per share on December 31, 2017.

9.

Related Party Transactions

During the years ended December 31, 2017, 2016 and 2015, MDB provided investment banking services to the Company (see Notes 2 and 8). For those services, the Company paid MDB cash placement agent fees of $3,473,155 and $1,320,745 in 2017 and 2016, respectively. In 2017, the Company also issued to MDB underwriter warrants to purchase 833,312 shares of the Company’s common stock for a cash consideration of $1,000, exercisable for five years at $9.38 per share. As of December 31, 2017, MDB beneficially owned approximately 10.2% of the Company’s common stock, has served as the underwriter of the Company’s initial public offering as well as the placement agent in previous private placements of the Company’s common stock, and three employees of which are directors of Cue.

F-19

 

MDB assigned one-half of the warrants that it acquired in conjunction with the June 15, 2015 private placement (see Note 8) to eight employees of MDB, two of which are also current officers or directors of the Company, who received a total of 72,222 of such warrants as part of the normal distribution of warrants received by MDB to its employees.

During the years ended December 31, 2017, 2016 and 2015, the Company incurred expenses amounting to $0, $60,000, and $38,182 respectively, for patent-related services provided by MDB, which is included in general and administrative expenses in the statement of operations. At December 31, 2017 and 2016, $0 and $26,152, respectively, of amounts payable to MDB relating to reimbursable expenses and patent-related services were included in accounts payable.

Beginning in June 2015, the interim Chief Financial Officer of the Company, who is also the Chief Financial Officer of MDB, has been compensated at a rate of $6,000 per month, reflecting an aggregate annual charge to operations for the years ended December 31, 2017, 2016 and 2015 of $72,000, $72,000 and $42,000, respectively.

Information with respect to payments under the Einstein License and the Service Agreement is described in Note 5.7.

13.

10.

Income Taxes

The Company accounts for income taxes under the provision of ASC 740, Income Taxes.  The Company reported a $206,250 tax provision for the year ended December 31, 2020 related to foreign withholding taxes paid.  

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets as of December 31, 20172020 and 20162019 are as follows:

 

 2017  2016 

 

2020

 

 

2019

 

Deferred tax assets:        

 

 

 

 

 

 

 

 

Net operating loss carryforwards $8,424,000  $3,607,000 

 

$

34,539,000

 

 

$

23,348,000

 

Research and other credits  867,000   364,000 

 

 

2,312,000

 

 

 

2,069,000

 

Reserves and accruals  595,000   315,000 

 

 

7,446,000

 

 

 

5,281,000

 

Other intangibles  4,000   9,000 

Other

 

 

 

 

 

3,000

 

Total gross deferred tax assets  9,890,000   4,295,000 

 

 

44,297,000

 

 

 

30,701,000

 

Less valuation allowance  (9,793,000)  (4,190,000)

 

 

(42,321,000

)

 

 

(29,095,000

)

Total deferred tax assets  97,000   105,000 

 

 

1,976,000

 

 

 

1,606,000

 

Deferred tax liability:        

 

 

 

 

 

 

 

 

Depreciation  (97,000)  (105,000)

 

 

(1,974,000

)

 

 

(1,606,000

)

Other

 

 

(2,000

)

 

 

 

Net deferred tax assets $ $ 

 

$

 

 

$

 

 

In assessing the potential realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during the periods in which those temporary differences become deductible. As of December 31, 20172020, and 2016,2019, management was unable to determine if it is more likely than not that the Company’s deferred tax assets will be realized and has therefore recorded a 100% valuation allowance against deferred tax assets at such dates.

No Federal tax provision has been provided for the years ended December 31, 2017, 2016,2020, 2019, and 20152018, due to the losses incurred during such periods. A reconciliation of the difference between the income tax rate computed by applying the U.S. Federal statutory rate and the effective tax rate for the years ended December 31, 2017, 20162020, 2019, and 20152018 is as follows:

 

F-20

 

 

Years Ended December 31,

 

 

2020

 

 

2019

 

 

 

U. S. Federal statutory tax rate

 

 

(21

)%

 

 

(21

)%

 

 

State Taxes

 

 

(7

)%

 

 

(6

)%

 

 

Change in valuation allowance

 

 

30

%

 

 

27

%

 

 

Tax credits

 

 

(1

)%

 

 

(2

)%

 

 

Stock based compensation

 

 

(2

)%

 

 

1

%

 

 

Tax reform

 

 

0

%

 

 

0

%

 

 

Foreign withholding taxes

 

 

0

%

 

 

1

%

 

 

Other

 

 

1

%

 

 

1

%

 

 

Effective tax rate

 

 

0

%

 

 

1

%

 

 

 


  

Years Ended December 31, 

 
  2017  2016  2016 
U. S. Federal statutory tax rate  (35)%  (35)%  (35)%
Change in valuation allowance  16%  36%  37%
Tax credits  (2)%  (3)%  (3)%
Stock based compensation  2%   —    
Tax reform  18%   —    — 
Other  1%  2%  1%
Effective tax rate  0.0%  0.0%  0.0%

The Company has applied the provisions of ASC 740, Income Taxes, which clarifies the accounting for uncertainty in tax positions and requires the recognition of the impact of a tax position in the financial statements if that position is more likely than not of being sustained on a tax return, based on the technical merits of the position, upon examination by the relevant taxing authority. At December 31, 20172020 and 2016,2019, the Company had unrecognized tax benefits related to Federal and state research tax credits of approximately $510,000$1,675,000 and $157,000,$1,334,000, respectively. The Company is subject to Federal and state income tax examinations by tax authorities for all years since its incorporation in 2014. The Company is currently not under examination by any tax authority.

At December 31, 2017,2020, the Company has available net operating loss carryforwards for Federal and state income tax purposes of approximately $28,700,000$126,941,033 and $29,100,000,$126,360,676, respectively, which, if not utilized earlier, will begin to expire in 2035. Approximately, $98,429,255 of the federal net operating losses have an indefinite carryforward. The Company has Federal research credits of approximately $944,000,$2,993,000, which, if not utilized earlier, will begin to expire in 2035, and state research credits of approximately $433,000,$1,151,000, which, if not utilized earlier, will begin to expire in 2031. At December 31, 20172020 the Company recorded $250,000 in research credits as prepaid to be offset against payroll tax liabilities associated with research and development personnel in 2018.2020 in addition to the approximately $250,000 in research and development credits remaining in prepaid from 2019.

On December 22, 2017, the Tax Cuts and Jobs Acts was enacted into law.  The new tax legislation represents a fundamental and dramatic shift in US taxation.  The new legislation contains several key tax provisions that will impact the Company including the reduction of the corporate income tax rate to 21% effective January 1, 2018. ASC 740 requires the Company to recognize the effect of the tax law changeOwnership changes, as defined in the periodInternal Revenue Code, including those resulting from the issuance of enactment.common stock in connection with our public offerings, may limit the amount of net operating loss and tax credit carryforwards that can be utilized to offset future taxable income or tax liability. The lower tax rate requires the Company to remeasure its deferred tax assets and liabilities in fourth quarter of 2017. The total amount of the Company’s deferred tax assets before valuation allowance decreased by $4.3 million as a resultlimitation is determined in accordance with Section 382 of the decrease inInternal Revenue Code. We have performed an analysis of ownership changes through December 31, 2020. Based on this analysis, we do not believe that any of our tax attributes will expire unutilized due to Section 382 limitations.

The following is a reconciliation of the federalCompany’s gross uncertain tax rate.position at December 31, 2020 and 2019:

 

ASC 740 requires the Company to recognize the effect of the tax law changes in the period of enactment. The lower corporate income tax rate will require the Company to remeasure its US deferred tax assets and liabilities as well as reassess the realizability of its deferred tax assets and liabilities.  The SEC staff has issued SAB 118 which will allow the Company to record provisional amounts during a measurement period which is similar to the measurement period used when accounting for business combinations.  The Company will continue to assess the impact of the recently enacted tax law on its business and financial statements and will reflect the provisional impact of the tax law change in the fourth quarter of fiscal 2017.

 

Year Ended December 31,

 

 

2020

 

 

2019

 

Balance at the beginning of year

$

1,334,000

 

 

$

972,000

 

Additions for current year tax provisions

 

341,000

 

 

 

294,000

 

Additions for prior year tax provisions

 

 

 

 

81,000

 

Reductions of prior year tax provisions

 

 

 

 

(13,000

)

Balance as of end of year

$

1,675,000

 

 

$

1,334,000

 

 

 

 

 

 

 

 

 

 

14.

11.

Commitments and Contingencies

Einstein License and Service Agreement

The Company’s remaining commitments with respect to the Einstein License are based on the attainment of future milestones. The aggregate amount of milestone payments made under the Einstein License may equal up to $1.85 million for each Licensed Product, and up to $1.85 million for each new indication of a Licensed Product. Additionally, the Serviceaggregate amount of one-time milestone payments based on cumulative sales of all Licensed Products may equal up to $5.75 million. The Company is also party to a service agreement with Einstein to support the Company’s ongoing research and development activities.

Collaboration Agreement are summarizedwith Merck

See discussion of the Merck Agreement in Note 5.10.

 

Collaboration Agreement with LG Chem Life Sciences

See discussion of the LG Chem Agreement in Note 10.

Leased Facilities

The Company leases approximately 19,900 square feet of office space in Cambridge, Massachusetts under a lease that began in May 2018 and is scheduled to expire on April 14, 2021 (the “Lease”), as discussed further below. Upon adoption of ASU 2016-02, the Company recorded a right-of-use asset and corresponding lease liability for the Lease on January 1, 2019, by calculating the present value of lease payments, discounted at 6%, the Company’s estimated incremental borrowing rate annually, over the 2.3-year remaining term. 

F-24


On July 29, 2015,January 18, 2018, the Company entered into an operating lease agreement for its laboratory and office space in Cambridge, Massachusetts for the period from AugustMay 1, 20152018 through April 30, 2018.2021 (the “Laboratory and Office Lease”).  The lease contains escalating payments during the lease period.  Upon execution of this lease agreement the Company prepaid three months of rent, two of which will be held in escrow and credited against future rent payments and that the other of which was applied to the first months’ rent. The Company records monthlyalso prepaid seven and one half months’ rent expense on the straight-line basis, equalpursuant to an amendment to the total of the lease payments over the lease term divided by the number of months of the lease term.

agreement executed on June 18, 2018.  These amounts were recorded to deposits and prepaid expenses, respectively, at December 31, 2020.

On November 14, 2016,June 18, 2018, the Company entered into an amended lease agreementamendment to the Laboratory and Office Lease that provided the Company with additionala reduction in rental fees for its office and laboratory space.space in exchange for prepayment of a portion of the fees. This amendment was effective beginning December 1, 2016on May 15, 2018 and continues throughexpires on April 14, 2021.

The monthly rent payment due under the expirationLaboratory and Office Lease is currently $330,550 until April 2021 and will increase to $375,174 for the remainder of the lease on April 30, 2018.

F-21

term.

On July 30, 2015,September 20, 2018, the Company entered into an operating lease agreement, as amended, for dedicated vivariumadditional laboratory space at 21 Erie Street, Cambridge, Massachusetts for the period from August 1, 2015October 15, 2018 through March 31, 2018.April 14, 2021(the “Additional Laboratory Lease”).  The operatinglease contains escalating payments during the lease period.  The monthly rental rate under the Additional Laboratory Lease was $72,600 for the first 12 months and $78,600 for the remainder of the term. Upon execution of this lease agreement containsthe Company prepaid 12 months’ rent pursuant to the lease agreement executed on September 20, 2018.

On September 19, 2019, the Company entered into a second amendment to the Additional Laboratory Lease that removed one holding room from the additional laboratory space. The amendment was effective beginning on October 1, 2019 and expires on April 14, 2021. The monthly rental rate under the Additional Laboratory Lease decreased from $78,600 to $58,995, for the remainder of the lease term. The partial termination of the lease did not change the classification of the lease and remained accounted for as an option to increaseoperating lease. The weighted-average discount rate remained the same at 6%. The Company accounted for the lease modification under ASC 842 that removed one holding room by electing Approach 1, which remeasured the right-of-use asset on the basis of the amount of space leasedthe liability change. The modification of the partial termination resulted in a reduction to right-of-use asset and lease liability of $335,465 and $327,079, respectively. The difference of $8,386 was recorded as a loss to the right-of-use asset as of December 31, 2019.

On June 24, 2020, the Company entered into a second amendment to the Laboratory and Office Lease. Pursuant to the amendment (1) the term of the lease was extended to June 14, 2022 and (2) the monthly rental rate for the last 14 months of the lease term was increased to $375,174. The Company determined that the amendment should be accounted for as a lease modification applicable under ASC 842, not as a separate contract, with an additional cost.effective date of lease modification of May 14, 2020. At the effective date of modification, the Company recorded an adjustment to the right-of-use asset and lease liability in the amount of approximately $4,826,000.

On July 20, 2020, the Company entered into a third amendment to the Additional Laboratory Lease. Pursuant to the amendment the term of the lease was extended to June 14, 2022. The Company determined that the amendment should be accounted for as a lease modification applicable under ASC 842, not as a separate contract, with an effective date of lease modification of August 4, 2020, when the agreement was fully executed. At the effective date of modification, the Company recorded an adjustment to the right-of-use asset and lease liability in the amount of approximately $813,000.

At December 31, 2020, the Company recorded approximately $6,774,000 to operating right-of-use asset, and approximately $4,777,000 and $2,369,000 to short and long-term operating lease liability, respectively. At December 31, 2020 the remaining lease term was 1.46 years.

Future minimum lease payments under these leases at December 31, 20172020 are as follows:

 

Years Ending December 31,   
2018 $1,004,000 
Total $1,004,000 

Year

 

 

 

 

2021

 

 

5,079,642

 

2022

 

 

2,407,692

 

Total lease payments

 

 

7,487,334

 

Less: present value discount

 

 

(341,121

)

Present value of lease payments

 

$

7,146,213

 

 

Total leaserent expense excludingof approximately $4,593,000 and $4,474,000 was included in the dedicated vivarium space,consolidated statements of operations and comprehensive loss for the years ended December 31, 2017, 20162020 and 2015 was included in the statement of operations as follows:2019, respectively.

 

  Years Ended December 31, 
  2017  2016  2015 
General and administrative $244,678  $117,691  $42,455 
Research and development  1,730,911   846,818   319,091 
Total $1,975,589   964,509  $361,546 


Contingencies

Legal Contingencies

The Company accrues for contingent liabilities to the extent that the liability is probable and estimable. There are no accruals for contingent liabilities in these consolidated financial statements.

The Company may be subject to various legal proceedings from time to time as part of its business. As of December 31, 2017,2020, the Company was not a party to any legal proceedings or threatened legal proceedings, the adverse outcome of which, individually or in the aggregate, would have a material adverse effect on its business, financial condition or results of operations.

Registration Statement Filing Obligations

In conjunction with the sale of common stock on June 15, 2015 and on December 22, 2016 (see Note 8), including placement agent warrants issued to MDB, the Company granted the investors and MDB certain piggy-back registration rights commencing 180 days after the date that the Company becomes a reporting company under the Exchange Act, and for a period of five years thereafter, and a one-time demand registration right commencing 180 days after the date that the Company becomes a reporting company under the Exchange Act. These registration rights terminate for a holder upon the earliest of when all underlying securities held by the holder (i) have been sold pursuant to a registration statement, (ii) have been covered by an effective registration statement which has been effective for an aggregate period of 16 months, or (iii) may be sold by the holder pursuant to Rule 144 of the Securities Act of 1933, as amended, without regard to both the volume limitations for sales as provided in Rule 144 and the limitations for such sales provided in Rule 144(i).

In conjunction with the sale of common stock on December 22, 2016 (see Note 8), the Company granted the investors certain piggy-back and demand registration rights with respect to the common stock commencing six months after an initial public offering by the Company, by joinder to the registration rights agreement entered into by the Company and investors in connection with the Company’s June 15, 2015 private placement of common stock.

In conjunction with the Company’s initial public offering of common stock in December, 2017 (see Note 8), the Company issued warrants to the underwriter, MDB, to purchase shares of common stock. These warrants include certain piggy-back and demand registration rights with respect to the common stock issuable upon exercise thereof. These registration rights terminate for a holder upon the earliest of when all underlying securities held by the holder (i) have been sold pursuant to a registration statement, (ii) have been covered by an effective registration statement which may be kept effective as an evergreen registration statement, or (iii) may be sold by the holder within a 90 day period without registration pursuant to Rule 144 of the Securities Act of 1933, as amended, or consistent with applicable SEC interpretive guidance.

Upon the completion of an initial public offering, the Company is required to use its best efforts to file a registration statement covering the resale of the shares of common stock issued to Einstein (see Note 5) as soon as practicable, but no later than 180 calendar days from the date of the initial public offering, and to cause such registration statement to be declared effective by the United States Securities and Exchange Commission within 120 calendar days from the date of issuance of the shares.

15.

F-22

Agreement with MDB

Effective April 13, 2015, the Company entered into an agreement with MDB to engage such firm as its exclusive placement agent in connection with one or more offerings of the Company’s securities. As consideration for the services to be provided under the agreement, MDB was entitled to a cash fee equal to 10% of the gross proceeds raised in a financing, and warrants for up to 10% of the aggregate securities sold in an offering, exercisable for seven years at 100% of the offering price per share in a private offering and at not less than 120% of the offering price per share in a public offering, each for a cash consideration of $1,000. The agreement provided for the reimbursement of legal expenses incurred by MDB in conjunction with a securities offering.

Effective December 22, 2016, the Company amended the agreement with MDB to modify the consideration that MDB is entitled to receive for its placement agent services, to provide for a cash fee equal to 10% of the initial $10,000,000 of gross proceeds raised in a financing and 5% of the amount in excess of $10,000,000 in gross proceeds raised in a financing, and that MDB shall receive no placement agent warrants.

Agreements with Catalent

Catalent is a global provider of drug delivery technology and development solutions for drugs, biologics and consumer health products.

On March 7, 2017, the Company entered into an agreement with Catalent for Catalent to provide services on a sequential milestone basis with respect to the development and manufacture of the Company’s lead drug candidate, CUE-101. The services under the agreement are designed to support the preparation and filing of an Investigational New Drug Application with the United States Food and Drug Administration to allow for the commencement of a Phase 1 clinical trial of CUE-101 in the United States. The Company currently estimates that it will incur total direct costs under this agreement aggregating approximately $5,875,000, most of which the Company estimates to be incurred during the years ending December 31, 2017 and 2018. The company incurred total direct cost under this agreement aggregating $2.4 million during the year ended December 31, 2017, of which approximately $1.6 million was expensed during the year ended December 31, 2017. The remaining $0.8 million are reflected as research and development advances for which the Company anticipates receiving the contracted services within 12 months from the date of payment. Management periodically reviews and updates the project’s estimated budget and timeline.

On July 5, 2017, the Company entered into a separate Master Services Agreement with Catalent that outlines the terms and conditions under which Catalent will provide contract services with respect to the Company’s research and development activities for a period of five years. The Company may terminate this agreement without cause upon 90 days prior written notice. Unless and until terminated, this agreement will automatically be extended for successive one-year periods.

Collaboration Agreement with Merck

On November 14, 2017, the Company entered into an Exclusive Patent License and Research Collaboration Agreement (the “Collaboration Agreement”) with Merck for a partnership to research and develop certain of the Company’s proprietary biologics that target certain autoimmune disease indications (the “Initial Indications”). The Company views this Collaboration Agreement as a component of its development strategy since it will allow the Company to advance its autoimmune programs in partnership with a world class pharmaceutical company. The research program outlined in the Collaboration Agreement entails (1) research, discovery and development of certain CUE Biologics™ drug candidates up to the point of demonstration of certain biologically relevant effects (“Proof of Mechanism”) and (2) the further development by Merck of the CUE Biologics™ drug candidates that have demonstrated Proof of Mechanism (the “Proposed Product Candidates”) up to the point of demonstration of all or substantially all of the properties outlined in such Proposed Product Candidates’ profiles as described in the Collaboration Agreement.

F-23

For the purposes of this collaboration, the Company has granted to Merck under the Collaboration Agreement an exclusive license under certain of its patent rights, including a sublicense of patent rights licensed from Einstein, to the extent applicable to the specific CUE Biologics™ that are elected to be developed by Merck. From the effective date of the Collaboration Agreement until the earlier of  (i) the first achievement of Proof of Mechanism for a CUE Biologics™ drug candidate or (ii) 18 months after we notify the joint steering committee that the first Product Candidate has been synthesized under the research program, the Company is required to forebear from researching, developing or licensing to a third party rights related to any CUE Biologics™ drug candidate for the treatment of autoimmune diseases other than pursuant to the Collaboration Agreement. In addition, so long as Merck continues product development on a Proposed Product Candidate, the Company is restricted from conducting any development activities within the Initial Indication covered by such Proposed Product Candidate other than pursuant to the Collaboration Agreement. The Company is not required to forbear at any time, however, from developing other CUE Biologics™ for use in therapeutic areas other than autoimmune diseases, e.g., for use in treating cancer or infectious diseases.

In exchange for the licenses and other rights granted to Merck under the Collaboration Agreement, Merck paid the Company a $2.5 million nonrefundable up-front payment which was recorded as a deferred credit in the accompanying balance sheet at December 31, 2017. As related research and development costs are incurred, the applicable amount of deferred credit will be recorded as an offset to research and development costs in the statement of operations. The Company may be eligible to receive funding in developmental milestone payments, as well as tiered royalties, if all research, development, regulatory and commercial milestones agreed upon by both parties are successfully achieved.

12.Cue Biopharma 401(k) Plan

Effective as of January 1, 2017, the Company adopted the Cue Biopharma 401(k) Plan (the “Plan”) for all employees of the Company. Employees may participate in the Plan upon complying with the Plan’s eligibility requirements, subject to limitations imposed by the Internal Revenue Service. Under the Plan, the Company may match employee contributions at its discretion. The Company did not0t make any contributions to the Plan during the year ended December 31, 2017.2020 or 2019.

16.

13.

Subsequent Events

On January 16, 2018, theThe Company entered into an amended lease agreement that provided the Company with additional laboratory space. This amendment was effective beginning on January 16, 2018 and continueshas evaluated subsequent events through the expiration ofdate on which the lease on April 30, 2018.

On January 18, 2018, the Company entered into an operating lease agreement for its laboratory and office space at 21 Erie St. Cambridge, Massachusetts for the period from May 1, 2018 through April 30, 2021.The lease contains escalating payments during the lease period.

Future minimum lease payments under this lease are as follows:

Years Ending December 31,   
2018 $2,380,000 
2019  3,752,000 
2020  4,661,000 
2021  1,554,000 
Total $12,347,000 

F-24

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, management performed, with the participation of our principal executive and principalconsolidated financial officers, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designedstatements were issued, to ensure that information required to be disclosedthis submission includes appropriate disclosure of events both recognized in the reports we file or submit under the Exchange Act is recorded, processed, summarized,consolidated financial statements and reported within the time periods specifiedevents which occurred subsequently but were not recognized in the SEC’s forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principalconsolidated financial officer, to allow timely decisions regarding required disclosures. Based on the evaluation, our principal executive and principal financial officers concluded that, as of December 31, 2017, our disclosure controls and procedures were effective.statements.

 

Management’s Report on Internal Control Over Financial Reporting

This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the Company’s registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.

Changes in Internal Control Over Financial Reporting

As previously reported in the registration statement on Form S-1 for our initial public offering, in connection with the audit of our financial statements for the year ended December 31, 2016 we identified a material weakness in our internal control over financial reporting. The material weakness related to a lack of effective controls to adequately restrict access and segregation of duties, specifically due to the limited number of staff in our accounting function. During the quarter ended December 31, 2017 we hired additional finance resources and in connection with our review of disclosure controls and procedures as of December 31, 2017 we concluded this material weakness had been remediated. Other than as described in the preceding sentence, for the quarter ended December 31, 2017, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

Not applicable.

 

61


PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this Item is incorporated by reference to our Proxy Statement on Schedule 14A relating to our 2018 annual meeting of stockholders.

Item 11. Executive Compensation

The information required by this Item is incorporated by reference to our Proxy Statement on Schedule 14A relating to our 2018 annual meeting of stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.

The information required by this Item is incorporated by reference to our Proxy Statement on Schedule 14A relating to our 2018 annual meeting of stockholders.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is incorporated by reference to our Proxy Statement on Schedule 14A relating to our 2018 annual meeting of stockholders.

Item 14. Principal Accountant Fees and Services

The information required by this Item is incorporated by reference to our Proxy Statement on Schedule 14A relating to our 2018 annual meeting of stockholders.

62

PART IV

Item 15. Exhibits, Financial Statements and Schedules

(a)

(a)

List of documents filed as part of this report:

1

1.

Financial Statements (see “Financial Statements and Supplementary Data” at Item 8 and incorporated herein by reference).

2.

2.

Financial Statement Schedules (Schedules to the Financial Statements have been omitted because the information required to be set forth therein is not applicable or is shown in the accompanying Financial Statements or notes thereto)

3.

3.

Exhibits

The following is a list of exhibits filed as part of this Annual Report on Form 10-K:

 

 

 

Incorporated by Reference

Exhibit

Number

Exhibit Description

Filed

Herewith

Form

Exhibit

Filing

Date

Registration

/File No.

 

 

 

 

 

 

 

  3.1

Amended and Restated Certificate of Incorporation of the Registrant, as amended

 

10-Q

3.1

11/09/20

005-90232

 

 

 

 

 

 

 

  3.2

Amended and Restated Bylaws of the Registrant

 

S-1

3.5

12/05/17

333-220550

 

 

 

 

 

 

 

  4.1

Specimen Certificate representing shares of common stock of the Registrant

 

S-1

4.1

12/05/17

333-220550

 

 

 

 

 

 

 

  4.2

Warrant to Purchase Common Stock issued to the placement agent in the Registrant’s 2015 private placement offering

 

S-1

4.3

09/21/17

333-220550

 

 

 

 

 

 

 

  4.3

Form of Warrant issued to the underwriter in the Registrant’s 2017 initial public offering

 

10-K

4.3

03/29/18

001-38327

 

 

 

 

 

 

 

  4.4

Description of Common Stock of the Registrant Registered Pursuant to Section 12 of the Securities Exchange Act of 1934

 

10-K

4.4

03/12/2020

001-38327

 

 

 

 

 

 

 

10.1

Form of Registration Rights Agreement between the Registrant and investors for an offering completed on June 15, 2015

 

S-1

10.4

09/21/17

333-220550

 

 

 

 

 

 

 

10.2#

Form of Joinder and Amendment to Registration Rights Agreement between the Registrant and investors for an offering completed on December 22, 2016

 

S-1

10.6

09/21/17

333-220550

 

 

 

 

 

 

 

10.3#

First Amendment to Collaboration, License and Option Agreement, dated March 15, 2019, between the Registrant and LG CHEM LTD.

X

 

 

 

 

 

 

 

 

 

 

 

10.4#

Second Amendment to Collaboration, License and Option Agreement, dated August 5, 2019, between the Registrant and LG CHEM LTD.

X

 

 

 

 

 

 

 

 

 

 

 

10.5#

Third Amendment to Collaboration, License and Option Agreement, dated October 29, 2019, between the Registrant and LG CHEM LTD.

X

 

 

 

 

 

 

 

 

 

 

 

10.6#

Fourth Amendment to Collaboration, License and Option Agreement, dated December 18, 2019, between the Registrant and LG CHEM LTD.

X

 

 

 

 

 

 

 

 

 

 

 

10.7#

Fifth Amendment to Collaboration, License and Option Agreement, dated January 10, 2020, between the Registrant and LG CHEM LTD.

X

 

 

 

 

95

  Incorporated by Reference
Exhibit NumberExhibit DescriptionFiled HerewithFormExhibitFiling DateRegistration/File No.
3.1Amended and Restated Certificate of Incorporation of the Registrant 8-K3.112/27/17005-90232
3.2Amended and Restated Bylaws of the Registrant S-13.512/05/17333-220550
4.1Specimen Certificate representing shares of common stock of the Registrant S-14.112/05/17333-220550
4.2Warrant to Purchase Common Stock issued to the placement agent in the Registrant’s 2015 private placement offering S-14.309/21/17333-220550
4.3Warrant issued to MDB Capital Group, LLC (U2017-1) dated December 27, 2017X    
4.4Warrant issued to Feltl and Company, Inc. (U2017-2) dated December 27, 2017X    
4.5Warrant issued to Paulson Investment Company LLC (U2017-3) dated December 27, 2017X    
10.1Engagement Agreement between the Registrant and MDB Capital Group, LLC S-110.109/21/17333-220550
10.2Form of Securities Purchase Agreement between the Registrant and investors for an offering completed on June 15, 2015 S-110.309/21/17333-220550
10.3Form of Registration Rights Agreement between the Registrant and investors for an offering completed on June 15, 2015 S-110.409/21/17333-220550
10.4Form of Securities Purchase Agreement between the Registrant and investors for an offering completed on December 22, 2016 S-110.509/21/17333-220550
10.5Form of Joinder and Amendment to Registration Rights Agreement between the Registrant and investors for an offering completed on December 22, 2016 S-110.609/21/17333-220550
10.6Executive Employment Agreement between the Registrant and Rodolfo J. Chaparro dated effective June 15, 2015* S-110.709/21/17333-220550
10.7Executive Employment Agreement between the Registrant and Ronald D. Seidel dated effective June 15, 2015* S-110.809/21/17333-220550
10.8Employment Agreement between the Registrant and Daniel R. Passeri dated August 29, 2016* S-110.909/21/17333-220550
10.9Form of Indemnification Agreement between the Registrant and its directors and officers S-110.1009/21/17333-220550
10.10Amended and Restated License Agreement by and between the Registrant and Albert Einstein College of Medicine dated July 31, 2017† S-110.1112/13/17333-220550

96


10.27

Executive Employment Agreement dated August 21, 2020 between Registrant and Kerri-Ann Millar

 

 

8-K

10.1

08/24/20

001-38327

10.28#

First Amendment to the Exclusive Patent License and Research Collaboration Agreement with Merck Sharp & Dohme Corp. dated November 9, 2020

 

X

 

 

 

 

10.29

Third Amendment to Vivarium Agreement, dated July 20, 2020, between the Registrant and MIL 21E, LLC

 

10-Q

10.2

11/09/20

001-38327

 

 

 

 

 

 

 

10.30#

First Amendment to the Amended and Restated License Agreement with Albert Einstein College of Medicine dated October 30, 2018

X

 

 

 

 

 

 

 

 

 

 

 

21

List of Subsidiaries

X

 

 

 

 

 

 

 

 

 

 

 

23.1

Consent of RSM Inc., Independent Registered Public Accounting Firm

X

 

 

 

 

 

 

 

 

 

 

 

24.1

Power of Attorney (included on signature page)

X

 

 

 

 

 

 

 

 

 

 

 

31.1

Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934

X

 

 

 

 

 

 

 

 

 

 

 

31.2

Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934

X

 

 

 

 

 

 

 

 

 

 

 

32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

 

 

 

 

 

 

 

 

 

 

 

101.INS

Inline eXtensible Business Reporting Language (XBRL) Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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 (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

X

 

 

 

 

 

63

10.11Cue Biopharma, Inc. 2016 Omnibus Incentive Plan, as amended and restated* S-110.1309/21/17333-220550
10.12Form of stock option award under 2016 Omnibus Incentive Plan* S-110.1409/21/17333-220550
10.13Cue Biopharma, Inc. 2016 Non-Employee Equity Incentive Plan* S-110.1509/21/17333-220550
10.14Form of stock option award under 2016 Non-Employee Equity Incentive Plan* S-110.1609/21/17333-220550
10.15Real Estate License Agreement between the Registrant and Mass Innovation Labs, LLC dated July 29, 2015 S-110.1709/21/17333-220550
10.16Amendment to Real Estate License Agreement between the Registrant and Mass Innovation Labs, LLC dated November 14, 2016 S-110.1809/21/17333-220550
10.17Second Amendment to Real Estate License Agreement by and between the Registrant and Mass Innovation Labs, LLC dated June 28, 2017 S-110.1909/21/17333-220550
10.18Exclusive Patent License and Research Collaboration Agreement between the Registrant and Merck Sharp & Dohme Corp. dated November 14, 2017† S-110.2112/04/17333-220550
10.19Executive Employment Agreement between the Registrant and Colin G. Sandercock dated as of November 15, 2017* S-110.2212/04/17333-220550
10.20Form of Irrevocable Waiver and Amendment to Securities Purchase Agreements between the Registrant and investors for offerings completed June 15, 2015 and December 22, 2016 S-110.2312/04/17333-220550
10.21License Agreement between the Registrant and MIL 21E, LLC dated January 19, 2018X    
24.1Power of Attorney (included on signature page)X    
31.1Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934X    
31.2Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934X    
32.1Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002X    

*Indicates management compensatory plan, contract or arrangement.

† Confidential portions of this exhibit, indicated by asterisks, have been omitted.

# Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

Item 16. Form 10-K Summary

Not applicable.

 

64


 

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.

 

Cue Biopharma, Inc.

Dated: March 29, 20189, 2021

By:

/s/ Daniel R. Passeri

Daniel R. Passeri

Chief Executive Officer and Director

(Principal Executive Officer)

 

POWER OF ATTORNEY AND SIGNATURES

We, the undersigned officers and directors of Cue Biopharma, Inc., hereby severally constitute and appoint Daniel R. Passeri our true and lawful attorney, with full power to him to sign for us and in our names in the capacities indicated below, any amendments to this Annual Report on Form 10-K, and generally to do all things in our names and on our behalf in such capacities to enable Cue Biopharma, Inc. to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all the requirements of the Securities Exchange Commission.

Pursuant to the requirements of the Securities and 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.

 

Signatures

Title

Date

/s/ Daniel R. Passeri

Chief Executive Officer and Director

March 29, 20189, 2021

Daniel R. Passeri

(Principal Executive Officer)

/s/ Gary SchumanKerri-Ann Millar

Interim

Chief Financial Officer

March 29, 20189, 2021

Gary Schuman

Kerri-Ann Millar

(Principal Financial and Accounting Officer)

/s/ Anthony DiGiandomenicoAaron Fletcher

Director

March 29, 20189, 2021

Anthony DiGiandomenico

Aaron Fletcher

/s/ Cameron Gray

Director

March 29, 20189, 2021

Cameron Gray

/s/ Peter A. Kiener

Director

March 29, 20189, 2021

Peter A. Kiener

/s/ Steven McKnightDirectorMarch 29, 2018
Steven McKnight
/s/ Christopher MarlettDirectorMarch 29, 2018
Christopher Marlett

/s/ Barry Simon

Director

March 29, 20189, 2021

Barry Simon

 

/s/ Frederick Driscoll

65

Director

March 9, 2021

Frederick Driscoll

 

/s/ Frank Morich

Director

March 9, 2021

Frank Morich

/s/ Tamar Howson

Director

March 9, 2021

Tamar Howson