UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form
10-K

(Mark One)

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

For the fiscal year ended December 31, 2019

2022

OR

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

Commission File Number:
001-36577

ContraFect Corporation

(Exact name of registrant as specified in its charter)

Delaware
 
39-2072586

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

28 Wells Avenue, 3
rd
Floor

Yonkers, NY

 
10701
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code:

(914)
207-2300

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

Title of Class

 

Trading Symbol(s)

 

Name of Exchange on Which Registered

Common Stock, Par Value $0.0001 per share
 
CFRX
 
Nasdaq Capital Market

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

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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” inRule
12b-2
of the Exchange Act.

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

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.  ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Act).    Yes ☐    No ☒

As of June 28, 2019,30, 2022, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by
non-affiliates
of the registrant was approximately $40.0$120.8 million, based on the closing price of the registrant’s common stock on the Nasdaq Capital Market on June 28, 201930, 2022 of $0.51$245.60 per share.

share (as adjusted for the registrant’s stock split effected on February 14, 2023). 
As of March 9, 2020,24, 202
3
, there were 15,332,0421,565,920 shares of common stock, $0.0001 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement relating to its 2020202
3
 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission are incorporated by reference into Part III of this Annual Report on Form
10-K.
Auditor Firm Id: 00042
Auditor Name: Ernst & Young, LLP
Auditor Location: Hartford, Connecticut


Table of Contents

 

      Page 

PART I

 

Item 1.

  Business   1 

Item 1A.

  Risk Factors   3436 

Item 1B.

  Unresolved Staff Comments   6577 

Item 2.

  Properties   6577 

Item 3.

  Legal Proceedings   6577 

Item 4.

  Mine Safety Disclosures   6577 

PART II

 

Item 5.

  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   6678 

Item 6.

  Selected Financial DataReserved   6678 

Item 7.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations   6778 

Item 7A.

  Quantitative and Qualitative Disclosures aboutAbout Market Risk   7890 

Item 8.

  Financial Statements and Supplementary Data   7990 

Item 9.

  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   7990 

Item 9A.

  Controls and Procedures   7990 

Item 9B.

  Other Information   7991 

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections91

PART III

 

Item 10.

  Directors, Executive Officers and Corporate Governance   8092 

Item 11.

  Executive Compensation   8496 

Item 12.

  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   8496 

Item 13.

  Certain Relationships and Related Transactions, and Director Independence   8497 

Item 14.

  Principal Accountant Fees and Services   8497 

PART IV

 

Item 15.

  Exhibits and Financial Statement Schedules   8598 

Item 16.

  Form10-K Summary   89102 

 

i


References to ContraFectREFERENCES TO CONTRAFECT

Throughout this Annual Report on Form10-K, the “Company,” “ContraFect,” “we,” “us,” and “our,” except where the context requires otherwise, refer to ContraFect Corporation, and “our board of directors” refers to the board of directors of ContraFect Corporation.

All brand names or trademarks appearing in this Annual Report on Form10-K are the property of their respective holders.

Forward Looking InformationFORWARD LOOKING STATEMENTS

The information in this Annual Report on Form10-K contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, our ability to continue as a going concern, projected costs, prospects and plans and objectives of management. The words “anticipates”, “believes”, “estimates”, “expects”, “intends”, “targets”, “may”, “plans”, “projects”, “potential”, “will”, “would”, “could” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. All such forward-looking statements involve significant risks and uncertainties, including, but not limited to, statements regarding:

 

the success, cost, timing and potential indications of our product development activities and clinical trials;

 

our ability to advance into and through clinical development and ultimately obtain FDAU.S. Food and Drug Administration (“FDA”) approval for our product candidates;

 

our future marketingresearch and sales programs;development plans and ability to bring forward additional product candidates into preclinical and clinical development;

our expectations regarding the impact of COVID-19 on our business, operations and financial performance and position;

our contract with the Biomedical Advanced Research and Development Authority (“BARDA”) (the “BARDA Contract”) and any exercise of BARDA’s options to extend the BARDA Contract;

our grant award from the Military Infectious Diseases Research Program, United States Army Medical Research and Development Command (“USAMRDC”);

 

the rate and degree of market acceptance of our product candidates and our expectations regarding the size of the commercial markets for our product candidates;

 

our researchfuture marketing and development plans and ability to bring forward additional product candidates into preclinical and clinical development;sales programs;

 

the effect of competition and proprietary rights of third parties;

our recurring losses from operations raise substantial doubt regarding our ability to continue as a going concern;

anticipated reductions in operating expenses;

 

the availability of and our ability to obtain additional financing;

 

the effects of existing and future federal, state and foreign regulations;

 

the seeking of joint development, licensing or distribution and collaboration and marketing arrangements with third parties; and

 

the period of time for which our existing cash and cash equivalents will enable us to fund our operations.

ii


As more fully described under the heading “Risk Factors” contained elsewhere in this Annual Report on Form10-K, many important factors affect our ability to achieve our stated objectives and to develop and commercialize any product candidates. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks and uncertainties set forth in our filings with the SEC. You should read this Annual Report on Form10-K and the documents that we have filed as exhibits to this Annual Report on Form10-K completely and with the understanding that our actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

RISK FACTOR SUMMARY

iiOur business is subject to numerous risks and uncertainties, including those described in Part I, Item 1A. “Risk Factors” in this Annual Report on Form 10-K. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

We have incurred significant losses since our inception. We expect to incur losses for at least the next several years and may never achieve or maintain profitability.

Our recurring losses from operations raise substantial doubt regarding our ability to continue as a going concern.

We currently have no source of product revenue and have not yet generated any revenues from product sales.

We have a need for substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts, and we may be forced to sell or liquidate our business. Any financial or strategic alternative we pursue may not be successful.

If BARDA were to eliminate, reduce, or delay funding for our BARDA Contract, we would experience a negative impact on our programs associated with such funding.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

The timing of the milestone and royalty payments we are required to make to The Rockefeller University (“Rockefeller”) under certain agreements is uncertain and could adversely affect our cash flows and results of operations.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

The COVID-19 pandemic or another pandemic, epidemic or outbreak of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials.

We are heavily dependent on the success of our leading product candidates. If we are ultimately unable to obtain regulatory approval for any of our product candidates, our business will be substantially harmed.

If clinical trials of any of our product candidates that we develop fail to demonstrate safety and efficacy, or the manufacturing for the commercial supply of drug substance or drug product fails to demonstrate robustness, stability, purity and potency to the satisfaction of the FDA or similar international 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 product candidates.

iii


We may be required to suspend or discontinue clinical trials due to adverse side effects or other safety risks that could preclude approval of any of our product candidates.

Delays in clinical trials are common and have many causes, and any such delays could result in increased costs to us and jeopardize, delay or prevent our ability to obtain regulatory approval and commence product sales as currently contemplated.

We are significantly dependent on our license agreements with Rockefeller that relate to exebacase.

We rely on Contract Research Organizations (“CROs”) to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be delayed in obtaining, or may ultimately not be able to obtain, regulatory approval for commercialization of any of our product candidates.

We rely on contract manufacturing organizations (“CMOs”) to manufacture clinical and commercial supplies of our product candidates. In addition to the risks associated with the manufacture of our product candidates, which could include cost overruns, new impurities, difficulties in process or formulation development, scaling up or reproducing manufacturing processes and lack of timely availability of raw materials, if these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be delayed in obtaining, or may ultimately not be able to obtain, regulatory approval for commercialization of any of our product candidates.

Even if the FDA approves any of our product candidates, adverse effects discovered after approval could adversely affect our markets.

Any Breakthrough Therapy designation that we may receive from the FDA for our product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.

Developments by competitors may render our products or technologies obsolete or non-competitive.

The level of commercial success of any of our product candidates that we develop will depend upon significant market acceptance of these products among physicians and payors.

Coverage and reimbursement may not be available for any of our product candidates that we develop, including as a result of healthcare reform measures.

We may not successfully execute or achieve the expected benefits of our restructuring program and other cost saving measures we may take in the future, and our efforts may result in further actions and may adversely affect our business, financial condition and results of operations.

If we are unable to establish our own marketing and sales capabilities, or enter into agreements with third parties, to market and sell our products after they are approved, we may not be able to generate revenues.

Interim, “topline” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

Risks related to regulatory approval of our product candidates and other legal and compliance matters.

Risks related to employee matters and our operations.

Risks related to our intellectual property.

Risks related to our securities and organizational documents.

We currently do not meet certain of Nasdaq Capital Market’s continued listing requirements and other Nasdaq rules. If we are unable to regain compliance, we are likely to be delisted. Delisting could negatively affect the price of our common stock and could make it more difficult for us to sell securities in a future financing or for you to sell our common stock.

iv


Security breaches, cybersecurity attacks, failure of our data and personal information protections and other disruptions could compromise our information and technology systems and expose us to liability, which would cause our business and reputation to suffer.

Our collection, control, processing, sharing, disclosure and otherwise use of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements, and evolving laws concerning data privacy in the European Union (“EU”) and European Economic Area (“E.E.A.”).

v


Item 1.

Business

We are a clinical-stage biotechnology company focused on the discovery and development of direct lytic agents (“DLAs”), including lysins and amurin peptides, as new medical modalities for the treatment of life-threatening, antibiotic-resistant infections. Antibiotic-resistant infections account for 2,000,000 illnesses in the United States and 700,000 deaths worldwide each year. We intend to address antibiotic-resistant infections using product candidates from our lysin and amurin peptide platforms. We believe DLAs are fundamentally different than antibiotics and offer a potential paradigm shift in the treatment of antibiotic-resistant infections. According to one of the most recent and comprehensive reports on the global burden of bacterial antimicrobial resistance (“AMR”), there were an estimated 4.95 million deaths associated with bacterial AMR in 2019, including 1.27 million deaths directly attributable to bacterial AMR. The six leading pathogens for deaths associated with resistance (Escherichia coli (“E. coli”), Staphylococcus aureus (“S. aureus”), Klebsiella pneumoniae (“K. pneumoniae”), Streptococcus pneumoniae, Acinetobacter baumannii (“A. baumannii”), and Pseudomonas aeruginosa (“P. aeruginosa”)) were responsible for 929,000 deaths. Only one pathogen–drug combination, methicillin-resistant S. aureus (“MRSA”), caused more than 100,000 deaths in 2019.

Our first DLA product candidate, exebacase, is currently being studied in an ongoing Phase 1b/2 study in patients with chronic prosthetic joint infections (“PJIs”) of the knee due to S. aureus or coagulase-negative Staphylococci. In addition to PJIs, Staphylococci, and S. aureus in particular, is also a common cause of bacteremia, pneumonia and osteomyelitis as well as biofilm-associated infections of heart valves (endocarditis), indwelling devices and catheters. These infections result in significant morbidity and mortality despite currently available antibiotic therapies.

Our next product candidate, CF-370, is designed to target a range of gram-negative bacteria, including P. aeruginosa, K. pneumoniae and A. baumannii, and has demonstrated potent in vivo activity against these pathogens, even against multidrug-resistant (“MDR”) and extensively drug-resistant (“XDR”) strains. Gram-negative pathogens are a major cause of morbidity and mortality in patients with hospital-acquired or ventilator-associated pneumonia and P. aeruginosa remains a major medical challenge for cystic fibrosis patients with chronic lung infections.

Lysins are recombinantly-produced enzymes, thatenzymes; when applied to bacteria, they cleave a key component of the target bacteria’s peptidoglycan cell wall, resulting in rapid bacterial cell death. In addition to the speed of action and potent cidality, we believe lysins are differentiated by their other hallmark features, which include the demonstrated ability to eradicate biofilms and synergistically boost the efficacy of conventional antibiotics in animal models. Lysins also tend to have a “targeted spectrum,” meaning they kill only specific species of bacteria or closely related bacteria. Amurin peptides are a new class of DLAs, discovered in our laboratories, which disrupt the outer membrane of gram-negative bacteria, resulting in rapid bacterial cell death, offering a distinct mechanism of action from lysins. Amurins are further differentiated from lysins byhave a potent, “broad spectrum”broad spectrum of in vitro activity against a wide range of gram-negative pathogens, in, including deadly, drug-resistantPseudomonasP. aeruginosa (“P. aeruginosa”),KlebsiellaK. pneumoniae, EscherichiaE. coli, AcinetobacterA. baumanniiand Enterobacter cloacaebacteria species as well as difficult to treat pathogens such asStenotrophomonas,Achromobacter and some Burkholderiaspecies. The highly differentiated properties of DLAs have shown these agents to be complementary to and synergistic with conventional antibiotics enablingunderscore their potential use in addition to antibiotics with the goal of improving clinical outcomes compared to antibiotics alone. The development of DLAs involves a novel clinical and regulatory strategy, using superiority design clinical trials with the goal of delivering significantly improved clinical outcomes for patients with serious and/or antibiotic-resistant bacterial infections, including biofilm-associated infections. We believe this approach affords potential clinical benefits to patients as well as the potential ability to mitigate against further development of antibiotic resistance.

Our most advanced clinical candidate, exebacase, is an investigational novel lysin that targetsStaphylococcus aureus (“Staph aureus”), including methicillin-resistant (“MRSA”) strains, which causes serious infections such as bacteremia, pneumonia and osteomyelitis.Staph aureus is also a common cause of biofilm-associated infections of heart valves (endocarditis), prosthetic joints, indwelling devices and catheters. These infections result in significant morbidity and mortality despite currently available antibiotic therapies. Exebacase completed a Phase 2 superiority study that evaluated its safety, tolerability, efficacy and pharmacokinetics (“PK”) when used in addition to background standard of care (“SOC”) antibiotics compared to SOC antibiotics alone for the treatment ofStaph aureus bacteremia, including endocarditis in adult patients. In January 2019, we announced topline results from this study which showed clinically meaningful improvement in clinical responder rates among patients treated with exebacase in addition to SOC antibiotics compared to SOC antibiotics alone.

In the Phase 2 study, the primary efficacy analysis population of 116 patients with documentedStaph aureusbacteremia, including endocarditis, who received a single intravenous (“IV”) infusion of blinded study drug, the clinical responder rate at Day 14 was 70.4% for patients treated with exebacase and 60.0% for patients dosed with SOC antibiotics alone (p=0.314). The clinical responder rate at Day 14 in the subset of patients with bacteremia including right-sided endocarditis was 80.0% for patients treated with exebacase compared to 59.5% for patients treated with SOC antibiotics alone, an increase of 20.5% (p=0.028). In the subset of patients with bacteremia alone, the clinical responder rate at Day 14 was 81.8% for patients treated with exebacase compared to 61.5% for patients treated with SOC antibiotics alone, an increase of 20.3% (p=0.035). In apre-specified analysis of MRSA-infected patients, the clinical responder rate at Day 14 in patients treated with exebacase was nearly43-percentage points higher than in patients treated with SOC antibiotics alone (74.1% for patients treated with exebacase compared to 31.3% for patients treated with SOC antibiotics alone (p=0.010)). In addition to the higher rate of clinical response, MRSA-infected patients treated with exebacase showed a21-percentage point reduction in30-dayall-cause mortality (p=0.056), a four day lower mean length of hospital stay and meaningful

reductions in hospital readmission rates. Exebacase was well-tolerated and treatment emergent adverse events, including serious treatment-emergent serious adverse events (“SAEs”) were balanced between the treatment groups. There were no SAEs that we determined to be related to exebacase, there were no reports of hypersensitivity related to exebacase and no patients discontinued treatment with study drug in either treatment group. We believe these data have established proof of concept for exebacase and for DLAs as therapeutic agents. In particular, the data for MRSA-infected patients treated with exebacase, which, in this study, demonstrated superior outcomes in clinical response at Day 14 and in30-dayall-cause mortality as well as health economics benefits, provided the basis for our proposed Phase 3 study design and our application for Breakthrough Therapy designation to the U.S. Food and Drug Administration (“FDA”).

In September 2019, we held an End-of-Phase 2 meeting with the FDA regarding the results from the Phase 2 study and the potential for advancing exebacase into Phase 3 clinical development based on the data discussed above. Our proposed Phase 3 study design excluded patients outside the U.S. or with left-sided endocarditis due to the differences in standard-of-care for these patients. We obtained concurrence with the FDA on our proposed Phase 3 protocol, including the key design features of the study population, the endpoints and the size of the safety database that would be needed to support a Biologics License Application (“BLA”) for approval of exebacase, under the FDA’s “streamlined development” paradigm for agents to treat bacterial infections associated with high unmet medical need. Based on the outcome of the meeting, we proceeded to initiate the single Phase 3 DISRUPT (Direct Lysis of Staph aureus Resistant Pathogen Trial) study of exebacase in December 2019. The DISRUPT study is a randomized, double-blind, placebo-controlled Phase 3 clinical trial conducted in the U.S. alone to assess the efficacy and safety of exebacase in approximately 350 patients with complicated Staph aureus bacteremia, including right-sided endocarditis. Patients entering the study will be randomized 2:1 to either exebacase or placebo, with all patients receiving SOC antibiotics. The primary efficacy endpoint of the study is clinical response at Day 14 in patients with MRSA bacteremia, including right-sided endocarditis. Secondary endpoints will include clinical response at Day 14 in the All Staph aureus patient group (MRSA and methicillin-sensitive Staph aureus (“MSSA”)), 30-day all-cause mortality in MRSA patients, and clinical response at later timepoints. We will also evaluate the impact of treatment with exebacase on health resource utilization, including hospital length of stay, ICU length of stay and 30-day readmission rates. We plan to conduct an interim futility analysis following the enrollment of approximately 60% of the study population.

The FDA recently granted Breakthrough Therapy designation to exebacase for the treatment of MRSA bloodstream infections (bacteremia), including right-sided endocarditis, when used in addition to SOC anti-staphylococcal antibiotics in adult patients, based on the final data from the Phase 2 superiority trial of exebacase. Breakthrough Therapy designation is a program designed by the FDA to expedite the development and review of medicines for serious or life-threatening diseases where preliminary clinical evidence suggests that the investigational therapy may demonstrate substantial improvement on at least one clinically significant endpoint over available therapies. The Breakthrough Therapy designation provides additional benefits, such as intensified interactions with the FDA and the potential for priority review, over the Fast Track designation granted to exebacase in August 2015.

We performed apost-hoc Phase 3 simulation analysis using the Phase 2 data to evaluate the clinical outcomes for the Phase 2 patient population that would meet the Phase 3 inclusion criteria. In this simulated Phase 3 analysis population of 84 U.S. patients with documentedStaph aureusbacteremia, including right-sided endocarditis, who received a single IV infusion of blinded study drug, the clinical responder rate at Day 14 was 83.7% for patients treated with exebacase and 54.3% for patients dosed with SOC antibiotics alone, an improvement in the responder rate of over29-percentage points. The clinical responder rate at Day 14 in the subset of patients with MRSA bacteremia including right-sided endocarditis was 82.6% for patients treated with exebacase compared to 33.3% for patients treated with SOC antibiotics alone, an improvement in the responder rate of over49-percentage points. In the subset of patients with MSSA bacteremia including right-sided, the clinical responder rate at Day 14 was 84.6% for patients treated with exebacase compared to 66.7% for patients treated with SOC antibiotics alone, an increase of nearly18-percentage points.

Our Portfolio

We intend to develop and commercialize novel therapeutic agents to treat life-threatening infections, including those caused by antibiotic-resistant pathogens. The increasing prevalence of antibiotic resistance among bacterial pathogens has been widely recognized as an urgent public health threat by the U.S. Center for Disease Control (“CDC”), the World Health Organization (“WHO”) and the Infectious Disease Society of America (“IDSA”). According to the IDSA, as of 2010 the estimated cost to the U.S. healthcare system of

1


antibiotic-resistant infections was approximately $21 billion to $34 billion annually, a substantial portion of which is due to increased length of hospital stays necessary to treat these patients. Antibiotic resistance has limited the effectiveness of many conventional antibiotics andantibiotics; the discovery and development of new therapeutics to address resistance has not kept pace with the increasing incidence of thesedifficult-to-treat microbial infections. As Dr. Tedros Adhanom Ghebreyesus, Director-General of WHO, has accordingly stated, “never has the threat of antimicrobial resistance been more immediate and the need for solutions more urgent. Numerous initiatives are underway to reduce resistance, but we also need countries and the pharmaceutical industry to step up and contribute with sustainable funding and innovative new medicines.”

We take this mandate very seriously and have focused our research and discovery efforts on those pathogens that are considered to be urgent or serious threats to global health by the CDC, or considered critical priority by the WHO. In particular, species of bacteria that are part of the ESKAPE pathogens (Enterococcus faecium,Staphylococcus aureus,Klebsiella pneumoniae,Acinetobacter baumannii,Pseudomonas aeruginosa,andEnterobacter species) are urgent or serious threats, and are also the leading causes of hospital acquired infections throughout the world. We believe that DLAsour DLA product candidates, if successfully developed and approved, will be highly complementary to conventional antibiotics in addressing most of these infections. We aim to improve outcomes in patient with these life-threatening bacterial infections through use of our DLA candidates developed from our novel lysin and amurin platforms.

We continue to advance novel lytic agents across our portfolio. We initiated the single Phase 3 DISRUPT study of exebacase in December 2019. We also expanded the investigator-initiated early access program for compassionate use of exebacase for individual named patients with chronic post-operative prosthetic joint infections (“PJIs”) under Temporary Authorizations for Use from the French National Agency for Medicines and Health Products Safety in collaboration with Dr. Tristan Ferry at the Hôpital de la Croix Rousse in Lyon, France. We have developed a novel, engineered variant of exebacase, known asCF-296, which we believe provides an additional opportunity to advance a potential targeted therapy for deep-seated, invasive biofilm-associatedStaph aureus infections. We are conducting furtherin vitro andin vivo characterization ofCF-296 to evaluate the full profile of this compound. We have been awarded up to $7.2 million of funding from the Military Infectious Diseases Research Program, United States Army Medical Research and Development Command (“USAMRDC”) over the course of three years to advanceCF-296 through Investigational New Drug application (“IND”)-enabling studies.

We have discovered and engineered a new lysin product candidate,CF-370, which in preclinical studies has demonstrated potent activity against antibiotic-resistantP. aeruginosabacteria, a major cause of morbidity and mortality in patients with hospital acquired pneumonia and a major medical challenge for patients with cystic fibrosis. We have initiatedIND-enabling activities and we expectCF-370 to be our next molecule in clinical studies. We have been awarded up to $3.3 million in funding fromCARB-X (Combating Antibiotic-Resistant Bacteria Biopharmaceutical Accelerator) in support of the advancement of anti-pseudomonal lysins. Beyond our lysin programs, we continue our research to advance potential product candidates from our amurin peptide platform. We will be initiating animal studies of our most promising amurins with the goal of moving this program into clinical studies as soon as possible. We have been awarded up to $6.9 million of funding fromCARB-X to support the amurin peptide program. In summary, we now have three modalities within the DLA therapeutic umbrella, including (i) native lysins for gram-positive pathogens (ii) engineered lysins forgram-negative pathogens and (iii) amurins for a wide spectrum of gram-negative pathogens.

Our current portfolio of programs is reflected below:

 

LOGOLOGO

Our Strategy

Our strategy is to use our novel, highly differentiated therapeutic DLAs, if approved, to achieve a leading market position in the treatment of life-threatening infectious diseases, including those caused by antibiotic-resistant pathogens. We plan to pursue commercialization of therapeutic products through discovery, acquisitionpartnerships, acquisitions and development as follows:

Evaluate safety and efficacy of exebacase as a treatment for chronic PJIs in our current Phase 1b/2 study in France. If the Phase 1b/2 study demonstrates positive results, we would seek to advance exebacase into one or more potential registrational studies, including in the U.S.;

 

  

Advance our lead product candidate, exebacase, throughEvaluate safety of CF-370 in a Phase 3 clinical development and demonstrate superiority1 study of our therapeutic candidate used in addition to SOC antibiotics over SOC antibiotics alone for the treatment ofStaph aureus bacteremia, including right-sided endocarditis.healthy volunteers. If our Phase 3 clinical program confirms the results offrom the Phase 1 studies are positive, we would seek to advance CF-370 into a Phase 2 study demonstratingto evaluate the superioritysafety and efficacy of exebacase, usedCF-370 in addition to SOC antibiotics as compared to antibiotics alone, we would seek marketing authorization with a superiority claim which, if exebacase is approved, we believe would be highly differentiated from conventional antibiotics and would lead to rapid uptake by providers, favorable reimbursements from payors and potential reductions in health care utilization and the overall cost of treatment per patient;one or more patient populations;

 

2


Advance additional product candidates from our portfolio including lysinsof direct lytic agents targeting gram-negative bacteria, to clinical development as rapidly as possible, and further advance our next-generation gram-positive lysins and amurin antimicrobial peptides;possible;

 

Pursue additional grant opportunities from both CARB-X andEstablish partnerships or collaborations to further expand or more rapidly conduct the Biomedical Advanced Research and Development Authority (“BARDA”). In lightdevelopment of recent events with regards to the COVID-19 pandemic, we have also discussed with BARDA the potential for compassionate use of exebacase for secondary bacterial infections.our product candidates;

 

Acquire additional technologies that enable the efficient discovery of anti-infective agents; and

 

Acquire clinical stage therapies that treat infectious diseases through unique mechanisms of action; andaction.

Establish collaborations to further develop and commercialize our product candidates.

Our Lead Program: Exebacase(CF-301)

Medical OpportunityOpportunities

StaphProsthetic Joint Infections

Prosthetic joint infection (“PJI”) is a devastating complication following total joint arthroplasty (“TJA”), either total knee arthroplasty (“TKA”) or total hip arthroplasty (“THA”). It is a leading cause of morbidity and revision following TJA and a significant driver of healthcare costs. There are over 100,000 orthopedic prosthesis-related infections annually in the U.S., representing approximately 2-3% of joint replacement patients; the prevalence of PJI related to resistant organisms is increasing. More importantly, Staphylococcus is the primary infecting organism and treatment failure is due to the presence of biofilms, or the protective structures that allow bacteria to “stick” to implanted devices and shield themselves from both the immune system and conventional antibiotics.

Once PJI is diagnosed, two-stage exchange arthroplasty remains the gold standard for treating PJI, since there is a high rate of treatment failure with current irrigation and debridement or one-stage exchange arthroplasty procedures. A two-stage exchange involves removal of the infected artificial joint components along with bone and soft tissue, followed by 12-16 weeks of IV and oral antibiotic therapy before a new artificial joint can be implanted. Unfortunately, systemic antibiotics are often unable to eradicate biofilms, resulting in poor outcomes. PJI significantly reduces the long-term quality of life (“QoL”) and the high failure rates ultimately result in arthrodesis, amputation, or mortality. In fact, PJI is associated with a 5-year mortality rate higher than that of breast cancer, melanoma, Hodgkin’s lymphoma, and other common malignancies.

In addition to the significant morbidity and mortality associated with PJI, the cost of treating PJI is substantial, with estimated annual hospital costs expected to increase to over $1.1 billion for TKA and to over $750 million for THA by 2030. Mean PJI treatment cost is approximately 3 to 4 times that for primary joint replacement, and when the causative pathogen is a resistant organism, such as MRSA, the mean PJI treatment cost increases nearly 60% compared to PJI caused by more susceptible microorganisms.

Bacteremia

S. aureus bacteremia is a serious bacterial infection associated with high morbidity and mortality. In the U.S. alone, there are approximately 200,000 hospitalizations forStaphS. aureus bacteremia annually. Mortality

rates from this bloodstream infection have been reported as ranging from20-40% despite conventional antibiotics. The last new agent forStaphS. aureus bacteremia and right-sided endocarditis, daptomycin, was approved over 13 years ago based onnon-inferiority to vancomycin (approved in 1958) with clinical cure rates of less than 50% in the Phase 3 study that led to its approval.

StaphS. aureus bacteremia can lead to infectious endocarditis, a serious infection affecting the heart valves. The incidence of infective endocarditis in the U.S. has increased over the past decade with over 47,000 cases in 2011, and is likely due to the growth of theat-risk populations, such as older, diabetic and hemodialysis patients.StaphS. aureusendocarditis remains difficult to treat with current standard of care antibiotics. One reason for this is biofilm formation which prevents antibiotics from eradicating the bacteria, leading to the need for long courses of antibiotic therapy, which are

3


often unsuccessful and necessitate surgery to eradicate bacteria from infected heart valves. Mortality attributed toStaphS. aureus bacteremia is higher when the infection is caused by MRSA as compared to methicillin-susceptible S. aureus(“MSSA”)Staph aureus. MRSA is considered a serious threat to global health by the CDC and a high priority threat by the WHO. Emerging resistance to conventional antibiotics such as vancomycin and daptomycin, which are used to treat MSSA and MRSA, represents an additional serious threat which may have serious consequences in terms of increasing morbidity, mortality and health care utilization.

Exebacase Development

Exebacase is the first lysin to enter U.S. clinical trials and represents a first-in-class anti-bacterial therapeutic candidate. Exebacase has beenwas granted both Breakthrough Therapy and Fast Track designations by the FDAdesignation for thedevelopment as a treatment offor MRSA bloodstream infections (bacteremia), including right-sided endocarditis, when used in addition to SOCstandard-of-care (“SOC”) anti-staphylococcal antibiotics in adult patients. Ifpatients, by the U.S. Food and Drug Administration (“FDA”) in February 2020. The Phase 2 data for MRSA-infected patients treated with exebacase, which demonstrated superior outcomes in clinical response at Day 14 and in 30-day all-cause mortality as well as health economics benefits, provided the basis for the FDA to grant Breakthrough Therapy designation.

In December 2019, we are ableinitiated the Phase 3 DISRUPT (Direct Lysis of S. aureus Resistant Pathogen Trial) superiority design study of exebacase. The DISRUPT study was a randomized, double-blind, placebo-controlled Phase 3 clinical trial conducted in the U.S. alone to obtain regulatory approvalassess the efficacy and safety of exebacase in adult and adolescent patients with complicated S. aureus bacteremia, including right-sided endocarditis. Patients entering the study were randomized 2:1 to either exebacase or placebo, with all patients receiving SOC antistaphylococcal antibiotics. The primary efficacy endpoint of the study was clinical response at Day 14 in patients with MRSA bacteremia, including right-sided endocarditis. Secondary endpoints included clinical response at Day 14 in the All S. aureus patient group (MRSA and methicillin-sensitive S. aureus (“MSSA”)), 30-day all-cause mortality in MRSA patients, and clinical response at later timepoints.

In July 2022, the Data Safety Monitoring Board (“DSMB”) of the Company’s Phase 3 DISRUPT study completed a pre-specified, interim futility analysis and recommended that the DISRUPT study be stopped because the conditional power of the study was below the pre-specified threshold for this initial indication, we believefutility in the DSMB charter. The recommendation was based on an analysis of the clinical response rate at day 14 (the primary efficacy endpoint of the study) in 84 patients, or approximately 60% of the total planned MRSA population with bacteremia, including right-sided endocarditis. Based on the DSMB’s recommendation, patient enrollment in the Phase 3 trial was stopped and the trial was closed. We continued to monitor all already enrolled patients and all patients completed their follow-up visits. We also expect to complete all clinical study reports as required by the FDA.

We plan to continue to review the totality of our clinical data with exebacase and/or engineered variants, may bein bacteremia patients and our internal and external discussions will inform the next steps and any potential opportunities for further developeddevelopment of exebacase for the treatment of other serious diseases caused byStaphS. aureus including biofilm-related infections in prosthetic joints and indwelling devices, as well as pneumonia and osteomyelitis. bacteremia.

Clinical Studies

Prosthetic Joint Infections

On September 30, 2022, we submitted a Clinical Trial Authorization (“CTA”) to the French National Agency for the Safety of Medicines and Health Products (“ANSM”) for the study of intra-articular exebacase in patients with chronic prosthetic joint infections of the knee due to S. aureus or coagulase-negative Staphylococci (“CoNS”). The CTA was approved by ANSM in November 2022 and, following IRB/EC approval of the study protocol, we have recently opened the site in order to initiate dosing of patients. We expect to report interim clinical data from the first cohort of patients in the second half of 2023.

4


The trial is a Phase 3 Clinical Study1b/2 study of exebacase in the setting of an arthroscopic debridement with joint retention and systemic antibiotics (DAIR) procedure in patients with chronic PJI of the knee due to S. aureus and/or CoNS. The study is a randomized, double-blind, placebo-controlled two-part clinical study to be conducted at a single center in France to assess the efficacy and safety of exebacase. Part 1 will evaluate the safety, PK, early clinical outcomes, and microbiologic response in patients through Day 42. Up to 2 dose levels of intra-articularly administered exebacase in addition to systemic antibiotics will be studied in up to 2 patient cohorts. Part 2 will consist of a long-term follow-up study of safety and efficacy parameters in patients who complete Part 1 of the study. Follow-up assessments will be performed on Days 90, 180, 360 and 720, including health resource utilization and QoL measures. Patients entering the study will be randomized 3:1 to either exebacase or placebo, with all patients receiving study drug in the setting of a DAIR Procedure.

Bacteremia

We are conductinghave conducted a multi-center Phase 3 clinical study of exebacase for the treatment ofStaphS. aureus bacteremia, including right-sided endocarditis, caused by MRSA or MSSA. This randomized, double-blind, placebo-controlled study comparescompared the efficacy, safety and tolerability of exebacase used in addition to SOC antibiotics to SOC antibiotics alone. The study is targeting enrollmentenrolled 259 of approximately 350the planned 348 patients, who were randomized 2:1 to receive either a single dose of exebacase administered as a2-hour IV infusion in addition to SOC antibiotics or placebo plus SOC antibiotics. Enrollment in the trial was stopped following a review of the pre-specified, interim futility analysis by the DSMB. No safety concerns were noted by the DSMB.

The results from the interim futility analysis were generated based on 84 MRSA bacteremia patients, of which 55 patients were treated with exebacase plus SOC antibiotics (the Exebacase Arm) and 29 patients were treated with placebo plus SOC antibiotics (the SoCA Arm). Topline data showed clinical response at day 14 was 52.7% in the Exebacase Arm compared to 58.6% in the SoCA Arm. The unexpected clinical response in the placebo arm of this study is nearly double the response rate observed in our Phase 2 study of exebacase and in prior comparable Phase 3 studies; this was the primary reason the conditional power of the study at the interim futility analysis was below the pre-specified threshold for continuation of the study.

Demographically, the two arms were well balanced in most baseline factors including final diagnosis, primary source of infection, risk factors for bacteremia, SOC antibiotic used and age. There was an imbalance in the baseline disease severity of patients with MRSA bacteremia, as determined by the APACHE II score, with 34.8% of patients in the Exebacase Arm having an APACHE II score >15 at randomization, as compared to only 13.8% of patients in the SoCA Arm. A patient with an APACHE II score above 15 is considered to have an extremely poor prognosis and a significantly increased risk of mortality. Subgroup analyses of clinical response were all as expected, based on the topline results, other than APACHE II subgroups.

All patients have completed all study visits, and all patient outcomes have been verified by the blinded adjudication committee. The full results of the study, including the primary efficacy endpoint is clinicalof the study (clinical response at Day 14 in patients with MRSA bacteremia, including right-sided endocarditis. Secondarybacteremia), secondary endpoints include clinical(clinical response at Day 14 in the AllStaphS. aureuspatient group (MRSA and MSSA),30-dayall-cause30-day all-cause mortality in MRSA patients,patients), and clinical response at Day 30 and Day 60 in both the MRSA and the AllStaph aureus patient group. A summary of the statistical parameters of the key efficacy endpoints is shown in Table 1 below.

Table 1

   Primary Efficacy Endpoint:
Clinical Response at Day 14

(MRSA Patients)
 Secondary Efficacy Endpoint:
Clinical Response at Day 14

(AllStaph aureus Patients)
 Secondary Efficacy Endpoint:
Mortality
(MRSA Patients)

Target difference

  28% increase over
SOC antibiotics alone
 16% increase over
SOC antibiotics alone
 17% decrease from
SOC antibiotics alone

Power

  86% 83% 80%

Sample size

  135 patients 339 patients 135 patients

Clinical response is defined by objective clinical response criteria including (1) resolution of signs and symptoms attributablelater timepoints are expected toStaph aureus bacteremia/right-sided endocarditis (“SAB/RIE”) that were present at

baseline, (2) no new signs and symptoms attributable to SAB/RIE, (3) no complications of SAB/RIE (e.g. no development of a new foci ofStaph aureus infection after Day 7 and no septic emboli), (4) no changes inanti-staphylococcal antibiotics after treatment with study drug due to persistence, worsening or recurrence of signs or symptoms of SAB/RIE, (5) Blood culture(s) negative forStaph aureus by Day 14 and (6) the patient is alive. Clinical response will be determined by an independent, blinded clinical adjudication committee.

We will evaluate the impact of treatment with exebacase on health resource utilization, including length of hospital stay, length of staycompleted in the intensive care unit and30-day readmission rates for both all-cause andStaph aureus infection readmissions. We plan to conduct an interim futility analysis following the enrollmentsecond quarter of approximately 60% of the study population.

Based on feedback from ourEnd-of-Phase 2 meeting with the FDA, including the advancement of exebacase under the streamlined development pathway, we believe that this single confirmatory Phase 3 clinical trial evaluating the superiority of exebacase used in addition to SOC antibiotics compared to SOC antibiotics alone for the treatment ofStaph aureus bacteremia, including right-sided endocarditis, if the results are positive, together with the full package of Phase 1 and Phase 2 clinical data, along with a robustnon-clinical and PK/PD data package will be sufficient to support the biologics license application (“BLA”) submission. If the Phase 3 study demonstrates superiority of exebacase, used in addition to SOC antibiotics as compared to antibiotics alone, we would seek inclusion of a superiority claim in the product labeling, which we believe would be highly differentiated from conventional antibiotics and would lead to rapid uptake by providers and favorable reimbursements from payors.

Phase 2 Clinical Study2023.

We completed a multi-national Phase 2 clinical study of exebacase for the treatment ofStaphS. aureus bacteremia, including endocarditis, caused by MRSA or MSSA. This randomized, double-blind, placebo-controlled study compared the efficacy, safety and tolerability of exebacase used in addition to SOC antibiotics to SOC antibiotics alone. The study enrolled 121 patients randomized 3:2 to receive either a single dose of exebacase administered as a2-hour IV infusion in addition to SOC antibiotics or placebo plus SOC antibiotics. The primary efficacy analysis population (also known as the microbiologicalintent-to-treat population, or “mITT”) consisted of 116 patients with confirmedStaphS. aureusinfection based on blood culture who received study drug, of which 71 patients received exebacase and 45 patients received placebo. All patients were treated with SOC antibiotics as prescribed by the study investigators, consisting of vancomycin or daptomycin for MRSA and

5


a semi-synthetic penicillin or first-generation cephalosporin for MSSA, prescribed in accordance with treatment guidelines, accepted medical practice and the study protocol. The majority of patients were enrolled in the U.S. (79.3%) with the remainder of patient enrolled from sites in Europe, Latin America, Russia and Israel. A total of 38.8% of exebacase-treated and 35.5% of placebo patients, respectively, had a MRSA infection. The majority of patients in both treatment groups had bacteremia, 77.5% of the exebacase-treated group and 86.7% of the placebo group. Final diagnosis was determined by an independent, blinded clinical adjudication committee.

Topline efficacy results from the core study demonstrated the clinical responder rate was 70.4% for patients treated with exebacase and 60.0% for patients treated with SOC antibiotics alone (p=0.314). In apre-specified analysis of MRSA-infected patients, the clinical responder rate was nearly43-percentage points higher in the exebacase group compared to the SOC antibiotics alone group (74.1% for patients treated with exebacase compared to 31.3% for patients dosed with SOC antibiotics alone (p=0.010)). In addition to the higher rate of clinical response, MRSA-infected patients treated with exebacase showed a21-percentage point reduction in30-dayall-cause30-day all-cause mortality (p=0.056), a four day lower mean length of hospital stay and meaningful reductions in hospital readmission rates.

The clinical responder rate in the subset of patients with bacteremia, including right-sided endocarditis was 80.0% for patients treated with exebacase compared to 59.5% for patients treated with SOC antibiotics alone, an increase of 20.5% (p=0.028). Similarly, in the subset of patients with bacteremia alone, the clinical responder rate was 81.8% for patients treated with exebacase compared to 61.5% for patients treated with SOC antibiotics alone, an increase of 20.3% (p=0.035).

Based on these efficacy data, summarized in Table 2 below, treatment with exebacase in addition to SOC antibiotics resulted in clinically meaningful improvements in outcomes compared to antibiotic therapy alone.

Table 2

Clinical response at Day 14

  exebacase* antibiotics
alone
 p-value

Overall mITT population

  70.4% 60.0% 0.314
  

 

 

 

 

 

MRSA infection

  74.1% 31.3% 0.010
  

 

 

 

 

 

Bacteremia + right-sided endocarditis

  80.0% 59.5% 0.028
  

 

 

 

 

 

Bacteremia only

  81.8% 61.5% 0.035

Mortality

       

30-dayall-cause mortality in MRSA patients

  3.7% 25.0% 0.056

Another primary objective of the study was to describe the safety and tolerability of exebacase used in addition to SOC antibacterial therapy compared to SOC antibiotics alone in hospitalized patients withStaph aureusbacteremia, including endocarditis. An independent Data Safety Monitoring Board (“DSMB”) reviewed unblinded safety and pharmacokinetic data during the study. Treatment emergent adverse events (“TEAEs”) were defined as an untoward medical event reported from the study drug administration until 28 days after last dose of standard of care antibiotics, regardless of whether or not the event was considered related to study drug. The incidence of TEAEs was balanced between the treatment groups (88.9% and 85.1% of the exebacase and SOC antibiotics alone groups, respectively), with incidence rates as expected for this population, given the severity of the disease under study and that patients had multipleco-morbidities. The incidence rates of TEAEs reported within approximately one week after administration of the single dose of study drug were also balanced between the treatment groups (66.7% and 66.0% in the exebacase and SOC antibiotics alone groups, respectively). The overall rate of SAEs through day 180 was also similar between the treatment groups (62.5% for the exebacase group and 59.5% for the SOC antibiotics alone group). Among all patients who received study drug, 23.6% of exebacase patients and 19.1% of placebo patients died through day 180. There were no SAEs, including deaths, that we determined to be related to exebacase. Exebacase was well-tolerated and there were no reports of hypersensitivity related to exebacase and no patients prematurely discontinued study drug in either treatment group.

Based on these safety and tolerability data, summarized in Table 3 below, we concluded that exebacase was well-tolerated in this study.

Table 3

   exebacase*   antibiotics
alone
 
   N=72
n (%)
   N=47
n (%)
 

TEAE

   64 (88.9)    40 (85.1) 
  

 

 

   

 

 

 

TEAE through day 7

   48 (66.7)    31 (66.0) 
  

 

 

   

 

 

 

TEAE leading to study drug withdrawal

   0    0 
  

 

 

   

 

 

 

SAEs through day 180

   45 (62.5)    28 (59.5) 
  

 

 

   

 

 

 

SAEs determined to be related to exebacase

   0    0 
  

 

 

   

 

 

 

Total deaths through day 180

   17 (23.6)    9 (19.1) 

*

used in addition to antibiotics

The Phase 2 Clinical Study Report, as well as PK/PD modeling and any additionalin vitro orin vivo studies were submitted and anEnd-of-Phase 2 Meeting with FDA was conducted prior to advancing into Phase 3.

Phase 1 Clinical Study

In 2015, we concluded a Phase 1 single ascending dose study in healthy volunteers. This trial was a randomized, double-blind, placebo-controlled trial designed to evaluate the safety, tolerability and PK of four different intravenous doses of exebacase. Healthy normal subjects were randomized to receive a single IV dose of exebacase or placebo, each administered as a2-hour IV infusion.

In this Phase 1 study, exebacase was generally well tolerated and there were no clinical adverse safety signals. No SAEs or hypersensitivity adverse events (“AEs”) related to exebacase were reported, and no study stopping rules were met. A total of fivenon-serious AEs were reporting during the study as follows: two subjects who received exebacase reported a total of threenon-serious AEs (headache, contact dermatitis, and allergic rhinitis); two subjects who received placebo reported a total of twonon-serious AEs (viral upper respiratory tract infection and viral infection). All of these events were mild in intensity and resolved. No patients withdrew from the study due to an AE. There were no clinically relevant changes in inflammatory markers (e.g., erythrocyte sedimentation rate, high sensitivityc-reactive protein, or complement factors including total hemolytic complement (CH50) associated with exebacase dosing.

Nine out of 13 subjects dosed with exebacase developed anti-drug antibodies (“ADAs”) in the study. These ADAs were waning or absent by day 180, and were not correlated with mediators of allergic immune response. Exposure was generally linear, dose dependent and intra-subject variability was low. A pharmacometric analysis of the relationship between exebacase exposure and heart rate (“HR”), blood pressure and QT interval parameters showed no significant changes in systolic or diastolic blood pressure, HR orHR-corrected QT intervals with increases in exebacase plasma concentration at the doses tested in the Phase 1 study.

Estimated effective exposure of exebacase, based on in vivo pharmacology, PK/PD exposure target attainment analysis and PK/PD modeling was attained at the 0.25mg/kg dose in healthy subjects. The Phase 1 Clinical Study Report, as well as reports of the animal studies, PK/PD modeling andin vitro clinical microbiology studies were submitted to the regulatory authorities and anEnd-of-Phase 1 Meeting with FDA was conducted prior to advancing into Phase 2.

In vitro Microbiologic Studies and Animal Models Demonstrate the Therapeutic Potential of Exebacase

We believe exebacase is well differentiated from conventional antibiotics by its spectrum of activity, including:

 

  

Eradication of biofilms. Exebacase has been shown to clear biofilmsin vitro studies and in animal models. Biofilm matrices associated with seriousStaph aureusStaphylococcal infections form on human tissues (e.g.

6


(e.g., valve in endocarditis or bone in osteomyelitis) and/or on the abiotic surfaces (e.g., prosthetic joints, catheters and other devices) and protect bacteria from immune defenses. Biofilms pose significant therapeutic challenges by increasing antibiotic tolerance up to1,000-fold because conventional antibiotics are generally unable to clear or penetrate biofilms and kill dormantStaph aureus bacteria harbored within the biofilms. Hence, surgical removal of infected tissue, catheters, prosthetic joints and other indwelling devices containingStaph aureus biofilms is generally required to eradicate the infections.

 

  

Rapid, potent and selective bactericidal activity.In vitro, exebacase killsStaphS. aureus bacteria within seconds, thereby exerting a bactericidal effect, defined as a3-log (99.9%) drop in colony forming units (“CFU”) per mL, within about 30 minutes. Exebacase has exhibited potent antibacterial activity againstStaphS. aureus strains that are sensitive to methicillin as well as strains resistant to methicillin, vancomycin, daptomycin, or linezolid. Exebacase is highly targeted againststaphylococcaland some

streptococcalspecies, with no demonstrable activity against gram negative organisms.We believe that this targeted effect will reduce the possible negative effects of exebacase on normal, healthy human bacterial flora, known as the microbiome, in the GI tract, in contrast to broad spectrum antibiotics which are widely known to have deleterious effects on the human GI microbiome.

 

  

Potentiation of the efficacy of conventional anti-staphylococcal antibiotics. We have demonstrated strong synergy between exebacase and a wide range of antibiotics in preclinical studies, which we believe may enable exebacase to potentiate the efficacy of current standards of care for the treatment ofStaphS. aureus bacteremia, including daptomycin, vancomycin and oxacillin. Because of this and the aforementioned features of exebacase which are also complementary to antibiotics, we believe the use of exebacase, in addition to conventional anti-staphylococcal antibiotics will provide significantly improved clinical cure rates, compared to antibiotics alone.

 

  

Low propensity for the development of resistance. In vitro models designed to induce the emergence of antibiotic resistance, such as 26 day26-day serial passage studies, have shown a low propensity for bacteria to develop resistance to exebacase. In comparison, resistance to standard of care antibiotics such as daptomycin can readily be induced in the same model. Importantly, the addition of exebacase to daptomycin or other antibiotics in the same model was observed to suppress the emergence of resistance to conventional antibiotics.

We believe exebacase has other competitive advantages as well, including:

No direct competition. Vancomycin and daptomycin are the only two antibiotics with label indications in the U.S. for the treatment ofStaph aureus bacteremia, including right-sided endocarditis due to MSSA and MRSA. Daptomycin, the most recently FDA approved drug for this indication, was approved in 2005. Clinical cure rates at the test of cure visit in the Phase 3non-inferiority study which led to daptomycin’s approval were less than 50% for both daptomycin and the standard of care comparator. Exebacase has been shown to act synergistically with both daptomycin and vancomycin to improve eradication ofStaph aureus in animal studies ofStaph aureusendocarditis conducted in different species. As such exebacase is intended to be used in addition to, not as a replacement for, SOC antibiotics. No other agents have been shown to provide improved outcomes over SOC antibiotics.

Patent protection.Our issued patent with composition of matter claims and issued patent with method claims for killingStaph aureusstains both provide protection through 2032, our issued patent with method claims for disrupting or treating biofilm provides protection until 2033 and additional patents, if issued as we expect, could provide further protection beyond 2033.

Eradication of Antibiotic-Resistant Biofilms

Biofilm formation is a common characteristic of certain pathogenic bacteria such asStaph aureusStaphylococcus andP. aeruginosa and represents a major therapeutic challenge. Biofilms are characterized by densely packed bacterial cells that grow in communities and are enclosed within a complex matrix of dead bacteria and excess cell wall components. Bacteria harbored within biofilms exhibit significant tolerance to conventional antibiotics and can be up to1,000-fold less susceptible than planktonic (or, free-floating) bacteria. Infected human tissues, such as the heart valve in endocarditis or bone in osteomyelitis, and the abiotic surfaces of indwelling medical devices, such as central venous catheters, prosthetic joints and cardiac devices are common sites for biofilm formation in the setting of systemicStaph aureus infections.formation. Because conventional antibiotics are relatively ineffective at penetrating biofilms, long courses of antibiotics are generally required and are often unsuccessful, necessitating surgery (e.g., heart valve or prosthetic joint removal and replacement to eradicate the infection). There is a significant unmet medical need for novel treatment strategies to eradicate biofilms, as there are no medical products currently indicated for, or effective in, the eradication of biofilms.

Because exebacase disrupts the cell wall ofStaph aureusStaphylococcal bacteria by enzymatic lysis, we expected exebacase to be highly active against biofilms and we have performed an extensive battery of studies to profile

exebacase’s activity againstStaph CoNS and S. aureus biofilms. These studies tested exebacase against biofilms formed on a range of surfaces, including polystyrene (i.e., microtiter plates), glass (i.e., chamber slides), and PVC (i.e., catheter tubing), as well as in human serum, plasma, blood and synovial fluid. The results of these studies as detailed and recently published in Antimicrobial Agents and Chemotherapy (Schuch, et al, AAC, July 2017), provide evidence that exebacase is a potent anti-staphylococcal biofilm agent.

7


We conducted a pilot study evaluating exebacase’s ability to eradicateStaph CoNS biomass from clinical isolates of patients with PJIs. Figure 1 below shows the anti-biomass activity of exebacase in addition to SOC antibiotics compared to exebacase and antibiotics alone against S. epidermidis biofilms from 19 isolates. Remaining biomass after 24 h of exebacase exposure at 5, 50, and 150 mg/L, and/or rifampicin at 1 mg/L, vancomycin at 10 mg/L, and daptomycin 10 mg/L, was evaluated by crystal violet staining. All isolates treated with exebacase, whether alone or in addition to SOC antibiotics demonstrated statistically significant decreases in biomass (***P < 0.001) over SOC antibiotics alone.

Figure 1: Anti-Biomass Activity of Exebacase and SOC Antibiotics Against CoNS Biofilms

LOGO

1

the 5 rifampicin-resistant isolates were excluded.

We also conducted a study evaluating exebacase’s ability to eradicate S. aureus biofilm from the inside of a hemodialysis catheter removed from an infected patient. The endpoint of the model was a reduction in the amount of bacteria (measured in CFUs). Segments of the catheter were assigned to one of three different treatment groups: exebacase, daptomycin (DAP) or exebacase + DAP at the clinically relevant concentration of 1 µg/mL. As shown in Figure 12 below, exebacase eradicated the biofilm at 1 µg/mL whereas daptomycin alone did not clear biofilm at 1 µg/mL. The addition of exebacase with daptomycin resulted in the same clearance of biofilm as exebacase alone. The catheter biofilm contained MRSA as well as other Staph species. We believe these data provide important translation of the previously reported potent efficacy of exebacase against biofilms formed in vitro and in animal models, to biofilms formed in the setting of human disease.

8


Figure 1:2: Sensitivity of MRSA Biofilms on Explanted Human Catheter to Exebacase(CF-301)

 

LOGOLOGO

In view of the lack of efficacy of conventional antibiotics against biofilms, we believe exebacase, if approved, may provide an important new therapeutic option to address the biofilm components of invasiveStaph aureus infections and potentially forestall or eliminate the need for surgical intervention.

Rapid, potent and selective bactericidal activity

Lysins have demonstrated rapid bactericidal activity. We have performed timekill assays comparing the time it has taken exebacase to kill bacteriaintervention in vitroand exert a bactericidal effect to the time required for daptomycin or vancomycin to do the same. All drugs were administered at a concentration of 1x minimal inhibitory concentration (“MIC”). Exebacase reduced the number ofStaph aureus bacteria in tests on 62 strains

(20 MSSA and 42 MRSA strains) by3-logs within 30 minutes. In contrast, daptomycin required six hours to achieve the same level of cell killing, while vancomycin failed to achieve a2-log, or 99%, cell kill during the samesix-hour test period. The rapid bactericidal activity of exebacase is one of the important reasons that we believe it could be a highly desirable therapeutic option, if approved, for the treatment ofStaph aureusindication such as prosthetic joint infections.

Exebacase has beenbactericidal against allStaph aureus isolates tested to date, regardless of their antibiotic-resistance profile. We have tested over 250 different drug sensitive and resistant isolates ofStaph aureus. The isolates tested can be classified by the particular drugs to which they are sensitive or resistant, including MSSA, MRSA, VRSA, linezolid-resistant (“LRSA”) and daptomycin-resistant (“DRSA”)Staph aureus. Exebacase was shown to be active against all the strains tested. Our Standard Bacteremia Model utilizes animals infectedIn Vivo Synergy with 10 million (107) CFU of MRSA and treated 3 hours later with various doses of therapy or buffer. In this model, exebacase produced a dose-dependent increase in survival rates, with mice receiving at least 0.5 mg/kg of exebacase having demonstrated at least 90% survival, whereas doses below 0.5 mg/kg resulted in lower survival.

Synergy withStandard-of-Care Antibiotics

Synergy is defined as the interaction of two or more agents so that their combined effect is greater than the sum of their individual effects. We identified a strong potential synergy between lysins and a wide range of anti-staphylococcal antibiotics, including daptomycin, vancomycin and oxacillin throughin vitro synergy assays. In these tests, synergy was assessed by checkerboard assay using the fractional inhibitory concentration index (“FICI”) for each combination. An FICI mean was derived from each checkerboard based on two consecutive FIC values along the growth/no growth interface. Synergy was defined as an FICI of£0.5; strongly additive was>0.5-<1; indifference was 1 to <2; and antagonism was³2.

To test and demonstrateevaluate this potential synergyin vivo, we developed the Drug Failure Bacteremia Model wherehave conducted multiple animal studies with both sensitive and resistant strains, using exebacase could be tested in combination with a SOC antibiotic. The Drug Failure Bacteremia Model utilizes an extremely high infection burden of one billion (109) CFU. This produces such an overwhelming infection in the animals such that SOC antibiotics used as monotherapies at their human equivalent doses failed to produce significant cure rates. We tested daptomycin, vancomycin and oxacillin in this model. We then adjusted the dose of exebacase so that monotherapy with exebacase would also fail to have significant cure rates under these intense infection conditions. To test and demonstrate whether the synergy that we had observedin vitro between exebacase and SOC antibiotics would lead to improved efficacyin vivo, we then treated groups of animals in the Drug Failure Bacteremia Model with the drugs as monotherapies and also in combination to evaluate if there was an improvement in efficacy.

In the Drug Failure Bacteremia Model, all control mice treated with buffer succumbed to bacterial infection within 12 hours. Administration of a clinical dose of daptomycin as a single agent resulted in clinical failure, as only 31% of mice survived. Similarly, when exebacase was dosed as a single agent at this chosen dose, only 18% of mice survived. In contrast, when mice received the exebacasein addition to either daptomycin 82% survivedor vancomycin, and with both internal and external organizations that have evaluated the bacterial challenge, demonstrating superiority of the combination therapy over either of the single-drug regimens,exebacase with a significantly higher survival rate than the sum of the results from the two monotherapies.SOC antibiotics. Key studies and findings are summarized below.

We have tested the combination of exebacase with daptomycin vancomycin and oxacillin in multiple experiments witha rabbit model of implant-associated MRSA osteomyelitis. The results in Figure 3 below demonstrate that the Drug Failure Bacteremia Model. In each experiment, the combination therapy was shown to be superior to monotherapy with a single drug alone. We have also studied the combinationlocal administration of exebacase to the affected bone, in addition to systemic antibiotics, reduced MRSA counts in the bone and on implants compared with other anti-staphylococcal agents, including linezolid, televancin, nafcillin, cefazolin, clindamycin and azithromycin,in vitro and found exebacase to be synergistic or strongly additive with each agent against both MSSA and MRSA strains.

To further explorecontrol animals. Notably, the activityadministration of exebacase alone, without systemic antibiotics, resulted in combination with SOC antibiotics for the treatment of life-threatening, drug-resistant infections, we engaged the LA Biomed Research Institute at Harbor-UCLA Medical

Center (“UCLA”)significant reductions in MRSA counts compared to perform studies in their standard, well characterized rat and rabbit infective endocarditis models. The endpoint of the model is a reduction in the amount of bacteria (measured as CFUs) on the heart valve, in the kidney and in the spleen. The studies examined the activity of exebacase in combination with daptomycin, in UCLA’s prototypical high-burden biofilm-based model.

In this study, a single dose ofcontrols. Furthermore, exebacase used in addition to systemically administered daptomycin, also resulted in an additional substantialsignificant reduction in CFUs,MRSA counts on top of the reduction in CFUs by daptomycin alone. This study is highly relevant to our understanding of the therapeutic potential of exebacase and the intended clinical application in a difficult to treat biofilm-based infection. This study demonstrated that a single dose of exebacase, when combined with four days of daptomycin treatment, resulted in a3-log drop in bacterial burden in the cardiac vegetations and>2-log drop in the kidney and spleen of infected animals relativeimplants compared to daptomycin treatment alone. Importantly, four out

9


Figure 3: Study of nine animals treatedExebacase with exebacase andDaptomycin in Rabbit Implant-Associated Osteomyelitis Model

Bacterial burden of the bone

Bacterial burden on implant

LOGO     LOGO

*p<0.0025 vs vehicle control; **p<0.0098 vs daptomycin were found to have sterilized kidney, spleen and heart valve vegetations, whereas none of the animals treated with daptomycin alone had tissues that were sterilized.

We have subsequently conducted additional experiments at UCLAa study in the rabbit infective endocarditis model in order to both replicate the results of the rat study, but also to examine a range of exebacase doses used in addition to daptomycin as compared to both buffer and daptomycin alone. The results of a dose-ranging study, where a range of single doses of exebacase was assessed when administered in addition to four days of daptomycin treatment are shown in Figure 24 below. As seen in the rat studies, administration of daptomycin alone resulted in a3-log reduction in CFUs in the heart valve vegetations in these animals infected with MRSA. The addition of a single dose of exebacase, resulted in an additional~3-log reduction in CFUs in the cardiac vegetations compared to daptomycin alone at all doses of exebacase tested (p< 0.002). Using conventional allometric scaling, the 0.7 mg/kg dose of exebacase approximates the human clinical dose of 0.25mg/kg, which is the dose being studied in our Phase 2 clinical trial. This dose together with daptomycin resulted in a6-log reduction in CFUs compared to buffer (p< 0.001). Of note, efficacy was maintained even at the lowest dose of exebacase tested (0.09 mg/kg) in this study (p< 0.001).

10


Figure 2:4: Dose Ranging Study of Exebacase(CF-301) with Daptomycin in Rabbit Infective

Endocarditis Model

 

LOGOLOGO

Collectively, we believe these preclinical data have provided significant support to the design of our clinical trials.

Non-Clinical Activities

Chemistry, Manufacturing and Controls (“CMC”)

Exebacase is manufactured using a proprietary engineeredE. coli strain that expresses the product in a recombinant manner during the fermentation process. This technology allows production of up to nine grams of exebacase per liter of fermentation broth. After fermentation, the broth containing exebacase is separated and purified through a process containing two chromatographic columns. The resulting product has greater than 99% purity.

We recently achieved concurrence with the FDA on our CMC plans for Phase 3 and BLA submission. We intend to further optimize the manufacturing process for increased purity and yield. Once completed, we plan to begin a program to manufacture Phase 3 material. The process will then be scaled up from the current fermentation size and validated in a series of manufacturing batches to demonstrate consistency. In parallel to the validation, we intend to conduct a comparability program that demonstrates comparability between the final product used in Phase 3 and commercial manufacturing. We intend to include the results in the BLA that we expect to submit to the FDA. Following submission, we expect that the FDA will conductpre-approval inspections of all manufacturing facilities and determine whether it agrees that our commercial material is sufficiently comparable to our Phase 3 material.

Safety Pharmacology and Toxicology

We conductednon-clinical safety pharmacology and toxicology studies in connection with our INDInvestigational New Drug (“IND”) application for exebacase. In these studies, exebacase was well-tolerated in rats for a singletwo-hour IV administration of doses up to 25mg/kg (determined by us to be the no observable adverse effect level, or “NOAEL”) and that a single dose of 2.5 mg/kg was not associated with any effects, adverse or not, and was therefore determined to be the no observable effect level (“NOEL”). Exebacase was well tolerated in these studies in both rats and dogs for seven consecutive days of once dailytwo-hour IV infusions of up to 2.5 mg/kg. In anon-GLP pilot study in rats, 1.0 mg/kg/day was well tolerated for up to seven consecutive days of once dailytwo-hour IV infusions or IV boluses.

Dose-dependent adverse effects were seen in both species at doses above 25 mg/kg/day for 1 day in the rat and above 2.5 mg/kg/day for seven-consecutive days in both the rat and the dog. The dose limiting toxicity observed was a localized microscopic histopathological change surrounding certain blood vessels. In accordance with industry practice, we have studied exebacase in clinical trials at doses much lower than those that caused adverse effects in animals, and we believe these doses to be within the efficacious range of the drug.

11


Upon first exposure to exebacase, no hypersensitivity reaction was observed in any of our animal studies. Upon administration of a second course of exebacase, given two weeks after completion of the first course, includingmultiple-day courses, hypersensitivity or hypersensitivity-like findings were observed in mice, rats and dogs. In a dedicated hypersensitivity study in rats, using a model intended to elicit hypersensitivity, findings consistent with hypersensitivity were observed after atwo-week delayedre-challenge with a second course of exebacase and were not dose-dependent. In general, in humans, Type I hypersensitivity is an allergic anaphylaxis-like response (e.g., an immediate and potentially life-threatening allergic reaction) and Type III hypersensitivity is a serum sickness-like response (e.g., fever, joint pain, protein in urine, vascular changes). While the nature of hypersensitivity reactions in rats may not necessarily be predictive of hypersensitivity reactions that may occur in humans, we have also considered the risk of hypersensitivity occurring upon first administration of exebacase due to potential prior exposure to the active protein component of exebacase from the environment, as it is a naturally occurring protein. Testing for anti-drug antibodies was performed in Phase 1 subjects.subjects and Phase 2 patients. No clinical hypersensitivity related to exebacase was observed in subjects dosed in our Phase 1, Phase 2 or Phase 2 study.

3 studies.

CF-296: An Engineered Lysin for InvasiveStaph aureus Infections

We have engineered a lysin variant of exebacase which we believe may suitable for the potential treatment of the most challenging invasive infections caused byStaph aureus including biofilm-related infections in prosthetic joints and indwelling devices and osteomyelitis. Based on the safety pharmacology and toxicology profile of exebacase described above, our objectives for the program were to maintain the spectrum of activity of an anti-staphylococcal lysin while improving thenon-clinical safety profile.

CF-370: A Novel Engineered Lysin for Infections Caused by Gram-negative Pathogens

We have discovered and engineered a novel lysin, CF-370, an investigational first-in-class anti-bacterial therapeutic candidate targeting gram-negative pathogens. CF-370 has been engineered to bypass the outer membrane of gram-negative bacteria and to enable potent activity in human serum.

Medical Opportunity

Nosocomial pneumonia

Hospital-acquired pneumonia (“HAP”) and ventilator-associated pneumonia (“VAP”), particularly infections caused by gram-negative pathogens, remain some of the most problematic and life-threatening nosocomial infections. HAP and VAP accounts for over 22% of all U.S. hospital infections and up to 40% of patients who undergo mechanical ventilation for more than 48 hours will develop a VAP. In-hospital mortality remains above 20% when a patient with pneumonia is ventilated. Immunocompromised patients are especially vulnerable to infection and potential loss of life.

Treatment options are severely limited due to the resistance of the four most common causative gram-negative pathogens: Pseudomonas aeruginosa, Acinetobacter baumannii, Klebsiella pneumoniae, and Escherichia coli. Nearly 50% of all nosocomial pneumonia cases in the U.S. and over 70% of VAP cases in Asia are due to these four pathogens.

Pseudomonas aeruginosa (“P. aeruginosa”)

P. aeruginosa Infections

Medical Opportunity

P. aeruginosa is a gram-negative pathogen that is common in the environment and is an important and much-feared potential pathogen in hospitals.P. aeruginosa readily develops resistance to conventional antibiotics resulting in the emergence of multidrug resistant (“MDR”) strains, which have become common in some hospitals and regions.P. aeruginosa is a major cause of hospital-acquired infections and is a particularly important cause of infections in immunocompromised hosts, and is also a major pathogen in burn and surgical wound infections.P. aeruginosais also the most common pathogen isolated from adults with cystic fibrosis, the most common cause of respiratory failure in cystic fibrosis and responsible for the deaths of the majority of these patients.

InvasiveP. aeruginosa infections, including ventilator associated pneumonia,VAP, blood stream infections, complicated urinary tract infections, and infections following surgery carry some of the highest risks of mortality among hospital acquired infections. More than 32,000P. aeruginosa infections are multidrug-resistant, with roughly 2,700 deaths per year attributed to these infections. Infections caused by multidrug resistantP. aeruginosaare associated with highall-cause mortality, hospital mortality and higher health-care related costs compared to infections caused by susceptible strains.

CF-370 Development

CF-37012


Acinetobacter baumannii (“A. baumannii”)

A. baumannii is an investigationalfirst-in-class anti-bacterial therapeutic candidate targeting a gram-negative pathogen.CF-370 haspathogen which poses a particularly challenging threat to hospitalized patients because it frequently contaminates healthcare facility surfaces and shared medical equipment. A. baumannii is already resistant to many antibiotics, including carbapenems, which further reduces patient treatment options. Carbapenem-resistant strains can produce carbapenemases, which are enzymes that break down carbapenems and make them ineffective; these can spread to other gram-negative bacteria and amplify the problem of resistance through mobile resistance elements, appear to be increasing in incidence, with over 60% of all healthcare-associated A. baumannii infections being multi-drug resistant.

A. baumannii is a leading cause of VAP as well as bloodstream and wound infections. Invasive infections, especially in carbapenem-resistant strains, are consistently associated with high mortality. In China, mortality rates up to 55.7% have been engineeredreported in patients with A. baumannii infections and up to bypass36.5% of deaths are considered to be directly attributable to the outer membraneinfection.

Enterobacteriaceae

The Enterobacteriaceae familyof gram-negative bacteriaincludes Klebsiella pneumoniae (“K. pneumoniae”), Enterobacter species (“Enterobacter e.g. Enterobacter cloacae) and Escherichia coli (“E. coli”), all of which can cause serious, life-threatening infections, and have demonstrated concerning resistance patterns.

K. pneumoniae are common causes of serious, potentially life-threatening invasive infections (e.g. pneumonia, complicated urinary tract, intra-abdominal infections) in hospital settings, particularly in intensive care units and among vulnerable patients with impaired immune systems, diabetes or alcohol-use disorders. The mortality rates for HAP due to K. pneumoniae can exceed 50% in vulnerable patients.

Enterobacter cloacae can cause a wide range ofinvasive infections, and potentially contaminate intravenous fluids and medical devices as the source of deadly outbreaks in the hospital.

E. coliis the most frequent cause of community and hospital acquired urinary tract infections and a frequent cause of bloodstream infection. Patients in hospitals, nursing homes, and other healthcare settings whose care requires devices like ventilators (breathing machines), urinary (bladder) catheters, or intravenous (vein) catheters, and patients who are taking long courses of certain antibiotics are most at risk for infection.

Enterobacteriaceae canproduce enzymes (e.g., “extended-spectrum beta-lactamases (“ESBL”)) that confer resistance to most beta-lactam antibiotics, including penicillins, cephalosporins, and the monobactam aztreonam. Infections with ESBL-producing organisms have been associated with poor outcomes. Approximately 20% of K. pneumoniae infections and 31% of Enterobacter infections in intensive care units in the United States now involve strains which are not susceptible to third-generation cephalosporins. Community and hospital-acquired ESBL-producing Enterobacteriaceae are prevalent worldwide, and their prevalence may be underestimated because reliable identification of ESBL-producing organisms in clinical laboratories can be challenging.

Carbapenem antibiotics are considered to be the best currently available antimicrobial agent to treat infections caused by ESBL-producing Enterobacteriaceae. However, resistance to carbapenems is becoming increasingly prevalent, and the resulting Carbapenem-resistant Enterobacteriaceae (“CRE”), have high levels of resistance to antibiotics. K. pneumoniae and E. coli are a normal part of the human gut bacteria that can become carbapenem-resistant due to enzymes that breakdown carbapenem antibiotics and make them ineffective. These enzymes have also been reported in P. aeruginosa and A. baumannii infections. CRE infections typically occur in hospitals, nursing homes, and other healthcare settings. Patients who require devices like ventilators or catheters, and/or patients who are taking long courses of certain antibiotics are most at risk for CRE infections. Some CRE bacteria have become resistant to most available antibiotics, are very difficult to treat, and can lead to death in up to 50% of patients who become infected.

13


CF-370 Development

We believe agents that target P. aeruginosa, K. pneumoniae, Enterobacteriaceae and E. coli will be important therapeutic options for the treatment of serious, potentially life-threatening invasive infections caused by multidrug resistant pathogens. Because of the novel mechanism by which direct lytic agents are designed to kill bacteria and the lack of observable cross resistance to enable potentconventional antibiotics, KPC, NDM and similar enzymes are not expected to have any effect on the activity of our investigational agents. We believe that direct lytic agents help to improve clinical outcomes and decrease mortality of infections caused by these pathogens.

We have studied CF-370 in multiple animal models with external organizations with both sensitive and resistant strains and using CF-370 in addition to either amikacin (“AMK”) or meropenem, demonstrating the superiority of the combination of CF-370 with SOC antibiotics in comparison to other agents evaluated in these same models. Key studies and findings are summarized below.

We have studied the in vivo activity of CF-370 against A. baumannii in a neutropenic rabbit pneumonia model. The neutropenic rabbit model was developed to mimic, and therefore potentially translate to, drug activity in human serum. immunocompromised patients. CF-370 was well-tolerated and when used in addition to amikacin, demonstrated significant reductions in CFUs in the lungs compared to amikacin alone as seen in Figure 5 below.

Figure 5: Study of CF-370 with Amikacin in a Neutropenic Rabbit Pulmonary Model of A. baumannii Infection

LOGO

p=0.0485 vs AMK alone; ** p≤ 0.0031 vs AMK alone; *** p=0.0079 vs AMK alone

We have also utilized the neutropenic rabbit pneumonia model to study CF-370 against extensively drug-resistant (“XDR”) strains of both P. aeruginosa and K. pneumoniae as seen in Figures 6 and 7 below.

14


Figure 6: Study of CF-370 with Amikacin in a Neutropenic Rabbit Pulmonary Model of XDR P. aeruginosa Infection

LOGO

CF-370 was well-tolerated and when used in addition to amikacin, demonstrated significant reductions in CFUs in the lungs compared to amikacin alone as seen in Figure 6 above.

Figure 7: Study of CF-370 with Amikacin in a Neutropenic Rabbit Pulmonary Model of XDR K. pneumoniae Infection

LOGO

CF-370 was well-tolerated and when used in addition to meropenem, demonstrated significant reductions in CFUs in the lungs compared to amikacin alone as seen in Figure 7 above.

We believe this isthe results from these studies provide in vivoproof-of-concept for CF-370 as a significant milestonepotential treatment for pulmonary infections caused by gram-negative pathogens and for direct lytic agents as native lysins are typically unablea potential new modality to penetratecombat the outer membranethreat of multidrug-resistant gram-negative bacteria and consequently unablepathogens. We plan to workin vitro in human blood or in animal models. However, based on the proprietary methods we have identified and utilizecontinue to engineer lysins,progress CF-370 has exhibited the hallmarkin vitro features of the lysin class, including rapid and potent bactericidal activity, synergy with a broad range of standard of care agents and the eradication of biofilms in preclinical studies. In preclinical rabbit pneumonia models, single doses ofCF-370 alone and in combination with meropenem, were tested against multi-drug resistantP. aeruginosa to evaluate survival and bacterial burden in lung and secondary organs. In these models, strong activity was observed forCF-370 as a monotherapy, showing that rabbits dosed withCF-370 alone had longer survival, as compared to vehicle control, and reductions in bacterial burden in the lung, kidney and spleen with single doses ofCF-370. Synergy with meropenem was also noted with greater reductions in bacterial burden compared to monotherapy. In these models,CF-370 was well tolerated with no adverse clinical consequences and no deaths among animals infected withP. aeruginosa.

We have advancedCF-370 into through IND-enabling activities and we expect it to be our next molecule in clinical studies. We have been awarded upplan to $3.3 millionsubmit an IND application with the FDA in funding fromCARB-Xthe second quarter of 2023 and, if approved, to initiate phase 1 clinical studies of CF-370 in support of the advancement of anti-pseudomonal lysins.

healthy volunteers shortly thereafter.

Lysin Discovery Platform

The main objective of our lysin discovery platform has been to bring forth a portfolio of lysinsdirect lytic agents that selectively target the largest threats of resistant bacteria, commonly referred to as the ESKAPE pathogens

15


(Enterococcus faecium,Staphylococcus aureus,Klebsiella pneumoniae,Acinetobacter baumannii,Pseudomonas aeruginosa, andEnterobacter species), which are the leading causes of hospital acquired infections throughout the world.

LysinsIn nature, lysins are enzymes derived from naturally occurringpotent enzymatic killers of bacteria produced by bacteriophage, which are viruses that infect bacteria. When recombinantly produced from genetic sequences as purified proteins and then applied to bacteria, lysins cleave a key component of the target bacteria’s peptidoglycan cell wall, resulting in rapid bacterial cell death. Conventional antibiotics require bacterial cell division and metabolism to occur in order to exert their effect (i.e., cell death or cessation of growth). Based onin vitro tests, lysins, however, are fundamentally different in that they kill bacteria rapidly by enzymatic cleavage of the bacterial cell wall without need for bacterial growth and cell division. In addition to the speed of action and potent cidality, we believe lysins are differentiated by their other hallmark features which include the demonstrated ability to eradicate biofilms and synergistically boost the efficacy of conventional antibiotics in animal models. Importantly,Naturally occurring lysins alsotargeting gram-positive pathogens have a “narrow spectrum” meaning they kill only specific species of bacteria or closely related bacteria. As such, we believe that lysins targeting gram-positive pathogens willactivity and are not expected to have negative effects on the beneficial, normal human GI microbiome in contrast to conventional “broad spectrum” antibiotics which can kill the body’s normal, beneficial bacteria. We believe that the potential therapeutic profile of lysins is complementary to that of conventional antibiotics. As such, our approach includes the use of lysins in addition to conventional antibiotics for the treatment of serious, drug-resistant bacterial infections, including biofilm-associated infections, in an effort to achieve greater efficacy and improve clinical outcomes, as well as potentially protect against antibiotic resistance.

We employ bioinformatics and a series of metagenomic-based techniques to identify and clone bacteriophage lysins from bacterial, viral, and environmental sources. The field of metagenomics is based on the bulk extraction of DNA/RNA from environmental samples (e.g., soil, water, etc.) without prior isolation of individual microbial sources. This is useful when one considers that less than 1% of microbes are culturable under standard laboratory conditions. Once extracted, the metagenomic DNA can then be examined using sequence-based methods or by proprietary functional screens. These functional screens for bacteriophage lysin activity form the major component of our lysin discovery work. Once cloned, our scientists also employ a variety of techniques to further optimize and ‘engineer’ changes to the lysins to introduce specific characteristics which we believe may be favorable for potential therapeutic use.

For the functional metagenomic work that we perform, environmental genes are expressed in a recombinant format in a standard host organism (i.e.,Escherichia coli) and cells are monitored for the acquisition of a desired phenotype. We can vary both the source of environmental DNA and the way we monitor for desired phenotypes to focus only on environmental populations enriched for bacteriophage lysins that can actively kill a pathogen of interest. We sample various DNA sources including viral, prophage, and pathogen-amplified viral metagenomics. Multiple methods for both DNA library construction and for functional screening are used in parallel in order to maximize lysin identification.

The application of these methods enables the large scalelarge-scale identification of lysins, enabling the production of lysin banks specific for any particular pathogen. We believe the ability to rapidly identify lysins specific for any pathogen of interest, either by in vitro or in silico methods, will provide a steady pipeline of novel lysins for consideration as potential antimicrobial therapeutic candidates.

Amurin peptides are another class of novel, phage-derived lytic agents discovered in our laboratories. In preclinical studies, amurin peptides have shown some features common to lysins, including potent bacteriocidality, including antibiotic-resistant strains, the ability to clear biofilms and synergize with conventional antibiotics. Amurin peptides have shown the potential to exert these actions on the full range of gram-negative ESKAPE pathogens, as well as a range of additional, serious and difficult to treat gram-negative bacteria, including some strains of Burkholderia and Stenotrophomonas, in the context of human serum, without apparent ‘off target’ effects against gram-negatives. As such, amurin peptides would be extremely well suited as potential treatments for patients suffering from polymicrobial gram-negative infections, such as cystic fibrosis, ventilator-associated pneumonia, intra-abdominal infections, and serious burns or certain chronic wound infections. Given their powerful

16


in vitro activity against a broad range of resistant pathogens, we believe that amurin peptides have the potential to become a powerful addition to our armamentarium against strains of gram-negative pathogens which have extreme-or pan- drug resistance to all or almost all currently available antibiotics. We plan to further progress agents from our amurin peptide program when adequate funding becomes available.

The focus of our research and discovery efforts is currently on identifying lysins which selectively kill specific species of gram-negative bacteria that are considered to be urgent or serious threats to global health by the CDC or critical priorities by the WHO. Emerging strains of multi-drug resistant gram-negative pathogens that are resistant to all or nearly all available antibiotics are considered to be a major global health threat. We believe that

lysins targeting gram-negative pathogens have the potential to be important therapeutics to combat antimicrobial resistance due to their novel mechanism of action and therapeutic profile, which is complementary to conventional antibiotics.

We have discovered and engineered a novel lysin,CF-370, an investigationalfirst-in-class anti-bacterial therapeutic candidate targeting a gram-negative pathogen,P. aeruginosa.CF-370 has been engineered to bypass the outer membrane of the bacteria and to enable potent activity in human serum. We will continue to pursue new lysins that target other gram-negative pathogens, such as theEnterobacteriaceaefamily of bacteria.

Enterobacteriaceae

The Enterobacteriaceaefamilyof gram-negative bacteriaincludes Klebsiella pneumoniae (“K. pneumoniae”),Enterobacter species(“Enterobacter” e.g. Enterobacter cloacae) andEscherichia coli (“E. coli”), all of which can cause serious, life-threatening infections, and have demonstrated concerning resistance patterns.

K. pneumoniaeare common causes of serious, potentially life-threatening invasive infections (e.g. pneumonia, complicated urinary tract, intra-abdominal infections) in hospital settings, particularly in intensive care units and among vulnerable patients with impaired immune systems, diabetes oralcohol-use disorders. The mortality rates for hospital-acquired pneumonia due toK. pneumoniae can exceed 50% in vulnerable patients.

Enterobacter cloacaecan cause a wide range ofinvasive infections, and potentially contaminate intravenous fluids and medical devices as the source of deadly outbreaks in the hospital.

E. coliis the most frequent cause of community and hospital acquired urinary tract infections and a frequent cause of bloodstream infection. Patients in hospitals, nursing homes, and other healthcare settings whose care requires devices like ventilators (breathing machines), urinary (bladder) catheters, or intravenous (vein) catheters, and patients who are taking long courses of certain antibiotics are most at risk for infection.

The emergence and spread of antimicrobial resistance amongEnterobacteriaceae are recognized public health threats which complicate the treatment of serious nosocomial infections.

Enterobacteriaceaecanproduce enzymes (e.g., “extended-spectrum beta-lactamases (“ESBL”)) that confer resistance to most beta-lactam antibiotics, including penicillins, cephalosporins, and the monobactam aztreonam. Infections with ESBL-producing organisms have been associated with poor outcomes. Approximately 20% ofK. pneumoniae infections and 31% ofEnterobacter infections in intensive care units in the United States now involve strains which are not susceptible to third-generation cephalosporins. Community and hospital-acquired ESBL-producingEnterobacteriaceae are prevalent worldwide, and their prevalence may be underestimated because reliable identification of ESBL-producing organisms in clinical laboratories can be challenging.

Carbapenem antibiotics are considered to be the best currently available antimicrobial agent to treat infections caused by ESBL-producing Enterobacteriaceae. However, resistance to carbapenems is becoming increasingly prevalent, and the resulting Carbapenem-resistantEnterobacteriaceae (“CRE”), have high levels of resistance to antibiotics.K. pneumoniae and E. coli are a normal part of the human gut bacteria that can become carbapenem-resistant due to enzymes that breakdown carbapenem antibiotics and make them ineffective.Klebsiella pneumoniae carbapenemase (“KPC”) and New Delhi Metallo-beta-lactamase (“NDM”) are two such enzymes that break down carbapenems and make them ineffective. Both of these enzymes have also been reported inP. aeruginosa. CRE infections typically occur in hospitals, nursing homes, and other healthcare settings. Patients who require devices like ventilators (breathing machines), urinary (bladder) catheters, or intravenous (vein) catheters, and/or patients who are taking long courses of certain antibiotics are most at risk for CRE infections. Some CRE bacteria have become resistant to most available antibiotics, are very difficult to treat, and can lead to death in up to 50% of patients who become infected.

We believe that lysins which targetK. pneumoniae, EnterobacterandE. coli may be important therapeutic options for the treatment of serious, potentially life-threatening invasive infections caused by multidrug resistant pathogens. Because of the novel mechanism by which lysins kill bacterial, no cross resistance to conventional antibiotics, and as such, KPC, NDM and similar enzymes are not expected to have any effect on the activity of lysins. We believe that lysins may help to improve clinical outcomes of infections caused by these pathogens and thus we are also focusing research efforts to identify and develop lysins which target them.

Gram-positive lysins

In addition to our proprietary lysin discovery program, we hold worldwide exclusive license rights to patents for composition of matter for nine lysins from The Rockefeller University (“Rockefeller”). The lysins each target a specific species of gram-positive bacteria, including drug-sensitive and drug-resistant forms as exemplified in Table 4 below.

Table 4: Lysins Licensed From The Rockefeller University

Pathogen

CDC
Threat Level
WHO
Priority Level
Lysins

Staphylococcus aureus

SeriousHighCF-301, CF-302

Streptococcus pneumoniae

SeriousMediumCF-303,CF-309

Enterococcus faecalis

SeriousHighCF-304

Group Bstreptococcus

ConcerningCF-307

Bacillus anthracis

CF-306,CF-308

Amurin Discovery Program

Amurin peptides are a class of novel, phage-derived lytic agents discovered in our laboratories. In preclinical studies, amurin peptides have shown some features common to lysins, including potent bacteriocidality, including antibiotic-resistant strains, the ability to clear biofilms and synergize with conventional antibiotics. However, amurin peptides are further differentiated in their potential ability to exert these actions on the full range of gram-negative ESKAPE pathogens, as well as a range of additional, serious and difficult to treat gram-negative bacteria, includingBurkholderia andStenotrophomonas, in the context of human serum, without apparent ‘off target’ effects against gram-negatives. As such, amurin peptides have shown a highly differentiated spectrum of action, and we believe, if successfully developed, would be extremely well suited as potential treatments for patients suffering from polymicrobial gram-negative infections, such as cystic fibrosis, ventilator-associated pneumonia, intra-abdominal infections, and serious burns or certain chronic wound infections. Given their powerfulin vitro activity against a broad range of resistant pathogens, as shown in Table 5 below, we believe that amurin peptides have the potential to become a powerful addition to our armamentarium against strains of gram-negative pathogens which have extreme- orpan- drug resistance to all or almost all currently available antibiotics.

Table 5: In Vitro Activity (minimal inhibitory concentrations) of Amurin

Candidates (AM1, AM2 and AM3) Observed Against Carbapenem-Resistant Pathogens*

Pathogen

  AM1  AM2  AM3  Colistin  Meropenem

Escherichia coli

  0.5  0.25  0.625  0.5  >8

Enterobacter cloacae

  0.25  0.125  0.0625  1  >8

Klebsiella pneumoniae

  0.5  0.5  0.0625  >8  8

Acinetobacter baumannii

  1  1  0.25  >8  >8

*

strains listed are representative of >100 strains tested

Similar to the pilot study performed with exebacase, we evaluated the ability of one of our lead amurins, AM2, to eradicateStenotrophomonas maltophilia biofilms from the inside of hemodialysis catheters removed from infected patients. The endpoint of the model was a reduction in the amount of bacteria (measured in CFUs) in sections of the catheters treated with amurin AM2 compared to a control group (sections with no treatment) and sections treated with clinically relevant concentrations of meropenem. Treatment with amurin AM2 resulted in the reduction in the amount of bacteria below the limit of detection, 0.7 log10 CFU/g, while both the control groups and sections treated with meropenem had CFU counts >3.0 log10 CFU/g. We believe these results provide importantex vivo translation of thein vivo activity to biofilms formed in the setting of human disease.

We plan to progress our amurin peptide program as rapidly as possible through preclinical profiling and into clinical studies. We are currently evaluating thein vitro profiles of the amurins as we continue to advance the program. We have been awarded up to $9.6 million of funding fromCARB-X to support the development of amurin peptides as potential therapeutics to treat serious and potentially life-threatening infections, including those caused by antibiotic-resistant gram-negative ESKAPE pathogens.

Intellectual Property

Our goal is to obtain, maintain and enforce patent protection for our products, formulations, processes, methods and other proprietary technologies, preserve our trade secrets, and operate without infringing on the valid proprietary rights of other parties, both in the United States and in other countries. Our policy is to actively seek to obtain, where appropriate, the broadest intellectual property protection possible for our product candidates, proprietary information and proprietary technology through a combination of contractual arrangements and patents, both in the United States and abroad. However, patent protection does not always afford us with complete protection against competitors who seek to circumvent our patents.

We also depend upon the skills, knowledge, experience andknow-how of our management and research and development personnel, as well as that of our advisors, consultants and other contractors. To help protect our proprietaryknow-how, which is not patentable, and for certain inventions, in accordance with our business strategies, we currently rely and will in the future rely on trade secret protection and confidentiality agreements to protect our interests. To this end, we will require all of our employees, consultants, and other contractors (including any consultants or contractors we may retain for purposes of any of our ad hoc Clinical Advisory Boards) to enter into confidentiality agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business.

Our lysin portfolio consists of twenty (20)thirty (30) U.S. patents,one-hundred and fourteen (114)fifty-four 154) issued foreign patents and two hundred and eighteen (218)fourty-six (246) pending U.S. and international patent applications that we have licensed from Rockefeller and/or developedin-house. Certain patents related to our lysin portfolio will expire between 2024 and 2033. Our patents and patent applications include those that are directed to compositions and methods for the treatment of infections caused by gram-positiveGram-positive bacteria (Group B Streptococci, StaphS. aureus, Streptococcus pneumonia, Bacillus anthracis(anthrax), Enterococcus faecalisand Enterococcus faecium) and infections caused by gram-negativeGram-negative bacteria (P. aeruginosa, K. pneumoniae, Enterobacter cloacae andE. coli). If patents are granted on our patent applications, which include certain patent applications related to exebacase,CF-296 and the gram-negativeGram-negative lysins, they would expire between 2029 and 2040.2042.

For exebacase, our issued patent with composition of matter claims and issued patent with method claims for killing S. aureus strains both provide protection through 2032, our issued patent with method claims for disrupting or treating biofilm provides protection until 2033 and additional patents, if issued as we expect, could provide further protection beyond 2033.

For CF-370, our issued patent with composition of matter and method claims for killing P,aeruginosa strains provides protection until 2039. Our patent applications with further method of use claims directed to Gram-negative strains which include K. pneumoniae, A. baumannii, Enterobacter cloacae, E. coli, and S. maltophilia, if granted, could provide protection beyond 2039.

17


The U.S. patent system permits the filing of provisional andnon-provisional patent applications. Anon-provisional patent application is examined by the United States Patent and Trademark Office (“USPTO”), and can issue as a patent once the USPTO determines that the claimed invention meets the various standards for patentability. A provisional patent application is not examined or prosecuted, and automatically expires 12 months after its filing date if anon-provisional application is not filed based on the provisional application within that12-month period. Provisional applications are often used, among other things, to establish a priority filing date for the subsequently filednon-provisional patent application. The term of individual patents depends upon the legal term for patents in the countries in which they are filed. In most countries in which we file, the patent

term is 20 years from the earliest filing date of anon-provisional patent application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the USPTO in granting a patent. Alternatively, a patent’s term may be shortened if a patent is terminally disclaimed over another patent.

The term of a patent that covers anFDA-approved drug may also be eligible for patent term extension (“PTE”), which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments, permits a PTE of up to five years beyond the expiration of the patent. The length of the PTE is related to the length of time the drug is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and certain other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our pharmaceutical product candidates receive FDA or other regulatory approval, we may be able to apply for or receive the benefit of PTEs on patents covering those products.

License Agreements—The Rockefeller University

We have entered into the following license agreements with Rockefeller:

 

On July 12, 2011, we entered into a license agreement for the worldwide, exclusive right to a provisional patent application, upon which anon-provisional patent application has since been filed, covering the composition of matter for the lysin PlySS2 for the treatment and prevention of diseases caused by gram-positive bacteria (the“CF-301 License”). We rebranded PlySS2 asCF-301, or exebacase. This license gives us the right to exclusively develop, make, have made, use, import, lease, sell and offer for sale products that would fall within the scope of claims in the patent application or otherwise infringe a claim of the patent.

On July 12, 2011, we entered into a license agreement for the worldwide, exclusive right to a provisional patent application, upon which a non-provisional patent application has since been filed, covering the composition of matter for the lysin PlySS2 for the treatment and prevention of diseases caused by gram-positive bacteria (the “CF-301 License”). We rebranded PlySS2 as CF-301, or exebacase. This license gives us the right to exclusively develop, make, have made, use, import, lease, sell and offer for sale products that would fall within the scope of claims in the patent application or otherwise infringe a claim of the patent.

 

On June 1, 2011, we entered into a license agreement for the exclusive rights to Rockefeller’s interest in a joint patent application, which have granted patents covering the method of delivering antibodies through the cell wall of a gram-positive bacteria to the periplasmic space. This intellectual property was developed as a result of the sponsored research agreement between us and Rockefeller, and was jointly discovered and filed by the two parties.

 

  

On September 23, 2010, we entered into a license agreement for the worldwide, exclusive right to develop, make, have made, use, import, lease and sell, and offer for sale products that would otherwise infringe or fall within the scope of a claim of the suite of patents and patent applications covering the composition of matter for eight individual lysin molecules for the treatment and prevention of diseases caused by gram-positive bacteria. The lysins in this suite have activity against Group BStreptococci,StaphS. aureus,Streptococcus pneumonia,Bacillus anthracis,Enterococcus faecalis andEnterococcus faecium.

In consideration for the licenses, we paid Rockefeller license initiation fees in cash and stock and may be required to pay an annual maintenance fee, milestone payments and royalties on net sales from products to Rockefeller. We are allowed to grant sublicenses to third parties without prior approval, subject to certain conditions and the payment of a certain percentage of all payments we receive from sublicensees.

18


Each license agreement terminates upon the later of (i) the expiration or abandonment of the last licensed patent under the license agreement to expire or become abandoned, or (ii) 10 years after the first commercial sale of the first licensed product. Rockefeller may terminate any license agreement in the event of a breach of such agreement by us or if we challenge the validity or enforceability of the underlying patent rights. We may terminate any license agreement at any time on 60 days’ notice.

Competition

The pharmaceutical and biotechnology industries are intensely competitive. While we believe that our technology and scientific knowledge provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies and academic and research organizations in developing therapies to treat diseases.

Exebacase is a potentialfirst-in-class drug candidate and we believe it is the first lysin to enter human clinical trials in the U.S. We believe there is currently no clinical competitor to exebacase, which is highly differentiated from conventional antibiotics by at least six attributes that no single antibiotic possesses, including: (1) a novel mechanism of action, (2) specificity for a target bacteria (onlyStaph aureus),(Staphylococcus) (3) rapid speed of action, (4) activity across all drug-sensitive and drug-resistant strains of the target bacteria (including MRSE, MRSA, VRSA and DRSA), (5) the ability to eradicate biofilms, and (6) synergy with SoC antibiotics.

Staph aureus bacteremiaBased on our reasonable search of available data, there are only four other companies in the U.S. pursuing potential treatments in clinical development for chronic PJIs. These potential therapies are from Osteal Therapeutics (“Osteal”), Peptilogics, Adaptive Phage Therapeutics (“APT”) and Armata Pharmaceuticals, Inc. (“Armata”). Osteal is typically treated with oxacillincurrently conducting the APEX-2 Phase 1b clinical trial to study VT-X7, a rapid two-stage surgical treatment for PJI of the hip or other semi-synthetic penicillinknee. Peptilogics is also conducting the LOGIC-1 Phase 1b study of its potential treatment, PLG0206, for PJI of the hip or first-generation cephalosporin, or for MRSA strains, daptomycin or vancomycin. We do not see market competition with these drugs, as our strategyknee. APT’s PhageBank therapy is poised to administer exebacasebe studies in addition to these drugs with the goal of achieving clinical superiority over any one of those SOC antibiotics alone. We are aware of several othertwo clinical trials currently being conducted or recently concluded in patients withStaph aureus bacteremia. Most chronic PJI. Armata has initiated start-up activities for a Phase 1b/2a trial that will explore the safety, tolerability, and pharmacokinetics of these agents are small molecules being studiedintravenous and intra-articular doses of AP-SA02 as an adjunct to standard of care antibiotics innon-inferiority trials. We believe subjects with PJI. There is also a company, Orthobond Corporation (“Orthobond”), pursuing a proprietary technology that exebacase has demonstrated synergyin vitro withapplies a broad rangebroad-spectrum antimicrobial directly on the surface of conventional anti-staphylococcal agentsprosthetic devices. Should Orthobond be successful, the incidence of different classesPJIs could be reduced and in the event any of thesenon-inferior small molecules are approved, we believe that exebacase will also be synergistic andnon-competitive with them.need for new treatments diminished.

Based on recent data published by the WHO, there are only five biologicseven non-traditional antibacterial agents, other than ours, in clinical development forStaph systemic S. aureus infections from iNtRon Biotechnology, Inc., (“iNtRon”), Aridis Pharmaceuticals, Inc. (“Aridis”), Atox Bio (“Atox”), Biotest AG (“Biotest”), MedImmune (a subsidiary of AstraZenenca plc), XBiotech, Inc (“XBiotech”) and Genentech, Inc. (“Genentech”) and iNtRon Biotechnology, Inc., (“iNtRon”). Aridis is studyingAR-301, a monoclonal antibody, inStaphS. aureuspneumonia, not prosthetic joint infection or bacteremia. Atox is studying Reltecimod, a synthetic peptide, in Necrotizing Soft Tissue Infections, not prosthetic joint infection or bacteremia. Biotest was studying Trimodulia, a polyvalent antibody purified from human plasma, in community-acquired pneumonia, not prosthetic joint infection or bacteremia, but their website does not show an active clinical trial as of the date of this Form 10-K. MedImmune has been studying MEDI-4893, a monoclonal antibody, for the prevention ofStaphS. aureuspneumonia in a Phase 2 study since 2014. XBiotech is planning to study 514G3, a monoclonal antibody, for the prevention ofStaphS. aureusinfection in hemodialysis patients. Genentech has been studying DSTA-4637S, an antibody-drug conjugate, in a Phase 1 study since 2017. Depending on the outcomes of these and future trials, exebacase may compete with these products. We believe iNtRon, a biotechnology company located in South Korea, is currentlywas previously conducting a human clinical trial in South Korea alone forSAL-200, an endolysin-based drug candidate, to evaluate it as a treatment forStaphS. aureus bacteremia. Additionally, inIn November 2018, iNtRon announcedentered into a licensing arrangement with Roivant Sciences with a stated purpose to pursue the global development and commercialization of its endolysin products, includingSAL-200. However, in June 2022, Roivant Sciences discontinued development of SAL-200. We will continue to monitor the advancement ofSAL-200 as data and information become available. We are not aware ofSAL-200or any other anti-staphylococcal lysinsnon-traditional agents having been applied for under an IND for clinical development in the United States.

19


Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved medicines than we do. We compete with companies that have products on the market or in development for the same indications as our product candidates. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials. Smaller or early stageearly-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their efficacy, safety, convenience, price and the availability of reimbursement from government and other third-party payors. Our commercial opportunity could be reduced or eliminated if our competitors develop and

commercialize medicines that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any medicines that we may develop. Our competitors also may obtain FDA or other regulatory approval for their medicines more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.

Manufacturing

We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We currently rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for preclinical or clinical manufacturing, testing, as well as for commercial manufacture of any products that we may commercialize. We employPrior to 2021, we employed the services of Fujifilm Diosynth Biotechnologies UK LTD (“Fujifilm UK”) to supply the drug substance for exebacase. In the fourth quarter of 2020, we were notified by Fujifilm UK that they experienced equipment failures that would impact their manufacturing timelines. To mitigate this delay, Fujifilm UK proposed the transition of the exebacase manufacturing process to Fujifilm Diosynth Biotechnologies USA Inc. (“Fujifilm USA”). We transferred the manufacturing process to Fujifilm USA during 2022.

We do not yet have contracts to produce a commercial supply of the drug substance for exebacase; however, we intend to pursue agreements with Fujifilm UK to do so.exebacase or CF-370. We employ the services of variousmultiple vendors to produce exebacase in its final vialed drug product form. We do not have contracts for the commercial supply of exebacase. We intend to pursue agreements with third party manufacturers regarding commercial supply of drug substance and vialed drug product at an appropriate future time. We may choose to locate secondadditional fill finish third party manufacturers to supply other world regions such as the European Union (the “E.U.”)EU or Asia.

Sales, Marketing and Distribution

We do not currently have an organization for the sales, marketing and distribution of pharmaceutical products. We may rely on licensing andco-promotion agreements with strategic partners for the commercialization of our products in the United States and other territories. If we choose to build a commercial infrastructure to support marketing in the United States, such commercial infrastructure could be expected to include a targeted sales force supported by sales management, internal sales support, an internal marketing group and distribution support. To develop the appropriate commercial infrastructure internally, we would have to invest financial and management resources, some of which would have to be deployed prior to any confirmation that any of our other products will be approved.

Government Regulation

The production,FDA and other regulatory authorities at federal, state, and local levels, as well as in foreign countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval,

20


advertising, promotion, marketing, post-approval monitoring, and marketingpost-approval reporting of products employingbiologics such as those we are developing. We, along with third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure of our researchproduct candidates. The process of obtaining regulatory approvals and intellectual property or that we may license from third parties are subject to extensive governmental regulation in the United Statessubsequent compliance with applicable federal, state, local and in other countries. foreign statutes and regulations require the expenditure of substantial time and financial resources.

U.S. Regulation of Drugs and Biologics

In the United States, ourthe FDA regulates biological products will be regulated as biologics and subject tounder the Federal Food, Drug, and Cosmetic Act as amended (the “FDC Act”(“FDCA”), and the Public Health Service Act as amended (the “PHSA”(“PHSA”), and their implementing regulations, and biologics under the FDCA and the regulationsPublic Health Service Act (“PHSA”), and its implementing regulations. FDA approval is required before any new unapproved drug or dosage form, including a new use of a previously approved drug, can be marketed in the FDA, as well asUnited States. Drugs and biologics are also subject to other federal, state, and local statutes and regulations. These laws, and similar laws outside the United States, govern the research, development, clinical and preclinical testing, manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, record-keeping, reporting, advertising, and promotion and marketing of our products. Product development and approval within this regulatory framework, if successful, will require the expenditure of substantial resources and take years to achieve. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay in approving or refusal to approve a product and may result in enforcement actions and administrative or judicial sanctions.

The following provides further information on certain legal and regulatory requirements that have the potential to affect our operations and the future marketing of our products.

FDA Approval Process

In the United States, pharmaceutical products are subject to extensive regulationprocess required by the FDA. The FDC Act and other federal and state statutes and regulations govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. In addition to

regulation under the FDC Act, biological products used for the prevention, treatment, or cure of a disease or condition of a human being are subject to regulation under provisions of the PHSA, and FDA reviews applications for approval of a biologic pursuant to a BLA. FDA review applications for approval of drug products pursuant to a new drug application (“NDA”). Failure to comply with applicable U.S. requirementsbefore product candidates may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending NDAs or BLAs, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution.

Pharmaceutical product development for a new product or certain changes to an approved productbe marketed in the United States typicallygenerally involves the following:

completion of extensive preclinical laboratory tests and preclinical animal tests, the studies, all performed in accordance with Good Laboratory Practices (“GLP”) regulations;

submission to the FDA of an IND, which must become effective before human clinical testingstudies may commence,begin and must be updated annually;

approval by an independent institutional review board (“IRB”) or ethics committee representing each clinical site before each clinical study may be initiated;

performance of adequate and well-controlled human clinical trialsstudies in accordance with Good Clinical Practice (“GCP”), requirements to establish the safety and effectiveness ofefficacy, or with respect to biologics, the drug for each indication for which FDA approval is sought. Satisfaction of FDApre-market approval requirements typically takes many yearssafety, purity and the actual time required may vary substantially based upon the type, complexity, and noveltypotency of the product or disease.candidate for each proposed indication;

Preclinical tests include laboratory evaluation

preparation of product chemistry, formulation, and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including good laboratory practices. The results of preclinical testing are submittedsubmission to the FDA as partof a BLA after completion of all pivotal clinical studies;

a determination by the FDA within 60 days of its receipt of a BLA to file the application for review;

potential review of the product application by an FDA advisory committee, where appropriate and if applicable;

satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities where the proposed product drug substance is produced to assess compliance with current Good Manufacturing Practices (“cGMP”), and audits of selected clinical trial sites to ensure compliance with GCP; and

FDA review and approval of an NDA or BLA prior to any commercial marketing or sale of a biological product in the United States.

An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND along with other information, including information aboutsubmission is on the general investigational plan and the protocol or protocols for preclinical studies and clinical trials. The IND also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology and pharmacodynamic characteristics of the product, chemistry, manufacturing and controls (“CMC”) information, and aany available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day period, raises safety concerns or questions about the proposed clinical trial protocol. Long term preclinical tests,trial. In such as animal tests of reproductive toxicity and carcinogenicity, may continue aftera case, the IND is submitted.

A30-day waiting period aftermay be placed on clinical hold and the submission of each IND is required prior to the commencement of clinical testing in humans. Ifsponsor and the FDA has neither commented on nor questioned the IND within this30-day period,must resolve any outstanding concerns or questions before the clinical trial proposedcan begin. Submission of an IND therefore may or may not result in the IND may begin.FDA authorization to begin a clinical trial.

Clinical trials involve the administration of the investigational new drug or biologicproduct to healthy volunteers or patientshuman subjects under the supervision of a qualified investigator.investigators in accordance with GCP, which includes the requirement that all research

21


subjects provide their informed consent for their participation in any clinical study. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with good clinical practice (“GCP”) regulations meant to protect the rights and health of healthy volunteers or patients and to define the roles of clinical trial sponsors, administrators, and monitors; as well as (iii)are conducted under protocols detailing, among other things, the objectives of the trial,study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol involving testing on healthy volunteers or patients inA separate submission to the U.S.existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendmentsamendments. While the IND is active, progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last progress report, among other information, must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA as partand investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the drug, findings from animal or in vitro testing suggesting a significant risk to humans exposed to the drug, and any clinically important increased rate of a serious suspected adverse reaction compared to that listed in the IND.protocol or investigator brochure.

The FDAFurthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site, and must monitor the study until completed. Regulatory authorities, the IRB or the sponsor may order the temporary, or permanent, discontinuation ofsuspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or impose other sanctions, if it believes that the trial is unlikely to meet its stated objectives. Some studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical trial eitherif it determines that there is not being conducted in accordance with FDA requirements or presents an unacceptable safety risk tofor subjects or other grounds, such as no demonstration of efficacy. There are also requirements governing the clinical trial patients. The study protocolreporting of ongoing preclinical studies and informed consent information for patients in clinical trials must also be submittedand clinical study results to an institutional review board (“IRB”) for approval. An IRB may also require thepublic registries.

The clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.

Clinical trials to support NDAs or BLAs for marketing approval are typically conducted ininvestigation of a drug is generally divided into three sequential phases, butphases. Although the phases are usually conducted sequentially, they may overlap. In overlap or be combined.

Phase 1, the initial introduction of the drug or biologic1. The investigational product is initially introduced into healthy human subjects or patients with the target disease or condition. These studies are designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational product is tested to assess metabolism, pharmacokinetics, pharmacological actions,in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence ofon effectiveness.

Phase 2 usually involves trials in2. The investigational product is administered to a limited patient population with a specified disease or condition to determineevaluate the effectiveness of the drug or biologic for a particular indication, dosage tolerance,preliminary efficacy, optimal dosages and optimum dosage,dosing schedule and to identify commonpossible adverse side effects and safety risks. If a compound demonstratesMultiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3 clinical trials.

Phase 3. The investigational product is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and to further test for safety, in a larger number of patients, typicallygenerally at multiple geographically dispersed clinical trial sites,sites. These clinical trials are intended to permit the FDA to evaluateestablish the overall benefit-risk relationshiprisk/benefit ratio of the drug or biologicinvestigational product and to provide an adequate informationbasis for theproduct approval.

labeling of the product. In mostsome cases, the FDA may condition approval of a BLA for a product candidate on the sponsor’s agreement to conduct additional clinical studies after approval. In other cases, a sponsor may voluntarily conduct additional clinical studies after approval to gain more information about the drug. Such post-approval studies are typically requires two adequate and well-controlledreferred to as Phase 34 clinical studies. Concurrent with clinical trials, to demonstratecompanies may complete additional animal studies and develop additional information about the efficacybiological characteristics of the drug or biologic. A single Phase 3 trialproduct candidate, and must finalize a process for manufacturing the product in commercial quantities in accordance with other confirmatory evidence maycGMP requirements. The manufacturing process must be sufficient in some instances where the study is a large multicenter trial demonstrating internal consistency and a statistically very persuasive findingcapable of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmationconsistently producing quality batches of the result in a second trial would be practicallyproduct candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final product, or ethically impossible.for biologics, the safety, purity and potency

After

22


BLA Review Process

Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the requiredresults of product development, nonclinical studies and clinical testing, an NDA or BLA is prepared andtrials are submitted to the FDA. FDA as part of a BLA requesting approval of the NDA or BLA is required before marketing ofto market the product may begin in the United States.for one or more indications. The NDA or BLA must include theall relevant data available from pertinent preclinical studies and clinical trials, including negative or ambiguous results of all preclinical, clinical, and other testing and a compilation of dataas well as positive findings, together with detailed information relating to the product’s pharmacology, chemistry, manufacture,CMC and controls. The costproposed labeling, among other things. Data can come from company-sponsored clinical studies intended to test the safety and effectiveness of preparingthe product, or from a number of alternative sources, including studies initiated and submitting an NDA or BLA is substantial.sponsored by investigators. The submission of most NDAs and BLAs is additionally subject toa BLA requires payment of a substantial application user fee. For fiscal year 2020,fee to the FDA, unless a waiver or exemption applies.

In addition, under the Pediatric Research Equity Act (“PREA”), a BLA or supplement to a BLA must contain data to assess the safety and effectiveness of the biological product candidate for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. FDA requires that a sponsor who is planning to submit a marketing application for a drug or biological product that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration submit an initial pediatric study plan within sixty days after an end-of-Phase 2 meeting or as may be agreed between the sponsor and FDA. Unless otherwise required by regulation, PREA does not apply to any drug or biological product for an indication for which orphan designation has been granted.

Within 60 days following submission of the application, user fee is $2,942,965. The manufacturer and/or sponsor under an approved NDA or BLA are also subject to annual program user fees, currently set at $325,424 per program. These fees are typically adjusted annually.

Thethe FDA has 60 days from its receipt of an NDA orreviews the submitted BLA to determine whetherif the application will be acceptedis substantially complete before the agency accepts it for filing based on the agency’s threshold determinationfiling. The FDA may refuse to file any BLA that it is sufficiently complete to permit substantive review.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. Once the submission isa BLA has been accepted for filing, the FDA begins anin-depth review. The FDA has agreed to certain performance goals in the review of NDAs and BLAs. The FDA aims to review applications for standard review drugs containing new molecular entities or original biologic products within ten months of the date the application was accepted for filing, and theFDA’s goal is to review standard applications within ten months after the filing date, or, if the application qualifies for priority review, drugs or biologics in six months ofafter the dateFDA accepts the application was accepted for filing. Priority review can be appliedThe FDA reviews a BLA to applications for drugs containing new molecular entitiesdetermine, among other things, whether a product is safe, pure and potent and the facility in which it is manufactured, processed, packed or biologics that are intendedheld meets standards designed to treat a serious disease or conditionassure the product’s continued safety, purity and that, if approved, would provide a significant improvement in safety or effectiveness. The review process forpotency. In both standard and priority reviews, the review process may also be extended by FDA requests for additional information or clarification. When reviewing a BLA, the FDA to consider certain late-submitted information, or information intended to clarify information already provided in the submission.

The FDA may also refer applications for novel drug or biologic products, or drug or biologic products that present difficult questions of safety or efficacy, toconvene an advisory committee—typically a panel that includes clinicians and other experts—forcommittee to provide clinical insight on application review evaluation, and a recommendation as to whether the application should be approved.questions. The FDA is not bound by the recommendationrecommendations of an advisory committee, but it generally followsconsiders such recommendations. recommendations carefully when making decisions.

Before approving a BLA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve an NDA orapplication unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product unless compliance with current good manufacturing practices (“cGMPs”) is satisfactory and the BLA contains data that provide substantial evidence that the proposed biologic is safe, pure and potent for its intended use, and has an acceptable purity profile. In the case of an NDA, whether the drug is safe and effective for its intended use.

After the FDA evaluates the NDA or BLA and theconducts inspections of manufacturing facilities it issues eitherwhere the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA or BLA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included.

Complete Response Letter (“CRL”). An approval letter authorizes commercial marketing of the drug or biologicproduct with specific prescribing information for specific indications. As a conditionA CRL will describe all of NDA orthe deficiencies that the FDA has identified in the BLA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the CRL without first conducting required inspections, testing submitted product lots and/or reviewing proposed labeling. In issuing the CRL, the FDA may recommend actions that the applicant might take to place the BLA in condition for approval, including requests for additional information or clarification. The FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a risk evaluationproduct.

23


If regulatory approval of a product is granted, such approval will be granted for particular indications and mitigation strategymay entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the BLA with a Risk Evaluation and Mitigation Strategy (“REMS”), to help ensure that the benefits of the drugproduct outweigh its risks. A REMS is a safety strategy to manage a known or biologic outweigh the potential risks. REMS canserious risk associated with a product and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, for healthcare professionals, andor elements to assure safe use, (“ETASU”). ETASU can include, but are not limitedsuch as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to special trainingproposed labeling or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring,the development of adequate controls and

specifications. Once approved, the use of patient registries. The requirement for a REMS can materially affectFDA may withdraw the potential market and profitability of the product. Moreover, product approval if compliance with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace. The FDA may require substantial post-approval testingone or more Phase 4 post-market studies and surveillance to further assess and monitor the product’s safety or efficacy. Once granted, product approvalsand effectiveness after commercialization, and may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.

Changes to somelimit further marketing of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approvalproduct based on the results of a new NDA or BLA or NDA or BLA supplement before the change can be implemented. An NDA or BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA or BLA supplements as it does in reviewing NDAs or BLAs.these post-marketing studies.

Post-Approval Requirements

Once an NDA or BLA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of drugs and biologics, including standards and regulations fordirect-to-consumer advertising,off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. Drugs and biologics may be marketed only for the approved indications and in accordance with the provisions of the approved labeling.

Adverse event reporting and submission of periodic reports is required following FDA approval of an NDA or BLA. The FDA also may require post-marketing testing, known as Phase 4 testing, REMS, and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality control, drug manufacture, packaging, and labeling procedures must continue to conform to cGMPs after approval. Drug and biologic manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money, and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.

FDA Expedited Review Programs

The FDA administers a number of programs to facilitate the development, and expedite the review, of drugs or biologics that are intended for the treatment of serious or life-threatening diseases or conditions. For instance, a sponsor may seekexample, the FDA’sfast track program is intended to expedite or facilitate the process for reviewing product candidates that meet certain criteria. Specifically, product candidates are eligible for fast track designation of its product candidate as a “fast track” product. Fast track productsif they are those products intended for the treatment ofto treat a serious or life-threatening disease or condition and which demonstrate the potential to address unmet medical needs for suchthe disease or condition. Drugs that qualify as a qualified infectious diseaseFast track designation applies to the combination of the product (“QIDP”), undercandidate and the Generating Antibiotic Incentives Now (“GAIN”) Act, are also eligiblespecific indication for fast track designation. Biologics, such as lysins, are not currently eligible for QIDP designation.

Under the fast track program, thewhich it is being studied. The sponsor of a new drug or biologic candidate may request that the FDA designate the candidate for a specific indication as a fast track drug or biologic concurrent with, or after, the filing of the IND for the candidate. The FDA must determine if the drug or biologic candidate qualifies for fast track designation within 60 days of receipt of the sponsor’s request. If fast track designation is obtained, the FDA may initiate review of sections of the marketing application before the application is complete. This “rolling review” is available if the applicant provides and the FDA approves a schedule for the remaining information. However, the FDA’s time period goal for reviewing an application does not begin until the last section of the NDA or BLA 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. In addition, a product candidate that receives fast track designation is eligiblehas opportunities for more frequent meetingsinteractions with the FDA to

discussreview team during product development and, once a BLA is submitted, the product’s development plan and ensure collection of appropriate data needed to support approval and more frequent communications from FDA regarding such things as the design of the proposed clinical trials and use of biomarkers, as applicable. In August 2015, the FDA granted fast track designation to exebacase for the treatment ofStaph aureus bacteremia, including endocarditis.

In some cases, a product may be eligible for accelerated approval. Drug or biological productspriority review. A fast track product candidate may also be eligible for rolling review, where the FDA may consider for review sections of the BLA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the BLA, the FDA agrees to accept sections of the BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the BLA.

A product candidate intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough therapy designation to expedite its development and review. A product candidate can receive breakthrough therapy designation if preliminary clinical evidence indicates that the product, alone or in combination with one or more other drugs or biologics, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the fast track program features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an organizational commitment to expedite the development and review of the product candidate, including involvement of senior managers.

Any marketing application for a drug or biologic submitted to the FDA for approval, including a product candidate with a fast track designation and/or breakthrough therapy designation, may be eligible for other types of FDA programs intended to expedite the FDA review and approval process, such as priority review and accelerated approval. A BLA is eligible for priority review if the product candidate has the potential to provide a significant improvement in the treatment, diagnosis or prevention of a serious disease or condition. For original BLAs, priority review designation means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date (as compared to ten months under standard review).

Additionally, product candidates studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions may be eligible forreceive accelerated approval upon a determination that the product candidate has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or

24


prevalence of the condition and the availability or lack of alternative treatments. In clinical trials,As a surrogate endpoint is a measurementcondition of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels, functions, or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints.

A drug or biologic candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, will allow the FDA to withdraw the drug or biologic from the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are subject to prior review by the FDA.

The Food and Drug Administration Safety and Innovation Act established a category of drugs and biologics referred to as “Breakthrough Therapies” that may be eligible to receive Breakthrough Therapy designation. A sponsor may seek FDA designation of a product candidate as a “Breakthrough Therapy” if the product is intended, 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. Under the Breakthrough Therapy program, the sponsor of a new drug candidate may request that the FDA designate the drug candidate for a specific indication as a breakthrough therapy concurrent with, or after, the filing of the IND for the drug candidate. The designation includes all of the fast track program features, as well as more intensive FDA interaction and guidance. The Breakthrough Therapy designation is a distinct status from both accelerated approval, and priority review, which can also be granted to the same drug if relevant criteria are met. If a product is designated as Breakthrough Therapy, the FDA will workgenerally require the sponsor to expediteperform adequate and well-controlled post-marketing clinical studies to verify and describe the development and review of such drug. The FDAanticipated effect on irreversible morbidity or mortality or other clinical benefit. Products receiving accelerated approval may also rescind Breakthrough Therapy designation for a product candidatebe subject to expedited withdrawal procedures if the FDA determinessponsor fails to conduct the product candidate no longer meetsrequired post-marketing studies or if such studies fail to verify the criteria for Breakthrough Therapy designation.predicted clinical benefit. In February 2020,addition, the FDA granted breakthrough therapy designation to exebacasecurrently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the treatmenttiming of MRSA bacteremia, including right-sided endocarditis, when used in addition to SOC anti-staphylococcal antibiotics in adult patients.the commercial launch of the product.

Fast track designation, breakthrough therapy designation, priority review, and accelerated approval do not change the standards for approval but may expedite the development or approval process. Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

GuidancePost-Approval Requirements

Any products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing user fee requirements, under which the FDA assesses an annual program fee for Industry: “Antibacterial Therapieseach product identified in an approved BLA. Drug and biologic manufacturers and their 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 Patientscompliance with an Unmet Medical Need forcGMPs, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the Treatmentmanufacturing process are strictly regulated, and, depending on the significance of Serious Bacterial Diseases” – Potential for Streamlined Developmentthe change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMPs and impose reporting requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMPs and other aspects of regulatory compliance.

The FDA issued guidance formay withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the industryproduct reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in August 2017, whichrevisions to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions 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 untitled letters;

clinical holds on clinical studies;

refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product approvals;

product seizure or detention, or refusal to permit the import or export of products;

consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs;

mandated modification of promotional materials and labeling and the issuance of corrective information;

25


the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety information about the product; or

injunctions or the imposition of civil or criminal penalties.

The FDA closely regulates the marketing, labeling, advertising and promotion of biologics. A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, discussesadverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the potentialproduct’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for antibacterial drug candidates intendedmany patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products.

Biosimilars and Reference Product Exclusivity

The Biologics Price Competition and Innovation Act of 2009 (“BPCIA””), created an abbreviated approval pathway for biological products that are highly similar, or “biosimilar,” to treat serious bacterial infectionsor interchangeable with an FDA-approved reference biological product. Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in patients who have fewterms of safety, purity, and potency, is generally shown through analytical studies, animal studies, and a clinical study or no available therapiesstudies. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product in any given patient and, for products that are administered multiple times to an individual, the biologic and the reference biologic may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. A product shown to be candidates for a streamlined development pathway. According to the guidance, candidates for a streamlined process would be likely to have (1) a new mechanism of action that preserves antibacterial activity against bacteria that have mechanisms of resistance to other available antibacterial drugs; (2)biosimilar or interchangeable with an added inhibitor that neutralizes a mechanism of resistance; (3) an alterationFDA-approved reference biological product may rely in the structure of the molecule

that makes the drug candidate no longer susceptible to the mechanisms of resistance to existing drugs; or (4) some other characteristic that has a potential to lead to enhanced effectiveness.

Draft Guidance for Industry: “Limited Population Pathway for Antibacterial and Antifungal Drugs” (LPAD)

As part of the 21st Century Cures Act of 2016, LPADis intended to permit the approval of new antibiotics on the basis of relatively small clinical data setsstudying patients with rare, serious, or life-threatening infections in whom large-scale trials would be infeasible. The FDA issued draft guidance for the industry regarding LPAD in June 2018 which defines the potential for antibacterial and antifungal drug candidates to be approved under a limited population development pathway. According to the draft guidance, candidates for this pathway are agents intended to treat a serious or life-threatening infection in a limited population with unmet needs, have substantial evidence of effectiveness for the drug’s intended use and sufficient information to conclude that the drug is safe for use under the conditions prescribed, recommended, or suggested in the proposed labeling which is expected to define the limited population for intended use. The FDA’s previous determination of safety and effectiveness must reflectfor the benefit-risk profile ofreference product for approval, which can potentially reduce the antibiotic incost and time required to obtain approval to market the limited population and must take into account the severity, rarity, or prevalence of the infection the drug is intended to treat and the availability or lack of alternative treatments for that limited population.

Pediatric Informationproduct.

Under the Pediatric Research Equity Act (“PREA”), NDAs or BLAs or supplementsBPCIA, an application for a biosimilar product may not be submitted to NDAs or BLAs must containthe FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing that applicant’s own preclinical data and data from adequate and well-controlled clinical trials to assessdemonstrate the safety, purity and effectivenesspotency of its 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 drugFDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law.

A biological product can also obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission of data. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted.such a study.

Additional Controls for Biologics

To help reduce the increased risk of the introduction of adventitious agents, the PHSA emphasizes the importance of manufacturing controls for products whose attributes cannot be precisely defined. The PHSA also provides authority to the FDA to immediately suspend licenses in situations where there exists a danger to public

26


health, to prepare or procure products in the event of shortages and critical public health needs, and to authorize the creation and enforcement of regulations to prevent the introduction or spread of communicable diseases in the United States and between states.

After a BLA is approved, the product may also be subject to official lot release as a condition of approval. As part of the manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA 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. The FDA may also perform certain confirmatory tests on lots of some products, such as viral vaccines, before releasing the lots for distribution by the manufacturer. In addition, the FDA conducts laboratory research related to the regulatory standards on the safety, purity, potency, and effectiveness of biological products. As with drugs, after approval of biologics, manufacturers must address any safety issues that arise, are subject to recalls or a halt in manufacturing, and are subject to periodic inspection after approval.

Biosimilars

The Biologics Price Competition and Innovation Act of 2009 (“BPCIA”), created an abbreviated approval pathway for biological products shown to be highly similar to or interchangeable with anFDA-licensed reference biological product. Biosimilarity sufficient to reference a priorFDA-approved product requires that there be no

differences in conditions of use, route of administration, dosage form, and strength, and no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency. Biosimilarity must be shown through analytical studies, animal studies, and at least one clinical study, absent a waiver by the Secretary. A biosimilar product may be deemed interchangeable with a prior approved product if it meets the higher hurdle of demonstrating that it can be expected to produce the same clinical results as the reference product and, for products administered multiple times, 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. To date, few biosimilars have been licensed under the BPCIA, and no interchangeable products have been approved under the BPCIA to date. Complexities associated with the larger, and often more complex, structures of biological products, as well as the process by which such products are manufactured, pose significant hurdles to implementation which are still being evaluated by the FDA.

Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing that company’s own preclinical and clinical data from adequate and well-controlled trials to demonstrate the safety, and efficacy of their product. The first biologic product submitted under the abbreviated approval pathway that is determined to be interchangeable with the reference product may also enjoy a period of exclusivity. 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.

Disclosure of Clinical Trial Information

Sponsors of clinical trials ofFDA-regulated products, including drugs, are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.

Other DomesticU.S. Regulatory Requirements

In the United States, the research, manufacturing, distribution, sale, and promotion of drug and biological products are potentially subject to regulation by various federal, state, and local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services, other divisions of the United States Department of Health and Human Services (e.g., the Office of the Inspector General), the United States Department of Justice and individual United States Attorneys’ offices within the Department of Justice, and state and local governments. For example, sales, marketing, and scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the Social Security Act and the False Claims Act, the privacy and security provisions of the Health Insurance Portability and Accountability Act, or “HIPAA”, as amended by the Health Information Technology and Clinical Health Act, or “HITECH”, and similar state laws, each as amended.Act. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992, each as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All of these activities are also potentially subject to federal and state consumer protection, unfair competition, and other laws, and violations of these laws may result in imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal healthcare programs.

In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict certain marketing practices in the pharmaceutical industry in recent years. These laws include anti-kickback statutes and false claims statutes. The federal healthcare program Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Violations of the Anti-Kickback Statute are punishable by imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.

Federal false claims laws, including the False Claims Act, prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing practices, includingoff-label promotion, may also violate false claims laws. Moreover, the government may assert that a claim including items and services

27


resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act. The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

HIPAA also created new federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

There has also been a recent trend of increased federal and state regulation of payments made to physicians and other healthcare providers. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “Affordable Care Act”“ACA”), among other things, imposes new reporting requirements on drug manufacturers for payments made by them to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-physician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiologist assistants and certified nurse midwives), and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Failure to submit required information may result in significant civil monetary penalties of up to an aggregate of $165,786 per year (or up to an aggregate of $1,105,241 per yearand additional penalties for “knowing failures”), for all payments, transfers of value or ownership or investment interests that are not timely, accurately and completely reported in an annual submission. Drug manufacturers are required to submit reports to the government by the 90th day of each calendar year. Certain states also mandate implementation of compliance programs, impose restrictions on drug manufacturer marketing practices and/or require the tracking and reporting of gifts, compensation and other remuneration to physicians.

WeViolations of any of the laws described above or any other governmental regulations that apply to us may also be subject to data privacy and security regulation by both the federal government and the statesresult in which we conduct our business. HIPAA, HITECH, and their respective implementing regulations, impose specified requirements relating to the privacy, security and transmission of individually identifiable

health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates,” defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased thesignificant administrative, civil and criminal penalties, that may be imposed against covered entities, business associatesdamages, fines, exclusion from participation in governmental health care programs, additional reporting obligations and possiblyoversight if we become subject to a corporate integrity agreement or other persons,agreement to resolve allegations of non-compliance with these laws, imprisonment, and gave state attorneys general new authority to file civil actions for damagesthe curtailment or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and securityrestructuring of health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts.our operations.

Moreover, ContraFect is now, and in the future may become, subject to additional federal, state, and local laws, regulations, and policies relating to safe working conditions, laboratory practices, the experimental use of animals, and/or the use, storage, handling, transportation, and disposal of human tissue, waste, and hazardous substances, including radioactive and toxic materials and infectious disease agents used in conjunction with our research work.

Physician Drug Samples

As part of the sales and marketing process, pharmaceutical companies frequently provide samples of approved drugs to physicians. The Prescription Drug Marketing Act, or the PDMA, imposes requirements and limitations upon the provision of drug samples to physicians, as well as prohibits states from licensing distributors of prescription drugs unless the state licensing program meets certain federal guidelines that include minimum standards for storage, handling and record keeping. In addition, the PDMA sets forth civil and criminal penalties for violations.

New Legislation and Regulations

From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the testing, approval, manufacturing and marketing of products regulated by

28


the FDA. In addition to new legislation, FDA regulations and policies are often revised or interpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict whether further legislative changes will be enacted or whether FDA regulations, guidance, policies or interpretations changed or what the effect of such changes, if any, may be.

For example, in December 2016, the 21st Century Cures act, or Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of drugs and biologics and spur innovation, but its ultimate implementation remains unclear. Among other things, the Cures Act provides a new “limited population” approval pathway for antibacterial and antifungal drugs intended to treat serious or life-threatening infections.

Government Contracts and Regulation

We currently contract with the federal government. In March 2021, the Company entered into a cost-share contract with BARDA, a division of the U.S. Department of Health and Human Services’ Office of the Assistant Secretary for Preparedness and Response. The base period for the BARDA Contract included government funding of up to $9.8 million to reimburse expenses to support the conduct of the Phase 3 DISRUPT study and futility analysis. In connection with the closure of the trial, the BARDA Contract was modified to provide for up to $6.6 million in funding to support a futility outcome root-cause analysis and the close-out of the Phase 3 DISRUPT study of exebacase. As a government contractor, we are subject to complex and wide-ranging federal and agency-specific regulations and contractual requirements that not only govern how we perform under the contract but also impose other requirements that affect our operations, including socio-economic obligations such as obligations related to affirmative action or maintaining a drug-free workplace. While some of our employees have been involved in government contracts previously, many of these government contracting requirements are new to us as a company. The costs of compliance with these requirements may be significant. Failure to comply with government contracting requirements could result in termination of our contract or the imposition of penalties.

Foreign Regulation

In addition to regulations in the United States, we may becomeare subject to widely varying foreign regulations which may be quite different from those of the FDA, governing, among other things, clinical trials, manufacture, product registration and approval, and pharmaceutical sales. Whether or not FDA approval has been obtained, we must obtain a separate approval for a product by the comparable regulatory authorities of foreign countries prior to the commencement of clinical studies or marketing of the product marketing in these countries. The requirements and process governing the conduct of clinical studies, approval process, variesproduct licensing, pricing and reimbursement vary from country to country,country. Failure to comply with applicable foreign regulatory requirements, may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Non-clinical studies and clinical trials

Similar to the United States, the various phases of non-clinical and clinical research in the European Union, or EU, are subject to significant regulatory controls.

Non-clinical (pharmaco-toxicological) studies are performed to demonstrate the health or environmental safety of new chemical or biological substances. Non-clinical studies must be conducted in compliance with the principles of good laboratory practice, or GLP, as set forth in EU Directive 2004/10/EC. In particular, non-clinical studies, both in vitro and in vivo, must be planned, performed, monitored, recorded, reported and archived in accordance with the GLP principles, which define a set of rules and criteria for a quality system for the organizational process and the conditions for non-clinical studies. These GLP standards reflect the Organization for Economic Co-operation and Development requirements.

29


Clinical trials of medicinal products in the EU must be conducted in accordance with EU and national regulations and the International Conference on Harmonization (“ICH”) guidelines on GCP as well as the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. If the sponsor of the clinical trial is not established within the EU, it must appoint an EU entity to act as its legal representative. The sponsor must take out a clinical trial insurance policy, and in most EU member states, the sponsor is liable to provide ‘no fault’ compensation to any study subject injured in the clinical trial.

The regulatory landscape related to clinical trials in the EU has been subject to recent changes. The EU Clinical Trials Regulation, or CTR, which was adopted in April 2014 and repeals the EU Clinical Trials Directive, became applicable on January 31, 2022. Unlike directives, the CTR is directly applicable in all EU member states without the need for member states to further implement it into national law. The CTR notably harmonizes the assessment and supervision processes for clinical trials throughout the EU via a Clinical Trials Information System, which contains a centralized EU portal and database.

While the Clinical Trials Directive required a separate clinical trial application, or CTA, to be submitted in each member state in which the clinical trial takes place, to both the competent national health authority and an independent ethics committee, much like the FDA and IRB respectively, the CTR introduces a centralized process and only requires the submission of a single application to all member states concerned. The CTR allows sponsors to make a single submission to both the competent authority and an ethics committee in each member state, leading to a single decision per member state. The CTA must include, among other things, a copy of the trial protocol and an investigational medicinal product dossier containing information about the manufacture and quality of the medicinal product under investigation. The assessment procedure of the CTA has been harmonized as well, including a joint assessment by all member states concerned, and a separate assessment by each member state with respect to specific requirements related to its own territory, including ethics rules. Each member state’s decision is communicated to the sponsor via the centralized EU portal. Once the CTA is approved, clinical study development may proceed.

The CTR foresees a three-year transition period. The extent to which ongoing and new clinical trials will be governed by the CTR varies. Clinical trials for which an application was submitted (i) prior to January 31, 2022 under the Clinical Trials Directive, or (ii) between January 31, 2022 and January 31, 2023 and for which the sponsor has opted for the application of the EU Clinical Trials Directive remain governed by said Directive until January 31, 2025. After this date, all clinical trials (including those which are ongoing) will become subject to the provisions of the CTR.

Medicines used in clinical trials must be manufactured in accordance with Good Manufacturing Practice, or GMP. Other national and EU-wide regulatory requirements may also apply.

Marketing Authorization

In order to market our future product candidates in the EU and many other foreign jurisdictions, we must obtain separate regulatory approvals. More concretely, in the EU, medicinal product candidates can only be commercialized after obtaining a marketing authorization, or MA. To obtain regulatory approval of an investigational medicinal product under EU regulatory systems, we must submit a marketing authorization application, or MAA. The process for doing this depends, among other things, on the nature of the medicinal product. There are two types of MAs:

“Centralized MAs” are issued by the European Commission through the centralized procedure based on the opinion of the Committee for Human Medicinal Products, or CHMP, of the European Medicines Agency, or EMA, and are valid throughout the EU. The centralized procedure is compulsory for certain types of product candidates such as: (i) medicinal products derived from biotechnology processes, such as genetic engineering, (ii) medicinal products containing a new active substance indicated for the treatment of certain diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative diseases,

30


autoimmune and other immune dysfunctions and viral diseases, (iii) designated orphan medicines and (iv) advanced therapy medicinal products, or ATMPs, such as gene therapy, somatic cell therapy or tissue-engineered medicines. The centralized procedure may at the request of the applicant also be used in certain other cases and in particular for any other products containing new active substances not authorized in the EU or for product candidates which constitute a significant therapeutic, scientific, or technical innovation or for which the granting of authorization would be in the interests of public health in the EU.

“National MAs” are issued by the competent authorities of the EU member states, only cover their respective territory, and are available for products not falling within the mandatory scope of the centralized procedure. Where a product has already been authorized for marketing in an EU member state, this national MA can be recognized in another member state through the mutual recognition procedure. If the product has not received a national MA in any member state at the time of application, it can be approved simultaneously in various member states through the decentralized procedure. Under the decentralized procedure an identical dossier is submitted to the national competent authority of each of the member states in which the MA is sought, one of which is selected by the applicant as the reference member state.

Under the centralized procedure, the maximum timeframe for the evaluation of an MAA by the EMA is 210 days. In exceptional cases, the CHMP might perform an accelerated review of an MAA in no more than 150 days (not including clock stops). Innovative products that target an unmet medical need and are expected to be of major public health interest may be longer or shorter thaneligible for a number of expedited development and review programs, such as the Priority Medicines (“PRIME”) scheme, which provides incentives similar to the breakthrough therapy designation in the U.S. PRIME is a voluntary scheme aimed at enhancing the EMA’s support for the development of medicines that requiredtarget unmet medical needs. It is based on increased interaction and early dialogue with companies developing promising medicines, to optimize their product development plans and speed up their evaluation to help them reach patients earlier. Many benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements, and accelerated MAA assessment once a dossier has been submitted. Importantly, a dedicated contact and rapporteur from the CHMP is appointed early in the PRIME scheme facilitating increased understanding of the product at EMA’s committee level. An initial meeting initiates these relationships and includes a team of multidisciplinary experts at the EMA to provide guidance on the overall development and regulatory strategies.

MAs have an initial duration of five years. After these five years, the authorization may be renewed for FDA approval. In certain countries,an unlimited period on the basis of a reevaluation of the risk-benefit balance.

Data and Marketing Exclusivity

The EU also provides opportunities for market exclusivity. Upon receiving MA, reference products generally receive eight years of data exclusivity and an additional two years of market exclusivity. If granted, data exclusivity prevents regulatory authorities also establish pricingin the EU from referencing the innovator’s data to assess a generic or biosimilar application. During the additional two-year period of market exclusivity, a generic or biosimilar MAA can be submitted, and reimbursement criteria. the innovator’s data may be referenced, but no generic or biosimilar product can be marketed until the expiration of the market exclusivity. The overall ten-year market exclusivity period may be extended to a maximum of eleven years if, during the first eight years a new therapeutic indication with significant clinical benefit over existing therapies is approved. However, there is no guarantee that a product will be considered by the EU’s regulatory authorities to be a new chemical or biological entity, and products may not qualify for data exclusivity.

There is a special regime for biosimilars, or biological medicinal products that are similar to a reference medicinal product but that do not meet the definition of a generic medicinal product, for example, because of

31


differences in raw materials or manufacturing processes. For such products, the results of appropriate preclinical or clinical trials must be provided, and guidelines from the EMA detail the type of quantity of supplementary data to be provided for different types of biological product. There are no such guidelines for complex biological products, such as gene or cell therapy medicinal products, and so it is unlikely that biosimilars of those products will currently be approved in the European Union. However, guidance from the EMA states that they will be considered in the future in light of the scientific knowledge and regulatory experience gained at the time.

In addition, under current United States law,the EU, MAAs for new medicinal products have to include the results of studies conducted in the pediatric population, in compliance with a pediatric investigation plan (“PIP”) agreed with the EMA’s Pediatric Committee (“PDCO”). The PIP sets out the timing and measures proposed to generate data to support a pediatric indication of the drug for which MA is being sought. The PDCO can grant a deferral of the obligation to implement some or all of the measures of the PIP until there are restrictions onsufficient data to demonstrate the export of products not approved by the FDA, depending on the country involvedefficacy and the statussafety of the product in adults. Further, the obligation to provide pediatric clinical trial data can be waived by the PDCO when these data is not needed or appropriate because the product is likely to be ineffective or unsafe in children, the disease or condition for which the product is intended occurs only in adult populations, or when the product does not represent a significant therapeutic benefit over existing treatments for pediatric patients. Once the MA is obtained in all the EU member states and study results are included in the product information, even when negative, the product is eligible for six months’ supplementary protection certificate extension (if any is in effect at the time of approval) or, in the case of orphan pharmaceutical products, a two-year extension of the orphan market exclusivity is granted.

Failure to comply with EU and member state laws that country.apply to the conduct of clinical trials, manufacturing approval, MA of medicinal products and marketing of such products, both before and after grant of the MA, manufacturing of pharmaceutical products, statutory health insurance, bribery and anti-corruption or with other applicable regulatory requirements may result in administrative, civil or criminal penalties. These penalties could include delays or refusal to authorize the conduct of clinical trials, or to grant MA, product withdrawals and recalls, product seizures, suspension, withdrawal or variation of the marketing authorization, total or partial suspension of production, distribution, manufacturing or clinical trials, operating restrictions, injunctions, suspension of licenses, fines and criminal penalties. The aforementioned EU rules are generally applicable in the European Economic Area, or EEA, which consists of the 27 EU member states plus Norway, Liechtenstein and Iceland.

Brexit and the Regulatory Framework in the United Kingdom

Since the end of the Brexit transition period on January 1, 2021, Great Britain (England, Scotland and Wales) has not been directly subject to EU laws, however under the terms of the Ireland/Northern Ireland Protocol, EU laws generally apply to Northern Ireland. On February 27, 2023, the United Kingdom (“UK”) Government and the European Commission reached a political agreement on the “Windsor Agreement” which will revise the Protocol on Ireland/Northern Ireland in order to address some of the perceived shortcomings in its operation. Under the proposed changes, Northern Ireland would be reintegrated under the regulatory authority of the Medicines and Healthcare products Regulatory Agency (“MHRA”) with respect to medicinal products. These proposed changes need to be codified and agreed by the respective parliaments of the UK and EU before taking effect.

It is currently unclear to what extent the UK Government will seek to align its regulations with the EU. The EU laws that have been transposed into UK law through secondary legislation remain applicable in Great Britain. However, under the Retained EU Law (Revocation and Reform) Bill 2022, which is currently before the UK parliament, any retained EU law not expressly preserved and “assimilated” into domestic law or extended by ministerial regulations (to no later than June 23, 2026) will automatically expire and be revoked by December 31, 2023. In addition, new legislation such as the (EU) CTR is not applicable in Great Britain. The UK regulatory framework in relation to clinical trials is derived from existing EU legislation (as implemented into UK law, through secondary legislation). On January 17, 2022, the MHRA launched an eight-week consultation on

32


reframing the UK legislation for clinical trials. The consultation closed on March 14, 2022 and aims to streamline clinical trials approvals, enable innovation, enhance clinical trials transparency, enable greater risk proportionality, and promote patient and public involvement in clinical trials. The outcome of the consultation is being closely watched and will determine whether the UK chooses to align with the (EU) CTR or diverge from it to maintain regulatory flexibility. While the EU-UK Trade and Cooperation Agreement (“TCA”) includes the mutual recognition of GMP inspections of manufacturing facilities for medicinal products and GMP documents issued, it does not contain wholesale mutual recognition of UK and EU pharmaceutical regulations and product standards. There may be divergent local requirements in Great Britain from the EU in the future, which may impact clinical and development activities that occur in the UK in the future. Similarly, clinical trial submissions in the UK will not be able to be bundled with those of EU member states within the EMA Clinical Trial Information System adding further complexity, cost and potential risk to future clinical and development activity in the UK. Significant political and economic uncertainty remains about how much the relationship between the UK and EU will differ as a result of the UK’s withdrawal.

For other countries outside of Europe, such as countries in Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical studies are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

European Medicines Agency (“EMA”) – Small and Medium Enterprise (“SME”) Designation

The SME designation was established by the EMA to promote innovation and the development of new medicinal products by smaller companies.companies established in the EEA. Companies with SME status are eligible to receive financial incentives as well as administrative and regulatory support through national and regional level programs. These benefits include access to dedicated EMA personnel during the clinical development process as well as reductions in fees associated with regulatory procedures such as Scientific Advice, Marketing Authorizations,scientific advice, pre- and post-authorization regulatory procedures, and inspections. Companies with SME status are also eligible for early application (prior to proof of concept) to the priority medicines (“PRIME”) scheme. PRIME provides enhanced supportcan apply for the PRIME scheme at an earlier stage of development of medicines that target an unmet medical need. In August 2016, the EMA granted SME designation to ContraFect. We continue to meet the requirementswhen they have compelling non-clinical data and tolerability data from initial clinical trials. They may also request a fee waiver for the designation and have maintained our SME status.scientific advice.

Data Privacy and Security Laws

We are also subjectNumerous state, federal and foreign laws and regulations govern the collection, dissemination, use, access to, confidentiality and security of personal information, including health-related information. In the United States, numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws, in jurisdictions outsideincluding the Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”), and federal and state consumer protection laws and regulations (e.g., Section 5 of the U.S. For example, inFTC Act), that govern the E.U.collection, use, disclosure, and protection of health-related and other personal information could apply to our operations or the operations of our partners. In addition, certain state and non-U.S. laws, such as the California Consumer Privacy Act (“CCPA”), the California Privacy Rights Act (“CPRA”), the European Economic Area (“E.E.A.”) we are subject to Regulation (EU) 2016/679 (GeneralUnion General Data Protection Regulation or “GDPR”(“GDPR”) in relation to our collection, control, processing, sharing, disclosure and other use of personal data (i.e. data relating to an identifiable living individual). The GDPR is directly applicable in each E.U. and E.E.A. Member State, however, it provides that E.U. and E.E.A. Member States may introduce further conditions, including limitations, which could limit our ability to collect, control, process, share, disclose and otherwise use personal data (including health and medical information), and/or could cause our compliance costs to increase, ultimately having an adverse impact on our business. The GDPR imposes a strict data protection compliance regime including: providing detailed disclosures about how personal data is collected and processed (in a concise, intelligible and easily accessible form); demonstrating that valid consent or another an appropriate legal basis is in place or otherwise exists to justify data processing activities; appointing data protection officers in certain circumstances; granting new rights for data subjects in regard to their personal data (including the right to be “forgotten” and the right to data portability), as well as enhancing current rights (e.g., data subject access requests); introducing the obligation to notify data protection regulators or supervisory authorities (and in certain cases, affected individuals) of significant data breaches; imposing limitations on retention of personal data; maintaining a record of data processing; defining for the first time pseudonymized (i.e.,key-coded) data; and complying with principal of accountability and complying with the obligation to demonstrate compliance through policies, procedures, training and audit.

We are also subject to E.U. rules with respect to cross-border transfers of personal data out of the E.U. and E.E.A. These rules are under scrutiny from time to time. For example, there is ongoing litigation challenging the E.U. Commission approved model clauses (also called standard contractual clauses), which is a commonly used transfer mechanism under the GDPR. It is uncertain whether the model clauses will be invalidated by the European courts. In addition, Brexit will mean that at some point that the United Kingdom GDPR (“U.K.”UK GDPR”) will become a “third party” for, govern the purposesprivacy and security of data transfers under the GDPR.

We depend on a number of third partiespersonal information, including health-related information in relation to the operation of our business (including clinical research organizations), a numbercertain circumstances, some of which process personal data on our behalf. There is no assurance that our own privacyare more stringent than HIPAA and security-related safeguards and/or any contractual measures that we enter intomany of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Failure to comply with these providers will protect us from the risks associated with the third-party processing, storage and transmission of such information. Any violation of data or security laws, by our third-party processors could have a material adverse effect on our business andwhere applicable, can result in the finesimposition of significant civil and/or criminal penalties and penalties outlined below.

Weprivate litigation. Privacy and security laws, regulations, and other obligations are subjectconstantly evolving, may conflict with each other to the supervision of local data protection authorities in those E.U.complicate compliance efforts, and E.E.A. jurisdictions where we are established or otherwise subject to the GDPR. Fines for certain breaches of the GDPR are significant: up to the greater of EUR 20 million or 4% of total global annual turnover. In addition to the foregoing, a breach of the GDPR couldcan result in regulatory investigations, reputational damage, ordersproceedings, or actions that lead to cease/ change our processing of oursignificant civil and/or criminal penalties and restrictions on data enforcement notices, assessment notices (for a compulsory audit), as well potential civil claims including class action type litigation where individuals suffer harm.

We are also subject to evolving E.U. privacy laws on cookies, ande-marketing. The E.U. is in the process of replacing thee-Privacy Directive with a new set of rules taking the form of a regulation. The drafte-Privacy Regulation imposes strictopt-in marketing rules with limited exceptions forbusiness-to-business communications, alters rules on third-party cookies, web beacons and similar technology and significantly increases fining powers to the same levels as the GDPR (i.e. the greater of 20 million Euros or 4% of total global annual revenue). While thee-Privacy Regulation was originally intended to be adopted on May 25 2018 (alongside the GDPR), it is still going through the European legislative process and commentators now expect it to be adopted during the second half of 2020 or during 2021 following a transition period. We are likely to be required to expend further capital and other resources to ensure compliance with these changing laws and regulations.processing.

Pharmaceutical Coverage, Pricing and Reimbursement

Our ability to commercialize our product candidates successfully will depend in part on the extent to which the United States and foreign governmental authorities, private health insurers and other third-party payors

33


establish appropriate coverage and reimbursement levels for our product candidates and related treatments. In many of the markets where we would commercialize a product following regulatory approval, the prices of pharmaceutical products are subject to direct price controls (by law) and to drug reimbursement programs with varying price control mechanisms. Public and private health care payors control costs and influence drug pricing through a variety of mechanisms, including through negotiating discounts with the manufacturers and through the use of tiered formularies and other mechanisms that provide preferential access to certain drugs over others within a therapeutic class. Payors also set other criteria to govern the uses of a drug that will be deemed medically appropriate and therefore reimbursed or otherwise covered. In particular, many public and private health care payors limit reimbursement and coverage to the uses of a drug that are either approved by the FDA or that are supported by other appropriate evidence (for example, published medical literature) and appear in a recognized drug compendium. Drug compendia are publications that summarize the available medical evidence for particular drug products and identify which uses of a drug are supported or not supported by the available evidence, whether or not such uses have been approved by the FDA.

Healthcare Reform

In the United States, there have been a number of legislative and regulatory changes to the healthcare system in ways that could affect our future revenues and profitability and the future revenues and profitability of our potential customers. For example, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “MMA”) revised the payment methodologies for many drugs, which resulted in reduced reimbursement to providers. Additionally, the MMA created an outpatient prescription drug benefit which became effective on January 1, 2006. This benefit is administered by private pharmacy benefit managers and other managed care organizations and is putting increased pressure on the pharmaceutical industry to reduce prices.

In March 2010, the Affordable Care Act (“ACA”), was passed, which substantially changeschanged the way health care is financed by both governmental and private insurers, and significantly impactsimpacted the U.S. pharmaceutical industry. The Affordable Care Act,ACA, among other things, subjectssubjected biologic products to potential competition by lower-cost biosimilars, addressesaddressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increasesincreased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extendsextended the rebate program to individuals enrolled in Medicaid managed care organizations, establishesestablished annual fees and taxes on manufacturers of certain branded prescription drugs, and a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50%70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.

The current presidential administration and U.S. Congress have attempted to repeal or “repeal and replace” the Affordable Care Act. Although those efforts did not succeed, the presidential administration may continue to seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the Affordable Care Act. There is still uncertainty with respect to the impact the President’s administration and the U.S. Congress may have, if any, on the Affordable Care Act, and any changes will likely take time to unfold. Additionally, sinceSince its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the Affordable Care Act. For example, on December 14, 2018, aACA. On June 17, 2021, the U.S. DistrictSupreme Court Judge indismissed the Northern District of Texas, or Texas District Court Judge, ruled thatmost recent judicial challenge to the entire Affordable Care Act is invalid based primarilyACA brought by several states without specifically ruling on the fact that the Tax Cuts and Jobs Act of 2017 repealed thetax-based shared responsibility payment imposed by the Affordable Care Act, on certain individuals who fail to maintain qualifying health coverage for all or part of a year, which is commonly referred to as the “individual mandate”. On December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court’s decision that the individual mandate was unconstitutional but remanded the case back to the District Court to determine whether the remaining provisionsconstitutionality of the Affordable Care Act are invalid as well. ItACA. Thus, the ACA is unclear how these decisions, subsequent appeals, if any, or other effortsexpected to challenge, repeal or replace the Affordable Care Act will impact the law, or our business or financial condition.remain in force in its current form.

In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. For example, the Budget Control Act of 2011 among other things, resulted in aggregate reductions of Medicare payments to providers, of 2% per fiscal year, which went into effect in April 2013 and due to subsequent legislative amendments to the statute, will remain in effect through 20292032, unless additional Congressional action is taken. Further, on January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. In addition, in March 2021, Congress enacted the American Rescue Plan Act of 2021, which, among other things, eliminated the statutory cap on drug manufacturers’ Medicaid Drug Rebate Program rebate liability, effective January 1, 2024.

Recently there has also been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted legislation designed to, among other things, reform government program reimbursement methodologies. For example, the Cures Act changes the reimbursement methodology for infusion drugs and biologics furnished through durable medical equipment in an attempt to remedy over- and underpayment of certain drugs. More recently, on August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law. Among other

34


things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023), and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the Department of Health and Human Services to implement many of these provisions through guidance, as opposed to regulation, for the initial years. For that and other reasons, it is currently unclear how the IRA will be effectuated.

If additional state, federal and federalforeign healthcare reform measures are adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, we could expect such measures to result in reduced demand for our product candidates or additional pricing pressures.

Segment Reporting

We are engaged solely in the discovery and development of therapeutic protein and antibody productsdirect lytic agents for life-threatening, drug-resistant infectious diseases. Accordingly, we have determined that we operate in one operating segment.

EmployeesHuman Capital

As of March 9, 2020,24, 2023, we had 2423 full-time employees. We consider our staff relations to be good. Our company operates within an industry with a complex regulatory environment. The unique demands of our industry, together with the challenges of running a company focused on the discovery, development and manufacture of innovative therapeutics, require talent that is highly educated and/or has significant industry experience. Additionally, for certain key functions, we require specific scientific expertise to oversee and conduct these activities. To attract and retain a high-quality, experienced workforce, we offer a competitive mix of compensation and insurance benefits for our employees, as well as participation in our equity programs. Employees working 40 hours or more a week are eligible to participate in our medical, prescription, dental, vision, Flexible Spending Account and life insurance and disability plans. To assist employees with rising healthcare costs, we pay up to 100% of an employee’s costs to obtain the coverage and benefits of these plans. We also offer employees an annual bonus plan and a 401(k) retirement plan with a company match. All employees are awarded new hire equity option grants and are eligible to receive additional annual equity option grants. Accordingly, of our full-time employees, including 13 employees with advanced degrees. Of these full-time employees, 1314 employees are engaged in research and development activities.activities, and 13 employees have advanced degrees. None of our employees is represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.

Our Corporate Information

We were incorporated under the laws of the State of Delaware in March 2008. Our executive offices are located at 28 Wells Avenue, 3rd Floor, Yonkers, NY 10701, and our telephone number is(914) 207-2300.

Our website address is www.contrafect.com. References to our website are inactive textual references only and the content of our website should not be deemed incorporated by reference into this Form10-K.

Available Information

Our Annual Reports on Form10-K, Quarterly Reports on Form10-Q, Current Reports on Form8-K and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website located at www.contrafect.com as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission (the “SEC”). These reports are also available at the SEC’s Internet website at www.sec.gov.

A copy of our Corporate Governance Guidelines, Code of Ethics and Business Conduct, Whistleblower Policy and Procedures and the charters of the Audit & Finance Committee, Compensation Committee and Nominating and Corporate Governance Committee are posted on our website, www.contrafect.com, under “Corporate Governance” and are available in print to any person who requests copies by contacting us by calling(914) 207-2300 or by writing to ContraFect Corporation, Attn: General Counsel, 28 Wells Avenue, 3rd Floor, Yonkers, NY 10701.

35


Item 1A.

Risk Factors

You should carefully consider the following risk factors, as well as the other information in this report, and in our other public filings. Our business, financial condition and operating results can be affected by a number of important factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause the Company’s actual results of operations and financial condition to vary materially from past, or from anticipated future, results of operations and financial condition. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, results of operations and common stock price. Other factors may exist that we do not consider significant based on information that is currently available. In addition, new risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect us. Past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred significant losses since our inception. We expect to incur losses for at least the next several years and may never achieve or maintain profitability.

We are a clinical-stage biopharmaceutical company with no approved products, and we have not generated any revenue from product sales to date. To date, we have focused exclusively on developing our product candidates and have funded our operations primarily through the sale of common stock and warrants, convertible preferred stock and issuances of convertible debt to our investors.investors, and to a lesser extent, grant funding. We have not yet demonstrated an ability to overcome many of the risks and uncertainties frequently encountered by companies in the pharmaceutical industry, and you should analyze our company in light of such risks and uncertainties.

Since inception, we have incurred significant operating losses. Our net losses were $12.8 million, $37.7 million and $15.5 millionfrom operations for the years ended December 31, 2019, 20182022, 2021 and 2017,2020 were $64.6 million, $47.3 million, and $34.2 million, respectively. We have devoted substantially all of our efforts to research and development. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. The net losses we incur may fluctuate significantly from quarter to quarter and year to year.

We anticipate that our expenses will increase substantially as clinical trials for any of our product candidates commence or progress. Our expenses will increase if and as we:

 

seek to discover or develop additional product candidates;

 

seek marketing approvals for any of our product candidates that successfully complete clinical trials;

 

in-license or acquire other products and technologies;

in-license or acquire other products and technologies;

 

maintain, expand and protect our intellectual property portfolio;

 

hire additional clinical, quality control and scientific personnel; and

 

add operational, financial and management information systems and personnel, including personnel to support our product development and plannedany future commercialization efforts.

Our recurring losses from operations raise substantial doubt regarding our ability to continue as a going concern.

We currently operate with limited resources. We have incurred significant losses since our inception and have never generated revenue or profit, and it is possible we will never generate revenue or profit. Based on our current operating plans, and without additional funding, we believe we will not have sufficient funds to meet our

36


obligations within the next twelve months from the issuance of our audited consolidated financial statements that are included elsewhere in this Annual Report on Form10-K. These factors raise substantial doubt about our

ability to continue as a going concern.concern, and our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements for the year ended December 31, 2022, with respect to this uncertainty. We have relied on our ability to fund our operations primarily through public and private debt and equity financings, and, to a lesser extent, funding received from government contracts and granting organizations, but there can be no assurances that such financing or funding will continue to be available to us on satisfactory terms, or at all.

Securing additional financing may divert our management from ourday-to-day activities, which may adversely affect our ability to develop and commercialize exebacase or any of our other product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all.all, particularly in light of our stopping patient enrollment in our Phase 3 trial of exebacase. If we are unable to obtain funding, we would be forced to further reduce our workforce or delay, reduce or eliminate our research and development programs, which wouldcould adversely affect our business prospects. In addition, ifprospects, or we aremay be unable to raise capital, wecontinue operations or continue as a going concern and may be forced to sell or liquidate our business.

The recent substantial decline in the price per share of our common stock will also needlikely make it more difficult for us to implement cost reductions, andobtain financing. Substantial doubt about our ability to continue as a going concern may further adversely affect the price per share of our common stock. If potential collaborators decline to do business with us or potential investors decline to participate in any failurefuture financings due to effectively do so will harmsuch concerns, our business, results of operations and future prospects.

ability to increase our cash position may be limited. The perception that we may not be able to continue as a going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations.

We have prepared our consolidated financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Our consolidated financial statements included in this Annual Report on Form 10-K do not include any adjustments to reflect the possible inability of the Company to continue as a going concern within one year after the issuance of such financial statements. If we are unable to continue as a going concern, you could lose all or part of your investment in our Company.

We currently have no source of product revenue and have not yet generated any revenues from product sales.

To date, we have not completed the development of any products and have not generated any revenues from product sales. Our ability to generate revenue from product sales and achieve profitability will depend upon our ability to successfully commercialize products, including any of our current product candidates, or other product candidates that we mayin-license or acquire in the future. Even if we are able to successfully achieve regulatory approval for these product candidates, we may never generate revenues that are significant enough to achieve profitability. Our ability to generate revenue from product sales from our current or future product candidates also depends on a number of additional factors, including our ability to:

 

successfully complete development activities, including the necessary clinical trials;

 

complete and submit BLAs to the FDA, and obtain regulatory approval for indications for which there is a commercial market;

 

complete and submit applications to, and obtain approval from, foreign regulatory authorities;

 

set a commercially viable price for our products;

 

develop a commercial organization capable of sales, marketing and distribution for any products we intend to sell ourselves in the markets which we choose to commercialize on our own;

 

find suitable distribution partners to help us market, sell and distribute our products in other markets; and

 

37


obtain coverage and adequate reimbursement from third parties, including government and private payors.

In addition, because of the numerous risks and uncertainties associated with product development, including that any of our product candidates may not advance through development or achieve the desired endpoints of applicable clinical trials, we are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. Even if we are able to complete the development and regulatory process for any product candidates, we anticipate incurring significant costs associated with commercializing these products.

Even if we are able to generate revenues from the sale of our products, we may not become profitable. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital to expand our business or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

We have a need for substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.efforts, or sell or liquidate the Company.

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the clinical development of exebacase and possibly acquire and develop new product candidates or technologies. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations.operations, particularly if we continue the clinical development of exebacase or CF-370 or develop new product candidates or acquire new product candidates or technologies. We recently implemented a restructuring plan resulting in a reduction to our workforce of 16 employees, or approximately 37% of the Company’s headcount prior to the reduction. If we are unable to raise capital when needed or on attractive terms, we could be forced to further reduce our workforce or delay, reduce or eliminate our research and development programs or any future commercialization efforts.efforts, or sell or liquidate the Company. For example, the trading prices for our and other biopharmaceutical companies’ stock have been highly volatile as a result of the recent failure of certain financial institutions, the COVID-19 pandemic, the current conflict between Russia and Ukraine and interest rate increases. As a result, we may face difficulties raising capital through sales of our common stock and any such sales may be on unfavorable terms.

The Company maintains a significant portion of its cash and cash equivalents in accounts with major U.S. and multi-national financial institutions, and our deposits at these institutions can exceed insured limits. Market conditions can impact the viability of these institutions. In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business and financial position.

In addition, we are actively seeking a strategic partnership or collaboration with one or more parties, which may include the licensing, sale or divestiture of some of our proprietary technologies. We also actively consider other financial and strategic alternatives, which may include raising additional capital or potential fundamental transactions. Pending a decision to undertake any financial or strategic alternatives, we are continuing development and collaboration activities in accordance with our current innovative medicines strategy while managing our cash position. There is no finite timetable for completion of any of these strategic alternatives and we can provide no assurance that any alternative we pursue will have a positive impact on our results of operations or financial condition.

Our future capital requirements will depend on many factors, including:

 

the complexity, timing and results of our clinical trials of our product candidates;

 

the costs, timing and outcome of regulatory review of our product candidates;

 

38


the costs of developing our product candidates for additional indications;

the timing and amount of actual reimbursements under the BARDA Contract;

the continuation of funding under the BARDA Contract and our grant agreements;

 

our ability to establish scientific or business collaborations on favorable terms, if at all;

 

the costs of preparing, filing and prosecuting patent or other intellectual property applications, maintaining and protecting our intellectual property rights and defending against intellectual property-related claims;

 

the extent to which wein-license or acquire other product candidates or technologies; and

the extent to which we in-license or acquire other product candidates or technologies;

 

the scope, progress, results and costs of product development for our product candidates.candidates; and

the effects of the COVID-19 pandemic, global supply chain disruptions, international political instability, and rising inflation and interest rates on, among other things, our financial performance, business and operations.

Conducting clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results to obtain marketing approval and achieve product sales. For example, in 2022, we stopped patient enrollment in our Phase 3 trial of exebacase based on the recommendation of the DSMB.

In addition, if approved, exebacase or any other product candidatecandidates that we develop may not achieve commercial success. Accordingly, we may need to continue to rely on additional financing to achieve our business objectives.objectives and to continue as a going concern. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. Adequate additional financing may not be available to us on acceptable terms, or at all.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate substantial product revenues, we may finance our cash needs through a combination of equity offerings, debt financings, grants, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

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 product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Our short operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

We were incorporated in 2008 and commenced active research operations in 2010. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital and acquiring and developing exebacase and other potential product candidates. We have not yet demonstrated our ability to successfully complete Phase 3 clinical trials, obtain marketing approval, manufacture a commercial scale product, or arrange for a third-party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.

In addition, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition from a company with a product development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

The timing of the milestone and royalty payments we are required to make under certain agreements to Rockefeller is uncertain and could adversely affect our cash flows and results of operations.

We are party to certain agreements with Rockefeller pursuant to which we have acquired licenses to certain patents and patent applications and other intellectual property related to a series of compounds, including exebacase to develop and commercialize therapeutics. Under our agreements with Rockefeller, we have

39


obligations to achieve diligence minimums and to make payments upon achievement of specified development and regulatory milestones. We will also make additional payments upon the achievement of future sales milestones and for royalties on future net sales.

The timing of milestone payments under our licenses and sponsored research agreements is subject to factors relating to the clinical and regulatory development and commercialization of products, many of which are beyond our control. We may become obligated to make a milestone payment when we do not have the cash on hand to make such payment, which could require us to delay our clinical trials, curtail our operations, scale back our commercialization and marketing efforts or seek funds to meet these obligations on terms unfavorable to us.

If BARDA were to eliminate, reduce, or delay funding for our BARDA Contract, we would experience a negative impact on our programs associated with such funding.

On March 10, 2021, we executed a cost-share contract from BARDA, part of the Office of the Assistant Secretary for Preparedness and Response at the U.S. Department of Health and Human Services. Under the terms of the BARDA Contract, the Company will receive $9.8 million in initial funding during the base period. In connection with the stopping of patient enrollment in the Phase 3 DISRUPT study, on August 24, 2022, the BARDA Contract was modified to provide for up to $6.6 million in funding to support a futility outcome root-cause analysis and the close-out of the Phase 3 DISRUPT study of exebacase. The BARDA Contract contains terms and conditions that are customary for contracts with BARDA of this nature, including provisions giving the government the right to terminate the contract at any time for its convenience. If BARDA were to eliminate, reduce, or delay funding under the BARDA Contract or prohibit reimbursement of some of our incurred costs, we would have to seek additional funding to close-out our Phase 3 DISRUPT trial.

The BARDA Contract includes special requirements, which subject us to the risk of a reduction or loss of funding.

Our BARDA Contract subjects us to various U.S. government contract requirements, including general clauses for a cost-reimbursement research and development contract, which may limit our reimbursement. In addition, if we are found to be in violation of the BARDA Contract, it could result in termination. If BARDA terminates the BARDA Contract with us for its convenience, or if we default by failing to perform in accordance with the contract schedule and terms, a significant negative impact on our cash flows and operations could result.

U.S. government contracts, such as our BARDA Contract, generally contain unfavorable termination provisions, which may subject us to additional risks as compared to our competitors that have not entered into such contracts. These risks include the ability of the U.S. government to unilaterally:

terminate or reduce the scope of our contract with or without cause;

interpret relevant regulations (federal acquisition regulation clauses);

require performance under circumstances that may not be favorable to us;

require an in-process review where the U.S. government will review the project and its options under the contract;

control the timing and amount of funding; and

audit and object to our contract-related costs and fees, including allocated indirect costs.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

Under Section 382 and related provisions of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three year period), the corporation’s ability to use itspre-change net operating loss

40


carryforwards and otherpre-change tax attributes to offset its post-change income may be limited. As a result of our past transactions, we may have experienced an “ownership change.” At this time, we have not completed a study to assess whether an ownership change under Section 382 of the Code has occurred, or whether there have been multiple ownership changes since our formation, due to the costs and complexities associated with such a study. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. Thus, our ability to utilize carryforwards of our net operating losses and other tax attributes to reduce future tax liabilities may be substantially restricted. Further, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes. Therefore, we may not be able to take full advantage of these carryforwards for federal or state tax purposes. As of December 31, 2019,2022, we had federal and state net operating loss carryforwards of approximately $201.3$283.7 million and $217.8$302.0 million, respectively, and federal research and development credits of approximately $3.1$8.2 million, the use of which could be limited or eliminated by virtue of one or more “ownership changes.”

Risks Related to the Discovery, Development and Commercialization of Our Product Candidates

The COVID-19 pandemic or other pandemics, epidemics or outbreaks of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials.

The measures taken in response to the evolving COVID-19 pandemic have had a significant impact on the economy and, to a lesser extent, both directly and indirectly, on our business. We adjusted our business operations, with a majority of our employees working remotely. Our Phase 3 DISRUPT clinical trial was also affected, as clinical sites experienced periodic delays in new patient enrollment.

As a result of the COVID-19 pandemic, the spread of variants of the virus or another pandemic, epidemic or outbreak of an infectious disease, we may experience disruptions that could severely impact our business, preclinical studies and clinical trials, including:

delays or difficulties in enrolling patients in our clinical trials;

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

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

interruption of key clinical trial activities, such as clinical trial site data monitoring and efficacy and safety data collection, processing and analyses, due to limitations on travel imposed or recommended by federal, state or local governments, employers and others or interruption of clinical trial subject visits, which may impact the collection and integrity of subject data and clinical study endpoints;

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

delays in receiving authorization from local regulatory authorities to initiate our planned clinical trials;

changes in regulations as part of a response to the COVID-19 pandemic which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;

delays in necessary interactions with regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government or contractor personnel;

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

41


delays in preclinical studies due to restricted or limited operations resulting from restrictions on our on-site activities;

interruption or delays of our sourced discovery and clinical activities; and

the ability of our contract research organizations (“CROs”), contract manufacturing organizations and suppliers to meet their contractual obligations in connection with the conduct of our clinical trial for our current product candidate and for any future product candidate.

The extent to which the pandemic further impacts our business, results of operations and financial condition, including expenses, research and development costs, procurement of raw materials for our supply chain, and clinical trial progress, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic and future waves of infection, including the spread of variants of the virus, the availability, adoption and effectiveness of vaccines and treatments, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. If we or any of the third parties with whom we engage were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted. Additionally, concerns over the economic impact of COVID-19 pandemic have caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price and our ability to access capital markets.

We are heavily dependent on the success of our leading product candidate, exebacase.candidates. The approval process of the FDA and comparable foreign regulatory authorities is lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for exebacase or any otherof our product candidatecandidates, our business will be substantially harmed.

Our near-term business prospects are substantially dependent on our ability to develop and commercialize exebacase.our product candidates. In 2022, we stopped patient enrollment in our Phase 3 trial of exebacase based on the recommendation of the DSMB. We expect that conclusions drawn from the ongoing data review will inform next steps for any potential further development of exebacase for the treatment of Staph bacteremia. We cannot market or sell exebacase or any otherof our product candidatecandidates in the United States without FDA approval, but this approval, if ever issued, is at least several years away.approval. To commercialize exebacase or any other product candidate outside of the United States, we will need applicable foreign regulatory approvals. The clinical development of exebacase or any other product candidate is susceptible to the inherent risks of any drug development program, including a failure to achieve efficacy across a broad population of patients, the potential occurrence of severe adverse events and the risks that the FDA or any applicable foreign regulatory authority will determine that a drug product is not approvable.

The process required to obtain approval for commercialization from the FDA and similar foreign authorities is unpredictable, and typically takes many years even after the commencement of clinical trials, depending on numerous factors. In addition, approval policies, regulations, or the type and amount of clinical data necessary to obtain regulatory approval may change during the course of a product’s clinical development. development may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that any product candidates we may seek to develop in the future will never obtain regulatory approval. Neither we nor any future collaborator is permitted to market any of our product candidates in the United States until we receive regulatory approval of a BLA from the FDA or outside the United States, until we receive similar approval from foreign regulatory authorities.

Prior to obtaining approval to commercialize a product candidate in the United States or abroad, we or our collaborators must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA or foreign regulatory agencies, that such product candidates are safe and effective, or in the case of biologics, safe, pure, and potent, for their intended uses. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe the nonclinical or clinical data for our product

42


candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. The FDA or other regulatory authorities also require us to conduct additional preclinical studies or clinical trials for our product candidates either prior to or post-approval, or it may object to elements of our clinical development program.

We may fail to obtain regulatory approval for exebacase or any other product candidate for many reasons, including the following:

 

we may not be able to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that exebacase or any otherof our product candidatecandidates is safe and effective for any indication;

 

the results of clinical trials may not meet the level of clinical or statistical significance required for approval by the FDA or comparable foreign regulatory authorities;

 

the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;

 

we may not be able to demonstrate that exebacase or any otherof our product candidate’s clinical and other benefits outweigh its safety risks;

 

the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval;

 

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

 

the FDA or comparable foreign regulatory authorities may identify deficiencies in data generated at our clinical trial sites;

 

the FDA or comparable foreign regulatory authorities may identify deficiencies in the clinical practices of the third-party contract research organizations (“CROs”)CROs we use for clinical trials; and

 

the FDA or comparable foreign regulatory authorities may identify deficiencies in the manufacturing processes or facilities of third-party manufacturers with which we or our collaborators enter into agreements for clinical and commercial supplies.

This lengthy approval process as well as the unpredictability of future clinical trial results may prevent us from obtaining regulatory approval to market exebacase or any otherof our product candidate,candidates, which would significantly harm our business.

In addition, disruptions caused by the COVID-19 pandemic may increase the likelihood that we encounter such difficulties or delays in obtaining regulatory review and approval. Of the large number of drugs in development, only a small percentage successfully complete the FDA or foreign regulatory approval processes and are commercialized. The lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product candidates, which would significantly harm our business, results of operations and prospects.

If clinical trials of exebacase or any otherof our product candidatecandidates that we develop fail to demonstrate safety and efficacy, or the manufacturing for the commercial supply of drug substance or drug product fails to demonstrate robustness, stability, purity and potency to the satisfaction of the FDA or similar regulatory authorities outside the United States 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 exebacase or any otherof our product candidate.candidates.

Before obtaining marketing approval from regulatory authorities for the sale of exebacase or any otherof our product candidate, we must complete preclinical development, perform extensive process validation and complete the manufacturing of our initial commercial supply of product to demonstrate robustness, stability, purity and potency of our drug product, and conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many

43


years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. For example, on July 7, 2022, the DSMB for the Phase 3 DISRUPT study recommended that the trial be stopped because the conditional power of the study was below the pre-specified threshold for futility and we subsequently terminated patient enrollment in the Phase 3 DISRUPT study.

We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including:

 

clinical trials of our product candidates may produce negative or inconclusive results, or significant adverse side effects, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

 

the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate;

 

our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

 

regulators or IRBs (or independent Ethics Committees (“IECs”)) may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

 

we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;

 

we may voluntarily suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks;

 

regulators or IRBs may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;

 

the cost of clinical trials of our product candidates may be greater than we anticipate;

 

the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and

 

our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or IRBs (or IECs) to suspend or terminate the trials.trials; or

the effects of the COVID-19 pandemic.

If we are required to conduct additional clinical trials or other testing of exebacase or any otherof our product candidate that we develop beyond those that we contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

 

be delayed in obtaining marketing approval or sales revenues for our product candidates;

 

not obtain marketing approval at all;

obtain approval for indications or patient populations that are not as broad as intended or desired;

 

obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;

 

44


be subject to additional post-marketing testing requirements; or

 

have the product removed from the market after obtaining marketing approval.

Our product development costs will also increase if we experience delays in testing or marketing approvals. We do not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or may allow our competitors to bring products to market before we do and may impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.

WeIn addition, the FDA’s and other regulatory authorities’ policies with respect to clinical trials may change and additional government regulations may be requiredenacted. For instance, the regulatory landscape related to suspend or discontinue clinical trials duein the European Union, or EU, recently evolved. The EU Clinical Trials Regulation, or CTR, which was adopted in April 2014 and repeals the EU Clinical Trials Directive, became applicable on January 31, 2022. While the Clinical Trials Directive required a separate clinical trial application, or CTA to be submitted in each member state in which the clinical trial takes place, to both the competent national health authority and an independent ethics committee, the CTR introduces a centralized process and only requires the submission of a single application to all member states concerned. The CTR allows sponsors to make a single submission to both the competent authority and an ethics committee in each member state, leading to a single decision per member state. The assessment procedure of the CTA has been harmonized as well, including a joint assessment by all member states concerned, and a separate assessment by each member state with respect to specific requirements related to its own territory, including ethics rules. Each member state’s decision is communicated to the sponsor via the centralized EU portal. Once the CTA is approved, clinical study development may proceed. The CTR foresees a three-year transition period. The extent to which ongoing and new clinical trials will be governed by the CTR varies. Clinical trials for which an application was submitted (i) prior to January 31, 2022 under the Clinical Trials Directive, or (ii) between January 31, 2022 and January 31, 2023 and for which the sponsor has opted for the application of the EU Clinical Trials Directive remain governed by said Directive until January 31, 2025. After this date, all clinical trials (including those which are ongoing) will become subject to the provisions of the CTR. Compliance with the CTR requirements by us and our third-party service providers, such as CROs, may impact our developments plans.

It is currently unclear to what extent the United Kingdom, or UK, will seek to align its regulations with the EU. The UK regulatory framework in relation to clinical trials is derived from existing EU legislation (as implemented into UK law, through secondary legislation). On January 17, 2022, the UK Medicines and Healthcare Regulatory Agency, or MHRA, launched an eight-week consultation on reframing the UK legislation for clinical trials. The consultation closed on March 14, 2022 and aims to streamline clinical trials approvals, enable innovation, enhance clinical trials transparency, enable greater risk proportionality, and promote patient and public involvement in clinical trials. The outcome of the consultation will be closely watched and will determine whether the UK chooses to align with the (EU) CTR or diverge from it to maintain regulatory flexibility. A decision by the UK not to closely align its regulations with the new approach adopted in the EU may have an effect on the cost of conducting clinical trials in the UK as opposed to other countries.]

If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies governing clinical trials, our development plans may also be impacted.

Our product candidates may be associated with serious adverse events, undesirable side effects or have other safety risksproperties that could precludehalt their clinical development, prevent their regulatory approval, of exebacaselimit their commercial potential or anyresult in significant negative consequences.

Adverse events or other undesirable side effects caused by our product candidates.

Ourcandidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials mayand could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authorities. During the

45


conduct of clinical trials, patients report changes in their health, including illnesses, injuries, and discomforts, to their study doctor. Often, it is not possible to determine whether or not the product candidate being studied caused these conditions. It is possible that as we test our product candidates in larger, longer and more extensive clinical trials, or as use of these product candidates becomes more widespread if they receive regulatory approval, illnesses, injuries, discomforts and other adverse events that were observed in previous trials, as well as conditions that did not occur or went undetected in previous trials, will be suspended at any time forreported by patients. Many times, side effects are only detectable after investigational products are tested in large-scale clinical trials or, in some cases, after they are made available to patients on a number of reasons.commercial scale following approval. For example, it is possible that exposure to exebacase could result in adverse clinical events such as localized inflammation in the region surrounding blood vessels, or having a hypersensitivity reaction, such as serum sickness or anaphylaxis. A

If any serious adverse events occur, clinical trial may be prevented from commencingtrials or maycommercial distribution of any product candidates or products we develop could be suspended or terminated, byand our business could be seriously harmed. Treatment-related side effects could also affect patient recruitment and the ability of enrolled patients to complete the trial or result in potential liability claims. Regulatory authorities could order us our collaborators, IRBs, the FDA or other regulatory authorities due to the riskscease further development of, deny approval of, or occurrence of such adverse events, an unacceptable safety riskrequire us to participants, a failure to conduct the clinical trial in accordance with regulatory requirementscease selling any product candidates or our clinical protocols, presentation of unforeseen safety issuesproducts for any or adverse side effects, failure to demonstrate a benefit from using the investigational drug, changes in governmental regulations or administrative actions, lack of adequate funding to continue the clinical trial, or negative or equivocal findings of the data safety monitoring board or IRBs for a clinical trial. We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to participants.all targeted indications. If we elect or are forcedrequired to delay, suspend or terminate any clinical trial of any product candidates that we develop,or commercialization efforts, the commercial prospects of such product candidates willor products may be harmed, and our ability to generate product revenues if at all, from any of thesethem or other product candidates willthat we develop may be delayed or eliminated. Additionally, if one or more of our product candidates receives marketing approval and we or others later identify undesirable side effects or adverse events caused by such products, a number of potentially significant negative consequences could result, including but not limited to:

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

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

we may be required to change the way the product is administered or conduct additional clinical trials or post-approval studies;

we may be required to create a REMS or similar risk management system, which could include a medication guide outlining the risks of such side effects for distribution to patients;

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

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

our reputation may suffer.

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

DelaysWe depend on enrollment of patients in our clinical trials are common and have many causes, and any such delays could result in increased costs to us and jeopardize, delay or prevent our ability to obtain regulatory approval and commence product sales as currently contemplated.

We may experience delays in clinical trials offor our product candidates. Our plannedIf we experience delays or difficulties enrolling in our clinical trials, might not begin on time, might need toour research and development efforts and business, financial condition, and results of operations could be redesigned, might notmaterially adversely affected.

Successful and timely completion of clinical trials will require that we enroll a sufficient number of patients or might notpatient candidates. These trials and other trials we conduct may be completed on schedule, if at all. Clinical trials can be delayedsubject to delays for a variety of reasons, including the following:

imposition of a clinical hold by the FDA or other regulatory authorities;

delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites;

delays in recruiting suitable patients to participate in a trial;

delays in having patients complete participation in a trial or return for post-treatmentfollow-up;

clinical sites dropping out of a trial to the detriment of enrollment;

adverse side effects in patient populations;

time required to add new sites;

delays resulting from negative or equivocal findings of the data safety monitoring board for a trial;

delays in completing, or as a result of findingspatient enrollment taking longer than anticipated, patient withdrawal or adverse events. These types of developments could cause us to delay the trial or halt further development.

Our clinical trials will compete with other clinical trials that are in the same therapeutic areas as our product candidates, and this competition reduces the number and types of patients available to us, as some patients who

46


might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Because the number of qualified clinical investigators and clinical trial sites is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such clinical trial sites. In addition, there may be limited patient pools from preclinical studies;which to draw for clinical studies. In addition to the rarity of some diseases, the eligibility criteria of our clinical studies will further limit the pool of available study participants as we will require that patients have specific characteristics that we can measure or to assure their disease is either severe enough or not too advanced to include them in a study. Patient enrollment depends on many factors, including:

 

delays in developing adequate processes for manufacture of, or formulations for, sufficient supplies of clinical trial materials.

Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors, including the size and nature of the patient population, population;

the severity of the disease under investigation;

eligibility criteria for the trial;

the proximity of patients to clinical sites, the eligibility criteria for the trial, sites;

the design of the clinical protocol;

the ability to obtain and maintain patient consent;

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

the risk that patients enrolled in clinical trials will drop out of the trials before the administration of our product candidates or trial completion;

the availability of competing clinical trialstrials;

the availability of new drugs approved for the indication the clinical trial is investigating; and

clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs thattherapies.

These factors may be approvedmake it difficult for the indications we are investigating. Any of these delays in completingus to enroll enough patients to complete our clinical trials in a timely and cost-effective manner. For example, our Phase 3 DISRUPT clinical trial experienced some delays in patient enrollment as a result of the COVID-19 pandemic, as some clinical sites in high impact areas delayed new patient enrollment as dictated by local conditions. Such delays impacted and could further adversely affect the expected timelines for our product development and approval process and may adversely affect our business, financial condition and results of operations. Delays in the completion of any clinical trial of our product candidates increase our costs, slow down our product candidate development and approval process and delay or potentially jeopardize our ability to commence product sales and generate revenues.revenue. In addition, some of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

We are significantly dependent on our license agreements with Rockefeller that relate to exebacase.

Under our various license agreements with Rockefeller, we are obligated to use our diligent efforts to develop and commercialize licensed products, including exebacase. Rockefeller may terminate the agreement in the event of our breach of the terms of the license agreements. In the event of such termination, Rockefeller has the right to retain its license and other rights under the agreement, subject to continuing royalties and other obligations. Our breach of the agreement, includingnon-payment of any milestone payment, and Rockefeller’s subsequent termination of the agreement, could result in the loss of our rights to develop and commercialize exebacase, which would seriously harm our ability to generate revenues or achieve profitability.

47


We rely on CROs to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be delayed in obtaining, or may ultimately not be able to obtain, regulatory approval for commercialization of exebacase or any otherof our product candidates.

We have relied and will continue to rely on CROs for the execution of our preclinical and clinical studies and to recruit patients and monitor and manage data for our clinical programs for exebacase or any otherour product candidate.candidates. We control only certain aspects of our CROs’ activities, but we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards. Our reliance on the CROs does not relieve us of these regulatory responsibilities. We and our CROs are required to comply with the FDA’s and similar foreign regulations and current good clinical practices (“GCPs”),GCPs requirements, which is an international guidelineare regulations and guidelines enforced by the FDA and comparable regulatory authorities meant to protect the rights and health of clinical trial subjects. The FDA enforces itsand comparable regulatory authorities enforce their regulations and GCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable, and the FDA (or similar foreign authorities) may require us to perform additional clinical trials before approving our product candidates. We cannot assure you that, upon inspection, the FDA (or similar foreign authorities) will determine that any of our clinical trials comply with GCPs. In addition, to evaluate the safety and effectiveness of exebacase or any otherof our product candidatecandidates to a statistically significant degree, our clinical trials will require an adequately large number of test subjects. Any clinical trial that a CRO conducts abroad on our behalf is subject to similar regulation. Accordingly, if our CROs fail to comply with these regulations or recruit a sufficient number of patients, we may have to repeat clinical trials, which would delay the regulatory approval process.

In addition, our CROs are not our employees and we cannot control whether or not they devote sufficient time and resources to ournon-clinical, preclinical or clinical programs. Our CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies or other drug development activities, which could impede their ability to devote appropriate time to our clinical programs. If our 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 or 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 exebacase or any otherof our product candidatecandidates that we seek to develop. As a result, our financial results and the commercial prospects for exebacase or any otherof our product candidatecandidates that we seek to develop would be harmed, our costs could increase and our ability to generate revenues could be delayed or ended.

We have no experience asIf any of our relationships with these CROs change or terminate, we may not be able to enter into arrangements with alternative CROs or clinical study management organizations, or be able to do so on commercially reasonable terms. Switching or adding additional CROs or other clinical study management organizations involves additional cost and requires management time and focus. In addition, there is a company in bringingnatural transition period when a drug to regulatory approval.

new CRO or clinical study management organization commences work. As a company, we have never obtained regulatory approval for, or commercialized, a drug or biologic. It is possible that the FDA may refuseresult, delays could occur, which could compromise our ability to accept any or all ofmeet our planned BLAs for substantive review or may conclude after review of our data that our application is insufficient to obtain regulatory approval of exebacase or any other product candidate. If the FDA does not accept or approve any or all of our planned BLAs, it may require that we conduct additional preclinical, clinical or manufacturing validation studies, which may be costly, and submit that data before it will reconsider our applications. Depending on the extent of these or any other FDA required studies, approval of any BLA or application that we submit may be significantly delayed, possibly for several years, or may require us to expend more resources than we have available. Any delay in obtaining, or an inability to obtain, regulatory approvals would prevent us from meeting our timelines for commercializing exebacase or any other product candidate, generating revenues and achieving and sustaining profitability.desired development timelines.

Even if the FDA approves exebacase or any other product candidate, adverse effects discovered after approval could adversely affect our markets.

If we obtain regulatory approval for exebacase or any other product candidate that we develop, and we or others later discover that our products cause adverse effects, a number of potentially significant negative consequences could result, including:

regulatory authorities may withdraw their approval of the product;

regulatory authorities may require the addition of labeling statements, such as warnings or contraindications or imposition of a risk management strategy;

we may be required to change the way the product is administered, conduct additional clinical studies or restrict the distribution of the product;

we could be sued and held liable for harm caused to patients and our liability insurance may not adequately cover those claims; and

our reputation may suffer.

Any of these events could prevent us from maintaining market acceptance of the affected product candidate and could substantially increase the costs of, or prevent altogether, the commercialization of our product candidates.

Any Breakthrough Therapy Designationdesignation that we may receive from the FDA for our product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.

We have received Breakthrough Therapy Designationdesignation for exebacase for the treatment of for the treatment of MRSA bacteremia, including right-sided endocarditis, when used in addition to SOC anti-staphylococcal antibiotics in adult patients, and we may seek Breakthrough Therapy Designationdesignation for our other product candidates. A Breakthrough Therapy is defined as a drug or biologic that is intended to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug or biologic may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed in early clinical development. For drugs or biologics that have been designated as Breakthrough Therapies, interaction and communication between the FDA and the sponsor

48


can help to identify the most efficient path for clinical development. Drugs

or biologics designated as Breakthrough Therapies by the FDA are also eligible for rolling review of the associated marketing application, meaning that the agency may review portions of the marketing application before the sponsor submits the complete application, as well as priority review, whereif the agency aims to act on the application within eight months.relevant criteria are met.

Designation as a Breakthrough Therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a Breakthrough Therapy, the FDA may disagree and instead determine not to make such designation. The receipt of a Breakthrough Therapy Designation for a product candidate, including for exebacase, may not result in a faster development process, review or approval compared to conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, not all products designated as Breakthrough Therapies ultimately will be shown to have the substantial improvement over available therapies suggested by the preliminary clinical evidence at the time of designation. As a result, if the Breakthrough Therapy Designation for exebacase we have received or any future designation we receive is no longer supported by subsequent data, the FDA may rescind the designation.

There are underlyingWe rely on contract manufacturing organizations (“CMOs”) to manufacture clinical and commercial supplies of our product candidates. In addition to the risks associated with the manufacture of our product candidates, which could include cost overruns, new impurities, difficulties in process or formulation development, scaling up or reproducing manufacturing processes and lack of timely availability of raw materials.materials, if these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be delayed in obtaining, or may ultimately not be able to obtain, regulatory approval for commercialization of any of our product candidates.

We do not currently have nor do we plan to build the infrastructure or capability internally to manufacture exebacase or any otherof our product candidates.

We rely, and expect to continue to rely, on third-party manufacturers for the production of our product candidates for preclinical studies and clinical trials under the guidance of members of our organization. For example, we employ the services of Fujifilm UK to supply the active pharmaceutical ingredient for exebacase. We have not yet manufactured supplies for late phase human clinical trials, scaled upvalidated the process for manufacture of such supplies, validated themanufacturing processes or contractually secured our commercial supplies.

We employ the services of other vendors to produce exebacase in its final vialed drug product form. We do not currently have contractslong-term supply agreements. Furthermore, the raw materials for our product candidates are sourced, in some cases, from a single-source supplier. If we were to experience an unexpected loss of supply of any of our product candidates or any of our future product candidates for any reason, whether as a result of manufacturing, supply or storage issues or otherwise, we could experience delays, disruptions, suspensions or terminations of, or be required to restart or repeat, any pending or ongoing clinical trials.

We expect to continue to rely on third-party manufacturers for the commercial supply of exebacase drug product.

any of our product candidates for which we obtain marketing approval. We intendmay be unable to pursuemaintain or establish required agreements with third-party manufacturers regarding commercial supply at an appropriate future time. We intendor to locate second fill finishdo so on acceptable terms. Even if we are able to establish agreements with third-party manufacturers, to supply other world regions such as reliance on third-party manufacturers entails additional risks, including:

the E.U. or Asia.

Late stage process development activities, including manufacturing process scale up and validationfailure of the bulk drug substance, pose inherent risks that may be greater for biological products than for small molecules. The process will undergo scale up from the current clinical process and then be repeated under protocol successfully three times for validation.

In addition, regulatory requirements could pose barriersthird-party to the manufacture of our active pharmaceutical ingredient and finished drug product for our product candidates. Our third-party manufacturers are required to comply with current good manufacturing practices (“cGMPs”). As a result, the manufacturing facilities and processes used by Fujifilm UK and any of our future manufacturers must pass inspection by the FDA as part of our BLA review and before approval of the applicable product candidate. Similar regulations apply to manufacturers of our products for use or sale in foreign countries. If our manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA and any applicable foreign(or similar regulatory authority, we will not be ableauthorities);

the failure of the third-party to secure the applicable approval for our product candidates. If these facilities are not deemed compliant with cGMPs for the commercial manufacture of our product candidates we may needaccording to find alternative manufacturing facilities, which would result in significant delaysour schedule, or at all, including if our third-party contractors give greater priority to the supply of up to several years in obtaining approval. In addition,other products over our manufacturers will be subject to ongoing periodic unannounced inspectionsproduct candidates;

the reduction or termination of production or deliveries by suppliers, or the raising of prices or renegotiation of terms;

the termination or nonrenewal of arrangements or agreements by our third-party contractors at a time that is costly or inconvenient for us;

49


the breach by the FDAthird-party contractors of our agreements with them or if the third-party otherwise does not satisfactorily perform according to the terms of the agreements between us and corresponding statethem;

the failure of third-party contractors to comply with applicable regulatory requirements;

the failure of the third party to manufacture our product candidates according to our specifications;

the mislabeling of clinical supplies, potentially resulting in the wrong dose amounts being supplied or study drug or placebo not being properly identified;

clinical supplies not being delivered to clinical sites on time, leading to clinical trial interruptions, or of drug supplies not being distributed to commercial vendors in a timely manner, resulting in lost sales; and foreign agencies for compliance

the misappropriation of our proprietary information, including our trade secrets and know-how.

In the fourth quarter of 2020, we were notified by Fujifilm UK that they experienced equipment failures that would impact their manufacturing timelines. As a result, we transferred manufacturing to Fujifilm USA and, at this time, expect to complete the process validation and initial commercial manufacturing of drug substance with cGMPs and similar regulatory requirements.Fujifilm USA, if required. We may still experience delays to the manufacturing timeline.

If Fujifilm UK, Fujifilm USA, or any alternate supplier of an active pharmaceutical ingredient, or any supplier of finished drug product for our product candidates, experiences any significant difficulties in its respective manufacturing processes, does not comply with the terms of its agreement with us or does not devote sufficient time, energy and care to providing our manufacturing needs, we may experience delays. Moreover, as a result of the COVID-19 pandemic, third-party manufacturers may be affected, which could disrupt their activities and, as a result, we could face difficulty sourcing key components necessary to produce supply of our product candidates. As a result, we could experience significant interruptions in the supply of our product candidates, which could impair our ability to supply our product candidates at the levels required for our clinical trials andor commercialization and prevent or delay its successful development andor commercialization. For example, a lot

We do not have complete control over all aspects of the exebacase investigationalmanufacturing process of, and are dependent on, our contract manufacturing partners, in particular Fujifilm UK and Fujifilm USA, for compliance with cGMP or similar regulations for manufacturing both active drug substances and finished drug products. Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside of the United States. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or foreign regulatory authorities, they will not be able to secure and/or maintain marketing approval for their manufacturing facilities. In addition, we do not have control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product did not meet manufacturing release specifications, resultingcandidates or if it withdraws any such approval in the delayfuture, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain marketing approval for or market our product candidates, if approved. Our failure, or the failure of our Phase 2 study.

Public health epidemicsthird-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or outbreakswithdrawal of approvals, license revocation, seizures or recalls of product candidates or drugs, operating restrictions and criminal prosecutions, any of which could significantly and adversely impact the clinical development and commercializationaffect supplies of our lead product candidates.candidates or drugs and harm our business and results of operations.

In December 2019, a novel strain of coronavirus(“COVID-19”) emerged in Wuhan, Hubei Province, China. On March 12, 2020, the WHO declared the outbreak ofCOVID-19 a pandemic. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries and infections have been reported globally. The extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information which may emerge concerning the severity ofCOVID-19 and the actions to contain the virus or treat its impact, among others. In particular, the continued spread of the coronavirus globally could adversely impact our exebacase manufacturing and supply abilities and our ongoing clinical trial.

Developments by competitors, many of which have greater financial and other resources than we do, may render our products or technologies obsolete ornon-competitive.

The pharmaceutical and biotechnology industries are intensely competitive. We compete directly and indirectly with other pharmaceutical companies, biotechnology companies and academic and research organizations in developing therapies to treat diseases. Smaller or early-stage companies may also prove to be

50


significant competitors, particularly through collaborative arrangements with large, established companies. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations and well-established sales forces. We compete with companies that have products on the market or in development for the same indications as our product candidates. We may also compete with organizations that are developing similar technology platforms. Competitors may develop more effective, more affordable or more convenient products or may achieve earlier patent protection or commercialization of their products. These competing products may render our product candidates obsolete or limit our ability to generate revenue from our product candidates. 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 may succeed in developing, acquiring or licensing, on an exclusive basis, drug products that are more effective or less costly than exebacase and our other product candidates.

The level of commercial success of exebacase or any otherof our product candidates that we develop will depend upon attaining significant market acceptance of these products among physicians and payors.

Even if exebacase or any otherof our product candidates that we develop is approved by the appropriate regulatory authorities for marketing and sale, physicians may not prescribe the approved product. Market acceptance of exebacase or any otherof our product candidate that we develop by physicians, patients and payors will depend on a number of factors, many of which are beyond our control, including:

 

the indications for which the product is approved;

 

acceptance by physicians and payors of each product as a safe and effective treatment;

the availability, efficacy and cost of competitive drugs;

 

the effectiveness of our or any third-party partner’s sales force and marketing efforts;

 

the extent to which the product is approved for inclusion on formularies of hospitals and managed care organizations;

 

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

 

the availability of adequate reimbursement by third parties, such as insurance companies and other health care payors, and/or by government health care programs, including Medicare and Medicaid;

 

limitations or warnings contained in a product’sFDA-approved labeling; and

limitations or warnings contained in a product’s FDA-approved labeling (or similarly approved labeling by foreign authorities); and

 

prevalence and severity of adverse side effects.

Even if the medical community accepts that our product candidates are safe and efficacious for their approved indications, physicians may not immediately be receptive to the use or may be slow to adopt our product candidates as accepted treatments for their approved indications. While we believe our product candidates may demonstrate significant advantages in clinical studies, we cannot assure you that labeling approved by the FDA (or similar foreign authorities) will permit us to promote these advantages. In addition, our efforts to educate the medical community and third-party payors on the benefits of any product candidates that we develop may require significant resources and may never be successful.

51


Coverage and reimbursement may not be available for exebacase or any otherof our product candidates that we develop, including as a result of healthcare reform measures, which could make it difficult for us to sell our products profitably.

Market acceptance and sales of exebacase or any otherof our product candidatecandidates that we develop will depend on coverage and reimbursement policies and may be affected by health care reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs they will pay for and establish reimbursement levels. We cannot be sure that reimbursement will be available for exebacase or any otherof our product candidate that we develop. Also, we cannot be sure that the amount of reimbursement available, if any, will not reduce the demand for, or the price of, our products. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize exebacase or any otherof our product candidatecandidates that we develop.

In both the United States and some foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the health care system in ways that could affect our ability to sell our products profitably. In March 2010, the Affordable Care ActACA became law in the United States. The goal of the Affordable Care Act is to reduce the cost of health care andACA substantially changechanged the way health care is financed by both governmental and private insurers. The Affordable Care Act,ACA, among other things, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to drugs dispensed to individuals enrolled in Medicaid managed care organizations, established annual fees on manufacturers of certain branded prescription drugs, required manufacturers to participate in a discount program for certain outpatient drugs under Medicare Part D and promoted programs that increase the federal government’s comparative effectiveness research, which will impact existing government healthcare programs and will result in the development of new programs.research. An expansion in the government’s role in the United States healthcare industry may further lower rates of reimbursement for pharmaceutical products.

The current presidential administration and U.S. Congress attempted to repeal or “repeal and replace” the Affordable Care Act. Although those efforts did not succeed, the presidential administration may continue to seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the Affordable Care Act. There is still uncertainty with respect to the impact President Trump’s administration and the U.S. Congress may have on the Affordable Care Act, if any, and any changes will likely take time to unfold. Additionally, sinceSince its enactment,

there have been judicial, executive and Congressional challenges to certain aspects of the Affordable Care Act. For example, on December 14, 2018, aACA. On June 17, 2021, the U.S. DistrictSupreme Court Judge indismissed the Northern District of Texas, or Texas District Court Judge, ruled thatmost recent judicial challenge to the entire Affordable Care Act is invalid based primarilyACA brought by several states without specifically ruling on the fact that the Tax Cuts and Jobs Act of 2017 repealed thetax-based shared responsibility payment imposed by the Affordable Care Act, on certain individuals who fail to maintain qualifying health coverage for all or part of a year, which is commonly referred to as the “individual mandate”. On December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court’s decision that the individual mandate was unconstitutional but remanded the case back to the District Court to determine whether the remaining provisionsconstitutionality of the Affordable Care Act are invalid as well. ItACA. Thus, the ACA is unclear how these decisions, subsequent appeals, if any, or other effortsexpected to challenge, repeal or replace the Affordable Care Act will impact the law, or our business or financial condition.remain in effect in its current form.

Other legislative changes have been proposed and adopted in the United States since the Affordable Care ActACA was enacted. For example, the Budget Control Act of 2011, among other things, resulted in aggregate reductions of Medicare payments to providers, of 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 20292032, unless additional Congressional action is taken. Further, on January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, or the ATRA, which, among other things, further reduced Medicare payments to several providers. Recently there has also been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted legislation designed to, among other things, reform government program reimbursement methodologies. For example, the Cures Act changes the reimbursement methodology for infusion drugs and biologics furnished through durable medical equipment in an attempt to remedy over- and underpayment of certain drugs. More recently, on March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021, which eliminates the statutory cap on the Medicaid drug rebate, currently set at 100% of a drug’s average manufacturer price, beginning January 1, 2024.

More recently, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (IRA) into law. This statute marks the most significant action by Congress with respect to the pharmaceutical industry since adoption of the ACA in 2010. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the Department of Health and Human Services (HHS) to implement many of these provisions through guidance, as opposed to regulation, for the initial years. For that and other reasons, it is currently unclear how the IRA will be effectuated, and while the impact of the IRA on our business and the pharmaceutical industry cannot yet be fully determined, it is likely to be significant.

52


We expect that healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria, new payment methodologies and additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our product candidates. While we cannot predict the impact these new laws will have in general or on our business specifically, they may result in downward pressure on pharmaceutical reimbursement, which could negatively affect market acceptance of exebacase or any future products.

In addition to actions at the federal level, individual states in the United States have also proposed and enacted legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access, marketing cost disclosure and other transparency measures, and, in some cases, measures designed to encourage importation from other countries and bulk purchasing. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.

We expect to experience pricing pressures in connection with the sale of exebacase or any otherof our product candidate that we develop, due to the trend toward managed health care, the increasing influence of health maintenance organizations and additional legislative proposals. If we fail to successfully secure and maintain coverage and reimbursement for our products or are significantly delayed in doing so, we will have difficulty achieving market acceptance of our products and our business will be harmed.

Even if we obtain FDA approval of exebacase or any other product candidate, we may never obtain approval or commercialize our products outside of the United States, which would limit our ability to realize their full market potential.

In order to market exebacase or any other products outside of the United States, we must comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approvals could result in significant delays, difficulties and costs for us and require additional preclinical studies or clinical trials which would be costly and time consuming. Regulatory requirements can vary widely from country to country and satisfying these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. In addition, our failure to obtain regulatory approval in the United States or any foreign country may delay or have negative effects on the process for regulatory approval in other countries. We do not have any product candidates approved for sale in the United States or any foreign country and we do not have experience as a company in obtaining regulatory approval in international markets.

We currently have no marketing and sales organization and have no experience in marketing drug products. If we are unable to establish our own marketing and sales capabilities, or enter into agreements with third parties, to market and sell our products after they are approved, we may not be able to generate revenues.

We do not have the capabilities to market, sell and distribute any of our drug products. In order to commercialize any products, we must develop these capabilities on our own or make arrangements with third parties for the marketing, sales and distribution of our products. The establishment and development of our own sales force would be expensive and time consuming and could delay any product launch, and we cannot be certain that we would be able to successfully develop this capability. As a result, we may seek one or more third parties to handle some or all of the sales, marketing or distribution for exebacase or any otherof our product candidate in the United States or elsewhere. However, we may not be able to enter into arrangements with third parties to sell exebacase or any otherof our product candidate on favorable terms or at all. In the event we are unable to develop our own marketing and sales force or collaborate with a third-party marketing and sales organization, we would not be able to commercialize exebacase or any otherof our product candidate that we develop, which would negatively impact our ability to generate product revenues. Further, whether we commercialize products on our own or rely on a third party to do so, our ability to generate revenue will be dependent on the effectiveness of the sales force. In addition, to the extent we rely on third parties to commercialize our approved products, we may likely receive less revenues or profits than if we commercialized these products ourselves.

We mayare seeking to form or seek strategic alliances in the future, and we may not realize the benefits of such alliances.

We mayare actively seeking to form or seek strategic alliances, create joint ventures or collaborations or enter into licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to exebacase or any future product candidate that we may develop. Any of these relationships may require us to incurnon-recurring and other charges, increase ournear-and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business. In addition, we face significant competition in seeking appropriate strategic alliances and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic collaboration or other

53


alternative arrangements for exebacase and any future product candidate because it may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view exebacase or any future product candidate as having the requisite potential to demonstrate safety and efficacy. Any delays in entering into new strategic collaboration agreements could delay the development and commercialization of exebacase or any other product candidate that we develop, which would harm our business prospects, financial condition and results of operations.

Interim, “topline” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publicly disclose interim, topline or preliminary data from our clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline or preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from thetop-line or preliminary data we previously published. As a result, topline and preliminary data should be viewed with caution until the final data are available.

From time to time, we may also disclose interim data from our preclinical studies and clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes

may materially change as patient enrollment continues and more patient data become available. Adverse differences between interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our common stock.

Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure.

If the interim topline or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.

Risks Related to Regulatory Approval of Our Product Candidates and Other Legal Compliance Matters

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, exebacase and any future product candidate,candidates, and our ability to generate revenue will be materially impaired.

Exebacase and any otherAny of our product candidate that we develop and the activities associated with their development and commercialization, including their design, testing, manufacture, recordkeeping, labeling, storage, approval, advertising, promotion, sale, distribution, importation and exportation are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product

54


candidate. We have not received approval to market any product from regulatory authorities in any jurisdiction. 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 product candidate’s safety and efficacy. 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. Exebacase and any otherAny product candidate that we develop may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use.

The process of obtaining marketing approvals, both in the United States and abroad, is expensive, may take many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the 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 rejection of an application. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional preclinical, clinical or other studies. If we experience delays in obtaining approvals or if we fail to obtain approval of our product candidates that we develop, our ability to generate revenues will be materially impaired.

We face extensiveEven if our product candidates receive regulatory approval, they will be subject to significant post- marketing regulatory requirements and our products may face future development and regulatory difficulties.oversight.

Even if we obtain regulatory approval in (or outside) the United States, the FDA (or similar foreign authorities) may still impose significant restrictions on the indicated uses or marketing of the approved product, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. The holder of an approved BLA is obligated to monitor and report adverse events and any failure of a product to meet the specifications in the BLA. The holder of an approved BLA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws. Similar risks exist in foreign jurisdictions.

In addition, drug product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMPs, or similar requirements outside the United States, and adherence to commitments made in the BLA. If we or a regulatory agency discovers previously unknown problems with a product such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions relative to that product or the manufacturing facility, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.

If the FDA or a comparable foreign regulatory authority approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration requirements and continued compliance with cGMPs or similar requirements outside the United States and GCPs for any clinical trials that we conductpost-approval.

If we or our partners fail to comply with applicable regulatory requirements following approval of any of our future product candidates, a regulatory agency may:

 

issue a warning or untitled letter asserting that we are in violation of the law;

 

55


seek an injunction or impose civil or criminal penalties or monetary fines;

 

suspend or withdraw regulatory approval;

 

suspend any ongoing clinical trials;

 

refuse to approve a pending BLA or supplements to a BLA, or similar applications in foreign jurisdictions, submitted by us;

 

seize product; or

 

refuse to allow us to enter into supply contracts, including government contracts.

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 our future products and generate revenues.

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 product candidates.

In addition, we cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certainWe also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. 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 be subject to enforcement action and we may not achieve or sustain profitability.

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

If any of our product candidates are approved and we are found to have improperly promoted off-label uses of those products, we may become subject to significant liability. The FDA and other regulatory agencies strictly regulate the current presidential administrationpromotional claims that may impactbe made about prescription products, such as our product candidates, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. If we receive marketing approval for a product candidate, physicians may nevertheless prescribe it to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant liability. The U.S. federal government has levied large civil and criminal fines against companies for alleged improper promotion of off-label use and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business and industry. Namely,financial condition.

We have no experience as a company in bringing a drug to regulatory approval.

As a company, we have never obtained regulatory approval for, or commercialized, a drug or biologic. It is possible that the administration has taken several executive actions, including the issuanceFDA may refuse to accept any or all of a numberour potential future Biologics License Applications, or BLAs, for substantive review or may conclude after review of Executive Orders,our data that could impose significant burdens on, or otherwise materially delay, FDA’s abilityour application is insufficient to engage in routineobtain regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketingany of our product candidates. If the FDA does not accept or approve any or all of our potential future BLAs, it may require that we conduct additional preclinical, clinical or manufacturing validation studies, which may be costly, and submit that data before it will reconsider our applications. It is difficult to predict how these executive actions, including the current Executive Orders, will be implemented, andDepending on the extent to which they will impact the FDA’s ability to exercise its

regulatory authority. Ifof these executive actions impose constraints on FDA’s ability to engage in oversight and implementation activities in the normal course, our businessor any other FDA required studies, approval of any BLA or application that we submit may be negatively impacted.significantly delayed, possibly for several years, or may require us to expend more resources than

Changes

56


we have available. Any delay in fundingobtaining, or an inability to obtain, regulatory approvals would prevent us from meeting our timelines for commercializing any of our product candidates, generating revenues and achieving and sustaining profitability.

Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, and retain or deploy key leadership and other personnel, or otherwise prevent new or modified products and services from being developed, approved or commercialized in a timely manner or at all, which could negatively impact our business.

The ability of the FDA and foreign regulatory authorities to review and or approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s or foreign regulatory authorities’ ability to hire and retain key personnel and accept the payment of user fees, and statutory,other events that may otherwise affect the FDA’s or foreign regulatory and policy changes.authorities’ ability to perform routine functions. Average review times at the agencyFDA and foreign regulatory authorities have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies, such as the EMA following its relocation to Amsterdam and resulting staff changes, may also slow the time necessary for new drugs and biologics or modifications to cleared or approved drugs/biologics to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities.

Separately, in response to the COVID-19 pandemic, in March 2020, the FDA postponed most inspections of domestic and foreign manufacturing facilities at various points. Even though the FDA has since resumed standard inspection operations of domestic facilities where feasible, the FDA has continued to monitor and implement changes to its inspectional activities to ensure the safety of its employees and those of the firms it regulates as it adapts to the evolving COVID-19 pandemic, and any resurgence of the virus or emergence of new variants may lead to further inspectional delays. Regulatory authorities outside the United States have adopted similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

If foreign approval for exebacase or any otherof our product candidatecandidates is obtained, there are inherent risks in conducting business in international markets.

Commercialization of our product candidates in international markets is an element of our long-term strategy. If approved for commercialization in a foreign country, we intend to enter into agreements with third parties to market exebacase or any otherour product candidatecandidates whenever it may be approved and wherever we have the right to market it. Consequently, we expect that we will be subject to additional risks related to entering into international business relationships, including:

 

potentially reduced protection for intellectual property rights;

 

the potential forso-called parallel importing, which is what happens when a local seller, faced with high or higher local prices, opts to import goods from a foreign market (with low or lower prices) rather than buying them locally;

the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local prices, opts to import goods from a foreign market (with low or lower prices) rather than buying them locally;

 

unexpected changes in tariffs, trade barriers and regulatory requirements;

 

57


economic weakness, including inflation, or political instability in particular foreign economies and markets;

 

compliance with laws for employees working and traveling abroad;

 

foreign taxes, including withholding of payroll taxes;

 

foreign currency fluctuations, which could result in increased operating expenses and reduced revenues;

 

workforce uncertainty in countries where labor unrest is more common than in the United States;

 

production shortages resulting from any events affecting active pharmaceutical ingredient and/or finished drug product supply or manufacturing capabilities abroad;

 

business interruptions resulting fromgeo-political actions, including war and terrorism, epidemics, or natural disasters including earthquakes, typhoons, floods and fires; and

business interruptions resulting from geo-political actions, including war and terrorism, epidemics, including the COVID-19 pandemic, or natural disasters including earthquakes, typhoons, floods and fires; and

 

failure to comply with the rules and regulations of the Office of Foreign Asset Control, the Foreign Corrupt Practices Act and other applicable anti-bribery rules and regulations in other jurisdictions.

These and other risks may materially adversely affect our ability to attain or sustain revenue from international markets and therefore materially adversely affect our business.

Product liability lawsuits against us could divert our resources, cause us to incur substantial liabilities and limit commercialization of any products that we may develop.

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

 

distraction of our management or other internal resources from pursuing our business strategies;

 

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

 

injury to our reputation and significant negative media attention;

 

withdrawal of clinical trial participants;

 

significant costs to defend the related litigation;

 

substantial monetary awards to trial participants or patients;

 

loss of revenue; and

 

the inability to commercialize any products that we may develop.

We maintain product liability insurance coverage in relation to our clinical trials. Such coverage may not be adequate to cover all liabilities that we may incur. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

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 our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials

58


and wastes. From time to time and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and wastes, we cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.

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

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

Our product candidates may face competition sooner than anticipated.

The Affordable Care ActACA includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with anFDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.

We believe that any of our product candidates approved as a biological product under a BLA should qualify for the12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Other aspectsIn the EU, these exclusivity periods are even shorter. Upon receiving marketing authorization, new chemical or biological entities generally receive eight years of data exclusivity and an additional two years of market exclusivity. If granted, data exclusivity prevents regulatory authorities in the EU from referencing the innovator’s data to assess a generic/biosimilar application. During the additional two-year period of market exclusivity, a generic/biosimilar marketing authorization can be submitted, and the innovator’s data may be referenced, but no generic/biosimilar product can be marketed until the expiration of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. market exclusivity.

Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution fornon-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

We may be subject, directly or indirectly, to foreign, federal and state healthcare laws, including 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 payors play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our business operations and current and future arrangements with third-party payors, healthcare providers and customers may expose us to

59


broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we research, develop, market, sell and distribute our products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws 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. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation; in addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;

 

the federal False Claims Act imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

government. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Health Insurance Portability and Accountability ActAnti-Kickback Statute constitutes a false or fraudulent claim for purposes of 1996,the False Claims Act;

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;program;

 

the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation;

 

the federal transparency requirements under the Affordable Care Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report to the Department of Health and Human Services information related to physician payments and other transfers of value and ownership and investment interests held by physicians and their immediate family members and payments or other transfers of value made to such physician owners;

the federal transparency requirements under the ACA requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report to the Department of Health and Human Services information related to physician payments and other transfers of value and ownership and investment interests held by physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-physician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiologist assistants and certified nurse midwives), and their immediate family members and payments or other transfers of value made to such physician owners;

 

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

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

 

similar healthcare laws and regulations in the E.U.EU and other jurisdictions, including reporting requirements detailing interactions with and payments to healthcare providers and laws governing the privacy and security of certain personal data, including the GDPR, which imposes obligations and restrictions on the collection and use of personal data relating to individuals located in the E.U. and E.E.A. (including with regard to health data).providers.

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

60


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, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations ofnon-compliance with these laws, imprisonment and the curtailment or restructuring of our operations. Further, defending against any such actions, even if successful, can be costly, time-consuming and may require significant personnel resources. 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.

The unfavorable consequences of any plaintiff attorney investigation or the adverse outcome of litigation or arbitration proceedings commenced by or against us could materially harm our business.

The unfavorableUnfavorable consequences of anyfrom the most recent and prior investigations by a plaintiff attorneyattorneys could damage our reputation and disrupt our business. The adverse outcome of any litigation or arbitration proceedings commenced by or against us could have a material adverse effect on our business and impede the achievement of our development and commercialization objectives.

In the ordinary course of our operations, claims involving our actions, actions of third parties or agreements to which we are a party may be brought by and against us. The claims and charges can involve actual damages, as well as contractually agreed upon liquidated sums. These claims, if not resolved through negotiation, are often subject to lengthy and expensive litigation or arbitration proceedings.

The United Kingdom’s planned exitwithdrawal from the European Union may adversely impact our business.

Following a national referendum and enactment of legislation byThe UK left the government of the United Kingdom, the United Kingdom withdrew from the European Union (“Brexit”)EU on January 31, 2020 and entered into a transition period during which it2020. It is currently unclear to what extent the UK Government will continueseek to align its ongoing and complex negotiationsregulations with the European Union relating toEU. The EU laws that have been transposed into UK law through secondary legislation remain applicable in Great Britain. However, under the Retained EU Law (Revocation and Reform) Bill 2022, which is currently before the UK parliament, any retained EU law not expressly preserved and “assimilated” into domestic law or extended by ministerial regulations (to no later than June 23, 2026) will automatically expire and be revoked by December 31, 2023. In addition, new legislation such as the (EU) CTR is not applicable in Great Britain. While the EU-UK Trade and Cooperation Agreement (“TCA”), includes the mutual recognition of Good Manufacturing Practice (“GMP”) inspections of manufacturing facilities for medicinal products and GMP documents issued, it does not contain wholesale mutual recognition of UK and EU pharmaceutical regulations and product standards. There may be divergent local requirements in Great Britain from the EU in the future, trading relationship betweenwhich may impact clinical and development activities that occur in the parties.UK in the future. Similarly, clinical trial submissions in the UK will not be able to be bundled with those of EU member states within the EMA Clinical Trial Information System, adding further complexity, cost and potential risk to future clinical and development activity in the UK. Significant political and economic uncertainty remains about whetherhow much the termsrelationship between the UK and EU will differ as a result of the relationship will differ materiallyUK’s withdrawal.

These developments, or the perception that any related developments could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could depress economic activity and restrict our access to capital, which could have a material adverse effect on our business, financial condition and results of operations and reduce the price of our common stock.

The uncertainty regarding new or modified arrangements between the UK and other countries following the withdrawal may have a material adverse effect on the movement of personnel, goods, information or data between the UK and members of the EU and the United States, including the interruption of or delays in imports into the UK

61


of goods originating within the EU and exports from the terms before withdrawal, as well as about the possibility that aso-called “no deal” separation will occur if negotiations are not completed by the endUK of the transition period. If the United Kingdom and the European Union are unable to negotiate acceptable terms or if other Member States pursue withdrawal, barrier-free access between the United Kingdom and other Member States or among the European economic area overall could be diminished or eliminated.goods originating there. For example, shipments into the United KingdomUK of drugmedicinal product substance manufactured for the Companyus in the European UnionEU may be interrupted or delayed and thereby prevent or delay the manufacture in the United KingdomUK of drugmedicinal product. Similarly, shipments out of the United KingdomUK of drugmedicinal product to the United States or the European UnionEU may be interrupted or delayed and thereby prevent or delay the delivery of drug product to clinical sites. Such a situation could hinder our ability to conduct current and planned clinical trials and have an adverse effect on our business.

Increased scrutiny of and evolving expectations for environmental, social and governance (“ESG”) initiatives may impose additional costs or otherwise adversely impact our business.

There has been an increased focus from investors, capital providers, shareholder advocacy groups, other market participants, customers, and other stakeholder groups regarding companies’ ESG initiatives. While we may at times engage in voluntary initiatives (such as voluntary disclosures, certifications, or goals, among others) or commitments to improve the ESG profile of our Company, such initiatives or achievements of such commitments may be costly and may not have the desired effect. Additionally, political instabilitysome investors may use third-party or proprietary ESG ratings to guide their investment strategies and, in the European Union as a result of Brexitsome cases, may choose not to invest in us if they believe our ESG practices are inadequate. The criteria by which companies’ ESG practices are assessed are evolving, which could result in greater expectations of us and cause us to undertake costly initiatives to satisfy such new criteria. Alternatively, if we elect not to or are unable to satisfy new criteria or do not meet the criteria, some investors may conclude that our policies with respect to ESG are inadequate and choose not to invest in us.

If our ESG practices do not meet evolving investor or other stakeholder expectations and our standards, reputation, ability to attract or retain employees and desirability as an investment or business partner could be negatively impacted. Similarly, our failure or perceived failure to adequately pursue or fulfill any ESG goals and objectives or to satisfy various reporting standards, if any, could expose us to additional regulatory, social or other scrutiny, the imposition of unexpected costs, or damage to our reputation, which in turn could have a material negativeadverse effect on credit marketsour business and foreign direct investments incould cause the European Union and United Kingdom.market value of our common stock to decline.

Risks Related to Employee Matters and Managing GrowthOur Operations

Our future success depends on our ability to attract and retain qualified personnel, and changes in management may negatively affect our business.

We are dependent on the principal members of our management and scientific teams. Our success and the execution of our growth strategy depend largely on the continued service of these employees. Although we have formal employment agreements with our executive officers, these agreements do not prevent them from terminating their employment with us at any time. The loss of the services of any of these persons could be disruptive to our operations, impede our ability to raise additional funding or delay the achievement of our development and commercialization objectives. Additionally, we cannot be certain that changes in management will not lead to additional management departures or changes, affect our ability to hire or retain key personnel, or otherwise negatively affect our business. We do not maintain “key person” insurance for any of our executives or other employees.

Recruiting and retaining qualified scientific and clinical personnel is critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also compete for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

Furthermore, in light of our recent reduction in headcount as part of our restructuring program as described below, we may find it difficult to maintain valuable aspects of our culture, to prevent a negative effect on

62


employee morale or attrition beyond our planned reduction in headcount, and to attract competent personnel who are willing to embrace our culture in the future. Our executive officers and other employees are at-will employees, which means they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. We may not be able to retain the services of any members of our senior management or other key employees. If we do not succeed in retaining and motivating existing employees or attracting well-qualified employees in the future, our business, financial condition and results of operations could be materially and adversely affected.

We may not successfully execute or achieve the expected benefits of our announced restructuring program and other cost saving measures we may take in the future, and our efforts may result in further actions and may adversely affect our business, financial condition and results of operations.

On July 29, 2022, we implemented a restructuring plan to reduce costs and align resources with the Company’s anticipated product development milestones for exebacase and CF-370 and to help preserve the value of the Company’s drug discovery operations, resulting in a reduction to our workforce of 16 employees, or 37% of our headcount prior to the reduction and the suspension of IV exebacase manufacturing activities. The reduction included the resignation of Cara Cassino, M.D. as Chief Medical Officer and Executive Vice President of Research and Development of the Company. We recognized a restructuring charge in the third quarter of 2022 of $7.7 million, including $1.6 million related to employee termination costs, including severance, health benefits and other related expenses from the workforce reduction, and $6.1 million from the write-off of prepaid manufacturing costs, which will result in future cash expenditures of up to $7.1 million as of December 31, 2022.

The restructuring program is based on our current estimates, assumptions and forecasts, which are subject to known and unknown risks and uncertainties, including assumptions regarding cost savings, cash burn rate, and effectiveness of our reduced spend. Accordingly, we may not be able to fully realize the cost savings, enhanced liquidity and other benefits anticipated from the restructuring program. Additionally, implementation of the restructuring program and any other cost-saving initiatives may be costly and disruptive to our business, the expected costs and charges may be greater than we have forecasted, and the estimated cost savings may be lower than we have forecasted. In addition, our initiatives could result in personnel attrition beyond our planned reduction in headcount or reduce employee morale, which could in turn adversely impact productivity, including through a loss of continuity, loss of accumulated knowledge and/or inefficiency during transitional periods, or our ability to attract highly skilled employees. Unfavorable publicity about us or our restructuring program could result in reputational harm and could diminish confidence in our brand and business model. The restructuring program has required, and may continue to require, a significant amount of management’s and other employees’ time and focus, which may divert attention from effectively operating our business.

For our Company to successfully develop and commercialize our product candidates, we may need to expand our development, regulatory and sales, marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

In order to successfully develop and commercialize our product candidate, we may need to increase the number of our employees and expand the scope of our operations, particularly in the areas of drug discovery, drug development, regulatory affairs and commercialization. To manage our anticipated future growth, we would need to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the various levels of experience of our management team in managing a company with significant growth, we may not be able to effectively manage a significant expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

63


Risks Related to Our Intellectual Property

If we or our licensors are unable to obtain and maintain patent protection for our owned or licensed technology and products, or if the scope of the patent protection is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be adversely affected.

Our success depends in large part on our and our licensors’ ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary technology and products or technology or products that may have been licensed to us. Similar to our licensors, we seek to protect our proprietary position by filing patent applications in the United States and abroad related to our novel technologies and product candidates that are important to our business. This process is expensive and time-consuming, and we or our licensors may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we or our licensors will fail to identify patentable aspects of either our or their research and development output before it is too late to obtain patent protection. Moreover, if we license technology or product candidates from third parties in the future, these license agreements may not permit us to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering this intellectual property. These agreements could also give our licensors the right to enforce the licensed patents without our involvement, or to decide not to enforce the patents without our consent. Therefore, in these circumstances, we could not be certain that these patents and applications would be prosecuted and enforced in a manner consistent with the best interests of our business.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights and any patent rights we may license from a third party are highly uncertain. Our or our licensors’ pending and future patent applications may not result in issued patents that protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our or our licensors’ patents or narrow the scope of such patent protection.

The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than United States law does. Assuming the other requirements for patentability are met, historically, in the United States, the first to make the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application is entitled to the patent. The United States currently uses afirst-inventor-to-file system in which, assuming the other requirements for patentability are met, the first inventor to

file a patent application will be entitled to the patent. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. Moreover, we may be subject to a third party preissuance submission of prior art to the U.S. Patent and Trademark Office, or become involved in opposition, derivation, reexamination, litigation, inter partes review or interference proceedings, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

64


Even if our or our licensors’ patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in anon-infringing manner.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to prevent others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized and such patents may not be able to claim the benefits of any patent term extension laws or regulations. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful, and which could result in our patents or other intellectual property rights becoming invalidated.

Competitors may infringe our or our licensors’ patents, trademarks, copyrights or other intellectual property. To stop infringement or unauthorized use, we or our licensors may be required to file infringement claims, which can be expensive and time consuming. Any claims we or our licensors assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that some or all of our patents or other intellectual property rights are not valid or that we or our licensors infringe their patents or other intellectual property rights. In addition, in a patent infringement proceeding, a court may decide that a patent of ours or our licensors is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly, or may refuse to stop the other party from using the technology at issue on the grounds that such patents do not cover the technology in question and therefore cannot be infringed. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid, unenforceable, or not infringed, or that the party against whom we have asserted trademark infringement claims has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such marks. In any infringement litigation, any award of monetary damages may be unlikely or very difficult to obtain, and any such award we may receive may not be commercially valuable. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that we could incur substantial litigation costs or that some of our confidential information could be compromised by disclosure during this type of litigation.

Third parties may initiate legal proceedings alleging that we or our licensors are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

Our commercial success depends upon our ability to develop, manufacture, market, or sell our or our licensors’ product candidates and use our proprietary technologies without infringing the intellectual property and other proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including reexamination or interference proceedings before the U.S. Patent and Trademark Office. Third parties may assert infringement claims against us based on existing or future intellectual property rights.

If we or our licensors are found to infringe a third party’s intellectual property rights, we or our licensors could be enjoined from further using certain products and technology or may be required to obtain a license from such third party to continue developing and marketing such products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could benon-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent or other intellectual property rights of a third party. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

We may be subject to claims by third parties asserting that we or our employees have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.

Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we use customarynon-disclosure agreements and try to ensure that our employees do not use the proprietary information orknow-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against these claims.

In addition, while we typically require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own, or such agreements may be inadequately drafted at times thereby not ensuring assignment to us of all potential intellectual property rights. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management.

Intellectual property litigation could cause us to spend substantial resources and could distract our personnel from their normal responsibilities.

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development,

sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct or defend such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial 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.

In addition to seeking patents for some of our technology and products, we also rely on trade secrets, including unpatentedknow-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering intonon-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. However, we cannot guarantee that we have executed these agreements with each party that may have or have had access to our trade secrets, nor can we guarantee that such agreements will always be adequately drafted so as to be enforceable. If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, because of potential differences in laws in different jurisdictions, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.

We have not yet registered our trademarks in all of our potential markets, and failure to secure those registrations could adversely affect our business.

Our future trademark applications may not be allowed for registration, and our registered trademarks may not be maintained or enforced. During trademark registration proceedings, we may receive rejections from the U.S. Patent and Trademark Office or other applicable foreign intellectual property offices. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections, or have to expend additional resources to secure registrations, such as commencing cancellation proceedings against third-party trademark registrations to remove them as obstacles to our trademark applications. In addition, in the U.S. Patent and Trademark Office and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would.

In addition, we have not yet proposed a proprietary name for our product candidates in any jurisdiction. Any proprietary name we propose to use with our product candidates in the United States must be approved by the

65


FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable proprietary product name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.

Risks Related to Our Securities

The price of our common stock may behas been volatile and you could lose all or part of your investment.

There has been significant volatility in the market price and trading volume of equity and derivative securities, which is unrelated to the financial performance of the companies issuing the securities.securities, including due to the effects of the COVID-19 pandemic and the recent failure of certain financial institutions. In addition, equity markets have experienced significant price and volume fluctuations that have affected the market prices for the securities of biotechnology and also newly public companies for a number of reasons, including reasons that may be unrelated to the business or operating performance of the companies. These broad market fluctuations may negatively affect the market price of our common stock.

Prior to our initial public offering, there was no public market for our common stock. The trading price of our securities has been and is likely to continue to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including limited trading volume. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K, these factors include:

 

our ability to implement our preclinical, clinical and other development or operational plans;

 

adverse regulatory decisions;

 

strategic actions by us or our competitors, such as acquisitions or restructurings;

 

new laws or regulations, or new interpretations of existing laws or regulations, applicable to our business;

 

actual or anticipated fluctuations in our financial condition or annual or quarterly results of operations;

 

our cash position;

 

public reaction to our press releases, other public announcements and filings with the SEC;

 

changes in investor and financial analyst perceptions of the risks and condition of our business;

 

changes in, or our failure to meet, performance expectations of investors or financial analysts (including, without limitation, with respect to the status of development of our product candidates);

 

changes in market valuations of biotechnology companies;

 

changes in key personnel;

 

increased competition;

 

sales of common stock by us or members of our management team;

 

trading volume of our common stock;

 

issuances of debt or equity securities;

 

the granting or exercise of employee stock options or other equity awards;

 

changes in accounting standards, policies, guidance, interpretations or principles;

 

ineffectiveness of our internal controls;

 

66


actions by institutional or other large shareholders;stockholders;

 

significant lawsuits, including patent or stockholder litigation;

 

general political, market and economic conditions;conditions, including as a result of health pandemics; and

 

other events or factors, many of which are beyond our control.

In addition, the stock market in general, and the Nasdaq Capital Market and biotechnology companies in particular, 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 may negatively affect the market price of our common stock, regardless of our actual operating performance. In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of a company’s securities. This type of litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources, which would harm our business, operating results or financial condition.

We may issue additional sharescurrently do not meet certain of common stock, warrants or other securities to finance our growth.

We may finance the development of our product pipeline or generate additional working capital through additional equity financing. Therefore, subject to the rules of the Nasdaq we may issue additional shares of our common stock, warrantsCapital Market’s continued listing requirements and other equity securities of equal or senior rank, with or without shareholder approval, in a number of circumstances from timeNasdaq rules. If we are unable to time. The issuance by us of shares of our common stock, warrants or other equity securities of equal or senior rank will haveregain compliance, we are likely to be delisted. Delisting could negatively affect the following effects:

the proportionate ownership interest in us held by our existing shareholders will decrease;

the relative voting strength of each previously outstanding share of common stock may be diminished; and

the market price of our common stock, may decline.which could make it more difficult for us to sell securities in a future financing or for you to sell our common stock.

We are required to meet the continued listing requirements of the Nasdaq Capital Market and other Nasdaq rules, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price and certain other corporate governance requirements. For example, we are required to maintain a minimum bid price for our listed common stock of $1.00 per share and maintain stockholders’ equity of at least $2.5 million. If we do not meet these continued listing requirements, our common stock could be delisted.

On August 25, 2022, we received an expected letter from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, for the last thirty consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). In addition,accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided an initial period of 180 calendar days, or until February 21, 2023, to regain compliance. The letter states that the Nasdaq staff will provide written notification that we have achieved compliance with Rule 5550(a)(2) if we issue sharesat any time before February 21, 2023, the bid price of our common stock and/closes at $1.00 per share or warrantsmore for a minimum of ten consecutive business days. The letter has no immediate effect on the listing or trading of our common stock. However, if during the compliance period the Company’s common stock has a closing bid price of $0.10 or less for ten consecutive trading days, Nasdaq will issue a Staff Delisting Determination with the potential opportunity for the Company to appeal that determination.

On November 22, 2022, we received an expected letter from Nasdaq, referred to herein as the Nasdaq Staff Deficiency Letter, indicating that our stockholders’ deficit as reported in our Quarterly Report on Form 10-Q for the period ended September 30, 2022, did not satisfy the continued listing requirement under Nasdaq Listing Rule 5550(b)(1) for the Nasdaq Capital Market, which requires that a futurelisted company’s stockholders’ equity be at least $2.5 million. As reported on our Form 10-Q for the period ended September 30, 2022, our stockholders’ deficit as of September 30, 2022 was $3.1 million. The Nasdaq Staff Deficiency Letter has no immediate effect on the listing or trading of our common stock.

We may regain compliance with Nasdaq Listing Rule 5550(b)(1) as a result of this offering; however, we may not be in compliance with Nasdaq Listing Rule 5550(b)(1) even after this offering (or,and may be out of compliance with Nasdaq’s listing requirements again in the casefuture.

In accordance with Nasdaq Listing Rule 5810(c)(2)(C), we had 45 calendar days from the date of the Nasdaq Staff Deficiency Letter, or until January 6, 2023, to submit a plan to regain compliance with Nasdaq

67


Listing Rule 5550(b)(1). Subsequent to the receipt of the Nasdaq Staff Deficiency Letter, and prior to the deadline set forth in such letter, we submitted a plan to regain compliance with Nasdaq Listing Rule 5550(b)(1) to Nasdaq. If our compliance plan was accepted by Nasdaq, then Nasdaq could, in its discretion, grant us up to 180 calendar days from the date of the Nasdaq Staff Deficiency Letter, or until May 21, 2023, to evidence compliance. If Nasdaq were to not accept our plan, then Nasdaq could issue a Staff Delisting Determination letter and we would have the opportunity to appeal that decision to a Nasdaq Hearings Panel.

On January 20, 2023, the Nasdaq staff informed us that the staff had determined to deny our request for continued listing on the Nasdaq Capital Market and that, unless we were to request an appeal of such determination, trading of our common stock would be suspended at the opening of business on January 31, 2023 and a Form 25-NSE would be filed with the Securities and Exchange Commission, which would remove our securities from listing and registration on the Nasdaq Capital Market. In reaching its decision, the Nasdaq staff indicated that its determination was based on concerns that our ability to raise additional capital through the exercise of outstandingcertain recently issued warrants to purchase our common stock)stock or other capital raising transactions, in order to cure our non-compliance with Nasdaq Listing Rule 5550(b)(1), were not within our control and such funds may be insufficient to sustain compliance over the long term. We subsequently requested a hearing before a Nasdaq Hearings Panel to appeal the Nasdaq staff’s determination, which was granted and is scheduled to occur in March 2023.

We continue to evaluate various alternative courses of action to regain compliance with the continued listing requirement under Nasdaq Listing Rule 5550(b)(1) for the Nasdaq Capital Market. However, there can be no assurance that we will be able to satisfy the Nasdaq Capital Market’s continued listing requirements, regain compliance with Nasdaq Listing Rule 5550(b)(1), or maintain compliance with the other Nasdaq continued listing requirements in the future.

Delisting from the Nasdaq Capital Market would cause us to pursue eligibility for trading of these securities on other markets or exchanges, or on the “pink sheets.” In such case, our stockholders’ ability to trade, or obtain quotations of the market value of our common stock would be severely limited because of lower trading volumes and transaction delays. These factors could contribute to lower prices and larger spreads in the bid and ask prices of these securities. There can be no assurance that our securities, if delisted from the Nasdaq Capital Market in the future, would be listed on a national securities exchange, a national quotation service, the over-the-counter markets or the pink sheets. Delisting from the Nasdaq Capital Market, or even the issuance of a notice of potential delisting, would also result in negative publicity, make it could be dilutivemore difficult for us to raise additional capital, adversely affect the market liquidity of our security holders.securities, decrease securities analysts’ coverage of us or diminish investor, supplier and employee confidence.

Future sales of our common stock or warrants may cause the market price of our securities to decline.

Sales of substantial amounts of shares of our common stock or warrants in the public market, or the perception that these sales may occur, could adversely affect the price of our securities and impair our ability to raise capital through the sale of additional equity securities. As of March 9, 2020,24, 2023, we have approximately 15.31.6 million shares of common stock outstanding, of which approximately 15.2 million shares of our outstanding common stocksubstantially all are freely tradable, or may become freely tradable, without restriction, in the public market unless held by our “affiliates,” as defined under Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”). Additionally, we have pre-funded warrants to purchase 2.1 million shares of our common stock and other warrants to purchase approximately 3.07.2 million shares of our common stock outstanding as of March 9, 2020.24, 2023. Approximately 3.09.2 million shares of common stock underlying both the Warrantspre-funded warrants and the other warrants will be freely tradable upon exercise unless held by our affiliates.

We have registered 1,305,51280,056 shares of our common stock as of March 9, 202024, 2023 that we may issue under our employee benefit plans. These shares can be freely sold in the public market upon issuance, unless pursuant to their terms these stock awards have transfer restrictions attached to them. Additionally, pursuant to the 2014 Omnibus Incentive Plan (the “2014 Plan”), our management is authorized to grant stock options and other equity

68


linked award to our employees, directors and consultants. The 2014 Plan provides that the number of shares available for future grant under our 2014 Plan will automatically increase on January 1st each year, from January 1, 2015 through January 1, 2024, by an amount equal to four percent of all shares of our capital stock outstanding as of December 31st of the preceding calendar year, subject to the ability of our board of directors to take action to reduce the size of such increase in any given year. Unless our board of directors elects not to increase the number of shares underlying our 2014 Plan each year, our stockholders may experience additional dilution, which could cause our stock price to decline.

Any failure to maintain effective internal control over financial reporting could have a significant adverse effect on our business and the price of our common stock.

Our management is required to report annually on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. Because we are no longer an emerging growth company, our independent registered public accounting firm will be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 if we, in the future, no longer qualify under the SEC exemption for low-revenue “smaller reporting companies”, as defined in Rule 12b-2 of the Exchange Act. As such, our independent registered public accounting firm may in the future issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.

In the future, we may identify material weaknesses or significant deficiencies in our internal control over financial reporting, and we may not be able to remediate them in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, we may encounter problems or delays in completing the implementation of any requested improvements and receiving a favorable attestation report from our independent registered public accounting firm, if such a report is required. We will be unable to issue securities in the public markets through the use of a shelf registration statement if we are not in compliance with Section 404. Furthermore, failure to achieve and maintain an effective internal control environment could materially adversely affect our business, reduce the market’s confidence in our common stock, adversely affect the price of our common stock and limit our ability to report our financial results accurately and timely.

We have no present intention to pay cash dividends and, even if we change that policy, we may be restricted from paying cash dividends on our common stock.

We do not intend to pay cash dividends for the foreseeable future. We currently expect to retain all future earnings, if any, for use in the development, operation and expansion of our business. Any determination to pay cash dividends in the future will depend upon, among other things, our results of operations, plans for expansion, tax considerations, available net profits and reserves, limitations under law, financial condition, capital requirements and other factors that our board of directors considers to be relevant.

Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for our securities, thereby depressing the market prices of our securities. In addition, because our board of directors is responsible for appointing the members of our management team,

69


these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:

allow the authorized number of our directors to be changed only by resolution of our board of directors;

establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;

require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;

limit who may call stockholder meetings;

authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a stockholder rights plan, or so-called “poison pill,” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and

require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or bylaws.

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

Risks Related to Cybersecurity, Data Protection and Privacy

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

In the ordinary course of our business, we store sensitive data, including intellectual property, proprietary business information and personally identifiable information, in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Our information technology systems and those of our third-party service providers, strategic partners and other contractors or consultants are vulnerable to attack and damage or interruption from computer viruses and malware (e.g. ransomware), malicious code, natural disasters, terrorism, war, telecommunication and electrical failures, hacking, cyberattacks, phishing attacks and other social engineering schemes, employee theft or misuse, human error (e.g., social engineering, phishing), fraud, denial or degradation of service attacks, sophisticated nation-state and nation-state-supported actors or unauthorized access or use by persons inside our organization, or persons with access to systems inside our organization. Attacks upon information technology systems are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives and expertise. As a result of the COVID-19 pandemic and the current conflict between Russia and Ukraine, we may also face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions. Even if identified, we may be unable to adequately investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence.

70


We and certain of our service providers are from time to time subject to cyberattacks and security incidents. While we do not believe that we have experienced any significant system failure, accident or security breach to date, any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in significant costs to address and remediate the incident, lead to legal claims or proceedings, disrupt our operations, and damage our reputation.

We maintain cyber risk insurance, but this insurance may not be sufficient to cover all of our losses from any future breaches of our systems.

Our collection, control, processing, sharing, disclosure and otherwise use of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements, and evolving laws concerning data privacy in the EU and EEA.

The global data protection landscape is rapidly evolving, and we are or may become subject to numerous state, federal and foreign laws, requirements and regulations governing the collection, use, disclosure, retention, and security of personal data, such as information that we may collect in connection with clinical trials in the U.S. and abroad. Implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, and we cannot yet determine the impact future laws, regulations, standards, or perception of their requirements may have on our business. This evolution may create uncertainty in our business, affect our ability to operate in certain jurisdictions or to collect, store, transfer use and share personal information, necessitate the acceptance of more onerous obligations in our contracts, result in liability or impose additional costs on us. The cost of compliance with these laws, regulations and standards is high and is likely to increase in the future. Any failure or perceived failure by us to comply with federal, state or foreign laws or regulation, our internal policies and procedures or our contracts governing our processing of personal information could result in negative publicity, government investigations and enforcement actions, claims by third parties and damage to our reputation, any of which could have a material adverse effect on our operations, financial performance and business.

As our operations and business grow, we may become subject to or affected by new or additional data protection laws and regulations and face increased scrutiny or attention from regulatory authorities. In the U.S., HIPAA imposes, among other things, certain standards relating to the privacy, security, transmission and breach reporting of individually identifiable health information. Certain states have also adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners. In addition, the CCPA went into effect on January 1, 2020. The CCPA creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability, and many similar laws have been proposed at the federal level and in other states. Further, the CPRA recently passed in California. The CPRA will impose additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. The majority of the provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required. Similar laws have passed in Virginia and Colorado and have been proposed in other states and at the federal level, reflecting a trend toward more stringent privacy legislation in the United States. The enactment of such laws could have potentially conflicting requirements that would make compliance challenging. In the event that we are subject to or affected by HIPAA, the CCPA, the CPRA or other domestic privacy and data protection laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.

71


Our activities outside the United States impose additional compliance requirements and generate additional risks of enforcement for noncompliance. For example, the GDPR repealed the Data Protection Directive (95/46/EC) and is directly applicable in all E.E.A. countries (which consists of the 27 EU member states plus Norway, Liechtenstein and Iceland) since its effective date of May 25, 2018. The GDPR applies to companies established in the EEA, as well as companies that are not established in the EEA and which collect and use personal data in relation to offering goods or services to, or monitoring the behavior of, individuals located in the EEA, including, for example, through the conduct of clinical trials (whether the trials are conducted directly by the company itself or through a clinical vendor or collaborators). The GDPR permits EEA countries derogations for certain matters and, accordingly, we are also subject to national laws relating to the processing of certain data such as genetic data, biometric data and health data. It imposes a strict data protection compliance regime including: providing detailed disclosures about how personal data is collected and processed (in a concise, intelligible and easily accessible form); demonstrating that valid consent or another an appropriate legal basis is in place or otherwise exists to justify data processing activities; appointing data protection officers in certain circumstances; granting new rights for data subjects in regard to their personal data (including the right to be “forgotten” and the right to data portability), as well as enhancing current rights (e.g., data subject access requests); introducing the obligation to notify data protection regulators or supervisory authorities (and in certain cases, affected individuals) of significant data breaches; imposing limitations on retention of personal data; maintaining a record of data processing; defining for the first time pseudonymized (i.e., key-coded) data; and complying with principal of accountability and complying with the obligation to demonstrate compliance through policies, procedures, training and audit.

We are also subject to EU rules with respect to cross-border transfers of personal data out of the E.E.A. These rules are under scrutiny from time to time. For example, in July 2020, the Court of Justice of the European Union (the “CJEU”) limited how organizations could lawfully transfer personal data from the EU/EEA to the United States by invalidating the EU-U.S. Privacy Shield for purposes of international transfers and imposing further restrictions on the use of standard contractual clauses (“SCCs”). Following the decision of the CJEU, the EU-U.S. Privacy Shield can no longer be used as a legal basis for transferring personal data from the European Union to the United States and the CJEU made clear that reliance on standard contractual clauses (SCCs) may not necessarily be a sufficient alternative. The European Commission issued revised SCCs on June 4, 2021 to account for the decision of the CJEU and recommendations made by the European Data Protection Board. The revised SCCs must be used for relevant new data transfers from September 27, 2021; existing standard contractual clauses arrangements must be migrated to the revised clauses by December 27, 2022. The new SCCs apply only to the transfer of personal data outside of the EEA and not the UK; the UK’s Information Commissioner’s Office launched a public consultation on its draft revised data transfers mechanisms in August 2021 and laid its proposal before Parliament, with the UK SCCs expected to come into force in March 2022, with a two-year grace period. There is some uncertainty around whether the revised clauses can be used for all types of data transfers, particularly whether they can be relied on for data transfers to non-EEA entities subject to the GDPR. As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the standard contractual clauses cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results. If we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we conduct our clinical trials and could adversely affect our business and financial results.

Further, we have had to comply with the GDPR and the GDPR as incorporated into United Kingdom national law, the latter regime having the ability to separately fine up to the greater of £17.5 million or 4% of global turnover. The European Commission has adopted an adequacy decision in favor of the UK, enabling data transfers from EU member states to the UK without additional safeguards. However, the UK adequacy decision will automatically expire in June 2025 unless the European Commission re-assesses and renews/ extends that decision and remains under review by the Commission during this period. The relationship between the UK and

72


the EU in relation to certain aspects of data protection law remains unclear, and it is unclear how UK data protection laws and regulations will develop in the medium to longer term, and how data transfers to and from the UK will be regulated in the long term. These changes may lead to additional costs and increase our overall risk exposure.

We depend on a number of third parties in relation to the operation of our business (including clinical research organizations), a number of which process personal data on our behalf. There is no assurance that our own privacy and security-related safeguards and/or any contractual measures that we enter into with these providers will protect us from the risks associated with the third-party processing, storage and transmission of such information. Any violation of data or security laws by our third-party processors could have a material adverse effect on our business and result in the fines and penalties outlined below.

Fines for certain breaches of the GDPR are significant for companies: up to the greater of 4% of total annual worldwide turnover of the preceding financial year, or €20 million. In addition to the foregoing, a breach of the GDPR could result in regulatory investigations, reputational damage, orders to cease/ change our processing of our data, enforcement notices, assessment notices (for a compulsory audit), as well potential civil claims including class action type litigation where individuals suffer harm. Our actual or alleged failure to comply with the GDPR could result in enforcement actions and significant penalties against us (as outlined above), which could result in negative publicity, increase our operating, business and/or legal costs, subject us to claims or other remedies and have a material adverse effect on our clinical trials, business, financial condition, and operations.

We are also subject to evolving EU privacy laws on cookies, and e-marketing. The EU is in the process of replacing the e-Privacy Directive with a new set of rules taking the form of a regulation, which will be directly implemented to all EEA countries. The draft E-Privacy Regulation imposes strict opt-in marketing rules with limited exceptions for business-to-business communications, alters rules on third-party cookies, web beacons and similar technology and significantly increases fining powers to the same levels as the GDPR (i.e. the greater of 20 million Euros or 4% of total global annual revenue for certain breaches). While the e-Privacy Regulation was originally intended to be adopted on May 25, 2018 (alongside the GDPR), it is still going through the European legislative process and commentators now expect it to be adopted during 2021, after which a two-year transition period will follow before it is in force. We are likely to be required to expend further capital and other resources to ensure compliance with these changing laws and regulations.

Although we work to comply with applicable laws, regulations and standards, our contractual obligations and other legal obligations, these requirements are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another or other legal obligations with which we must comply. Any failure or perceived failure by us or our employees, representatives, contractors, consultants, collaborators, or other third parties to comply with such requirements or adequately address privacy and security concerns, even if unfounded, could result in additional cost and liability to us, damage our reputation, and adversely affect our business and results of operations.

General Risk Factors

We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful, and which could result in our patents or other intellectual property rights becoming invalidated.

Competitors may infringe our or our licensors’ patents, trademarks, copyrights or other intellectual property. To stop infringement or unauthorized use, we or our licensors may be required to file infringement claims, which can be expensive and time consuming. Any claims we or our licensors assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that some or all of our patents or other intellectual property rights are not valid or that we or our licensors infringe their patents or other intellectual

73


property rights. In addition, in a patent infringement proceeding, a court may decide that a patent of ours or our licensors is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly, or may refuse to stop the other party from using the technology at issue on the grounds that such patents do not cover the technology in question and therefore cannot be infringed. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid, unenforceable, or not infringed, or that the party against whom we have asserted trademark infringement claims has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such marks. In any infringement litigation, any award of monetary damages may be unlikely or very difficult to obtain, and any such award we may receive may not be commercially valuable. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that we could incur substantial litigation costs or that some of our confidential information could be compromised by disclosure during this type of litigation.

Third parties may initiate legal proceedings alleging that we or our licensors are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

Our commercial success depends upon our ability to develop, manufacture, market, or sell our or our licensors’ product candidates and use our proprietary technologies without infringing the intellectual property and other proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including reexamination or interference proceedings before the U.S. Patent and Trademark Office. Third parties may assert infringement claims against us based on existing or future intellectual property rights.

If we or our licensors are found to infringe a third party’s intellectual property rights, we or our licensors could be enjoined from further using certain products and technology or may be required to obtain a license from such third party to continue developing and marketing such products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent or other intellectual property rights of a third party. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

Intellectual property litigation could cause us to spend substantial resources and could distract our personnel from their normal responsibilities.

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development, sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct or defend such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial 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.

In addition to seeking patents for some of our technology and products, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive

74


position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. However, we cannot guarantee that we have executed these agreements with each party that may have or have had access to our trade secrets, nor can we guarantee that such agreements will always be adequately drafted so as to be enforceable. If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, because of potential differences in laws in different jurisdictions, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.

We may issue additional shares of common stock, warrants or other securities to finance our growth.

We may finance the development of our product pipeline or generate additional working capital through additional equity financing. Therefore, subject to the rules of the Nasdaq, we may issue additional shares of our common stock, warrants and other equity securities of equal or senior rank, with or without stockholder approval, in a number of circumstances from time to time. The issuance by us of shares of our common stock, warrants or other equity securities of equal or senior rank will have the following effects:

the proportionate ownership interest in us held by our existing stockholders will decrease;

the relative voting strength of each previously outstanding share of common stock may be diminished; and

the market price of our common stock may decline.

In addition, if we issue shares of our common stock and/or warrants in a future offering (or, in the case of our common stock, the exercise of outstanding warrants to purchase our common stock), it could be dilutive to our security holders.

If shares of our common stock become subject to the penny stock rules, it would become more difficult to trade them.

The SEC has adopted regulations which generally define a “penny stock” to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions, including an exemption for any securities listed on a national securities exchange. The rules impose additional sales practice requirements on broker-dealers for transactions involving “penny stock”, with some exceptions. If shares of our common stock were delisted from the Nasdaq Capital Market and determined to be “penny stock”, broker-dealers may find it more difficult to trade such securities and investors may find it more difficult to acquire or dispose of such securities on the secondary market.

There can be no assurance that we will ever provide liquidity to our investors through a sale of our company.

While acquisitions of pharmaceutical companies like ours are not uncommon, potential investors are cautioned that no assurances can be given that any form of merger, combination, or sale of our company will take place, or that any merger, combination, or sale, even if consummated, would provide liquidity or a profit for our investors. You should not invest in our company with the expectation that we will be able to sell the business in order to provide liquidity or a profit for our investors.

75


We incur significant costs as a result of operating as a public company and our management is required to devote substantial time to complying with public company regulations.

As a public company, we incur significant legal, accounting and other expenses, including costs associated with our public company reporting requirements under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We must also follow the rules, regulations and requirements subsequently adopted by the SEC and the Nasdaq and any failure by us to comply with such rules and requirements could negatively affect investor confidence in us and cause the market price of our common stock to decline. Our executive officers and other personnel also need to devote substantial time and financial resources to comply with these rules, regulations and requirements.

The rules and regulations applicable to public companies have substantially increased our legal and financial compliance costs and made some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations. The increased costs decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business. For example, 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 incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

Any failure to maintain effective internal control over financial reporting couldUnstable market and economic conditions may have a significantserious adverse effectconsequences on our business, financial condition and share price.

The global economy, including credit and financial markets, has recently experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, the failure of multiple financial institutions, rising interest and inflation rates, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. If the equity and credit markets continue to deteriorate or the United States enters a recession, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. If any of our financial institutions fail, the funds in operating accounts at our financial institutions could exceed FDIC insurance limits and our cash balances could be negatively impacted. In addition, there is a risk that one or more of our CROs, suppliers or other third-party providers may be impacted by financial institution failure or not survive an economic downturn or recession. As a result, our business, results of operations and price of our common stock.shares may be adversely affected.

Our management is required to report annually on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. Because we are no longer an emerging growth company, our independent registered public accounting firm will be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 if we, in the future, are an accelerated filer or a large accelerated filer, as defined in Rule12b-2 of the Exchange Act. As such, our independent registered public accounting firm may in the future issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.

In the future, we may identify material weaknesses or significant deficiencies in our internal control over financial reporting, and we may not be able to remediate them in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, we may encounter problems or delays in completing the implementation of any requested improvements and receiving a favorable attestation report from our independent registered public accounting firm, if such a report is required. We will be unable to issue securities in the public markets through the use of a shelf registration statement if we are not in compliance with Section 404. Furthermore, failure to achieve and maintain an effective internal control environment could materially adversely affect our business, reduce the market’s confidence in our common stock, adversely affect the price of our common stock and limit our ability to report our financial results accurately and timely.

Reports published by analysts, including projections in those reports that exceed our actual results, could adversely affect the price and trading volume of our common stock.

The projections of securities research analysts may vary widely and may not accurately predict the results we actually achieve. The price of our common stock may decline if our actual results do not match the projections of these securities research analysts. Similarly, if one or more of the analysts who write reports on us downgrades our stock or publishes inaccurate or unfavorable research about our business, the price of our common stock could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, the price or trading volume of our common stock could decline.

If securities or industry analysts do not publish research or reports about our business, the prices of our securities and trading volume could decline.

The trading market for our securities depends, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If no securities or industry analysts commence coverage of our company, the trading prices for our securities may be negatively impacted.

76


We have broad discretion in the use of the net proceeds from our public offerings and private placement and may not use them effectively.

Our management has broad discretion in the application of the net proceeds from our public offerings and private placement and could spend the proceeds in ways that do not enhance the value of our common stock. Because of the number and variability of factors that will determine our use of the net proceeds from our completed offerings, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could delay the development of our product candidates or have a material adverse effect on our business. Pending their use, we may invest the net proceeds from the offerings in a manner that does not produce income or that loses value. If we do not apply or invest the net proceeds from the offerings in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause the price of our securities to decline.

We have no present intention to pay cash dividends and, even if we change that policy, we may be restricted from paying cash dividends on our common stock.

We do not intend to pay cash dividends for the foreseeable future. We currently expect to retain all future earnings, if any, for use in the development, operation and expansion of our business. Any determination to pay cash dividends in the future will depend upon, among other things, our results of operations, plans for expansion, tax considerations, available net profits and reserves, limitations under law, financial condition, capital requirements and other factors that our board of directors considers to be relevant.

Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for our securities, thereby depressing the market prices of our securities. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:

allow the authorized number of our directors to be changed only by resolution of our board of directors;

establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;

require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;

limit who may call stockholder meetings;

authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a shareholder rights plan, orso-called “poison pill,” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and

require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or bylaws.

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

Risks Related to Cybersecurity, Data Protection and Privacy

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

In the ordinary course of our business, we store sensitive data, including intellectual property, proprietary business information and personally identifiable information, in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in significant costs to address and remediate the incident, lead to legal claims or proceedings, disrupt our operations, and damage our reputation.

We maintain cyber risk insurance, but this insurance may not be sufficient to cover all of our losses from any future breaches of our systems.

Our collection, control, processing, sharing, disclosure and otherwise use of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements, and evolving laws concerning data privacy in the E.U. and E.E.A.

The regulatory environment with regard to privacy and data protection issues is increasingly challenging. For example, the GDPR repealed the Data Protection Directive (95/46/EC) and is directly applicable in all E.U. and E.E.A. Member States since its effective date of May 25, 2018. The GDPR applies to companies established in the E.U. or E.E.A., as well as companies that are not established in the E.U. or E.E.A. and which collect and use personal data in relation to offering goods or services to, or monitoring the behavior of, individuals located in the E.U. or E.E.A., including, for example, through the conduct of clinical trials (whether the trials are conducted directly by the company itself or through a clinical vendor or collaborators). The GDPR permits E.U. and E.E.A. Member State derogations for certain matters and, accordingly, we are also subject to E.U. national laws relating to the processing of certain data such as genetic data, biometric data and health data. It imposes a strict data protection compliance regime including: providing detailed disclosures about how personal data is collected and processed (in a concise, intelligible and easily accessible form); demonstrating that valid consent or another an appropriate legal basis is in place or otherwise exists to justify data processing activities; appointing data protection officers in certain circumstances; granting new rights for data subjects in regard to their personal data (including the right to be “forgotten” and the right to data portability), as well as enhancing current rights (e.g., data subject access requests); introducing the obligation to notify data protection regulators or supervisory authorities (and in certain cases, affected individuals) of significant data breaches; imposing limitations on retention of personal data; maintaining a record of data processing; defining for the first time pseudonymized (i.e.,key-coded) data; and complying with principal of accountability and complying with the obligation to demonstrate compliance through policies, procedures, training and audit.

We are also subject to E.U. rules with respect to cross-border transfers of personal data out of the E.U. and E.E.A. These rules are under scrutiny from time to time. For example, there is ongoing litigation challenging the E.U. Commission approved model clauses (also called standard contractual clauses), which is a commonly used transfer mechanism under the GDPR. It is uncertain whether the model clauses will be invalidated by the European courts.

We depend on a number of third parties in relation to the operation of our business (including clinical research organizations), a number of which process personal data on our behalf. There is no assurance that our own privacy and security-related safeguards and/or any contractual measures that we enter into with these providers will protect us from the risks associated with the third-party processing, storage and transmission of such information. Any violation of data or security laws by our third-party processors could have a material adverse effect on our business and result in the fines and penalties outlined below.

Fines for certain breaches of the GDPR are significant: up to the greater of 4% of total worldwide turnover, or €20 million. In addition to the foregoing, a breach of the GDPR could result in regulatory investigations, reputational damage, orders to cease/ change our processing of our data, enforcement notices, assessment notices (for a compulsory audit), as well potential civil claims including class action type litigation where individuals suffer harm. Our actual or alleged failure to comply with the GDPR could result in enforcement actions and significant penalties against us (as outlined above), which could result in negative publicity, increase our operating, business and/or legal costs, subject us to claims or other remedies and have a material adverse effect on our clinical trials, business, financial condition, and operations.

We are also subject to evolving E.U. privacy laws on cookies, ande-marketing. The E.U. is in the process of replacing thee-Privacy Directive with a new set of rules taking the form of a regulation. The draftE-Privacy Regulation imposes strictopt-in marketing rules with limited exceptions forbusiness-to-business communications, alters rules on third-party cookies, web beacons and similar technology and significantly increases fining powers to the same levels as the GDPR (i.e. the greater of 20 million Euros or 4% of total global annual revenue). While thee-Privacy Regulation was originally intended to be adopted on May 25, 2018

(alongside the GDPR), it is still going through the European legislative process and commentators now expect it to be adopted during the second half of 2020 or during 2021 following a transition period. We are likely to be required to expend further capital and other resources to ensure compliance with these changing laws and regulations.

We are also subject to applicable U.S. state privacy and data security laws and regulations in the states in which we operate, such as the new California Consumer Privacy Act (“CCPA”) effective as of January 2020. The CCPA provides for a private right of action for unauthorized access, theft or disclosure of personal information in certain situations with possible damage awards of $100 to $750 per consumer per incident, or actual damages, whichever is greater, and also permits class action lawsuits. In order to comply with such laws, we may incur substantial expenses, which may divert resources from other initiatives, and a failure to comply could impact our clinical trials, financial condition and operations.

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

Our corporate headquarters and laboratory is located in Yonkers, New York. This 15,000 sq. ft. mixed use office, laboratory space consists of open laboratory and suites for molecular biology, microbiology, tissue culture, microscopy, a vivarium, and a robotics suite. This facility is leased through December 31, 2027.

Item 3. Legal Proceedings

None

Item 4. Mine Safety Disclosures

None

77


PART II

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

Market Information

Our common stock is publicly traded on the Nasdaq Capital Market under the symbol “CFRX”.

Holders

On March 9, 2020, the last reported sale price for our common stock on the Nasdaq Capital Market was $7.68 per share. As of March 9, 2020,24, 2023, there were approximately 1,60071 holders of record of our common stock. This number does not include beneficial owners whose shares are held by nominees in street name.

Dividends

We have not declared or paid any cash dividends on our capital stock since our inception. We intend to retain future earnings, if any, to finance the operation and expansion of our business and do not anticipate paying any cash dividends to holders of common stock in the foreseeable future.

RecentUnregistered Sales of Unregistered Securities;Equity Securities

OnOther than sales previously reported in the Company’s Current Report on Form 8-K filed with the SEC on December 9, 2019, we entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Pfizer Inc. (“Pfizer”), pursuant to which we, in a private placement transaction (the “Private Placement”), agreed to issue and sell to Pfizer an aggregate of $3.0 million of shares (the “Private Shares”) of common stock, par value $0.0001 per share, at a purchase price equal to the price per share to be offered to the public in a concurrent public offering of common stock. On December 12, 2019,14, 2022, the Company announceddid not sell any unregistered securities during the closing of the Private Placement concurrently with the closing of such public offering. In accordance with the Stock Purchase Agreement, at the closing, the Company issued and sold 1,111,111 shares (as adjusted to reflect our 20201-for-10 reverse stock split) sold pursuant to a private placement of our common stock to Pfizer Inc. at a price of $2.70 per share generating net proceeds of $3.0 million. The Private Placement was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and corresponding provisions of state securities or “blue sky” laws, as a transactionperiod covered by an issuer not involving a public offering.this report.

Purchases of Equity Securities by the Issuer or Affiliated Purchaser

We did not repurchase any of our equity securities or issue any securities that were not registered under Securities Act during the quarter ended December 31, 2019.2022.

Item 6. Selected Financial DataReserved

The following selected financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, the financial statements and the notes thereto and other financial information included elsewhere in this Annual Report on Form10-K.

We derived the financial data for the years ended December 31, 2019, 2018 and 2017 and as of December 31, 2019 and 2018 from our audited financial statements, which are included elsewhere in this Annual Report on Form10-K. We derived the financial data for the years ended December 31, 2016 and 2015 and as of December 31, 2017, 2016 and 2015 from our audited financial statements that are not included elsewhere in this Annual Report on Form10-K. The selected financial data in this section are not intended to replace our financial statements and related notes. Our historical results are not necessarily indicative of our future results.

   Year Ended December 31, 

Statement of Operations Data

  2019  2018  2017  2016  2015 

Loss from operations

  $(27,866,448 $(31,124,425 $(26,563,757 $(33,532,246 $(25,065,336

Net loss attributable to common stockholders

  $(12,794,493 $(37,668,424 $(15,517,658 $(28,538,399 $(25,120,964

Net loss per share of common stock, basic and diluted

  $(1.54 $(4.95 $(2.79 $(8.51 $(10.77

   As of December 31, 

Balance Sheet Data

  2019   2018   2017   2016   2015 

Cash, cash equivalents and marketable securities

  $24,184,140   $30,452,253   $46,853,910   $35,161,154   $32,921,653 

Total assets

   35,008,709    32,872,571    50,189,479    37,624,470    35,861,137 

Long-term liabilities

   9,405,853    21,533,592    14,575,366    13,693,419    1,416,443 

Total stockholders’ equity

   15,544,906    5,541,960    31,193,445    19,512,854    30,675,510 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk factors” section of this Annual Report on Form10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

All share and per share amounts have been adjusted to reflect a one-for-eighty reverse stock split effected on February 14, 2023

Overview

We are a clinical-stage biotechnology company focused on the discovery and development of direct lytic agents (DLAs)(“DLAs”), including lysins and amurin peptides, as new medical modalities for the treatment of life-threatening, antibiotic-resistant infections. Antibiotic-resistant infections account for 2,000,000 illnesses in the United States and 700,000 deaths worldwide each year. We intend to address antibiotic-resistant infections using product candidates from our lysin and amurin peptide platforms.believe DLAs are fundamentally different than antibiotics and offer a potential paradigm shift in the treatment of antibiotic-resistant infections. According to one of the most recent and comprehensive reports on the global burden of bacterial antimicrobial resistance (“AMR”), there were an estimated 4.95 million deaths associated with bacterial AMR in 2019, including 1.27 million deaths directly attributable to bacterial AMR. The six leading pathogens for deaths associated with resistance (Escherichia coli

78


(“E. coli”), Staphylococcus aureus (“S. aureus”), Klebsiella pneumoniae (“K. pneumoniae”), Streptococcus pneumoniae, Acinetobacter baumannii (“A. baumannii”), and Pseudomonas aeruginosa (“P. aeruginosa”)) were responsible for 929,000 deaths. Only one pathogen–drug combination, methicillin-resistant S. aureus (“MRSA”), caused more than 100,000 deaths in 2019.

Lysins are recombinantly-produced enzymes, thatenzymes; when applied to bacteria, they cleave a key component of the target bacteria’s peptidoglycan cell wall, resulting in rapid bacterial cell death. In addition to the speed of action and potent cidality, we believe lysins are differentiated by their other hallmark features, which include the demonstrated ability to eradicate biofilms and synergistically boost the efficacy of conventional antibiotics in animal models. Lysins also tend to have a “targeted spectrum,” meaning they kill only specific species of bacteria or closely related bacteria. Amurin peptides are a new class of direct lytic agents,DLAs, discovered in our laboratories, which disrupt the outer membrane of gram-negative bacteria, resulting in rapid bacterial cell death, offering a distinct mechanism of action from lysins. Amurins are further differentiated from lysins byhave a potent, “broad spectrum”broad spectrum of in vitro activity against a wide range of gram-negative pathogens, in, including deadly, drug-resistantPseudomonasP. aeruginosa (“P. aeruginosa”),KlebsiellaK. pneumoniae, EscherichiaE. coli, AcinetobacterA. baumanniiand Enterobacter cloacaebacteria species as well as difficult to treat pathogens such asStenotrophomonas,Achromobacter and some Burkholderiaspecies. The highly differentiated properties of DLAs have shown these agents to be complimentary to and synergistic with conventional antibiotics enabling theunderscore their potential use of these agents in addition to conventional antibiotics with the goal of improving clinical outcomes compared to conventional antibiotics alone. The development of these compoundsDLAs involves a novel clinical and regulatory strategy, using superiority design clinical trials with the goal of delivering significantly improved clinical

outcomes for the treatment ofpatients with serious and/or antibiotic-resistant bacterial infections, including biofilm-associated infections. ThisWe believe this approach affords potential clinical benefits to patients as well as the potential ability to mitigate against further development of antibiotic resistance.

We have not generated any revenues and, to date, have funded our operations primarily through our IPO,initial public offering (“IPO”), ourfollow-on public offerings, private placements of securities, and grant funding received.

On December 18, 2019, weMarch 10, 2021, the Company entered into a cost-share contract (the “BARDA Contract”) with BARDA, a division of the U.S. Department of Health and Human Services’ Office of the Assistant Secretary for Preparedness and Response. The base period for the BARDA Contract included government funding of up to $9.8 million to reimburse expenses to support the conduct of the Phase 3 DISRUPT study and futility analysis. In connection with the Trial Closure, the BARDA Contract was modified to provide for up to $6.6 million in funding to support a futility outcome root-cause analysis and the close-out of the Phase 3 DISRUPT study of exebacase.

On March 22, 2021, the Company completed an underwritten public offering under the Company’s registration statement on Form S-3 (Reg. No. 333-246359) (the “Form-S-3”). The Form S-3 was declared effective by the SEC on August 31, 2020 and allows the Company to offer and sell from time-to-time up to $150.0 million of 2,565,000common stock, preferred stock, debt securities, warrants or units comprised of any combination of these securities. The Company issued 143,750 shares of ourits common stock, including shares sold pursuant to the fully exercised overallotment option granted to the underwriters in connection with the offering, at a public offering price of $3.90 per share. On December 12, 2019, we completed an underwritten public offering of 3,715,000 shares of its common stock at a public offering price was $2.70$400.00 per share, and a concurrent private placement of 1,111,111 shares of common stock to Pfizer at a price of $2.70 per share. The combinedresulting in net proceeds to the Company of both public offerings together with the private placement was $21.3$53.8 million after underwriting discounts and commissions and offering expenses payable by us. The preceding amountsthe Company.

On December 15, 2022, the Company completed (i) a registered direct offering under the Form S-3 of 54,375 shares of its common stock and a pre-funded warrant to purchase 623,919 shares of common stock have been adjusted(the “Pre-Funded Warrant”) and (ii) a concurrent private placement in which the Company issued a Class A warrant to reflect the reverse stock splitpurchase up to an aggregate of our1,356,589 shares of common stock at(the “Class A Warrant”) and a ratioClass B warrant to purchase up to an aggregate of1-for-10 678,294 shares of common stock (the “Class B Warrant” and together with the Class A Warrant, the “2022 Warrants”) (collectively, the “2022 Offering”). All shares of common stock, the Pre-Funded Warrant, the Class A Warrant and the Class B Warrant were issued together to a single accredited investor purchaser for consideration equating to $10.32 share of common stock (or Pre-Funded Warrant to purchase one share of common stock, less a nominal exercise price), together with a Class A Warrant to purchase two shares of common stock and a Class B warrant to purchase one share of common stock, in the case of each of

79


the Class A Warrant and Class B Warrant, for no additional consideration but each with an exercise price per share of $10.32, for aggregate net proceeds to the Company of $6.1 million after placement agent fees and offering expenses payable by the Company.

On January 31, 2023, the stockholders of the Company approved the issuance of all shares of common stock issued in, or issuable pursuant to the exercise of the Pre-Funded Warrant or 2022 Warrants issued in, the 2022 Offering as was required by the applicable rules and regulations of the Nasdaq Stock Market, the approval of which, together with the approval and effectiveness of the 1-for-80 reverse stock-split effected on February 3, 2020.14, 2023, commenced the exercisability of the 2022 Warrants as of February 14, 2023.

On March 2, 2023, the Company completed (i) a registered direct offering under the Form S-3 of 128,000 shares of its common stock and a pre-funded warrant to purchase 2,372,000 shares of common stock and (ii) a concurrent private placement in which the Company issued a warrant to purchase up to an aggregate of 5,000,000 shares of common stock (collectively, the “2023 Offering). All securities in the 2023 Offering were issued to the same single accredited investor purchaser as in the 2022 Offering for consideration equating to $4.00 per share of common stock (or pre-funded warrant to purchase one share of common stock, less a nominal exercise price), together with a warrant to purchase two shares of common stock for no additional consideration but with an exercise price per share of $4.00, for aggregate estimated net proceeds to the Company of $9.2 million after placement agent fees and offering expenses payable by the Company.

We have never been profitable and our net losses from operations were $12.8$64.6 million, $37.7$47.3 million and $15.5$34.2 million for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively. As of December 31, 2022, we had an accumulated deficit of $325.7 million. For the year ended December 31, 2022, the Company used $46.0 million of cash in operations. We expect to incur significant expenses and increasing operating losses for the foreseeable future. We expect ourthe expenses for each program to increase in connection with our ongoing activities, particularly as wecandidates advance our product candidates through preclinical activities and clinical trials to seek regulatory approval and, if approved, commercialize such product candidates.commercialization. Accordingly, we will need additional financing to support our continuing operations.operations and to continue as a going concern. We expect to seek to fund our operations through public or private equity, debt financings, equity-linked financings, collaborations, strategic alliances or transactions, licensing arrangements, research grants or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all.all, particularly in light of the Trial Closure (as defined below) and the substantial decline in the price of our common stock. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. Without additional funding, the Company believes it will not have sufficient funds to meet its obligations within the next twelve months from the date of issuance of the consolidated financial statements included in this Annual Report on Form 10-K. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The recent substantial decline in the price per share of our common stock will likely make it more difficult for us to obtain financing. Moreover, if we are delisted from the Nasdaq Stock Market LLC, it may become more difficult for us to obtain equity financing. For additional information regarding risks associated with potential delisting, see Part I, Item 1A, “We are required to meet the Nasdaq Capital Market’s continued listing requirements and other Nasdaq rules, or we may risk delisting. Delisting could negatively affect the price of our common stock and could make it more difficult for us to sell securities in a future financing or for you to sell our common stock”. If potential collaborators decline to do business with us or potential investors decline to participate in any future financings due to such concerns, our ability to increase our cash position may be limited. We will need to generate significant revenues to achieve profitability, and we may never do so.

Financial Operations Overview

Revenue

We have not generated any revenues to date. In the future, we may generate revenues from product sales. In addition, to the extent we enter into licensing or collaboration arrangements, we may have additional sources of revenue. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the amount and timing of payments that we may recognize upon the sale of our products, to the extent that any products are

80


successfully commercialized, and the amount and timing of fees, reimbursements, milestone and other payments received under any future licensing or collaboration arrangements. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

Research and development expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts, and the development of our product candidates, which include:

 

employee-related expenses, including salaries, benefits, travel andnon-cash share-based compensation expense;

employee-related expenses, including salaries, performance bonuses, benefits, travel and non-cash stock-based compensation expense;

 

external research and development expenses incurred under arrangements with third parties such as contract research organizations, or CROs, contract manufacturers, consultants and academic institutions; and

 

facilities and laboratory and other supplies.

We expense research and development costs to operations as incurred. We account fornon-refundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received, rather than when the payment is made.

The following summarizes our most advanced current research and development programs.

Exebacase

Our most advanced clinicalfirst DLA product candidate, exebacase, is currently being studied in an investigational novel lysin that targetsStaphylococcusongoing Phase 1b/2 study in patients with chronic prosthetic joint infections (“PJIs”) of the knee due to S. aureus (“Staph aureus”), including methicillin-resistant (“MRSA”) strains, which causes serious infections such as bacteremia, pneumonia or coagulase-negative Staphylococci. In addition to PJIs, Staphylococci, and osteomyelitis.StaphS. aureus in particular, is also a common cause of bacteremia, pneumonia and osteomyelitis as well as biofilm-associated infections of heart valves (endocarditis), prosthetic joints, indwelling devices and catheters. These infections result in significant morbidity and mortality despite currently available antibiotic therapies.

Exebacase completedis the first lysin to enter U.S. clinical trials and represents a Phase 2 superiority study that evaluated its safety, tolerability, efficacy and pharmacokinetics (“PK”)first-in-class anti-bacterial therapeutic candidate. Exebacase was granted Breakthrough Therapy designation for development as a treatment for MRSA bloodstream infections (bacteremia), including right-sided endocarditis, when used in addition to background standard of carestandard-of-care (“SOC”) anti-staphylococcal antibiotics compared to SOC antibiotics alone for the treatment ofStaph aureus bacteremia, including endocarditis in adult patients. In January 2019, we announced topline results from this study which showed clinically meaningful improvementpatients, by the U.S. Food and Drug Administration (“FDA”) in clinical responder rates among patients treated with exebacase in addition to SOC antibiotics compared to SOC antibiotics alone.

In theFebruary 2020. The Phase 2 study, the primary efficacy analysis population of 116 patients with documentedStaph aureusbacteremia, including endocarditis, who received a single intravenous (“IV”) infusion of blinded study drug, the clinical responder rate at Day 14 was 70.4% for patients treated with exebacase and 60.0% for patients dosed with SOC antibiotics alone (p=0.314). The clinical responder rate at Day 14 in the subset of patients with bacteremia including right-sided endocarditis was 80.0% for patients treated with exebacase compared to 59.5% for patients treated with SOC antibiotics alone, an increase of 20.5% (p=0.028). In the subset of patients with bacteremia alone, the clinical responder rate at Day 14 was 81.8% for patients treated with exebacase compared to 61.5% for patients treated with SOC antibiotics alone, an increase of 20.3% (p=0.035). In a pre-specified analysis of MRSA-infected patients, the clinical responder rate at Day 14 in patients treated with exebacase was nearly 43-percentage points higher than in patients treated with SOC antibiotics alone (74.1% for patients treated with exebacase compared to 31.3% for patients treated with SOC antibiotics alone (p=0.010)). In addition to the higher rate of clinical response, MRSA-infected patients treated with exebacase showed a 21-percentage point reduction in 30-day all-cause mortality (p=0.056), a four day lower mean length of hospital stay and meaningful reductions in hospital readmission rates. Exebacase was well-tolerated and treatment emergent adverse events, including serious treatment-emergent serious adverse events (“SAEs”) were balanced between the treatment groups. There were no SAEs that we determined to be related to exebacase, there were no reports of hypersensitivity related to exebacase and no patients discontinued treatment with study drug in either treatment group. We believe these data have established proof of concept for exebacase and for DLAs as therapeutic agents. In particular, the data for MRSA-infected patients treated with exebacase which in this study, demonstrated superior outcomes in clinical response at Day 14 and in 30-day all-cause mortality as well as health economics benefits provided the basis for our proposed Phase 3 study design and our application forthe FDA to grant Breakthrough Therapy designation to the U.S. Food and Drug Administration (“FDA”).designation.

In SeptemberDecember 2019, we held anEnd-of-Phase 2 meeting withinitiated the FDA regarding the results from the Phase 2 study and the potential for advancing exebacase into Phase 3 clinical development based on the data discussed above. We obtained concurrence with the FDA on key design features of the Phase 3 protocol, including the endpoints and the size of the safety database that would be needed to support a Biologics License Application (“BLA”) for approval of exebacase, under the FDA’s “streamlined development” paradigm for agents to treat bacterial infections associated with high unmet medical need. Based on the outcome of the meeting, we proceeded to initiate the single Phase 3 DISRUPT (Direct Lysis ofStaphS. aureus Resistant Pathogen Trial) superiority design study of exebacase in December 2019.exebacase. The DISRUPT study iswas a randomized, double-blind, placebo-controlled Phase 3 clinical trial conducted in the U.S. alone to assess the efficacy and safety of exebacase in approximately

350adult and adolescent patients with complicatedStaphS. aureus bacteremia, including right-sided endocarditis. Patients entering the study will bewere randomized 2:1 to either exebacase or placebo, with all patients receiving SOC antistaphylococcal antibiotics. The primary efficacy endpoint of the study is clinical response at Day 14 in patients with MRSA bacteremia, including right-sided endocarditis. Secondary endpoints will includeincluded clinical response at Day 14 in the AllStaphS. aureus patient group (MRSA and methicillin-sensitiveStaphS. aureus (“MSSA”)),30-dayall-cause30-day all-cause mortality in MRSA patients, and clinical response at later timepoints. We will also evaluate

In July 2022, the impactData Safety Monitoring Board (“DSMB”) of treatment with exebacase on health resource utilization, including hospital length of stay, ICU length of stay and30-day readmission rates. We plan to conduct anthe Company’s Phase 3 DISRUPT study completed a pre-specified, interim futility analysis followingand recommended that the enrollmentDISRUPT study be stopped

81


because the conditional power of the study was below the pre-specified threshold for futility in the DSMB charter. The recommendation was based on an analysis of the clinical response rate at day 14 (the primary efficacy endpoint of the study) in 84 patients, or approximately 60% of the total planned MRSA population with bacteremia, including right-sided endocarditis. Based on the DSMB’s recommendation, patient enrollment in the Phase 3 trial was stopped and the trial was closed (“Trial Closure”). We continued to monitor all already enrolled patients and all patients completed their follow-up visits. We also expect to complete all clinical study population.reports as required by the FDA.

The FDA recently granted Breakthrough Therapy designationWe plan to continue to review the totality of our clinical data with exebacase in bacteremia patients and our internal and external discussions will inform the next steps and any potential opportunities for further development of exebacase for the treatment of MRSA bloodstreamS. aureus bacteremia.

On September 30, 2022, we submitted a Clinical Trial Authorization (“CTA”) with the French National Agency for the Safety of Medicines and Health Products (“ANSM”) for the study of intra-articular exebacase in patients with chronic prosthetic joint infections (bacteremia), including right-sided endocarditis, when usedof the knee due to S. aureus or coagulase-negative Staphylococci (“CoNS”). The CTA was approved by ANSM in November 2022 and, following IRB/EC approval of the study protocol, we have recently opened the site in order to initiate dosing of patients. We expect to report interim clinical data from the first cohort of patients in the second half of 2023.

The approved trial is a Phase 1b/2 study of exebacase in the setting of an arthroscopic debridement with joint retention and systemic antibiotics (DAIR) procedure in patients with chronic PJI of the knee due to S. aureus and/or CoNS. The study is a randomized, double-blind, placebo-controlled two-part clinical study to be conducted at a single center in France to assess the efficacy and safety of exebacase. Part 1 will evaluate the safety, PK, early clinical outcomes, and microbiologic response in patients through Day 42. Up to 2 dose levels of intra-articularly administered exebacase in addition to SOC anti-staphylococcalsystemic antibiotics will be studied in adult patients, based on the final data from the Phase 2 superiority trial of exebacase. Breakthrough Therapy designation is a program designed by the FDAup to expedite the development and review of medicines for serious or life-threatening diseases where preliminary clinical evidence suggests that the investigational therapy may demonstrate substantial improvement on at least one clinically significant endpoint over available therapies. The Breakthrough Therapy designation provides additional benefits, such as intensified interactions with the FDA and the potential for priority review, over the Fast Track designation granted to exebacase in August 2015.

We performed a Phase 3 simulation analysis using the actual Phase 2 data to evaluate the clinical outcomes for the Phase 2 patient population that meetscohorts. Part 2 will consist of a long-term follow-up study of safety and efficacy parameters in patients who complete Part 1 of the Phase 3 inclusion criteria. In this simulated Phase 3 population of 84 U.S.study. Follow-up assessments will be performed on Days 90, 180, 360 and 720, including health resource utilization and QoL measures. Patients entering the study will be randomized 3:1 to either exebacase or placebo, with all patients with documentedStaph aureusbacteremia, including right-sided endocarditis, who received a single IV infusion of blindedreceiving study drug the clinical responder rate at Day 14 was 83.7% for patients treated with exebacase and 54.3% for patients dosed with SOC antibiotics alone, an improvement in responder rate of 29.4%. The clinical responder rate at Day 14 in the subsetsetting of patients with MRSA bacteremiaa DAIR Procedure.

CF-370

Our next product candidate, CF-370, is designed to target a range of gram-negative bacteria, including right-sided endocarditis was 82.6% for patients treated with exebacase compared to 33.3% for patients treated with SOC antibiotics alone, an improvement in responder rate of 49.3%. In the subset of patients with MSSA bacteremia including right-sided, the clinical responder rate at Day 14 was 84.6% for patients treated with exebacase compared to 66.7% for patients treated with SOC antibiotics alone, an increase of 17.9%.

Other programs

We have developed a novel, engineered variant of exebacase, known asCF-296, which we believe provides an additional opportunity for a potential targeted therapy for deep-seated, invasive biofilm-associatedStaph aureus infections. We are conducting furtherin vitroP. aeruginosa, K. pneumoniae and A. baumannii, and has demonstrated potent in vivo characterization ofCF-296 to determine the full profile of this compound. We have been awarded up to $7.2 million of funding from the Military Infectious Diseases Research Program, United States Army Medical Research activity against these pathogens, even against multidrug-resistant (“MDR”) and Development Commandextensively drug-resistant (“USAMRDC”XDR”) over the course of three years to advanceCF-296 throughIND-enabling studies.

We have discovered and engineered a new lysin product candidate,CF-370, with potent activity in preclinical studies against antibiotic-resistantP. aeruginosabacteria,strains. Gram-negative pathogens are a major cause of morbidity and mortality in patients with hospital acquiredhospital-acquired or ventilator-associated pneumonia andP. aeruginosa remains a major medical challenge for cystic fibrosis patients with cystic fibrosis. chronic lung infections.

We believe that agents which target P. aeruginosa, K. pneumoniae, Enterobacteriaceae and E. coli will be important therapeutic options for the treatment of serious, potentially life-threatening invasive infections caused by MDR and XDR pathogens. Because of the novel mechanism by which direct lytic agents kill bacteria and the lack of observable cross resistance to conventional antibiotics, KPC, NDM and similar enzymes are not expected to have any effect on the activity of our therapeutic agents. We believe that direct lytic agents help to improve clinical outcomes and decrease mortality of infections caused by these pathogens.

We have initiatedstudied CF-370 in multiple animal models with external organizations with both sensitive and resistant strains and using CF-370 in addition to either amikacin (“AMK”) or meropenem, demonstrating the superiority of the combination of CF-370 with SOC antibiotics. We believe the results from these studies provide in vivoproof-of-concept for CF-370 as a potential treatment for pulmonary infections caused by gram-negative pathogens and for direct lytic agents as a potential new modality to combat the threat of multidrug-resistant gram-negative pathogens. We continue to progress CF-370 through IND-enabling activities and we expectCF-370 it to

82


be our next molecule in clinical studies. We have been awarded up to $3.3 million in funding fromCARB-X (Combating Antibiotic-Resistant Bacteria Biopharmaceutical Accelerator) in support of the advancement of anti-pseudomonal lysins. Beyond our lysin programs, we continue our research to advance potential product candidates from our amurin peptide platform. We plan to submit an IND application with the FDA in the second quarter of 2023 and, if approved, to initiate animalphase 1 clinical studies of our most promising amurins with the goal of moving this program to the clinic as soon as possible. We have been awarded up to $6.9 million of funding fromCARB-X to support the amurin peptide program.CF-370 in healthy volunteers shortly thereafter.

To date, a large portion of our research and development work has related to the establishment of our platform technologies, the advancement of our research projects to discovery of clinical candidates, manufacturing and preclinical testing of our clinical candidates and clinical testing of exebacase. We currently expect to focus the majority of our resources on the exebacase program.and CF-370 programs. As our pipeline progresses, we are able to further leverage our employee and infrastructure resources across multiple development programs well as research projects. InWe recorded $44.7 million, $35.5 million and $22.6 million of research and development expenses for the years ended December 31, 2019, 20182022, 2021 and 2017, we recorded approximately $18.1 million, $22.4 million and $17.3 million, respectively, of research and development expenses.2020, respectively. A breakdown of our research and development expenses by category is shown below. We do not currently utilize a formal time or laboratory project expense allocation system to allocate employee-related expenses, laboratory costs or depreciation to any particular project. Accordingly, we do not allocate these expenses to individual projects or product candidates. However, we do allocate some portions of our research and development expenses in the product development, external research and licensing and professional fees categories to exebacase as shown below.

The following table summarizes our research and development expenses by category for the years ended December 31, 2019, 20182022, 2021 and 2017:2020:

 

  Year Ended December 31,   Year Ended December 31, 
  2019   2018   2017   2022   2021   2020 

Product development

  $9,847,978   $14,307,715   $10,219,826   $39,557   $29,813   $15,502 

Personnel related

   6,989    8,404    4,703 

Professional fees

   2,757,977    2,467,000    1,760,608    3,533    3,618    3,605 

Personnel related

   2,204,857    3,064,872    3,387,749 

Laboratory costs

   1,853    1,638    1,418 

Stock-based compensation

   1,027    933    655 

External research and licensing costs

   1,698,063    684,281    482,803    344    1,651    952 

Laboratory costs

   1,078,793    1,266,780    1,011,766 

Share-based compensation

   469,357    626,003    451,334 

Expenses reimbursed through grant agreements and government contracts

   (8,565   (10,549   (4,221
  

 

   

 

   

 

   

 

   

 

   

 

 

Total research and development expense

  $18,057,025   $22,416,651   $17,314,086   $44,738   $35,508   $22,614 
  

 

   

 

   

 

   

 

   

 

   

 

 

The following table summarizes our research and development expenses by program for the years ended December 31, 2019, 20182022, 2021 and 2017:2020:

 

  Year Ended December 31,   Year Ended December 31, 
  2019   2018   2017   2022   2021   2020 

Exebacase

  $11,369,534   $16,218,315   $10,974,804   $35,512   $25,460   $15,094 

CF-370

   6,949    4,077    1,325 

Other research and development

   4,013,277    2,507,461    2,502,199    2,826    7,184    5,058 

Personnel related and share-based compensation

   2,674,214    3,690,875    3,839,083 

Personnel related and stock-based compensation

   8,016    9,336    5,358 

Expenses reimbursed through grant agreements and government contracts

   (8,565   (10,549   (4,221
  

 

   

 

   

 

   

 

   

 

   

 

 

Total research and development expense

  $18,057,025   $22,416,651   $17,314,086   $44,738   $35,508   $22,614 
  

 

   

 

   

 

   

 

   

 

   

 

 

We anticipate that ourOur research and development expenses willhave decreased substantially in the fourth quarter of 2022, after the workforce reduction and suspension of IV exebacase manufacturing activities in the third quarter of 2022, and also after the final patients in the DISRUPT study completed their follow-up visits and all study sites were closed. Research and development expenses could increase substantiallyin the future in connection with the commencement

83


of additionalany new clinical trials for our product candidates. However, the successful development of futureour product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

 

the scope, rate of progress and expense of our research and development activities;

third-party manufacturing of our product candidates and the active pharmaceutical ingredients for our product candidates;

 

clinical trial results;

 

the terms and timing of regulatory approvals;

 

our ability to market, commercialize and achieve market acceptance for our product candidates in the future; and

 

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

A change in the outcome of any of these variables with respect to the development of exebacase or any otherour product candidate that we may developcandidates could mean a significant change in the costs and timing associated with the development of exebacase or any such product candidate. For example, if the FDA or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of exebacase or if we experience significant delays in enrollment in any clinical trials of exebacase, we could be required to expend significant additional financial resources and time on the completion of the clinical development of exebacase.candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs for personnel, includingnon-cash share-based stock-based compensation expense, in our executive, finance, legal, human resource and business development functions. Other general and administrative expenses include facility costs, insurance expenses and professional fees for legal, consulting and accounting services.

We anticipate that our general and administrative expenses will increasedecrease modestly in future periods to support increases in our research and development activities and as a result of increaseddecreased headcount, expanded infrastructure, increasedhowever, legal, compliance, accounting, andcompliance, investor and public relations, and other expenses associated with being a public company continue to increase, particularly insurance premiums.

Restructuring

On July 29, 2022, we implemented a restructuring plan to reduce costs and increased insurance premiums, amongalign resources with the Company’s anticipated product development milestones for exebacase and CF-370 and to help preserve the value of the Company’s drug discovery operations, resulting in a reduction to our workforce of 16 employees, or approximately 37% of our headcount prior to the reduction and the suspension of IV exebacase manufacturing activities. Pursuant to our restructuring plan, we expect that our future operating expenses, both research and development and general and administrative expenses, will be substantially reduced as compared to the year ended December 31, 2022. In connection with our restructuring, we recognized $7.7 million of charges, including $1.6 million related to employee termination costs, including severance, health benefits and other factors.related expenses from the workforce reduction, and $6.1 million from the write-off of prepaid manufacturing costs following the suspension of IV exebacase activities.

InterestOther Income and Expenses

Other income and expenses consist primarily of interest income, changes in the fair value measurement of our warrant liabilities, the excess of the fair value of warrants issued, if any, over the related proceeds received and offering expenses, if any, allocated to the issuance of warrants. Interest income consists ofincludes interest earned on our cash and cash equivalents andavailable-for-sale securities. The changes in the fair value of our warrant liabilities are derived using the Black-Scholes option pricing model. The key inputs into the model are the current per-share value and the expected volatility of the Company’s common stock. Significant changes in these inputs

84


will directly increase or decrease the estimated fair value of the Company’s warrant liabilities, resulting in a non-cash gain or charge in each reporting period.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on our limited historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this Annual Report on Form10-K, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations.

Fair Value of Warrant Liability

In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820,Fair Value Measurements and Disclosures (“ASC 820”), we classify and account for our warrant liability as a level 3 financial instrument. The valuation of a level 3 financial instrument requires inputs that reflect our own assumptions that are both significant to the fair value measurement and unobservable. We calculate the fair value estimate of our warrant liability on a recurring basis at each measurement date, based on relevant market information.

We use the Black-Scholes option pricing model to estimate the fair value of our warrant liability using various assumptions that require management to apply judgment and make estimates, including:

 

the expected term of the warrant, which we estimate to be the remaining contractual life;

the expected volatility of the underlying common stock, which we estimate based on the historical volatility of our own common shares;

 

the risk-free interest rate, which we based on the yield curve of U.S. Treasury securities with periods commensurate with the expected term; and

 

the expected dividend yield, which we estimate to be zero based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends.

These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. The expected volatility is the most sensitive estimated input into the calculation of the fair value of our warrant liabilities. Large changes in the estimate of expected volatility and to the price per share of our common stock will result in significant directly proportional changes in the calculated fair value. If these factors change and different assumptions are used, our warrant liability could be materially different in the future.

Accrued research and development expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of ourThese estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses are typically related to fees paid to CMOs and CROs in connection with research and development activities for which we have not yet been invoiced.

We

85


When applicable, we base our estimated expenses related to CMOs and CROs on our estimates of the percentage completed of services received and efforts expended pursuant to quotes and contracts for the conduct of manufacturing or research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepayment expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. There may also be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. Differences between our estimates and amounts actually incurred to date, and any resulting adjustments, have not been material.

Stock-based compensation

We account for stock-based compensation in accordance with FASB ASC Topic 718, Compensation-Stock Compensation, which we refer to as ASC 718. ASC 718 requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees, directors, andnon-employee directors,non-employees, including employee stock options. Compensation expense based on the grant date fair value is generally amortized over the requisite service period of the award on a straight-line basis.

We account for stock options granted tonon-employees, which primarily consists of consultants, using the fair value method. The fair value of options is calculated using the Black-Scholes option pricing model to determine the fair value of stock options on the date of grant for employee andnon-employee directors and as of January 1, 2019 for the unvestednon-employee stock options.model. The Black-Scholes option pricing model uses various assumptions that require management to apply judgment and make estimates, including:

 

the expected term of the stock option award, which fornon-employees we use the remaining contractual term, but for employees we calculate using the simplified method, as prescribed by the

 

the expected term of the stock option award, which for non-employees we use the remaining contractual term, but for employees we calculate using the simplified method, as prescribed by the Securities and Exchange Commission Staff Accounting Bulletin No. 107, Share-Based Payment, as we have insufficient historical information regarding our stock options to provide a basis for an estimate;

 

the expected volatility of the underlying common stock, which depending on the related expected term, we estimate based on either (i) the historical volatility of a representative peer group of publicly traded biopharmaceutical companies with similarities to us, including stage of drug development, area of therapeutic focus, number of employees and market capitalization or (ii) the historical volatility of our own common shares;

 

the risk-free interest rate, which we based on the yield curve of U.S. Treasury securities with periods commensurate with the expected term of the options being valued;

 

the expected dividend yield, which we estimate to be zero based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends; and

 

the fair value of our common stock on the date of grant.

If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.

Recent Accounting Pronouncements

See Note 2—Summary of Significant Accounting Policies, of the Notes to Financial Statements, for a discussion of the impact of new accounting standards on our Financial Statements.

Results of Operations

For a discussion of our results of operations for the year ended December 31, 2017,2021, including ayear-to-year comparison between 20182021 and 2017,2020, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form10-K for the year ended December 31, 2018.2021.

86


Comparison of years ended December 31, 20192022 and 20182021

The following table summarizes our results of operations for the years ended December 31, 20192022 and 2018:2021 (in thousands):

 

  Year Ended December 31,           Year Ended December 31,         
  2019   2018   Dollar Change   % Change   2022   2021   Dollar Change   % Change 

Operating expenses:

        

Research and development

  $18,057,025   $22,416,651   $(4,359,626   (19)%   $44,738   $35,508   $9,230    26

General and administrative

  $9,809,423   $8,707,774   $1,101,649    13  $12,151   $11,757   $394    3

Other income (expense)

  $15,071,955   $(6,559,999  $21,631,954    330

Restructuring

  $7,719   $—     $7,719    —   

Other (expense) income, net

  $(545  $26,983   $(27,528   (102)% 

Research and Development Expenses

Research and development expense was $18.1$44.7 million for the year ended December 31, 2019,2022, compared with $22.4$35.5 million for the year ended December 31, 2018,2021, an increase of $9.2 million. This increase was primarily attributable to a $5.8 million increase in spending on clinical activities related to the Phase 3 DISRUPT study of exebacase a $3.4 million increase in spending on manufacturing costs for both exebacase and CF-370. These costs decreased significantly after we stopped enrollment in the Phase 3 DISRUPT study and implemented our restructuring plan, discussed below and in Note 9, “Restructuring” to the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, and we expect will continue at reduced levels through 2023.

General and Administrative Expenses

General and administrative expense was $12.2 million for the year ended December 31, 2022, compared with $11.8 million for the year ended December 31, 2021, an increase of $0.4 million. This increase was primarily attributable to an increase in our external legal costs.

Restructuring Charges

During the year ended December 31, 2022, we incurred restructuring expenses of $7.7 million related to our restructuring plan. Restructuring expenses for the period were primarily comprised of $1.6 million of severance and other employee costs and a $6.1 million write-off of prepaid manufacturing costs. For further information, refer to Note 9, “Restructuring” to the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Other (expense) income, net

Other expense, net was $0.5 million for the year ended December 31, 2022, compared with other income, net of $27.0 million for the year ended December 31, 2021, a decrease of $4.3$27.5 million. This decrease was primarily attributable to a $6.3 millionthe decrease in expenditures on clinical trial costs as we completed the reporting of the Phase 2 trial of exebacase early in 2019 as compared to the active recruiting period for the trial in 2018. We also recorded an additional $2.4 million in reimbursable grant expenses, including the new USAMRDC grant forCF-296 and theCARB-X grant for the amurin peptide program. These decreases were partially offset by an increase of $2.2 million relating to the cGMP manufacturing of exebacase in order to supply clinical trial material for the Phase 3 DISRUPT trial, an increase of $1.8 million on the advancement of our other product candidates, includingCF-370 to nomination as our next product candidate, and an increase of $0.4 million in licensing fees for the milestone paid to Rockefeller upon completion of the Phase 2 trial of exebacase.

General and Administrative Expenses

General and administrative expense was $9.8 million for the year ended December 31, 2019, compared with $8.7 million for the year ended December 31, 2018, an increase of $1.1 million. This increase was primarily attributable to increased legal fees as we expanded our intellectual property portfolio. Other increases included increases in compensation costs of $0.2 million, investor relations costs of $0.1 million and insurance costs of $0.1 million.

Other income (expense)

Other income was $15.1 million for the year ended December 31, 2019 compared with other expense of $6.6 million for the year ended December 31, 2018, an increase of $21.6 million. In 2019, we had anon-cash gain of $14.7 million related to the change in fair value of our warrant liability and interest income of $0.4$22.7 million. In 2018, we hadnon-cashaddition, the current year period has a charge to other expense of $7.2$4.8 million related tofor the change inexcess of the fair value of our warrant liability,the warrants issued in the 2022 Offering over the proceeds received and for the issuance expenses allocated to the 2022 Warrants, for which was partially offset by $0.7 million of interest income.there were no such expenses in 2021.

Liquidity and Capital Resources

Sources of Liquidity

We have financed our operations to date primarily through proceeds from sales of common stock, common stock and warrants, convertible preferred stock and convertible debt and, to a lesser extent, grant funding.funding received from government contracts and granting organizations. To date, we have not generated any revenue from the sale of products. We have incurred losses and generated negative cash flows from operations since inception.

87


Since the date of our initial public offering,IPO, we have funded our operations through the sale of registered securities for gross proceeds of $147.8$264.8 million, $9.6 million from the exercise of the Class B Warrants issued in our IPO, $23.0$26.0 million from the sale of securities in private placements and the receipt of $4.9$26.9 million of funding from grant funding.agreements and government contracts. See a summary of our recent equity offerings described above under “Overview”.

As of December 31, 2019,2022, we had approximately $24.2$13.7 million in cash, and cash equivalents and marketable securities which we do not believe will not be sufficient to meet our obligations within the next twelve months from the date of issuance of our audited consolidated financial statements that are included elsewhere in this Annual Report on Form10-K. Combined with our accumulated deficit and our forecasted cash expenditures, these factors raise substantial doubt about our ability to continue as a going concern. We have relied on our ability to fund our operations primarily through public and private debt and equity financings, but there can be no assurances that such financing will continue to be available to us on satisfactory terms, or at all. We have also been successful obtaining grants to supplement our financings with non-dilutive funding. We continue to pursue additional grant opportunities and have proceeded to the final stage for grants from both CARB-X and BARDA. We have also discussed with BARDA the potential for compassionate use of exebacase for secondary bacterial infections. However, there can be no assurances that either BARDA or CARB-X will award funding to the Company.

As such, under the requirements of ASCAccounting Standard Codification (“ASC”) 205-40, we may not consider the potential for future capital raises in our assessment of our ability to meet our obligations for the next twelve months. We plan to continue to fund our operations through public or private debt and equity financings, but there can be no assurances that such financing will continue to be available to us on acceptable terms, or at all, particularly in light of the Trial Closure and the recent substantial decline in the price of our common stock, and the terms of any public or private offerings of stock could be significantly dilutive to existing stockholders. We recently implemented a restructuring plan, as described above to reduce costs and align resources with our anticipated product development milestones for exebacase and CF-370 and to help preserve the value of our drug discovery operations. If we are unable to obtain funding, we would be forced to further reduce our workforce, or delay, reduce or eliminate our research and development programs, which could adversely affect our business prospects, or we may be unable to continue operations. In accordance with the requirements of ASC205-40, we have concluded that substantial doubt exists about our ability tooperations or continue as a going concern and may be forced to sell or liquidate our business.

In the past, we have obtained grants to supplement our financings with non-dilutive funding, including grants from CARB-X, USAMRDC and our cost-sharing contract with BARDA. Our grant programs under CARB-X have ended. We may continue to pursue further non-dilutive funding opportunities and have initiated proposal processes with government agencies for twelve months frompotential non-dilutive funding for the dateadvancement of issuancelysins as biodefense agents. However, there can be no assurances that we will be successful in obtaining new non-dilutive funding or receive the maximum potential funding to the Company under any of our audited consolidated financial statements that are included elsewhere in this Annual Report on Form10-K.

ongoing agreements.

Cash flows

The following table shows a summary of our cash flows for the years ended December 31, 20192022 and 2018:2021:

 

  Year Ended December 31,   Year Ended
December 31,
 
  2019   2018   2022   2021 

Net cash (used in) provided by:

        

Operating activities

  $(27,427,893  $(26,258,849  $(45,974  $(41,125

Investing activities

  $21,971,126   $17,151,224   $32,083   $(11,613

Financing activities

  $21,320,590   $10,432,896   $6,144   $53,907 

Net cash used in operating activities

Net cash used in operating activities resulted primarily from our net losses adjusted fornon-cash charges and changes in the components of working capital. Net cash used in operating activities increased $1.2$4.9 million infor the year ended December 31, 20192022 as compared to the comparable period in 2018.2021. This increase was primarily attributable to the increased expenditure on the cGMP manufacture of exebacase and advances paid to CROs in order to initiateexpenditures for the Phase 3 DISRUPT trial of exebacase byin order to enroll more patients and complete the endinterim futility analysis, initial process validation and commercial manufacturing of 2019.exebacase, process development and manufacturing of CF-370, and an increased number of personnel and related compensation costs prior to implementation of our restructuring plan on July 29, 2022.

88


Net cash provided by (used in) investing activities

Net cash provided by investing activities infor the yearsyear ended December 31, 20192022 was primarily attributable to the proceeds received from both maturities and 2018 resulted fromsales of marketable securities. Net cash used in investing activities for the excessyear ended December 31, 2021 was attributable to the purchases of marketable securities subsequent to the equity offering completed in March 2021, less the proceeds received from the maturities of marketable securities compared tothroughout the purchases of marketable securities.year.

Net cash provided by financing activities

Net cash provided by financing activities infor the year ended December 31, 20192022 resulted from the completion of offerings of our common stock inequity offering on December 2019,15, 2022, resulting in net proceeds of $21.3 million.$6.1 million, net of offering costs. Net cash provided by financing activities infor the year ended December 31, 20182021 resulted primarily from the completion of anour equity offering of our common stock to institutional investors in August 2018,on March 22, 2021, resulting in net proceeds of $10.4 million.$53.8 million, net of offering costs.

Funding requirements

All of our product candidates are in clinical or preclinical development. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:

 

continue our ongoing clinical trials, and initiate the planned clinical trials of our product candidates;

 

continue our ongoing preclinical studies, and initiate additional preclinical studies, of our product candidates;

 

continue the research and development of our other product candidates and our platform technology;

 

seekadd operational, financial and management information systems and personnel, including personnel to identify additionalsupport our product candidates;

acquire orin-license other productsdevelopment and technologies;future commercialization efforts;

 

seek marketing approvals for our product candidates that successfully complete clinical trials;

 

establish, either on our own or with strategic partners, a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;

 

seek to identify additional product candidates;

acquire or in-license other products and technologies; and

maintain, leverage and expand our intellectual property portfolio; andportfolio.

add operational, financial and management information systems and personnel, including personnel to support our product development and future commercialization efforts.

Without additional funding, we believe we will not have sufficient funds to meet our obligations within the next twelve months from the date of issuanceFor a description of our auditedcontractual obligations, see Note 8, “Commitments and Contingencies” to the notes to our consolidated financial statements that are included elsewhere in this Annual Report on Form10-K. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, and the extent to which we may enter into collaborations with third parties for development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the development of our current product candidates. We plan to continue to fund our operations through public or private debt and equity financings, but there can be no assurances that such financing will be available to us on satisfactory terms, or at all.

Our future capital requirements will depend on many factors, including:

 

the progress and results of the clinical trials of our lead product candidates;

 

the scope, progress, results and costs of compound discovery, preclinical development, laboratory testing and clinical trials for our product candidates;

the extent to which we acquire or in-licenseother products and technologies;

costs associated with manufacturing of our product candidates and the active pharmaceutical ingredients for our product candidates;

 

the extent to which we acquire orin-license other productstiming and technologies;amount of actual reimbursements under the BARDA Contract;

 

the costs, timing and outcome of regulatory review of our product candidates;

 

the costs of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;

 

89


revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval;

 

the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; and

 

our ability to establish any future collaboration arrangements on favorable terms, if at all.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity and debt offerings, collaborations, grants, government contracts, strategic alliances and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or other securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.ourselves, or we may be unable to continue operations or continue as a going concern and may be forced to sell or liquidate our business.

We incur significant costs as a public company, including, but not limited to, increased personnel costs, increased directors fees, increased directors and officers insurance premiums, audit and legal fees, investor relations and external communications fees, expenses for compliance with the Sarbanes-Oxley Act and rules implemented by the SEC and Nasdaq and various other costs and expenses.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations at December 31, 2019 and the effect such obligations are expected to have on our liquidity and cash flows in future periods:

   Payments due by period 

Contractual obligations

  Total   Less than
1 year
   1 - 3 years   4 - 5 years   More than
5 years
 

Operating lease commitments(1)

  $5,719,613   $666,391   $1,373,032   $1,428,502   $2,251,688 

License and sponsored research agreements(2)

   1,200,000    200,000    400,000    400,000    200,000 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total contractual obligations

  $6,919,613   $866,391   $1,773,032   $1,828,502   $2,451,688 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(1)

Represents future minimum lease payments undernon-cancelable operating leases for our principal facilities in Yonkers, New York which expire in 2027. The minimum lease payments above do not include certain utility costs.

(2)

Represents certain amounts payable under our license agreements with The Rockefeller University.

We enter into contracts in the normal course of business with contract research organizations, or CROs, for clinical trials, clinical supply manufacturing,non-clinical and preclinical studies and for other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations.

The contractual obligations table also does not include any potential contingent payments upon the achievement by us of specified clinical, regulatory and commercial events, as applicable, or royalty payments we may be required to make under license agreements we have entered into with The Rockefeller University. The occurrence and timing of these events are difficult to predict and subject to significant uncertainty. Since we are unable to reliably estimate the timing and amounts of such milestone and royalty payments, or whether they will occur at all, these contingent payments have been excluded from the table above. See “Note 8—Commitments and Contingencies” on PageF-18 of this Annual Report for additional information.

Effects of Inflation

We do not believe that inflation or changing prices had a significant impact on our results of operations for any periods presented herein.

Off-Balance Sheet Arrangements

We did not have duringcontinue to monitor the periods presented,impact of inflationary pressures on purchases and we are currently not party to, anyoff-balance sheet arrangements.new contractual commitments.

 

Item 7A.

Quantitative and Qualitative Disclosures aboutAbout Market Risk

Our primary exposure to market riskThis item is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. As of December 31, 2019, we had cash and cash equivalents of $24.2 million. Because of the short-term maturities of our cash equivalents, we do not believe that an increase in market rates would have a significant impact on the fair value of our cash equivalents. If a 10% change in interest rates were to have immediately occurred on December 31, 2019, this change would not have had a material effect on the fair value of our investment portfolio as of that date.

While we believe our cash and cash equivalents do not contain excessive credit or liquidity risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits.

We do not own any derivative financial instruments. Accordingly, we do not believe that there is any material market risk exposure with respect to derivative, foreign currency or other financial instruments that would require disclosure under this item.required for smaller reporting companies.

 

Item 8.

Financial Statements and Supplementary Data

The financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those financial statements is found in Item 15 of Part IV of this Annual Report on Form10-K.

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

 

Item 9A.

Controls and Procedures

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

90


Evaluation of Disclosure Controls and Procedures

As required by Rule13a-15(b) and Rule15d-15(b) of the Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation as of the end of the period covered by this Annual Report on Form10-K of the effectiveness of our disclosure controls and procedures (as defined in Rule13a-15(e) and Rule15d-15(e) of the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2019.2022.

Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule13a-15(f) under the Securities Exchange Act of 1934, as amended.

Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that, as of December 31, 2019,2022, our internal control over financial reporting was effective.

This annual report does not include an attestation report of our registered public accounting firm on internal control over financial reporting because we do not qualify as an accelerated or a large accelerated filer (as defined in Rule12b-2 of the Securities Exchange Act)Act of 1934, as amended).

Changes in Internal Control Over Financial Reporting

In connection with management’s evaluation of our internal control over financial reporting as of December 31, 2019,2022, our principal executive officer and principal financial officer concluded that there were no changes to our internal control over financial reporting during the quarter ended December 31, 20192022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B.

Other Information

None

Item 9C.

Disclosure Regarding Foreign Jurisdictions That Prevent Inspections

Not applicable.

91


PART III

 

Item 10.

Directors, Executive Officers and Corporate Governance

Director Biographical Information

Biographical information concerning each of our directors is set forth below:

 

Name

  Age   

Position

Roger J. Pomerantz, M.D., F.A.C.P.F.A.C.P

   6366   

President, Chief Executive Officer, Director, Chairman of the Board

Steven C. Gilman, Ph.D.Ph.D

   6770   

Director, Vice Chairman of the Board

Sol J. Barer, Ph.D.Ph.D

   7275   

Director, Lead Independent Director

Lishan Aklog, M.D

57

Director

Jane F. Barlow, M.D

62

Director

David N. Low, Jr.Jr

   6164   

Director

Michael J. Otto, Ph.D.Ph.D

74

Director

Cary W. Sucoff, J.D

   71   

Director

Cary W. Sucoff, J.D.

68Director

Roger J. Pomerantz, M.D., F.A.C.P.Dr. Pomerantz has served as Chairman of our board of directors and our Chief Executive Officer since April 2019. Prior to that, he had served as Vice Chairman of our board of directors since May 2014. From November 2013 to December 2019, Dr. Pomerantz served as Chairman of the board of directors of Seres Therapeutics, Inc., a biotechnology company, and as its President and Chief Executive Officer from June 2014 to January 2019. From 2011 to 2013, he was formerly Worldwide Head of Licensing & Acquisitions, Senior Vice President at Merck & Co., Inc. where he oversaw all licensing and acquisitions at Merck Research Laboratories. Previously, he served as Senior Vice President and Global Franchise Head of Infectious Diseases at Merck. Prior to joining Merck, Dr. Pomerantz was Global Head of Infectious Diseases for Johnson & Johnson Pharmaceuticals. He joined Johnson & Johnson in 2005 as President of Tibotec Pharmaceuticals, Inc.

Dr. Pomerantz serves as Chairman of the board of directors of the public companycompanies Collplant Biotechnologies, Inc., a board member of the public company Intec since 2021, Indaptus Therapeutics Inc.,since 2021 and Viracta Therapeutics since 2020. He also serves as Chairman of the board of directors of the private company Silicon Therapeutics Inc. since 2019, and a member of the board of the private companycompanies X-VAX Technology, Inc. since 2019 and VerImmune since 2020. Previously, Dr. Pomerantz served on the board of directors of public companies Rubius Therapeutics from 2014 to 2019 and Evelo Therapeutics from 2015 to 2016. Dr. Pomerantz received his B.A. in Biochemistry at the Johns Hopkins University and his M.D. at the Johns Hopkins School of Medicine. He received post-graduate training at the Massachusetts General Hospital, Harvard Medical School and M.I.T. Dr. Pomerantz is Board Certified in both Internal Medicine and Infectious Diseases. He was Professor of Medicine, Biochemistry and Molecular Pharmacology, Chief of Infectious Diseases, and the Founding Director and Chair of the Institute for Human Virology and Biodefense at the Thomas Jefferson University and Medical School. He has developed 12nine drugs approved world-wide in important diseases, including HIV, HCV, CMV,Clostridium difficile and tuberculosis. We believe that Dr. Pomerantz’s significant scientific, executive and board leadership experience in drug development and in the pharmaceutical industry qualifies him to serve as a member of our board of directors.

Steven C. Gilman, Ph.D.Dr. Gilman Dr. Gilman has served as Vice Chairman of our board of directors since April 2019. Prior to that, he had served as our Chairman sincefrom May 2015, Interim Chief Executive Officer from March 2016 to July 2016 and Chief Executive Officer sincefrom July 2016. Until 2015, he served as the Executive Vice President, Research & Development and Chief Scientific Officer at Cubist Pharmaceuticals, a biopharmaceutical company, until its acquisition by Merck & Co. Prior to joining Cubist in 2008, he served as Chairman of the Board of Directors and Chief Executive Officer of ActivBiotics, a privately held biopharmaceutical company. Previously, he worked at Millennium Pharmaceuticals, Inc., where he held a number of senior leadership roles including Vice President and General Manager of the Inflammation franchise responsible for all aspects of the

92


Inflammation business from early gene discovery to product commercialization. Prior to Millennium, he was Group Director at Pfizer Global Research and Development, where he was responsible for drug discovery of novel antibacterial agents as well as several other therapeutic areas. Dr. Gilman has also held scientific, business, and academic appointments at Wyeth, Cytogen Corporation, Temple Medical School, and Connecticut College. He currently serves on the board of directors of publicly traded companies Keryx Biopharmaceuticals, Inc., Momenta Pharmaceuticals, Inc.,Akebia Therapeutics, SCYNEXIS Inc., and Vericel Corporation.

Corporation, and previously served on the board of directors of Momenta Pharmaceuticals, Inc. Dr. Gilman also serves as a director of the non-profit organization Lakes Environmental Association of Bridgeton, Maine. He received his Ph.D. and M.S. degrees in microbiology from Pennsylvania State University, his post-doctoral training at Scripps Clinic and Research Foundation, and received a B.A. in microbiology from Miami University of Ohio. He has authored over 60 publications and is an inventor on 7 patents. We believe that Dr. Gilman’s significant scientific, executive and board leadership experience in the pharmaceutical and biotechnology industries qualifies him to serve as a member of our board of directors.

Sol J. Barer, Ph.D. Dr. Barer has served as a member of our board of directors since April 2011. Dr. Barer served as our Chairman of the board of directors from February 2012 to May 2015. He was appointed Lead Independent Director in May 2015. Dr. Barer spent most of his professional career with the Celgene Corporation.Corporation, a pharmaceutical company. He was Chairman from January 2011 until June 2011, Executive Chairman from June 2010 until January 2011, and Chairman and Chief Executive Officer from May 2006 until June 2010. Before assuming the CEO position, he was appointed Chief Operating Officer in 1994 and President in 1993. Dr. Barer was the founder of the biotechnology group at the Celanese Research Company which was subsequently spun out to form Celgene. Dr. Barer serves as Chairman of the board of directors of the public companies Teva Pharmaceutical Industries a public company, and forNeximmune and the private companiescompany Centrexion and Neximmue. He is alsoas a board member of Cerecor, Inc., a public company, and the private companycompanies 3DBio Therapeutics.Therapeutics and Zephyr AI. He is the Founding Chair of the Hackensack Meridian Health Center for Discovery and Innovation.Innovation, and Founder of Mendham Investment Group. He is a venture advisor to the Israel Biotech Fund as well as an advisor to biopharma companies. In 2011, Dr. Barer was Chairman of the University of Medicine and Dentistry of New Jersey Governor’s Advisory Committee which resulted in sweeping changes in the structure of New Jersey’s medical schools and public research universities. He previously served as a Commissioner of the NJ Commission on Science and Technology. He was a member of the Board of Trustees of Rutgers University and served two terms as Chair of the Board of Trustees of BioNJ, the New Jersey biotechnology organization. Dr. Barer received a Ph.D. in Organic Chemistry in 1974 from Rutgers University where he was an NDEA Graduate Fellow and a B.S. in 1968 from Brooklyn College (City University of New York) where he was an NSF Undergraduate Fellow and Regents Scholar. He received an LL.D. (Honorary) from the Rabbinical College of America in 2018. We believe that Dr. Barer’s significant scientific, executive and board leadership experience in the pharmaceutical and biotechnology industries qualifies him to serve as a member of our board of directors.

Lishan Aklog, M.D. Dr. Aklog has served as a member of our board of directors since June 2020. He is Co-Founder, Chairman and Chief Executive Officer of PAVmed Inc. since 2014, a publicly traded commercial-stage diversified medical technology company, and Chairman and Chief Executive Officer of its subsidiary, Lucid Diagnostics, a publicly traded commercial-stage cancer prevention diagnostics company since its IPO in October, 2021 and as Executive Chairman since its inception in 2018. He also serves as a co-founding Partner of both Pavilion Holdings Group LLC (“PHG”), a medical device holding company, since its inception in 2007, and Pavilion Medical Innovations LLC, a venture-backed medical device incubator, since its inception in 2009. Prior to entering the medical device industry full-time in 2012, Dr. Aklog was an academic cardiac surgeon serving, from 2006 to 2012, as Associate Professor of Surgery, Chief of Cardiovascular Surgery and Chair of The Cardiovascular Center at St. Joseph’s Hospital and Medical Center’s Heart and Lung Institute in Phoenix, Arizona; from 2002 to 2006, as Assistant Professor of Cardiothoracic Surgery, Associate Chief of Cardiac Surgery and Director of Minimally Invasive Cardiac Surgery at Mount Sinai Medical Center in New York; and as Assistant Professor of Surgery at Harvard Medical School, Director of the Cardiac Surgery Research Laboratory, and an attending cardiac surgeon at Brigham and Women’s Hospital in Boston, from 1999 to 2002. Dr. Aklog received his clinical training in general and cardiothoracic surgery at Brigham and Women’s Hospital

93


and Boston Children’s Hospital, during which he spent two years as the Medtronic Research Fellow at Harvard Medical School’s Cardiac Surgery Research Laboratory. He was then awarded the American Association of Thoracic Surgery Traveling Fellowship pursuant to which he received advanced training in heart valve surgery under renowned cardiac surgeons Sir Magdi Yacoub at Harefield Hospital in London and Professor Alain Carpentier at L’Hopital Broussais in Paris. Dr. Aklog has served as Chairman of the Boston ECG Project Charitable Foundation since 2018, and as a director on the International Board of Directors since 2019, the New York Executive Committee of Human Rights Watch since 2015 and the Advanced Medical Technology Association since 2021. He previously served on the board of directors of Viveon Health Acquisition Corp. from 2020 to 2021, as Chairman and Chief Technology Officer of Vortex Medical Inc., from its inception in 2008 until its acquisition in October 2012 by Angiodynamics, as a board member of the International Society for Minimally Invasive Cardiothoracic Surgery from 2006 to 2009 and as President of the 21st Century Cardiothoracic Surgery Society in 2011. He is a member of numerous professional societies and has been elected to the American Association of Thoracic Surgery. Dr. Aklog has served as a consultant and on the advisory boards of many major medical device companies as well as innovative startups. Dr. Aklog is an inventor on 35 issued patents and over 45 patent applications, including the core patents of Vortex Medical’s AngioVac® system and the patents for a majority of PAVmed Inc.’s products. He has also a co-author of 38 peer-reviewed articles and 10 book chapters and has served on the Editorial Board of the Journal of Cardiothoracic Surgery since 2006. Dr. Aklog received his A.B., magna cum laude, in Physics from Harvard University, where he was elected to Phi Beta Kappa. He received his M.D., cum laude, from Harvard Medical School. We believe that Dr. Aklog’s significant scientific, medical, executive and board leadership experience qualifies him to serve as a member of our board of directors.

Jane F. Barlow, M.D. Dr. Barlow has served as a member of our board of directors since February 2021. She is currently the Chief Executive Officer of Jane Barlow & Associates, LLC, a consulting firm focused on value-based health care services, since January 2017 and Executive Vice President and Chief Clinical Officer at Real Endpoints, a data, analytics, and advisory firm, since January 2017. She is a senior advisor to Tufts Center for Biomedical System Design (formerly MIT’s Center for Biomedical Innovation) and serves on the Biotech Advisory Board of Pictet Asset Management. Prior to her current roles, she was Associate Chief Medical Officer at CVS Health and Chief Medical Officer of CVS Health’s Government Services arm where she successfully implemented industry-leading clinical strategies supporting drug purchasing, distribution, and utilization management. Formerly, she served as Vice President of Clinical Innovation at Medco Health Solutions, leading the adoption of cutting-edge therapeutic programs through all aspects of pharmacy. Dr. Barlow currently serves on the public company boards of Sera Prognostics and Viracta Therapeutics. She previously served on the public company boards of Momenta Pharmaceuticals, Inc. (prior to and during its sale to Johnson and Johnson), Therapeutics MD Inc., and SilverScript Insurance Company. Dr. Barlow received her medical degree from Creighton University School of Medicine and subsequently completed her residency in occupational and environmental medicine at The Johns Hopkins University, where she also earned her M.P.H. She is a distinguished graduate of the United States Air Force School of Aerospace Medicine and served as Chief of Flight Medicine at the Beale and Maxwell Air Force Bases. Additionally, she holds an M.B.A. from the University of Alabama. She is board-certified in occupational medicine and a fellow of the American College of Occupational and Environmental Medicine and the American College of Preventive Medicine. She is a diplomat of the American College of Physician Executives and a member of the American Medical Association. We believe that Dr. Barlow’s extensive experience in steering pharmaceutical development by strategically weighing the value and economic costs that drug candidates bring to the healthcare ecosystem at large qualifies her to serve as a member of our board of directors.

David N. Low, Jr.Mr. Low has served as a member of our board of directors since April 2014. Mr. Low has worked as an investment banker since 1987, with broad investment and advisory experience in the life sciences, biotechnology and medical technology sectors. Since June 2017, Mr. Low has served as a partner at MTS Health Partners, a healthcare investment banking boutique. From 2002 to April 2017, Mr. Low was a member of Lazard’s Life Sciences Group as a Managing Director and Senior Advisor. Mr. Low has advised on major M&A transactions in the life sciences, biotechnology and medical technology sectors, and has worked with private and public companies to raise capital, including emerging growth companies. Prior to joining Lazard, Mr. Low was a Managing Director at JP Morgan Chase & Co. and a Senior Vice President at Lehman Brothers. Mr. Low serves

94


on the board of directors of the Philharmonia Baroque Orchestra.Orchestra since 2020 and as a board member since 2012, and as a Trustee of the Ellen Battell Stoeckel Trust since 2021. Mr. Low holds an A.B. from Harvard College, where he graduated cum laude, an M.A. from the Johns Hopkins University School of Advanced International Studies and an M.B.A. from Yale University. We believe that Mr. Low’s significant investment and financial advisory experience qualifies him to serve as a member of our board of directors.

Michael J. Otto, Ph.D. Dr. Otto has served as a member of our board of directors since April 2014. Dr. Otto served as Chief Scientific Officer of Pharmasset, a pharmaceutical company, from October 1999 until February 2012, when the company was acquired by Gilead Sciences. He led the research team responsible for the discovery of sofosbuvir for the treatment of HCV infections. In previous capacities, he has served as Associate Director of Anti-Infectives Clinical Research atRhône-Poulenc Rorer, Vice President for Research and Development at Avid Therapeutics, Inc., Research Manager at DuPont Pharmaceuticals and DupontDuPont Merck Pharmaceuticals and as Group Leader in the Virology Dept. at Sterling Drug in Rensselaer, NY. Prior to joining Sterling Drug, Dr. Otto was Research Assistant Professor at Yale University School of Medicine, Dept. of Pharmacology. Dr. Otto also served as the US editor for Antiviral Chemistry & Chemotherapy from 1989 until 2012. Dr. Otto holds a B.S. degree from Loyola University of Chicago and a Ph.D. degree in medical microbiology from The Medical College of Wisconsin. He is the author or coauthor of over 100 research papers and book chapters and named inventor on

several patents and patent applications. We believe that Dr. Otto’s substantial scientific and executive leadership experience in the pharmaceutical industry qualifies him to serve as a member of our board of directors.

Cary W. Sucoff.Sucoff, J.D. Mr. Sucoff has served on our board of directors since May 2010. Mr. Sucoff has more than 3040 years of legal and securities industry experience encompassing supervisory, banking and sales responsibilities. He has participated in the financing of more than 100 public and private biotech companies.experience. Since 2011, Mr. Sucoff has owned and operated Equity Source Partners LLC, an advisory and consulting firm. In addition to ContraFect,He has participated in the financing of more than 100 public and private biotech companies. Mr. Sucoff currently serveshas served on the board of directors of Legacy Education Alliancethe public company IMAC Holdings, Inc. since 2020 and Curative Biotechnology since May 2022, and the private companies Neurative Therapeutics since February 2023, First Wave Technologies, Inc. since 2016 and Galimedix Therapeutics since 2018. In addition, Mr. Sucoff currently serves as a consultant to Sapience Therapeutics, LB Pharmaceuticals, Kinetic Power Systems and Galimedix PharmaceuticalsGreen Hygienics Holdings Inc. He previously served as a director of Legacy Education Alliance, Inc. (LEAI) from 2015 to 2021. Mr. Sucoff, a former New York City prosecutor, is the past President of New England Law/Boston and has been a member of the Board of Trustees for over 25 years and is the currentyears. He has been Chairman of the Endowment Committee.Committee for over ten years. Mr. Sucoff received a B.A. from SUNY Binghamton in 1974 and a J.D. from New England School of Law in 1977, where he was managing editorthe Managing Editor of the Law Review and graduated magna cum laude. He has been a member of the Bar of the State of New York since 1978. We believe that Mr. Sucoff’s broad financial and legal experience qualifies him to serve as a member of our board of directors.

Executive Officers of the Registrant

Biographical information concerning each of our executive officers is set forth below. Information concerning Roger J. Pomerantz, M.D., F.A.C.P., our Chief Executive Officer, may be found above in the section entitled “Director Biographical Information.”

Natalie Bogdanos, J.D.Ms. Bogdanos, age 51,54, has served as our General Counsel and Corporate Secretary since August 2014, and served as a member of the Interim Office of the Chief Executive Officer from March 2017 to June 2017. Ms. Bogdanos has also served as our Data Protection Officer since July 2018. She has over 20 years of experience in the legal field, at least 15 of which were serving as the chief legal officer of publicly traded biotechnology companies. Prior to joining ContraFect in 2014, Ms. Bogdanos served as a full-time legal consultant for Ferring Pharmaceuticals, Inc. from January 2014 to August 2014. Prior to that, Ms. Bogdanos served as Associate General Counsel at Memorial Sloan-Kettering Cancer Center (“MSKCC”), a cancer treatment and research institution, where she held a joint appointment with the Office of the General Counsel and the Office of Technology Development (“OTD”) from 2012 to 2013. At MSKCC, she provided legal counsel and guidance to various departments throughout the institution while having sole responsibility for the legal oversight of the OTD. Prior to MSKCC, she was General Counsel at Enzo Biochem, Inc. (“Enzo”), a publicly traded international biotechnology and life science company, from 2003 to 2012. At Enzo, she was responsible for

95


leading the legal department, ensuring SEC and regulatory compliance, overseeing litigation and managing Enzo’s portfolio of 500+ patents and patent applications and negotiating complex business development agreements as well as other contracts. Previously, Ms. Bogdanos was an associate at Amster, Rothstein & Ebenstein from 1999 to 2003 where her practice focused on all intellectual property matters including related litigation. Ms. Bogdanos was a faculty member at the Practising Law Institute. Prior to attending law school, she was a research technician at the Public Health Research Institute where her work focused onStaphylococcus aureus. Ms. Bogdanos is an attorney and admitted to practice law in New York, the United States District Court, Southern and Eastern District of New York and the United States Court of Appeals for the Federal Circuit. She is also licensed to practice before the United States Patent and Trademark Office. Ms. Bogdanos received her J.D. from New York Law School and her Bachelor of Arts in Biology, with honors, from Queens College of the City University of New York.

Cara Cassino, M.D.Dr. Cassino, age 58, has served as our Chief Medical Officer since September 2015, also as Executive Vice President of Research and Development since August 2016, and served as a member of the Interim Office of the Chief Executive Officer from March 2017 to June 2017. Dr. Cassino has over 20 years of experience as a clinician and executive in healthcare, including over 15 years of experience in pharmaceutical product development with over 20 successful regulatory submissions in the United States and globally. Prior to joining ContraFect, Dr. Cassino served as an independent consultant to various pharmaceutical and

biotechnology companies, including Scynexis, from December 2014 to September 2015. Prior to that, she served as Senior Vice President at Forest Laboratories, Inc., a biopharmaceutical company (acquired by Actavis plc, now Allergan plc), where she oversaw Global Clinical Development from 2013 to 2014. While at Forest, she was responsible forpre- and post-marketing clinical activities for a portfolio of 35 compounds, and also clinical due diligence for M&A activity, including the $2.9 billion acquisition of Aptalis Pharma and the $1.1 billion acquisition of Furiex Pharmaceuticals. From 2008 to 2013, Dr. Cassino held a number of senior positions at Pfizer, including Global Medical Team Leader of Pfizer’s antibacterial franchise which included Zyvox (linezolid) and Medicines Development Group VP for Pulmonary Vascular Disease and Rare Diseases. Prior to joining Pfizer, Dr. Cassino also served as Executive Medical Director for the late stage U.S. respiratory franchise at Boehringer-Ingelheim Pharmaceuticals, Inc. and was a member of the academic faculty of the Division of Pulmonary and Critical Care Medicine at New York University (NYU) School of Medicine for eight years prior to joining industry. Dr. Cassino received her B.A., summa cum laude, in Chemistry and Fine Arts from NYU where she was elected Phi Beta Kappa, followed by an M.D. from NYU School of Medicine. She completed her internship and residency in Internal Medicine at NYU/Bellevue Hospital and a fellowship in Pulmonary/Critical Care Medicine at NYU and Mount Sinai Medical Centers. Dr. Cassino is Board Certified in both internal medicine and pulmonary medicine.

Michael Messinger, CPA. Mr. Messinger, age 45,48, has served as our Chief Financial Officer since November 2018. He has more than 1820 years of experience in finance and accounting for drug discovery and forecasting for clinical development.development organizations. Prior to joining ContraFect in November 2012 as our Vice President, Finance, and later serving as our Senior Vice President, Finance beginning in August 2016, he served as Director of Finance at Lexicon Pharmaceuticals, Inc. (“Lexicon”) for eight years and also held the position of Controller for three years. Prior to working at Lexicon, Mr. Messinger served as Controller of Coelacanth Corporation (which was acquired by Lexicon) for two years. While at Lexicon, Mr. Messinger was responsible for the financial management of Lexicon’s partnership with Symphony Capital, LLC, in addition to coordinating fiscal and program management concerning Lexicon’s development programs. Mr. Messinger received his B.B.A. degree in accounting from the University of Michigan. He started his career as an auditor at Ernst & Young LLP.

Nancy Dong. Ms. Dong, age 54, has served as our Vice President, Finance and Administration since March 2017 She has more than 20 years of experience in accounting, strategic planning, budgeting and forecasting, organizational development, financial systems and controls and human resources. Prior to joining ContraFect in 2010 as Vice President, Controller, she served as controller at XL Marketing, a direct marketing firm, from 2009 to 2010 and at Alley Corp, a company that provides strategic advice to companies within its network, from 2007 to 2009. She also served as Vice President of Finance and Administration at DCM, a tele-services firm supporting the performing arts, from 2002 to 2007. Ms. Dong also held the positions of COO and CFO at Semaphore, a project management software development firm. Ms. Dong received her B.A. degree from Yale University and a MPPM degree from The Wharton School at the University of Pennsylvania. She started her career as a management consultant at Ernst & Young LLP.

Our board of directors has adopted a Code of Ethics and Business Conduct applicable to all officers, directors and employees, which is available on our website at http://ir.contrafect.com/governance-docs. We intend to satisfy the disclosure requirement under Item 5.05 of Form8-K regarding amendment to, or waiver from, a provision of our Code of Ethics and Business Conduct, as well as Nasdaq’s requirement to disclose waivers with respect to directors and executive officers, by posting such information on our website at the address and location specified above.

The remaining information required by this Item 10 will be contained under the heading “Corporate Governance”Governance,” “Delinquent Section 16(a) Reports” and “Executive Compensation – Compensation Committee Interlocks and Insider Participation”Participation,” if applicable, in our definitive proxy statement to be filed with the SEC with respect to our 20202023 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 11.

Executive Compensation

The information required by this Item 11 will be contained under the heading “Executive Compensation” in our definitive proxy statement to be filed with the SEC with respect to our 20202023 Annual Meeting of Stockholders and is incorporated herein by reference.

 

Item 12.

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

The information required by this Item 12 will be contained under the headings “Executive Compensation – Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management” in our definitive proxy statement to be filed with the SEC with respect to our 20202023 Annual Meeting of Stockholders and is incorporated herein by reference.

 

96


Item 13.

Certain Relationships and Related Transactions, and Director Independence

The information required by this Item 13 will be contained under the headings “Certain Relationships and Related Transactions” and “Corporate Governance – Director Independence” in our definitive proxy statement to be filed with the SEC with respect to our 20202023 Annual Meeting of Stockholders and is incorporated herein by reference.

 

Item 14.

Principal Accountant Fees and Services

The information required by this Item 14 will be contained under the heading “Ratification of Appointment of Independent Registered Public Accounting Firm” in our definitive proxy statement to be filed with the SEC with respect to our 20202023 Annual Meeting of Stockholders and is incorporated herein by reference.

97


PART IV

 

Item 15.

Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this Annual Report on Form10-K:

(1) Index list to Consolidated Financial Statements

The following documents are included on pagesF-1 throughF-27F-28 attached hereto and are filed as part of this Annual Report on Form10-K.

 

Report of Independent Registered Public Accounting Firm (PCAOB ID: 00042)

   F-2 

Audited Consolidated Financial Statements:

  

Consolidated Balance Sheets

   F-3F-4 

Consolidated Statements of Operations

   F-4F-5 

Consolidated Statements of Comprehensive Loss

   F-5F-6 

Consolidated Statements of Stockholders’ (Deficit) Equity

   F-6F-7 

Consolidated Statements of Cash Flows

   F-7F-8 

Notes to Financial Statements

   F-8F-9 

(2) Financial Statement Schedules

Schedules have been omitted since they are either not required or not applicable or the information is otherwise included herein.

(3) Exhibits

Exhibit Index

 

      Incorporated by Reference   
Exhibit
    No.    
  

Description

  Form  File No.  Exhibit  Filing Date  Filed/Furnished
Herewith
    3.1  Amended and Restated Certificate of Incorporation of ContraFect Corporation, dated August 1, 2014, and Certificate of Amendment, dated May 9, 2016, Certificate of Amendment dated May  2, 2017, and Certificate of Amendment dated February 3, 2020          *
    3.2  Amended and Restated Bylaws of ContraFect Corporation  8-K  001-36577  3.2  May 10, 2016  
    4.1  Form of Common Stock Certificate  S-1/A  333-195378  4.1  July 3, 2014  
    4.2  Representative’s Warrant, dated August 27, 2014  8-K  001-36577  4.14  October 29, 2015  
    4.3  Form of Noteholder Warrant  S-1/A  333-195378  4.7  July 3, 2014  
    4.4  Specimen Unit Certificate  S-1/A  333-195378  4.8  July 1, 2014  
    4.5  Form of Indenture  S-3  333-206786  4.1  September 4, 2015  
      Incorporated by Reference   
Exhibit
No.
  

Description

  Form  File No.  Exhibit  Filing Date  Filed/
Furnished
Herewith
    3.1  Amended and Restated Certificate of Incorporation of ContraFect Corporation, dated August 1, 2014, and Certificate of Amendment, dated May 9, 2016, Certificate of Amendment dated May 2, 2017, Certificate of Amendment dated February 3, 2020, and Certificate of Amendment dated February 24, 2022  10-K  001-36577  3.1  March 18, 2020  
    3.2  Certificate of Amendment of Amended and Restated Certificate of Incorporation of ContraFect Corporation, dated February 14, 2023.  8-K  001-36577  3.1  February 14, 2023  
    3.3  Amended and Restated Bylaws of ContraFect Corporation  10-Q  001-36577  3.2  November 13, 2020  
    4.1  Form of Common Stock Certificate  S-1/A  333-195378  4.1  July 3, 2014  

98


     Incorporated by Reference   
Exhibit
    No.    
 

Description

  Form  File No.  Exhibit  Filing Date  Filed/Furnished
Herewith
    4.6 Form of Investor Warrant  8-K  001-36577  4.1  June 12, 2015  
    4.7 Form of Placement Agent Warrant  8-K  001-36577  4.2  June 12, 2015  
    4.8 Form of Warrant Agreement by and between ContraFect Corporation and the American Stock Transfer  & Trust Company, LLC, dated July 27, 2016  8-K  001-36577  4.1  July 27, 2016  
    4.9 Form of Warrant Certificate  8-K  001-36577  4.2  July 27, 2016  
    4.10 Form of Warrant Agreement by and between ContraFect Corporation and the American Stock Transfer  & Trust Company, LLC, dated July 25, 2017  8-K  001-36577  4.1  July 25, 2017  
    4.11 Form of Warrant Certificate  8-K  001-36577  4.2  July 25, 2017  
    4.12 Description of ContraFect Corporation Securities          *
  10.1 License Agreement, between The Rockefeller University and ContraFect Corporation, dated July 12, 2011  S-1  333-195378  10.1  April 18, 2014  
  10.2 Lease Agreement, between Hudson View Building #3 LLC and ContraFect Corporation, dated December 1, 2010  S-1  333-195378  10.2  April 18, 2014  
  10.3 Lease Agreement, between Hudson View Building #3 LLC and ContraFect Corporation, dated January 1, 2012  S-1  333-195378  10.3  April 18, 2014  
  10.4# Form of Indemnification Agreement  S-1/A  333-195378  10.4  July 1, 2014  
  10.5# ContraFect Corporation Amended and Restated 2008 Equity Incentive Plan  S-1  333-195378  10.11  April 18, 2014  
  10.6# ContraFect Corporation Form of Stock Option Agreement  S-1  333-195378  10.12  April 18, 2014  
  10.7# ContraFect Corporation 2008 Equity Incentive Plan  S-1  333-195378  10.13  April 18, 2014  
  10.8# ContraFect Corporation 2014 Omnibus Incentive Plan  S-1/A  333-195378  10.14  July 1, 2014  
  10.9 License Agreement, between Trellis Bioscience LLC and ContraFect Corporation, dated January 29, 2014  S-1/A  333-195378  10.15  July 1, 2014  
  10.10 Amendment to the Trellis License Agreement, dated June 15, 2014  S-1/A  333-195378  10.16  July 1, 2014  
     Incorporated by Reference   
Exhibit
No.
 

Description

  Form  File No.  Exhibit  Filing Date  Filed/
Furnished
Herewith
    4.2 Warrant to Purchase Common Stock, dated May 27, 2020  8-K  001-36577  4.1  May 27, 2020  
    4.3 Warrant Agreement, dated May 27, 2020, by and between ContraFect Corporation and American Stock Transfer & Trust Company, LLC  8-K  001-36577  4.2  May 27, 2020  
    4.4 Global Warrant Certificate, dated May 27, 2020  8-K  001-36577  4.3  May 27, 2020  
    4.5 Form of Pre-Funded Common Stock Purchase Warrant  8-K  001-36577  4.1  December 14, 2022  
    4.6 Form of Class A Common Stock Purchase Warrant  8-K  001-36577  4.2  December 14, 2022  
    4.7 Form of Class B Common Stock Purchase Warrant  8-K  001-36577  4.3  December 14, 2022  
    4.8 Form of Pre-Funded Common Stock Purchase Warrant  8-K  001-36577  4.1  March 2, 2023  
    4.9 Form of Common Stock Purchase Warrant  8-K  001-36577  4.2  March 2, 2023  
    4.10 Description of ContraFect Corporation Securities  10-K  001-36577  4.12  March 18, 2020  
  10.1 License Agreement, between The Rockefeller University and ContraFect Corporation, dated July 12, 2011  S-1  333-195378  10.1  April 18, 2014  
  10.2 Lease Agreement, between Hudson View Building #3 LLC and ContraFect Corporation, dated December 1, 2010  S-1  333-195378  10.2  April 18, 2014  
  10.3 Lease Agreement, between Hudson View Building #3 LLC and ContraFect Corporation, dated January 1, 2012  S-1  333-195378  10.3  April 18, 2014  
  10.4# Form of Indemnification Agreement  S-1/A  333-195378  10.4  July 1, 2014  
  10.5# ContraFect Corporation Amended and Restated 2008 Equity Incentive Plan  S-1  333-195378  10.11  April 18, 2014  
  10.6# ContraFect Corporation Form of Stock Option Agreement  S-1  333-195378  10.12  April 18, 2014  
  10.7# ContraFect Corporation 2008 Equity Incentive Plan  S-1  333-195378  10.13  April 18, 2014  
  10.8# ContraFect Corporation 2014 Omnibus Incentive Plan  S-1/A  333-195378  10.14  July 1, 2014  

99


     Incorporated by Reference   
Exhibit
    No.    
 

Description

  Form  File No.  Exhibit  Filing Date  Filed/Furnished
Herewith
  10.11 Form of Securities Purchase Agreement between the Company and Benjamin Small, Birchview Fund, LLC, Broadfin Healthcare Master Fund, Ltd., Cormorant Global Healthcare Master Fund, LP, Jack W. Schuler, Matthew W. Strobeck, Oracle Institutional Partners, LP, Oracle Partners, LP, and Richard B. McCormick, dated June 11, 2015  8-K  001-36577  10.1  June 12, 2015  
  10.12 Form of Registration Rights Agreement among the Company, Benjamin Small, Birchview Fund, LLC, Broadfin Healthcare Master Fund, Ltd., Cormorant Global Healthcare Master Fund, LP, Jack W. Schuler, Matthew W. Strobeck, Oracle Institutional Partners, LP, Oracle Partners, LP, and Richard B. McCormick and Brookline Group LLC, dated June 11, 2015  8-K  001-36577  10.2  June 12, 2015  
  10.13# Letter Agreement, dated July 21, 2016, between ContraFect Corporation and Steven C. Gilman, Ph.D.  8-K  001-36577  10.1  July 21, 2016  
  10.14# Letter Agreement, dated March 13, 2017, between ContraFect Corporation and Steven C. Gilman, Ph.D.  8-K  001-36577  10.1  March 13, 2017  
  10.15# Amendment No. 1 to Offer Letter, dated May 29, 2018, between ContraFect Corporation and Steven C. Gilman, Ph.D.  8-K  001-36577  10.1  May 30, 2018  
  10.16# Offer Letter, dated June 26, 2014, between ContraFect Corporation and Natalie Bogdanos, as amended by Amendment No.  1, dated November 2, 2015  10-K  001-36577  10.27  March 15, 2017  
  10.17# Offer Letter, dated August 24, 2015, between ContraFect Corporation and Cara Cassino, M.D.  10-K  001-36577  10.28  March 15, 2017  
  10.18# Amendment No. 1 to Offer Letter, dated March 15, 2017, between ContraFect Corporation and Cara Cassino, M.D.  10-K  001-36577  10.29  March 15, 2017  
     Incorporated by Reference   
Exhibit
No.
 

Description

  Form  File No.  Exhibit  Filing Date  Filed/
Furnished
Herewith
  10.9 License Agreement, between Trellis Bioscience LLC and ContraFect Corporation, dated January 29, 2014  S-1/A  333-195378  10.15  July 1, 2014  
  10.10 Amendment to the Trellis License Agreement, dated June 15, 2014  S-1/A  333-195378  10.16  July 1, 2014  
  10.11# Offer Letter, dated June 26, 2014, between ContraFect Corporation and Natalie Bogdanos, as amended by Amendment No. 1, dated November 2, 2015  10-K  001-36577  10.27  March 15, 2017  
  10.12# Offer Letter, dated August 24, 2015, between ContraFect Corporation and Cara Cassino, M.D.  10-K  001-36577  10.28  March 15, 2017  
  10.13# Amendment No. 1 to Offer Letter, dated March 15, 2017, between ContraFect Corporation and Cara Cassino, M.D.  10-K  001-36577  10.29  March 15, 2017  
  10.14# Employment Agreement, dated as of April 2, 2019, by and between ContraFect Corporation and Roger J. Pomerantz  8-K  001-36577  10.1  April 2, 2019  
  10.15 Stock Purchase Agreement, dated December 9, 2019, by and between ContraFect Corporation and Pfizer Inc.  8-K  001-36577  10.1  December 12, 2019  
  10.16# Employment Agreement, dated November 5, 2012, by and between ContraFect Corporation and Michael Messinger  10-K  001-36577  10.16  March 30, 2021  
  10.17# Non-Employee Director Compensation Program  10-K  001-36577  10.17  March 30, 2021  
  10.18 Cost-Sharing Agreement by and between ContraFect Corporation and the Biomedical Advanced Research and Development Authority, dated March 15, 2021  8-K  001-36577  10.1  March 12, 2021  
  10.19# ContraFect Corporation 2021 Employment Inducement Omnibus Incentive Plan and related forms of notice and option agreement  10-Q  001-36577  10.1  May 16, 2022  
  10.20# ContraFect Corporation 2022 Employee Stock Purchase Plan  S-8  333-265153  99.1  May 23, 2022  

100


     Incorporated by Reference   
Exhibit
    No.    
 

Description

  Form  File No.  Exhibit  Filing Date  Filed/Furnished
Herewith
  10.19# Employment Agreement, dated as of April 2, 2019, by and between ContraFect Corporation and Roger J. Pomerantz  8-K  001-36577  10.1  April 2, 2019  
  10.20# Separation Agreement and Release, dated as of April 2, 2019, by and between ContraFect Corporation and Steven C. Gilman  8-K  001-36577  10.2  April 2, 2019  
  10.21 Stock Purchase Agreement, dated December 9, 2019, by and between ContraFect Corporation and Pfizer Inc.  8-K  001-36577  10.1  December 12, 2019  
  23.1 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm          *
  31.1 Certification of Chief Executive Officer pursuant to Rule13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002          *
  31.2 Certification of Principal Financial Officer pursuant to Rule13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002          *
  32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002          **
  32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002          **
101.INS XBRL Instance Document          *
101.SCH XBRL Taxonomy Extension Schema Document          *
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document          *
101.DEF XBRL Taxonomy Extension Definition Linkbase Document          *

      Incorporated by Reference   
Exhibit

No.
  

Description

  Form  File No.  Exhibit  Filing Date  Filed/
Furnished

Herewith
  10.21+Amendment of Solicitation/Modification of Contract between the Biomedical Advanced Research and Development Authority and ContraFect Corporation, dated August 24, 202210-Q001-3657710.1November 14, 2022
  23.1Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm*
  31.1Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002*
  31.2Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002*
  32.1Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
  32.2Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101.INSInline 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*
101.SCHInline XBRL Taxonomy Extension Schema Document*
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB  Inline XBRL Taxonomy Extension Label Linkbase Document          *
101.PRE  Inline XBRL Taxonomy Extension Presentation Linkbase Document*

101


Incorporated by Reference
Exhibit
No.

Description

FormFile No.ExhibitFiling DateFiled/
Furnished
Herewith
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)          *

 

*

Filed herewith.

**

Furnished herewith.

#

Indicates management contract or compensatory plan.

+

Portions of the exhibit, marked by brackets, have been omitted because the omitted information (i) is not material and (ii) is treated as confidential by the Company

 

Item 16.

Form10-K Summary

None

102


F-1

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of ContraFect Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of ContraFect Corporation (the Company) as of December 31, 20192022 and 2018,2021, the related consolidated statements of operations, comprehensive loss, stockholders’ (deficit) equity and cash flows for each of the three years in the period ended December 31, 2019,2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2022, in conformity with U.S. generally accepted accounting principles.

The Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has an accumulated deficit, has incurred recurring losses, and used significant cashflowscash flows in operations, expects continuing future losses and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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) 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.

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
F-2

subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Accounting for Warrants
Description of the Matter
As discussed in Note 10 to the consolidated financial statements, in December 2022, the Company completed a private placement whereby the Company issued Class A warrants to purchase up to an aggregate of 1,356,589 shares of common stock and Class B warrants (collectively, the “2022 Warrants”) to purchase up to an aggregate of 678,294 shares of common stock. The Company determined that the 2022 Warrants should be classified as a liability.
Auditing the Company’s accounting for the 2022 Warrants was complex due to the judgment that was required in determining the balance sheet classification of the 2022 Warrants.
How We Addressed the Matter in Our Audit
To test the initial classification of the December 2022 warrants, we performed audit procedures that included, among others, inspecting the agreements in order to evaluate the completeness and accuracy of the contract terms included in the Company’s technical accounting analysis and testing management’s application of the relevant accounting guidance, including the balance sheet classification and disclosures.
/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2013.

Hartford, Connecticut

March 18, 2020

31, 2023

F-3

Table of Contents
CONTRAFECT CORPORATION

Consolidated Balance Sheets

   December 31, 
   2019  2018 

Assets

   

Current assets:

   

Cash and cash equivalents

  $24,184,140  $8,320,317 

Marketable securities

   —     22,131,936 

Prepaid expenses and other current assets

   6,575,375   988,799 
  

 

 

  

 

 

 

Total current assets

   30,759,515   31,441,052 

Property and equipment, net

   1,099,948   1,076,099 

Operating leaseright-of-use assets

   3,043,826   —   

Other assets

   105,420   355,420 
  

 

 

  

 

 

 

Total assets

  $35,008,709  $32,872,571 
  

 

 

  

 

 

 

Liabilities and stockholders’ equity

   

Current liabilities:

   

Accounts payable

  $2,622,272  $1,427,287 

Accrued liabilities

   6,803,789   4,369,732 

Current portion of lease liabilities

   631,889   —   
  

 

 

  

 

 

 

Total current liabilities

   10,057,950   5,797,019 

Deferred rent

   —     679,182 

Warrant liabilities

   6,068,978   20,781,663 

Long-term portion of lease liabilities

   3,264,128   —   

Other liabilities

   72,747   72,747 
  

 

 

  

 

 

 

Total liabilities

   19,463,803   27,330,611 

Commitments and contingencies (Note 8)

   —     —   

Stockholders’ equity:

   

Preferred stock, $0.0001 par value, 25,000,000 shares authorized and none outstanding at December 31, 2019 and 2018

   —     —   

Common stock, $0.0001 par value, 200,000,000 shares authorized, 15,332,042 shares issued and outstanding at December 31, 2019; 200,000,000 shares authorized, 7,940,931 shares issued and outstanding at December 31, 2018

   1,533   7,941 

Additionalpaid-in capital

   227,657,758   204,884,211 

Accumulated other comprehensive loss

   —     (30,300

Accumulated deficit

   (212,114,385  (199,319,892
  

 

 

  

 

 

 

Total stockholders’ equity

   15,544,906   5,541,960 
  

 

 

  

 

 

 

Total liabilities and stockholders’ equity

  $35,008,709  $32,872,571 
  

 

 

  

 

 

 

(in thousands, except share data)
   
December 31,
 
   
2022
  
2021
 
Assets
         
Current assets:         
Cash and cash equivalents  $8,907  $16,654 
Marketable securities   4,775   37,631 
Prepaid expenses   1,382   4,439 
Other current assets   2,642   4,140 
          
Total current assets   17,706   62,864 
Property and equipment, net   627   741 
Operating lease
right-of-use
assets
   2,241   2,544 
Other assets   105   613 
          
Total assets  $20,679  $66,762 
          
Liabilities and stockholders’ (deficit) equity
         
Current liabilities:         
Accounts payable  $13,671  $2,389 
Accrued
 
and other current
 
liabilities
   6,498   9,128 
Current portion of lease liabilities   671   657 
          
Total current liabilities   20,840   12,174 
Warrant liabilities   9,299   2,530 
Long-term portion of lease liabilities   2,210   2,609 
Other liabilities   182   73 
          
Total liabilities   32,531   17,386 
Commitments and contingencies (Note 8)   —     —   
Stockholders’ (deficit) equity:         
Preferred stock, $0.0001 par value, 25,000,000 shares authorized and none issued or outstanding at December 31, 2022 and 2021   —     —   
Common stock, $0.0001 par value, 125,000,000 shares authorized; 594,983 and 491,626 shares issued and outstanding at December 31, 2022 and 2021   1   1 
Additional
paid-in
capital
   313,884   310,011 
Accumulated other comprehensive loss   (32  (84
Accumulated deficit   (325,705  (260,552
          
Total stockholders’ (deficit) equity   (11,852  49,376 
          
Total liabilities and stockholders’ (deficit) equity  $20,679  $66,762 
          
See accompanying notes.

F-4

Table of Contents
CONTRAFECT CORPORATION

Consolidated Statements of Operations

   Year Ended December 31, 
   2019  2018  2017 

Operating expenses:

   

Research and development, including stock-based compensation of $469,357, $626,002 and $451,334, respectively

  $18,057,025  $22,416,651  $17,314,086 

General and administrative, including stock-based compensation of $977,192, $929,521 and $1,171,794, respectively

   9,809,423   8,707,774   9,249,671 
  

 

 

  

 

 

  

 

 

 

Total operating expenses

   27,866,448   31,124,425   26,563,757 
  

 

 

  

 

 

  

 

 

 

Loss from operations

   (27,866,448  (31,124,425  (26,563,757

Other income (expense):

    

Interest income

   359,270   672,227   418,135 

Other expense

   —     —     (905,014

Change in fair value of warrant liabilities

   14,712,685   (7,232,226  11,532,978 
  

 

 

  

 

 

  

 

 

 

Total other income (expense)

   15,071,955   (6,559,999  11,046,099 
  

 

 

  

 

 

  

 

 

 

Net loss

  $(12,794,493 $(37,684,424 $(15,517,658
  

 

 

  

 

 

  

 

 

 

Per share information:

    

Net loss per share of common stock, basic and diluted

  $(1.54  (4.95 $(2.79
  

 

 

  

 

 

  

 

 

 

Basic and diluted weighted average shares outstanding

   8,283,509   7,606,266   5,559,573 
  

 

 

  

 

 

  

 

 

 

(in thousands, except share and
per-share
data)
   
Year Ended December 31,
 
   
2022
  
2021
  
2020
 
Operating expenses:         
Research and development, including stock-based compensation of $1,027, $933 and $655, respectively  $44,738  $35,508  $22,614 
General and administrative, including stock-based compensation of $2,845, $2,261 and $1,921, respectively   12,151   11,757   11,625 
Restructuring   7,719   —     —   
              
Total operating expenses   64,608   47,265   34,239 
              
Loss from operations   (64,608  (47,265  (34,239
Other (expense) income:             
Interest income   81   109   192 
Other expense   (4,813  —     (2,165
Change in fair value of warrant liabilities   4,187   26,874   8,056 
              
Total other (expense) income, net   (545  26,983   6,083 
              
Net loss  $(65,153 $(20,282 $(28,156
              
Per share information:             
Net loss per share of common stock, basic and diluted  $(124.97 $(44.12 $(98.95
              
Basic and diluted weighted average shares outstanding   521,359   459,699   284,544 
              
See accompanying notes.

F-5

Table of Contents
CONTRAFECT CORPORATION

Consolidated Statements of Comprehensive Loss

   Year Ended December 31, 
   2019  2018  2017 

Net loss

  $(12,794,493 $(37,684,424 $(15,517,658

Other comprehensive gain (loss):

    

Unrealized gain (loss) onavailable-for-sale securities

   30,300   44,520   (23,154
  

 

 

  

 

 

  

 

 

 

Comprehensive loss

  $(12,764,193 $(37,639,904 $(15,540,812
  

 

 

  

 

 

  

 

 

 

(in thousands)

   
Year Ended December 31,
 
   
2022
  
2021
  
2020
 
Net loss  $(65,153 $(20,282 $(28,156
Other comprehensive gain (loss):             
Unrealized gain (loss) on
available-for-sale
securities
   52   (63  (21
              
Comprehensive loss  $(65,101 $(20,345 $(28,177
              
See accompanying notes.

F-6

CONTRAFECT CORPORATION

Consolidated Statements of Stockholders’ (Deficit) Equity

   Common Stock   Additional
Paid-In
Capital
  Accumulated
Other
Comprehensive
Loss
  Accumulated
Deficit
  Stockholders’
Equity
 
   Shares   Amount              

Balance, December 31, 2016

   4,165,576   $416   $165,681,914  $(51,666 $(146,117,810 $19,512,854 

Issuance of securities in registered offering

   3,200,000    320    27,616,245   —     —     27,616,565 

Financing cost of sale of securities

   —      —      (2,018,290  —     —     (2,018,290

Share-based compensation

   —      —      1,623,128   —     —     1,623,128 

Unrealized loss on marketable securities

   —      —      —     (23,154  —     (23,154

Net loss

   —      —      —     —     (15,517,658  (15,517,658
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance, December 31, 2017

   7,365,576   $736   $192,902,997  $(74,820 $(161,635,468 $31,193,445 

Issuance of securities in registered offering

   575,000    58    11,499,942   —     —     11,500,000 

Financing cost of sale of securities

   —      —      (1,072,607  —    ��—     (1,072,607

Issuance of common stock for exercise of warrants

   355    —      5,503   —     —     5,503 

Share-based compensation

   —      —      1,555,523   —     —     1,555,523 

Unrealized gain on marketable securities

   —      —      —     44,520   —     44,520 

Net loss

   —      —      —     —     (37,684,424  (37,684,424
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance, December 31, 2018

   7,940,931   $794   $204,891,358  $(30,300 $(199,319,892 $5,541,960 

Issuance of securities in registered offerings

   6,280,000    628    20,033,372   —     —     20,034,000 

Issuance of securities in private placement

   1,111,111    111    2,999,889   —     —     3,000,000 

Financing cost of sale of securities

   —      —      (1,713,410  —     —     (1,713,410

Share-based compensation

   —      —      1,446,549   —     —     1,446,549 

Unrealized gain on marketable securities

   —      —      —     30,300   —     30,300 

Net loss

   —      —      —     —     (12,794,493  (12,794,493
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance, December 31, 2019

   15,332,042   $1,533   $227,657,758  $—    $(212,114,385 $15,544,906 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

(in thousands, except share data)
   
Common Stock
   
Additional
Paid-In

Capital
  
Accumulated
Other
Comprehensive
Loss
  
Accumulated
Deficit
  
Stockholders’

(Deficit)
Equity
 
   
Shares
   
Amount
   
 
  
 
  
 
  
 
 
Balance, December 31, 2019   191,619   $1   $227,659  $—    $(212,114 $15,546 
Issuance of securities in registered offerings   147,471    —      21,108   —     —     21,108 
Issuance of securities in private placement   8,427    —      3,000   —     —     3,000 
Financing cost of sale of securities   —      —      (1,462  —     —     (1,462
Issuance of common stock for exercise of warrants   73    —      29   —     —     29 
Issuance of common stock for exercise of options   4    —      —     —     —     —   
Stock-based compensation   —      —      2,576   —     —     2,576 
Unrealized loss on marketable securities   —      —      —     (21  —     (21
Net loss   —      —      —     —     (28,156  (28,156
                            
Balance, December 31, 2020   347,594   $1   $252,910  $(21 $(240,270 $12,620 
Issuance of securities in registered offerings   143,750    —      57,500   —     —     57,500 
Financing cost of sale of securities   —      —      (3,703  —     —     (3,703
Issuance of common stock for exercise of warrants   282    —      110   —     —     110 
Stock-based compensation   —      —      3,194   —     —     3,194 
Unrealized loss on marketable securities   —      —      —     (63  —     (63
Net loss   —      —      —     —     (20,282  (20,282
                            
Balance, December 31, 2021   491,626   $1   $310,011  $(84 $(260,552 $49,376 
Issuance of securities in registered offering   54,375    —      —     —     —     —   
Issuance of common stock for exercise of
pre-funded
warrants
   48,982    —      —     —     —     —   
Stock-based compensation   —      —      3,873   —     —     3,873 
Unrealized gain on marketable securities   —      —      —     52   —     52 
Net loss   —      —      —     —     (65,153  (65,153
                            
Balance, December 31, 2022   594,983   $1   $313,884  $(32 $(325,705 $(11,852
                            
See accompanying notes.


F-7
CONTRAFECT CORPORATION

Statements of Cash Flows

   Year Ended December 31, 
   2019  2018  2017 

Cash flows from operating activities

    

Net loss

  $(12,794,493 $(37,684,424 $(15,517,658

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation

   169,159   151,292   187,249 

Stock-based compensation expense

   1,446,549   1,555,523   1,623,128 

Issuance costs allocated to warrants

   —     —     905,014 

Change in fair value of warrant liabilities

   (14,712,685  7,232,226   (11,532,978

Decrease in deferred rent

   —     (25,058  (290,199

Net amortization of premium paid on marketable securities

   171,111   486,736   831,793 

Changes in operating assets and liabilities:

    

(Increase) decrease in prepaid expenses and other current andnon-current assets

   (1,262,809  897,447   (1,059,502

(Decrease) increase in accounts payable, accrued liabilities and other liabilities

   (444,725  1,127,409   324,160 
  

 

 

  

 

 

  

 

 

 

Net cash used in operating activities

   (27,427,893  (26,258,849  (24,528,993

Cash flows from investing activities

    

Purchases of marketable securities

   —     (23,846,176  (53,162,598

Proceeds from maturities of marketable securities

   21,991,125   41,130,888   43,802,957 

Purchases of property and equipment

   (19,999  (133,488  —   
  

 

 

  

 

 

  

 

 

 

Net cash provided by (used in) investing activities

   21,971,126   17,151,224   (9,359,641

Cash flows from financing activities

    

Proceeds from issuance of equity securities

   23,034,000   11,500,000   40,000,000 

Payment of financing costs of securities sold

   (1,713,410  (1,072,607  (2,923,304

Proceeds from exercise of warrants

   —     5,503   —   
  

 

 

  

 

 

  

 

 

 

Net cash provided by financing activities

   21,320,590   10,432,896   37,076,696 
  

 

 

  

 

 

  

 

 

 

Net increase in cash and cash equivalents

   15,863,823   1,325,271   3,188,062 

Cash and cash equivalents at beginning of period

   8,320,317   6,995,046   3,806,984 
  

 

 

  

 

 

  

 

 

 

Cash and cash equivalents at end of period

  $24,184,140  $8,320,317  $6,995,046 
  

 

 

  

 

 

  

 

 

 

Supplemental disclosures of cash flow information

    

Prepaid expenses in accrued liabilities

  $4,096,832  $—   $—  

Right-of-use assets obtained in exchange for lease obligations

  $4,148,672  $—   $—  

Leasehold improvement obtained in exchange for lease incentive obligations

  $189,227  $—   $—  

Issuance of warrants to purchase common stock

  $—   $—   $12,383,435 

(in thousands)

   
Year Ended December 31,
 
   
2022
  
2021
  
2020
 
Cash flows from operating activities
             
Net loss  $(65,153 $(20,282 $(28,156
Adjustments to reconcile net loss to net cash used in operating activities:             
Depreciation   154   148   168 
Stock-based compensation expense   3,873   3,194   2,576 
Issuance costs allocated to warrants   851   —     2,175 
Fair value of warrants issued in excess of proceeds received   3,961   —     —   
Change in fair value of warrant liabilities   (4,187  (26,874  (8,056
Net amortization of premium paid on marketable securities   763   924   378 
Changes in operating assets and liabilities:             
Decrease (increase) in prepaid expenses and other current and
non-current
assets
   5,003   (4,336  1,738 
Increase (decrease) in accounts payable, accrued liabilities and other liabilities   8,761   6,101   (4,010
              
Net cash used in operating activities   (45,974)  (41,125  (33,187
Cash flows from investing activities
             
Purchases of marketable securities   —     (48,698  (47,555
Sales of marketable securities   5,525   —     —   
Proceeds from maturities of marketable securities   26,620   37,085   20,151 
Purchases of property and equipment   (62  —     —   
              
Net cash provided by (used in) investing activities   32,083   (11,613  (27,404
Cash flows from financing activities
             
Proceeds from issuance of equity securities   6,995   57,500   55,500 
Payment of financing costs of securities sold   (851  (3,703  (3,637
Proceeds from exercise of warrants   —     110   29 
              
Net cash provided by financing activities   6,144   53,907   51,892 
              
Net (decrease) increase in cash and cash equivalents   (7,747  1,169   (8,699
Cash and cash equivalents at beginning of period   16,654   15,485   24,184 
              
Cash and cash equivalents at end of period  $8,907  $16,654  $15,485 
              
Supplemental disclosures of cash flow information
             
Issuance of warrants to purchase common stock  $10,956  $—    $31,391 
See accompanying notes.

F-8

ContraFect Corporation

Notes to Financial Statements

December 31, 2019

2022

1. Organization and Description of Business

Organization and Business

ContraFect Corporation (the “Company”) is a clinical-stage biotechnology company focused on the discovery and development of direct lytic agents (“DLAs”), including lysins and amurin peptides, as new medical modalities for the treatment of life-threatening, antibiotic-resistant infections. The Company intends to address antibiotic-resistant infections using product candidates from our lysin and amurin peptide platforms. DLAs are fundamentally different than antibiotics and offer a potential paradigm shift in the treatment of antibiotic-resistant infections. The Company’s most advanced product candidate is exebacase, a lysin which targetsStaph
S. aureus
, including methicillin-resistant strains, which causes serious infections such as bacteremia, pneumonia and osteomyelitis.Staph
S. aureus
is also a frequent source of biofilm-dependent infections of heart valves (endocarditis), prosthetic joints, indwelling devices and catheters. These infections result in significant morbidity and mortality despite current antibiotic therapy.
Exebacase iswas being studied in a pivotal Phase 3 superiority study (the “DISRUPT study”) to evaluate itsthe safety, tolerability, efficacy and pharmacokinetics of intravenous (“IV”) exebacase when used in addition to background standard of care antibacterialantibiotic therapy for the treatment ofStaph
S. aureus
bacteremia, including right-sided endocarditis in adolescent and adult patients.

On July 7, 2022, the Data Safety Monitoring Board (“DSMB”) conducted an interim futility analysis and recommended that the DISRUPT study be stopped because the conditional power of the study was below the

pre-specified
threshold for futility. Based on the DSMB’s recommendation, patient enrollment in the Phase 3 trial was stopped (“Trial Closure”). We continued to monitor all already enrolled patients and all patients completed their
follow-up
visits. The Company expects to complete all clinical study reports as required by the U.S. Food and Drug Administration (“FDA”).
On July 29, 2022, the Company initiated a restructuring plan resulting in a reduction in workforce. The restructuring plan was designed to reduce costs and align resources with the Company’s anticipated product development milestones for exebacase and
CF-370
and to help preserve the value of the Company’s drug discovery operations. The restructuring reduced the Company’s workforce from 43 full-time employees as of June 30, 2022 to 27 full-time employees as of August 15, 2022, when the reduction was completed. The Company recognized a restructuring charge of $7.7 million, including $1.6 million related to employee termination costs and other related expenses from the workforce reduction and $6.1 million from the
write-off
of prepaid manufacturing costs following the suspension of IV exebacase related activities.
The Company has incurred recurring losses from operations since inception as a research and development organization and has an accumulated deficit of $212.1$325.7 million as of December 31, 2019.2022. For the year ended December 31, 2019,2022, the Company used $27.4$46.0 million of cash in operations. The Company has relied on its ability to fund its operations through public and private debt and equity financings, and, to a lesser extent, grant funding and government contracts. The Company expects operating losses and negative cash flows to continue at significant levels in the future as it continues to advance its clinical trials. Withoutprograms. As of December 31, 2022, the Company had $13.7 million in cash, cash equivalents and marketable securities, which, without additional funding, the Company believes it will not havebe sufficient funds to meet its obligations within the next twelve months from the date of issuance of these consolidated financial statements. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company plans to continue to fund its operations through public or private debt and equity financings, but there can be no assurances that such financing will continue to be available to the Company on satisfactory terms, or at all. all, particularly in light of the Trial Closure.
As such, under the requirements of Accounting Standard Codification (“ASC”)205-40,management mayhas not considerconsidered the potential for future capital raises in its assessment of the Company’s ability to meet its obligations for the next twelve months.months, and substantial doubt exists about the Company’s ability to continue as a going concern for twelve months from the date the financial statements were issued. If the Company is unable to obtain funding, the Company would be forced to delay, further reduce its
F-9

workforce or reduce or eliminate its research and development programs, which could adversely affect its business prospects, or the Company may be unable to continue operations.

operations or continue as a going concern and may be forced to sell or liquidate the business.

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

On December 18, 2019,March 22, 2021, the Company completed an underwritten public offering of 2,565,000 shares of its common stock at a public offering price of $3.90 per share, resulting in gross proceeds tounder the Company’s registration statement on Form S-3 (Reg. No. 333-246359) (the “Form-S-3”). The Form S-3 was declared effective by the SEC on August 31, 2020 and allows the Company of approximately $10.0 million. On December 12, 2019, the Company completed an underwritten public offering of 3,715,000 shares of its common stock at a public offering price of $2.70 per shareto offer and a concurrent private placement of 1,111,111 sharessell from time-to-time up to $
150.0
 million of common stock, to Pfizer Inc. at a pricepreferred stock, debt securities, warrants or units comprised of $2.70 per share, resulting in gross proceeds to theany combination of these securities. The Company of approximately $13.0 million. The combined net proceeds of both public offerings together with the private placement was $21.3 million after underwriting discounts and commissions and offering expenses payable by the Company.

On August 3, 2018, the Company completed an underwritten public offering of 575,000issued 143,750 shares of its common stock, including shares sold pursuant to the fully exercised overallotment option granted to the

underwriters in connection with the offering, at a public offering price of $20.00$400.00 per share, resulting in net proceeds to the Company of approximately $10.4$53.8 million after underwriting discounts and commissions and offering expenses payable by the Company.

On July 25, 2017,December 15, 2022, the Company completed an underwritten public(i) a registered direct offering under the Form S-3 of 3,200,00054,375 shares of its common stock and warrantsa pre-funded warrant to purchase an additional 1,600,000623,919 shares of its common stock at(the “Pre-Funded Warrant”) and (ii) a concurrent private placement in which the Company issued a Class A warrant to purchase up to an exercise priceaggregate of $15.50 per share1,356,589 shares of common stock (the “2017“Class A Warrant”) and a Class B warrant to purchase up to an aggregate of 678,294 shares of common stock (the “Class B Warrant”) (collectively, the “2022 Offering”). The public offering price was $12.50 perAll shares of common stock, the Pre-Funded Warrant, the Class A Warrant and the Class B Warrant were issued together to a single accredited investor purchaser for consideration equating to $10.32 share of common stock (or Pre-Funded Warrant to purchase one share of common stock, less a nominal exercise price), together with a Class A Warrant to purchase two shares of common stock and accompanyinga Class B warrant resultingto purchase one share of common stock, in the case of each of the Class A Warrant and Class B Warrant, for no additional consideration but each with an exercise price per share of $10.32, for aggregate net proceeds to the Company of approximately $37.1$6.1 million after underwriting discounts and commissionsplacement agent fees and offering expenses payable by the Company.

On March 2, 2023, the Company completed (i) a registered direct offering under the Form S-3 of 
128,000
 shares of its common stock and a pre-funded warrant to purchase 
2,372,000
 shares of common stock and (ii) a concurrent private placement in which the Company issued a warrant to purchase up to an aggregate of 
5,000,000
 shares of common stock (collectively, the “2023 Offering”). All securities in the 2023 Offering were issued to the same single accredited investor purchaser as in the 2022 Offering for consideration equating to $
4.00 per share of common stock (or pre-funded warrant to purchase one
share of common stock, less a nominal exercise price), together with a warrant to purchase
two
shares of common stock for no additional consideration but with an exercise price per share of $4.00, for aggregate estimated net proceeds to the Company of $9.2 million after placement agent fees and offering expenses payable by the Company.
The significant increaseschanges in common stock outstanding are expected to impact the year-over-year
comparability
of the Company’s net loss per share calculations. All share and per share amounts have been adjusted for all periods presented to reflect aone-for-ten
one-for-eighty
reverse stock split effected on February 3, 2020.

14, 2023.

2. Summary of Significant Accounting Policies

significant accounting policies

Basis of Presentation

The accompanying financial information has been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).

F-10

Principles of Consolidation

The Company has a wholly-owned subsidiary, ContraFect International Limited, in Scotland that establishes legal status for interactions with the European Economic Area. This subsidiary is dormant or is otherwise
non-operative.
Any inter-company accounts have been eliminated in consolidation.

Segment and Geographic Information

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the chief executive officer. The Company and the chief decision maker view the Company’s operations and manage its business as one operating segment. The Company operates in only one geographic segment.

Significant Risks and Uncertainties

The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to:to, the results of clinical testing and trial activities of the Company’s products, the Company’s ability to obtain regulatory approval to market its products, competition from products manufactured and sold or being developed by other companies, the price of, and demand for, the Company’s products, the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products, and the Company’s ability to raise capital.

capital and the effects of

COVID-19
and the recent failure of certain financial institutions, on the Company’s business, operations and financial performance and position.
The Company currently relies on a single manufacturer of exebacase drug substance for each of its product candidates and two manufacturers of drug product, one located in the United Kingdom,States and one in Western Europe, and there isare no long-term supply agreementagreements in place. A sustained disruption in the operations of this manufacturerany of these manufacturers, or in the event the Company would need to change to a new supplier, could result intoin a significant delay in the ability of the Company to complete the activities needed to support a Biologics License Application for, and, if approved, commercialization of exebacase.

any associated activities.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to accruals, fair value measurements, stock-based compensation, warrant valuation, research and development accruals and prepaid expenses and realization of net deferred income tax assets. The Company’s actual results may differ from these estimates under different assumptions or conditions. There have been no significant changes from the Company’s original estimates in any periods presented.

Concentrations of Credit Risk

Financial instruments which potentially subject the Company to credit risk consist primarily of cash, cash equivalents and marketable securities. The Company holds these investments in highly rated financial institutions, and, by policy, limits the amounts of credit exposure to any one financial institution. These amounts at times may exceed federally insured limits. The Company hasCompany’s accounts at Silicon Valley Bank have not experienced any credit losses in such accounts and the Company does not believe it is exposedhas material exposure to any significant credit risk on these funds. The Company maintains the majority of its cash, cash equivalents and marketable securities at other financial institutions. The Company has no
off-balance
sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements.

F-11

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities at the
date
of purchase of three months or less to be cash equivalents. Cash and cash equivalents include bank demand deposits, marketable securities with maturities of three months or less at purchase, and money market funds that invest primarily in certificates of deposit, commercial paper and U.S. government and U.S. government agency obligations. Cash equivalents are reported at fair value.

Marketable Securities

Marketable securities consistconsists of investments in corporate debt and U.S. Treasury securities. Management determines the
appropriate
classification of the securities at the time they are acquired and evaluates the appropriateness of such classifications at each balance sheet date. The Company classifies its marketable securities asavailable-for-sale pursuant to ASC 320,Investments – Debt and Equity Securities. available-for-sale. The Company classifies marketable securities available to fund current operations as current assets on its consolidated balance sheets. Marketable securities are classified as long-term assets on the consolidated balance sheets if (i) the Company has the intent and ability to hold the investments for a period of at least one year and (ii) the contractual maturity date of the investments is greater than one year. Marketable securities are recorded at fair value, with unrealized gains and losses included as a component of accumulated other comprehensive loss in stockholders’ (deficit) equity and a component of total comprehensive loss in the consolidated statements of comprehensive loss, until realized. The fair value of these securities is based on quoted prices for identical or similar assets. Realized gains and losses are included in interest income in the consolidated statement of operations and comprehensive loss on a specific-identification basis.Therebasis. There were $
23,128
of realized losses on sales of marketable securities for the year ended December 
31
,
2022
and
no
realized gains or losses on sales of marketable securities for the yearsyear ended December 
31 2019, 2018 or 2017.
,
2021
. There were $
9,609
of realized gains on sales of marketable securities for the year ended December 
31
,
2020
. There were
no
marketable securities that had been in an unrealized loss position for more than
12
months as of December 
31 2018. The Company held no marketable securities as of December 31, 2019.

,
2022
or
2021
.
The Company reviews marketable securities for other-than-temporary impairment whenever the fair value of a marketable security is less than the amortized cost and evidence indicates that a marketable security’s carrying amount is not recoverable within a reasonable period of time. Other-than-temporary impairments of

investments are recognized in the consolidated statements of operations if the Company has experienced a credit loss, has the intent to sell the marketable security, or if it is more likely than not that the Company will be required to sell the marketable security before recovery of the amortized cost basis. Evidence considered in this assessment includes reasons for the impairment, compliance with the Company’s investment policy, the severity and the duration of the impairment and changes in value subsequent to the end of the period.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, marketable securities, accounts payable, accrued liabilities and warrant liabilities. Fair value estimates of these instruments are made at a specific point in time, based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. The fair value of the Company’s warrant liabilities areis based upon unobservable inputs, as described further below.

The Company is required to disclosediscloses information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. FASB ASC Topic 820,Fair Value Measurements and Disclosures (“ASC 820”), establishesusing a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in

F-12

determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The Company had no liabilities classified as Level 1 or Level 2. The carrying amounts reported in the accompanying financial statements for accounts payable and accrued expenses approximate their respective fair values due to their short-term maturities. The fair value of the warrant liabilities areis discussed in Note 4, “Fair Value Measurements.”

Property, Office Equipment, and Leasehold Improvements

Property and equipment are recorded at cost less accumulated depreciation. Depreciation of property and equipment is provided by the straight-line method over their estimated useful lives, ranging from three to five years.

Leasehold improvements are amortized on a straight-line basis over the useful life of the improvement or the initial lease term, whichever is shorter. Costs for normal repair and maintenance are charged to expense as incurred.

Impairment of Long-lived Assets

In accordance with ASC 360,Property, Plant, and Equipment, the Company’s policy is to review

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. As ofDuring the periods ended December 31, 20192022 and 2018, 2021,
no
impairment of long-lived assets has occurred.

Deferred Rent

The Company has an operating lease for office and laboratory space. Rent expense is recorded on a straight-line basis over the initial lease term. The difference between the actual cash paid and the straight-line rent expense is recorded as deferred rent as of December 31, 2018.

Research and Development Costs

Research and development costs are charged to expense as incurred and are typically made up of salaries and benefits, clinical trial activities, drug development and manufacturing costs, and third-party service fees, including for clinical research organizations and investigative sites. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid expenses and other current assets or accrued liabilities.

Share-based

Stock-based Compensation

The Company accounts for stock-based

Stock-based compensation in accordance with ASC 718,Compensation—Stock Compensation, which requires the measurementis measured and recognition ofrecognized as compensation expense for all stock-based payment awards made to employees, andnon-employeedirectors, and
non-employees,
including employee stock options.
F-13

Compensation expense based on the grant date fair value is generally amortized over the requisite service period of the award on a straight-line basis. Fornon-employees, effective January 1, 2019, unvested option compensation expense is based on the adoption date fair value and is amortized over the service period on a straight-line basis.

The fair value of options is calculated using the Black-Scholes option pricing model on the date of grant based on key assumptions such as stock price, risk free interest rates, expected volatility, expected term, and expected term.dividend yield. The Company’s estimates of these assumptions are primarily based on historical data, peer company data and judgment regarding future trends and factors.

Income Taxes

The Company uses the asset and liability method to calculate deferred tax assets and liabilities. Deferred taxes are recognized based on the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled. The Company records a valuation allowance against a deferred tax asset when it is
more-likely-than-not
that the deferred tax asset will not be realized.

The Company is subject to federal, state and local taxes and follows a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company recognizes tax benefits or expenses of uncertain tax positions

in the year such determination is made when the position is “more likely than not” to be sustained assuming examination by tax authorities. Management has reviewed the Company’s tax positions for all open tax years (tax years ended December 31, 20082011 through December 31, 2019)2022) and concluded that 

no
provision for unrecognized tax benefits or expense is required in these financial statements. There are no income tax audits in progress as of December 31, 2019.

Grants

2022.

Government Contracts and Grant Agreements
On March 10, 2021, the Company entered into a cost-share contract (the “BARDA Contract”) with BARDA, a division of the U.S. Department of Health and Human Services’ Office of the Assistant Secretary for Preparedness and Response. The base period for the BARDA Contract included government funding of up to $9.8 million to reimburse expenses to support the conduct of the Phase 3 DISRUPT study and futility analysis. In connection with the Trial Closure, the BARDA Contract was modified to provide for up to $6.6 million in funding to support a futility outcome root-cause analysis and the close-out of the Phase 3 DISRUPT study of exebacase. 

The Company recognizes a receivable and thein other current assets with a related reduction in its research and development expenses when the actual reimbursable costs have been incurred and there is reasonable assurance that the Company has complied with the conditions of the grantsapplicable government contract or grant agreement and the amounts will be received. For the years ended December 31, 2019 and 2018, theThe Company recognized a reduction to its research and development expense in the amount of approximately $3.6$
8.6
 million, $
10.5
 million and $1.2$
4.2
 million for the years ended December 31, 2022, 2021 and 2020 respectively. The receivable for grantsgovernment contracts and grant agreements as of December 31, 20192022 and 20182021 was approximately $1.1$
2.6
 million and $0.5$
4.1
 million, respectively, and is included in prepaid expenses and other current assets.respectively. The Company has approximately $8.3$
5.1
 million of approvedcommitted government contract and grant awardagreement funding remaining as of December 31, 2019.

2022. 

Restructuring
The Company has made estimates and judgments regarding the amount and
timing
of its restructuring expense and liability, including current and future period termination
benefits and other costs to be incurred when related actions take place. Actual results
may differ from these estimates. Restructuring charges are reflected in the Company’s consolidated statements of operations.
F-14

Net Loss per Share Applicable to Common Stockholders

Basic net loss per share applicable to common stockholders is calculated by dividing net loss applicable to common stockholders by the weighted average shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share applicable to common stockholders is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of the dilutive net loss per share applicable to common stockholdersstockholders’ calculation, stock options and warrantwarrants are considered to be common stock equivalents but are excluded from the calculation of diluted net loss per share applicable to common stockholders, as their effect would be anti-dilutive; therefore, basic and diluted net loss per share applicable to common stockholders were the same for all periods presented.

Comprehensive Loss

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions, and other events and circumstances fromnon-owner sources, and currently consists of net loss and changes in unrealized gains and losses onavailable-for-sale securities.

Recently Adopted Accounting Pronouncements

Leases

The

Government Assistance
On January 1, 2022, the Company adopted Accounting Standards Update
No.2016-02-Leases (Topic 842), as 2021-10,
Disclosure by Business Entities about Government Assistance (ASU
2021-10)
. ASU
2021-10
improves the transparency of January 1, 2019, usinggovernment assistance received by certain business entities by requiring the optional modified retrospective approach with no cumulative-effect adjustment to equity asdisclosure of January 1, 2019. Prior period amounts have not been adjusted(1) the types of government assistance received, (2) the accounting for such assistance, and continue to be reported in accordance with our historical accounting under previous lease guidance. The Company elected(3) the package of practical expedients permitted under the transition guidance within Topic 842, which among other things, allowed it to carry forward the historical lease classification of those leases in place as of January 1, 2019 and to not separate lease andnon-lease components when the requisite criteria is met to be treated as such. The Company determined that the only contract containing a lease was the lease of its corporate headquarters at 28 Wells Avenue in Yonkers, New York (see “Note 8—Commitments” in these consolidated financial statements for a descriptioneffect of the leases).

assistance on the business entity’s financial statements. The Company recognizesright-of-use (ROU) assets at the inceptionadoption of the arrangement as the present value of the lease payments plus our initial direct costs, if any, less any lease incentives. The corresponding liability is computed as the present value of the lease payments at inception. Assets are classified as either operating or

finance ROU assets according to the classification criteria in Topic 842. The present value of the lease payments is computed using the rate implicit in the lease, if known, or the Company’s incremental borrowing rate. Operating lease costs are charged to operations on a straight-line basis over the term of the lease. Under the Company’s policy, it does not record an ROU asset or corresponding liability for arrangements where the initial lease term is one year or less. Those leases are expensed on a straight-line basis over the term of the lease.

Adoption of Topic 842 resulted in recording of ROU assets, net of deferred rent and a lease incentive obligation, of $3.3 million and lease liabilities of approximately $4.1 million as of January 1, 2019. The lease liability was classified between a current portion of $0.6 million and a long-term portion of $3.5 million. The new standardguidance did not impactaffect the Company’s consolidated net loss and had no impact on cash flows.

Non-employee Stock Compensation

Thefinancial statements.

Income Taxes
On January 1, 2021, the Company adopted Accounting Standards UpdateCompensation-Stock Compensation (ASU2018-07)
No. 2019-12,
Income Taxes (Topic 740)
,
as of January 1, 2019. The Company elected to utilize which simplified the contractual termaccounting for its outstanding option grants tonon-employees and to recognize forfeitures of awards when incurred.income taxes. The adoption of ASU2018-07the new guidance did not have a material impact on itsaffect the Company’s consolidated financial statements.

Statements of Equity

In August 2018, the SEC adopted the final rule under SEC ReleaseNo. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. Additionally, the amendments expanded the disclosure requirements on the consolidated statements of equity for interim financial statements. Under the amendments, a summary of changes in each caption of stockholders’ equity presented in the consolidated balance sheets must be provided in a note or separate statement. The consolidated statements of equity should present a reconciliation of a beginning balance to the ending balance of each period for which the consolidated statement of comprehensive income is required to be filed. This final rule was effective in the fourth quarter of 2018. The SEC provided relief on the effective date until the first quarter of 2019, and the Company adopted this rule in the first quarter of 2019.

Recent

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued a new Accounting Standards Update,
Financial Instruments-Credit Losses (ASU
2016-13).
ASU
2016-13
amends the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. This new standard also requires that credit losses related to
available-for-sale
debt securities be recorded through an allowance for such losses rather than reducing the carrying amount under the current, other-than-temporary-impairment model. The new standard is effective for interim and annual periods beginning after December 15, 2022. The Company is currently evaluating the impact that this new standard will have on its consolidated financial statements and related
disclosures.

In August 2018, the FASB issued Accounting Standards Update,Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, (ASU2018-13).The new standard removes certain disclosures, modifies certain disclosures and adds additional disclosures related to fair value measurement. The new standard will be effective beginning January 1, 2020 and early adoption is permitted. The Company is currently evaluating the potential impact ASU2018-13 may have on its disclosures upon adoption.

F-15

3. Marketable Securities

The Company held no marketable securities as of December 31, 2019.

Marketable securities at December 31, 20182022 consisted of the following:

Marketable Securities

  Amortized Cost   Unrealized
Gains
   Unrealized
Losses
   Fair Value 

Current:

        

Corporate debt

  $19,179,530   $314   $(31,160  $19,148,684 

U.S. Treasury securities

   2,982,706    546    —      2,983,252 
  

 

 

   

 

 

   

 

 

   

 

 

 
  $22,162,236   $860   $(31,160  $22,131,936 
  

 

 

   

 

 

   

 

 

   

 

 

 

U.S. Treasuryfollowing (in thousands):

Marketable Securities
  
Amortized Cost
   
Unrealized
Gains
   
Unrealized
Losses
   
Fair
Value
 
Current:                    
Corporate debt  $4,807   $—     $(32  $4,775 
Marketable securities include government debt instruments issued by the U.S. Departmentat December 31, 2021 consisted of the Treasury. following (in thousands):
Marketable Securities
  
Amortized Cost
   
Unrealized
Gains
   
Unrealized
Losses
   
Fair
Value
 
Current:                    
Corporate debt  $37,715   $—     $(84  $37,631 
Corporate debt includes obligations issued by investment-grade corporations, and may include issues that have been guaranteed by governments and government agencies.corporations. At December 31, 2018,2022, the Company held only investments that have maturities of less than one year.

At December 31, 2018,2022 and 2021, the Company held 22
3 and 23
debt securities, respectively, that individually and in total were in an immaterial unrealized loss position for 
less than one year. year
.
The aggregate fair value of debt securities in an unrealized loss position at December 31, 20182022 and 2021 was $19,544,246.$
4.8
 million and 
$37.6
 million, respectively. The Company evaluated its securities for other-than-temporary impairment and considered the decline in market value for the securities to be primarily attributable to current economic and market conditions. It was not more likely than not that the Company would have been required to sell the securities prior to the recovery of the amortized cost basis. Based on this analysis, these marketable securities were not considered to be other-than-temporarily impaired as of December 31, 2018.

2022 and 2021.

4. Fair Value Measurements

The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 20192022 and December 31, 2018:

   Fair Value Measurement As of December 31, 2019 
   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
   Significant
Other Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
 

Cash equivalents

  $21,433,639   $—    $—  

Warrant liabilities

   —      —      6,068,978 
  

 

 

   

 

 

   

 

 

 

Total

  $21,433,639   $—    $6,068,978 
  

 

 

   

 

 

   

 

 

 

   Fair Value Measurement As of December 31, 2018 
   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
   Significant
Other Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
 

Cash equivalents

  $6,850,772   $—    $—  

Marketable securities

   22,131,936    —      —   

Warrant liabilities

   —      —      20,781,663 
  

 

 

   

 

 

   

 

 

 

Total

  $28,982,708   $—    $20,781,663 
  

 

 

   

 

 

   

 

 

 
2021 (in thousands):

The Company issued warrants to the purchasers


   
Fair Value Measurement as of December 31, 2022
 
   
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
   
Significant
Other Observable
Inputs

(Level 2)
   
Significant
Unobservable
Inputs

(Level 3)
 
Cash equivalents  $7,596   $—     $—   
Marketable securities   4,775    —      —   
Warrant liabilities   —      —      9,229 
                
Total  $12,371   $—     $9,229 
                
   
Fair Value Measurement as of December 31, 2021
 
   
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
   
Significant
Other Observable
Inputs

(Level 2)
   
Significant
Unobservable
Inputs

(Level 3)
 
Cash equivalents  $7,734   $—     $—   
Marketable securities   37,631    —      —   
Warrant liabilities   —      —      2,530 
                
Total  $45,365   $—     $2,530 
                
F-16

The Company issued warrants to the purchasers of its 2017 Offering (the “2017 Warrants”). The Company determined that these warrants should be classified as a liability and considered as a Level 3 financial instrument (see also Note 9,10, “Capital Structure”). The 2017 Warrants will beare
re-measured
at each subsequent reporting period and changes in fair value willare recognized in the consolidated statement of operations. The 2017 Warrants expired in accordance with their terms on
July 25, 2022. The following assumptions were used in a Black-Scholes option-pricing model to determine the fair value of the warrant liability:
As of
December 31, 2021
Expected volatility56.5
Remaining contractual term (in years)0.58
Risk-free interest rate0.19
Expected dividend yield—  
The Company issued warrants to the purchasers of its 2020 Offering (the “2020 Warrants”). The Company determined that these warrants should be classified as a liability and considered as a Level 3 financial instrument (see also Note 10, “Capital Structure”). The 2020 Warrants are
re-measured
at each subsequent reporting period and changes in fair value are recognized in the consolidated statement of operations. The following assumptions were used in a Black-Scholes option-pricing model to determine the fair value of the warrant liability:

   As of
December 31, 2019
 As of
December 31, 2018

Expected volatility

    104.2%   87.3%

Remaining contractual term (in years)

    2.58   3.58

Risk-free interest rate

    1.60%   2.49%

Expected dividend yield

    —  %   —  %

   
As of
December 31, 2022
  
As of
December 31, 2021
 
Expected volatility   80.2  61.9
Remaining contractual term (in years)   0.42   1.42 
Risk-free interest rate   4.76  0.56
Expected dividend yield   —    —  
The Company issued Class A and Class B warrants to the purchaser of its 2022 Offering (together, the “2022 Warrants”). The Company determined that these warrants should be classified as a liability and considered as a Level 3 financial instrument (see also Note 10, “Capital Structure”). The 2022 Warrants are
re-measured
at each subsequent reporting period and changes in fair value are recognized in the consolidated statement of operations. The following assumptions were used in a Black-Scholes option-pricing model to determine the fair value of the warrant liability:
   
Class A Warrants
  
Class B Warrants
 
   
As of
December 31,
2022
  
At Issuance
December 15,
2022
  
As of
December 31,
2022
  
At Issuance
December 15,
2022
 
Expected volatility   99.8  99.4  140.3  141.6
Remaining contractual term (in years)   5.08   5.13   0.58   0.63 
Risk-free interest rate   3.99  3.62  4.76  4.70
Expected dividend yield   —    —    —    —  
F-17

The following tables present a reconciliation of the Company’s financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2019, 20182022, 2021 and 2017:

2020 (in thousands):

Warrant liabilities

   Year Ended December 31, 
   2019   2018   2017 

Balance at beginning of period

  $20,781,663   $13,549,437   $12,698,980 

Issuance of 2017 Warrants

   —      —      12,383,435 

Change in fair value

   (14,712,685   7,232,226    (11,532,978
  

 

 

   

 

 

   

 

 

 

Balance at end of period

  $6,068,978   $20,781,663   $13,549,437 
  

 

 

   

 

 

   

 

 

 

   
Year Ended December 31,
 
   
2022
   
2021
   
2020
 
Balance at beginning of period  $2,530   $29,404   $6,069 
Issuance of 2020 Warrants   —      —      31,391 
Issuance of 2022 Warrants   10,956           
Change in fair value   (4,187   (26,874   (8,056
                
Balance at end of period  $9,299   $2,530   $ 29,404 
                
The key inputs into the Black-Scholes option pricing model are the per share value and the expected volatility of the Company’s common stock. Significant changes in these inputs will directly increase or decrease the estimated fair value of the Company’s warrant liability.

5. Property, Equipment, and Leasehold Improvements

Property, equipment, and leasehold improvements, at cost, consisted of:

   December 31, 
   2019   2018 

Computer equipment

  $19,691   $19,691 

Furniture

   434,697    434,697 

Lab equipment

   1,864,368    1,844,369 

Leasehold improvements

   2,028,013    1,855,004 
  

 

 

   

 

 

 
   4,346,769    4,153,761 

Less: accumulated depreciation and amortization

   (3,246,821   (3,077,662
  

 

 

   

 

 

 
  $1,099,948   $1,076,099 
  

 

 

   

 

 

 

Depreciation expense was $169,159, $151,292 and $187,249of the following for the years ended December 31, 2019, 20182022 and 2017,2021 (in thousands):

   
December 31,
 
   
2022
   
2021
 
Computer equipment  $63   $20 
Furniture   435    435 
Lab equipment   1,883    1,864 
Leasehold improvements   1,963    1,985 
           
    4,344    4,304 
Less: accumulated depreciation and amortization   (3,717   (3,563
           
   $627   $741 
           
Depreciation expense was $154, $148 and $168 for the years ended December 31, 2022, 2021 and 2020, respectively.

6. Accrued Expenses

and Other Current Liabilities

Accrued expensesand other current liabilities consisted of the following:

   December 31, 
   2019   2018 

Accrued research and clinical development service fees

  $3,865,146   $2,076,764 

Accrued compensation costs

   1,621,008    1,585,689 

Accrued professional fees

   842,613    433,498 

Accrued insurance costs

   231,477    —   

Accrued facilities operation expenses

   180,158    232,673 

Other accrued expenses

   63,387    41,108 
  

 

 

   

 

 

 
  $6,803,789   $4,369,732 
  

 

 

   

 

 

 

following for the years ended December 31, 2022 and 2021 (in thousands):

   
December 31,
 
   
2022
   
2021
 
Accrued research and clinical development service fees  $3,443   $5,641 
Accrued compensation costs   1,676    2,215 
Accrued professional fees   970    819 
Accrued facilities operation expenses   252    307 
Other accrued expenses   157    146 
           
   $6,498   $9,128 
           
F-18

7. Net Loss Per Share of Common Stock

Diluted loss per share is the same as basic loss per share for all periods presented because the effects of potentially dilutive items were anti-dilutive given the Company’s net loss. Basic loss per share is computed by dividing net loss available to common stockholders by the weighted-average number of common shares outstanding.

outstanding, including the weighted average effect of the

Pre-Funded
Warrants the Company issued in connection with the 2022 Offering, the exercise of which requires nominal consideration for the delivery of shares of common stock. As such, the Company has considered the 574,937 
common shares underlying the
Pre-Funded
Warrants that were unexercised as of December 31, 2022 to be outstanding beginning on December 15, 2022 for the purposes of calculating basic EPS.
The following table sets forth the computation of basic and diluted loss per share for common stockholders:

   Year Ended December 31, 
   2019   2018   2017 

Net loss applicable to common stockholders

  $(12,794,493  $(37,684,424  $(15,517,658

Weighted average shares of common stock outstanding

   8,283,509    7,606,266    5,559,573 
  

 

 

   

 

 

   

 

 

 

Net loss per share of common stock—basic and diluted

  $(1.54  $(4.95  $(2.79
  

 

 

   

 

 

   

 

 

 
stockholders (in thousands, except share and per share data):

   
Year Ended December 31,
 
   
2022
   
2021
   
2020
 
Net loss applicable to common stockholders  $(65,153  $(20,282  $(28,156
Weighted average shares of common stock outstanding   521,359    459,699    284,544 
                
Net loss per share of common stock—basic and diluted  $(124.97  $(44.12  $(98.95
                
The following potentially dilutive securities outstanding at December 31, 2019, 20182022, 2021 and 20172020 have been excluded from the computation of diluted weighted average shares outstanding, as they would have been antidilutive given the Company’s net loss:

   December 31, 
   2019   2018   2017 

Options to purchase common stock

   1,216,338    718,788    620,015 

Warrants to purchase common stock

   3,033,910    3,124,303    3,627,010 
  

 

 

   

 

 

   

 

 

 
   4,250,248    3,843,091    4,247,025 
  

 

 

   

 

 

   

 

 

 

   
December 31,
 
   
2022
   
2021
   
2020
 
Options to purchase common stock   55,565    36,246    23,173 
Warrants to purchase common stock   2,151,451    136,580    154,378 
                
   2,207,016   172,826   177,551 
                
8. Commitments and Contingencies

Operating Leases

As described further in Note 2, “Summary of Significant Accounting Policies”, the Company adopted Topic 842 as of January 1, 2019. Prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 840.

In December 2010, the Company entered into a
non-cancellable
operating lease for office space and laboratory facilities in Yonkers, New York expiring in December 2025. In December 2011, the Company entered into an amendment which extended the term of the lease through December 2027 (the “Third Floor Lease”). The lease provides for the option to renew for two additional five-year terms. The premises were occupied in June 2011. Monthly rent payments began the date the office and laboratory facilities were ready for occupancy.

In January 2012, the Company entered into a
non-cancellable
operating lease for additional office space and laboratory facilities in the same building in Yonkers, New York expiring in December 2027 (the “Fourth Floor Lease”). The Fourth Floor Lease provides for an option to renew for two additional five-year terms. Effective August 1, 2017, the Company relinquished 10,912 square feet of space under the Fourth Floor Lease and was relieved of its obligations related to such space.

The Company performed an evaluation

F-19

The balance sheet classification of the Company’s lease liabilities was as follows:

Description

  December 31,
2019
   December 31,
2018
 

Operating lease liabilities:

    

Current portion of lease liabilities

  $631,889   $—  

Long-term portion of lease liabilities

  $3,264,128   $—  

follows (in thousands):

   
December 31,
 
Description
  
2022
   
2021
 
Operating lease liabilities:          
Current portion of lease liabilities  $671   $657 
Long-term portion of lease liabilities  $2,210   $2,609 
The Company adopted Topic 842 in accounting for its lease liabilities as of January 1, 2019. Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company used a discount rate of 9.93%, which was an estimate of its incremental borrowing rate based on the information available at the adoption date. The leases are renewable at the end of the lease term at the Company’s option. For the purposes of determining the remaining lease term in contemplation of available extensions, the Company did not consider either renewal to be probable at this time. In determining the present value of lease payments, the Company estimated its incremental borrowing rate based on the information available at the adoption date of Topic 842. As of January 1, 2019,and therefore the remaining lease term was 9.0 years and the discount rate used to determine the operating lease liability was 9.93%.

9.0 years at the adoption date.

As of December 31, 2019,2022, the maturities of the Company’s operating lease liabilities were as follows:

   Amount 

Year ending December 31:

  

2020

  $666,391 

2021

   679,719 

2022

   693,313 

2023

   707,179 

2024

   721,323 

Thereafter

   2,251,688 
  

 

 

 

Total lease payments

   5,719,613 

Less: Present value adjustment

   (1,823,596
  

 

 

 

Operating lease liabilities

  $3,896,017 
  

 

 

 

follows (in thousands):

   
Amount
 
Year ending December 31:     
2023  $707 
2024   721 
2025   736 
2026   750 
2027   702 
      
Total lease payments   3,616 
Less: Present value adjustment   (735
      
Operating lease liabilities  $2,881 
      
Lease costs under the terms of the Company’s leases for the yearyears ended December 31, 20192022 and 2021 are as follows:

   Year Ended
December 31, 2019
 

Operating lease cost (1)

  $616,653 

Variable lease cost (2)

   98,909 
  

 

 

 

Total lease cost

  $715,562 
  

 

 

 

follows (in thousands):
   
Year Ended
December 31,
 
   
2022
   
2021
 
Operating lease cost (1)  $615   $616 
Variable lease costs (2)   176    148 
           
Total lease cost  $791   $764 
           
(1)

Operating lease payments included in the measurement of the Company’s lease liabilities are comprised of fixed payments according to the terms of the Company’s leases.

(2)

Variable lease payments consist of the Company’s utility costs billed by and paid to its landlord. Variable lease payments are presented as operating expenses in the Company’s Consolidated Statement of Operations in the same line item as expense arising from fixed lease payments and in net cash used in operating activities in the Company’s Statement of Cash Flows.

Rent expense is recognized using the straight-line method over the term

F-20

Rockefeller University

License Agreements

The Company has entered into the following license agreements with The Rockefeller University:

On July 12, 2011, the Company entered into a license agreement for the worldwide, exclusive right to a patent covering the composition of matter for the lysin PlySS2 for the treatment and prevention of diseases caused by gram-positive bacteria (the
“CF-301
License”). The Company rebranded PlySS2 as
CF-301
and subsequently, exebacase. The license gives the Company the right to exclusively develop, make, have made, use, import, lease, sell and offer for sale products that would otherwise infringe a claim of this patent application or patent.

On June 1, 2011, the Company entered into a license agreement for the exclusive rights to The Rockefeller University’s interest in a joint patent application covering the method of delivering antibodies through the cell wall of gram-positive bacteria to the periplasmic space. This intellectual property was developed as a result of the sponsored research agreement between the Company and The Rockefeller University and was jointly discovered and filed by the two parties.

On September 23, 2010, the Company entered into a license agreement for the worldwide, exclusive right to develop, make, have made, use, import, lease, sell, and offer for sale products that would otherwise infringe a claim of the suite of patents and patent applications covering the composition of matter for eight individual lysin molecules for the treatment and prevention of diseases caused by gram-positive bacteria. The lysins in this suite have activity against Group BStreptococci,Staphylococcus aureus, Streptococcus pneumonia, Bacillus anthracis, Enterococcus faecalis and Enterococcus faecium.

On September 23, 2010, the Company entered into a license agreement for the worldwide, exclusive right to develop, make, have made, use, import, lease, sell, and offer for sale products that would otherwise infringe a claim of the suite of patents and patent applications covering the composition of matter for eight individual lysin molecules for the treatment and prevention of diseases caused by gram-positive bacteria. The lysins in this suite have activity against Group B
Streptococci
,
Staphylococcus aureus, Streptococcus pneumonia, Bacillus anthracis, Enterococcus faecalis and Enterococcus faecium
.
In consideration for the licenses, wethe Company paid Rockefeller license initiation fees in cash and stock and are stock. The Company
is currently
required to pay annual maintenance fees of $200,000 in 2019 and
$0.2 million 
each year thereafter until the licenses terminate,terminate. Depending on the success of its programs, the Company may also incur regulatory milestone payments up to a total of $5.0 million and royalties of up to 5% on net sales from products to Rockefeller. The Company made a milestone payment under theCF-301 License of $430,000 during the year ended December 31, 2019 for the completion of the Phase 2 trial. There were no milestone, royalty or sublicense payments made during the years ended December 31, 2018 and 2017. We are allowed to grant sublicenses to third parties without prior approval, subject to certain conditions and the payment of a certain percentage of all payments we receive from sublicensees.

There were no

milestone, royalty or sublicense payments made during the years ended December 31, 2022, 2021 or 2020. The Company has made total milestone payments under the
CF-301
License of
$0.8
million as of December 31, 2022. 
Each license agreement terminates upon the later of (i) the expiration or abandonment of the last licensed patent under the license agreement to expire or become abandoned, or (ii) 10 years after the first commercial sale of the first licensed product. The Rockefeller University may terminate any license agreement in the event of a breach of such agreement by the Company or if the Company challenges the validity or enforceability of the underlying patent rights. The Company may terminate any license agreement at any time on 60 days’ notice.

Collaborative Research Agreements

Beginning in October 2009, we entered into a research agreement with Rockefeller where we provided funding for the research. The initial agreement focused on producing and testing monoclonal antibodies against proteins ofStaph aureus. On October 24, 2011, we entered into a second research agreement with Rockefeller where we provide funding for the research, to identify lysins, enzymes or small molecules that will kill gram-negative bacteria, and identify and characterize lysins fromClostridia difficile to be engineered into gut commensal bacteria. On October 25, 2016, we entered into a third research agreement with Rockefeller, where we provide funding for the identification of novel lysin therapeutic candidates which target gram-negative pathogens. The research collaboration will focus on gram-negative pathogens such asP. aeruginosa, E. coli, andK. pneumoniae, including antibiotic-resistant strains. The agreements expired on October 24, 2019. Following the expiration of the agreements, each party has anon-exclusive license to use for internal research purposes all research results, including joint intellectual property. If Rockefeller or joint intellectual property develops from these programs, we will have theright-of-first refusal to negotiate to acquire a royalty-bearing license to utilize such intellectual property for commercial purposes.

Separation Agreements

On April 1, 2019, Steven C. Gilman notified the Company of his resignation as President, Chief Executive Officer and Chairman of the board of directors, effective as of April 2, 2019. In connection with his resignation, Dr. Gilman entered into a separation agreement with the Company pursuant to which Dr. Gilman will receive (i) an amount in cash equal to 25% of the annual bonus that Dr. Gilman would have earned for the 2019 calendar year had he remained continuously employed, as determined by the board based on actual performance, which amount, if any, shall be paid to Dr. Gilman in a lump sum at the same time in 2020 as annual performance bonuses for 2019 are paid to the Company’s actively employed executive officers and (ii) payment of the premiums to continue coverage under the Company’s group health plans, if elected, pursuant to COBRA, until December 31, 2019 or, if earlier, the date Dr. Gilman becomes no longer eligible for COBRA or becomes eligible to receive comparable coverage from a subsequent employer. Dr. Gilman will continue to serve as a director of the Company, and was appointed to serve as Vice Chairman of the Board and as Chairman of the

Science and Technology Committee. Dr. Gilman is eligible to receive compensation for his service on the board and its committees in accordance with the Company’snon-employee director compensation program. Dr. Gilman’s service on the board will also constitute his continued service to the Company for purposes of the vesting and post-termination exercise period of each option to purchase shares of the Company’s common stock held by Dr. Gilman as of his resignation.

On December 12, 2017, the Company notified Lisa R. Ricciardi that she would no longer be needed to serve as Chief Operating Officer of the Company effective December 31, 2017. Subject to Ms. Ricciardi entering into a separation agreement, the Company accrued expense of $0.7 million for the severance payments and continued medical, dental and vision coverage under the Company’s group healthcare plans, to be provided for a period of 18 months following the effective date of Ms. Ricciardi’s termination, and recognized share-based compensation expense of $0.2 million for the accelerated vesting of all unvested portions of Ms. Ricciardi’s stock option grants. The total amount of these charges was recognized as part of general and administrative expenses in the consolidated statement of operations for the year ended December 31, 2017.

Legal Contingencies

From time to time, the Company may be involved in disputes and legal proceedings in the ordinary course of its business. These proceedings may include allegations of infringement of intellectual property, employment or other matters. The Company records a liability in its financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary to make the financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in the Company’s financial statements. The Company currently has no legal proceedings ongoing that management estimates could have a material effect on the Company’s financial statements.

F-21

9. Capital Structure

Common Stock

Restructuring

On July 29, 2022, the Company initiated a restructuring plan resulting in a reduction in workforce. The restructuring plan was designed to reduce costs and align resources with the Company’s anticipated product development milestones for exebacase and
CF-370
and to help preserve the value of the Company’s drug discovery operations. The restructuring reduced the Company’s workforce from 43 full-time employees as of June 30, 2022 to 27 full-time employees as of August 15, 2022, when the reduction was completed. The Company recognized a restructuring charge of $
7.7
 million, including $
1.6
 million related to employee termination costs, including severance, health benefits and other related expenses from the workforce reduction, and $
6.1
 million from the write-off of prepaid manufacturing costs following the suspension of IV exebacase manufacturing activities.
The restructuring costs were included in accounts payable, accrued and other current liabilities and other liabilities. Activity for the year ended December 31, 2022 is summarized as follows (in thousands):
   
As of
December 31, 2022
 
Balance at beginning of period  $—   
Charge to expense   7,719 
Payments made   (576
      
Balance at end of period  $7,143 
      
As of December 31, 2019,2022, the Company had $7.0 million remaining in accounts payable and accrued and other current liabilities and $0.1
million
in other liabilities, which the Company expects to be paid by the end of the first quarter of 2024.
10. Capital Structure
Common Stock
As of December 31, 2022, the Company was authorized to issue 200,000,000125,000,000 shares of common stock at $0.0001 par value per share.

Follow-on
Offerings

On December 18, 2019,15, 2022, the Company completed the 2022 Offering. All shares of common stock, the Pre-Funded Warrant, the Class A Warrant and the Class B Warrant were issued together to a single accredited investor purchaser for consideration equating to $10.32 share of common stock (or
Pre-Funded
Warrant to purchase one share of common stock, less a nominal exercise price), together with a Class A Warrant to purchase two shares of common stock and a Class B warrant to purchase one share of common stock, in the case of each of the Class A Warrant and Class B Warrant, for no additional consideration but each with an exercise price per share of
$10.32
,
for aggregate net proceeds to the Company of
$6.1 million
after placement agent fees and offering expenses payable by the Company.
As of December 31, 2022, 48,982 shares of common stock had been purchased through the partial exercise of the Pre-Funded Warrant. 
At issuance, the 2022 Warrants were not exercisable and would only become exercisable following (i) stockholder approval of (and the effectiveness of) an amendment to the Company’s certificate of incorporation that either combines outstanding shares of common stock with such combination ratio as determined by the Company’s board of directors and/or authorizes additional shares of common stock to such number as determined by the Company’s board of directors, in each case, so as to enable the issuance of the number of shares of common stock underlying the 2022 Warrants (disregarding any limitations on the exercise thereof), and (ii) the issuance of all shares of common stock issued in, or issuable pursuant to the exercise of the Pre-Funded Warrant or 2022 Warrants issued in, the 2022 Offering was required by the applicable rules and regulations of the Nasdaq Stock Market (or any successor entity).
F-22

On
March 22, 2021, the Company completed an underwritten public offering under the Form
S-3
of 2,565,000
143,750
shares of its common stock, resulting in gross proceeds to the Company of approximately $10.0 million. On December 12, 2019, the Company completed an underwritten public offering of 3,715,000 shares of its common stock and a concurrent private placement of 1,111,111 shares of common stock to Pfizer Inc. resulting in total gross proceeds to the Company of approximately $13.0 million. The combined net proceeds of both public offerings together with the private placement was $21.3 million after underwriting discounts and commissions and offering expenses payable by the Company.

On August 3, 2018, the Company sold 575,000 shares of its common stock in an underwritten offering, including shares sold pursuant to the fully exercised overallotment option granted to the underwriters in connection with the offering, for gross proceedsat a public offering price of $11.5 million. The Company received$

400.00
per share, resulting in net proceeds to the Company of approximately $10.4$
53.8
 million after underwriting discounts and commissions and offering expenses payable by the Company.

On July 25, 2017,May 27, 2020, the Company sold 3,200,000completed an underwritten public offering of 147,471 shares of its common stock and warrants to purchase an additional 1,600,000110,603 shares of its common stock inat an underwrittenexercise price of $392.00 per share. The public offering price was $356.00 for gross proceedsone share of $40 million (the “2017 Offering”). The Company receivedcommon stock and an accompanying warrant to purchase 0.75 shares of common stock, resulting in net proceeds to the Company of approximately $37.1$48.9 million after underwriting discounts and commissions and offering expenses payable by the Company.

On July 27, 2016, the The Company sold 1,400,000completed a concurrent private placement to Pfizer of 8,427 shares of common stock and an accompanying warrant to purchase an additional 6,320 shares of its common stock at an exercise price of $392.00 per share at a price of $356.00 for one share of common stock and warrantsan accompanying warrant to purchase an additional 1,400,0000.75 shares of its common stock, resulting in an underwritten offering for gross proceeds of $35.0 million (the “2016 Offering”). The Company received net proceeds to the Company of approximately $32.0 million after underwriting discounts, commissions$3.0

m
illion. Warrants to purchase 282 and offering expenses payable by73 shares of common stock were exercised during the Company.

years ended December 31, 2021 and 2020, respectively.

The Company issued warrants in theits 2022, 2020 and 2017 and 2016 Offerings. The 2017 Warrants have an exercise priceofferings of $15.50 per share and expire five years fromsecurities. These warrants contain certain terms within the date of issuance. The 2016 Warrants have an exercise price of $30.00 per share and expire five years from the date of issuance. The 2017 Warrants and 2016 Warrants contain a fundamental transaction provision that obligates the Company to cash settle the warrants under a limited set of conditions not entirely within the Company’s control. Due to this conditional obligation, the Company determined that both the 2017 Warrants and the 2016 Warrants should be classifiedrequires classification as liabilities in the Company’s consolidated balance sheet.accordance with ASC 815. At issuance, the Company determined the fair value of the 20172022 Warrants, the 2020 Warrants and 2016the 2017 Warrants to be $12.4$
11.0 million, $31.4 million and $18.6$12.4
 million, respectively, and reclassifiedrecorded these balances from stockholders’ equityas warrant liabilities, and reducing the amount of net proceeds recorded as additional paid-in-capital. The fair value of the 2022 Warrants exceeded the proceeds received in the 2022 Offering and the excess of $4.0 million was expensed as other expense. The Company consummated the 2022 Offering on market terms available at the time of the transaction to warrant liability.provide additional funding to advance its product candidates. The fair value of these warrants isre-measured at each reporting period and changes in fair value are recognized in the consolidated statement of operations (see Note 4, “Fair Value Measurements”). Additionally, the Company allocated approximately $0.9$
0.9 million, $2.2 million and $1.6$0.9
 million of issuance costs to the 20172022 Warrants, the 2020 Warrants and 2016the 2017 Warrants, respectively, based on the proportion of the proceeds allocated to the fair value of the warrants. The allocated issuance costs were expensed as other expenseexpense. On 
July 25, 2022
, the 2017 Warrants expired in accordance with their terms and are no longer exercisable.
The Pfizer Warrant does not contain the same fundamental transaction provision and therefore the Company determined that the Pfizer Warrant should be classified as equity in the Company’s consolidated statement of operations.

Private Placement

On June 12, 2015, the Company closed a private placement of its securities with a group of institutional investors (the “PIPE”). Each investor received one share of common stock and a warrant to purchaseone-half share of common stock at a price of $42.30 per common share purchased. The closing of the PIPE resulted in the issuance of an aggregate of 472,812 common shares and warrants to purchase an additional 236,406 shares of common stock at an exercise price of $80.00 per full share (the “PIPE Warrants”). None of the PIPE Warrants were exercised prior to expiration on June 12, 2018 and therefore have been terminated and are no longer exercisable. The Company received net proceeds from the PIPE of $18.3 million, after deducting expenses payable by the Company.

The placement agents in the PIPE received warrants to purchase 4% of the total number of shares of common stock sold in the PIPE (the “Placement Agent Warrants”), for a total of 18,903 shares of common stock underlying the Placement Agent Warrants. The Placement Warrants became exercisable upon issuance at an exercise price of $46.50 per share and expire on June 11, 2020.

The common stock and accompanying PIPE Warrants and Placement Agent Warrants were classified to stockholders’ equity in the Company’s balance sheet.

Representative’s Warrant

The Maxim Group, LLC, the representative of the underwriters in the IPO, received the Representative’s Warrant to purchase 3% of the total number of shares of common stock sold in the IPO, including those shares sold upon the exercise of the over-allotment, for a total of 20,641 shares of common stock underlying the Representative’s Warrant. The Representative’s Warrant became exercisable at an exercise price of $75.00 per share beginning 180 days after the effective date of the Company’s registration statement (January 24, 2015) and expired on August 27, 2019. The Company classified the Representative’s Warrant as a liability since it did not

meet the requirements to be included in equity. The fair value of the Representative’s Warrant will bere-measured at each reporting period and changes in fair value will be recognized in the statement of operations (see Note 3, “Fair Value Measurements”).

Convertible Notes

The Company issued approximately $15.0 million aggregate principal amount of its 8.00% Convertible Notes due May 31, 2015 (the “Convertible Notes”) from June 2013 through June 2014. On August 1, 2014, in conjunction with the closing of the Company’s IPO, the principal amount of the Convertible Notes, and all accrued and unpaid interest thereon, automatically converted into 510,998 shares of common stock. Each purchaser of the Convertible Notes also received a warrant which included an exercise price “cap” that was analogous to “down round protection” (the “Note Warrants”). Upon the closing of the IPO and based on the terms of the Note Warrants, the Company determined the total number of shares of the Company’s common stock underlying the Note Warrants to be 332,142 at an exercise price of $30.00 per share. There were 67,070 and 264,518 Note Warrants that expired during 2019 and 2018, respectively, and therefore have been terminated and are no longer exercisable. There are no Note Warrants remaining outstanding as of December 31, 2019.

Voting

The holders of shares of common stock are entitled to one vote for each share of common stock held at all meetings of stockholders and written actions in lieu of meetings.

Dividends

The holders of shares of common stock are entitled to receive dividends, if and when declared by the board of directors. As of December 31, 2019,2022, no dividends have been declared or paid on the Company’s common stock since inception.

F-23

Reserved for Future Issuance

The Company has reserved for future issuance the following number of shares of common stock as of December 31, 20192022 and 2018:

   December 31, 
   2019   2018 

Outstanding options to purchase common stock

   1,216,338    718,788 

Outstanding warrants to purchase common stock

   3,033,910    3,124,303 

For future issuance under the 2014 Plan

   101,625    282,176 
  

 

 

   

 

 

 
   4,351,873    4,125,267 
  

 

 

   

 

 

 
2021:

10.

   
December 31,
 
   
2022
   
2021
 
Outstanding pre-funded warrants to purchase common stoc
k

  
574,937
   
— 
 
Outstanding options to purchase common stock   55,565    36,246 
Outstanding warrants to purchase common stock   2,151,451    136,580 
For future issuance under the 2014 Omnibus Incentive Plan   1,317    970 
For future issuance under the 2021 Employment Inducement Plan   12,375    12,500 
           
   2,795,645   186,296 
           
11. Stock Warrants

As of December 31, 20192022 and 2018,2021, the Company had warrants outstanding to purchase the underlying number of shares of common stock as shown in the table below.

   December 31, 
   2019   2018 

Note Warrants (1)

   —      67,070 

2017 Warrants

   1,599,645    1,599,645 

2016 Warrants

   1,400,000    1,400,000 

Representative’s Warrant (2)

   —      20,641 

Placement Agent Warrants

   18,915    18,915 

Other warrants (3)

   15,350    18,033 
  

 

 

   

 

 

 

Warrants to purchase common stock

   3,033,910    3,124,304 

Weighted-average exercise price per share

  $22.61   $23.10 

   
December 31,
 
   
2022
   
2021
 
2022 Warrants   2,034,883    —   
2020 Warrants   110,248    110,248 
2017 Warrants   —      19,996 
Pfizer Warrant   6,320    6,320 
Other warrants (1)   —      16 
           
Warrants to purchase common stock   2,151,451    136,580 
Weighted-average exercise price per share  $31.00   $517.60 

(1)

During 2019 and 2018 the PIPE Warrants to purchase common stock expired in accordance with their terms. Only 553 of the PIPE Warrants were exercised prior to expiration and the remaining PIPE Warrants were terminated and are no longer exercisable.

(2)

On August 27, 2019, the Representative’s Warrant to purchase common stock expired in accordance with its terms. The Representative’s Warrant was not exercised prior to expiration and has been terminated and is no longer exercisable.

(3)

Other warrants are comprised of warrants issued prior to the Company’s IPO, generally in exchange for services rendered to the Company.

The following table summarizes information regarding the Company’s warrants outstanding and the corresponding exercise price at December 31, 2019:

Exercise Prices

Shares
Underlying
Outstanding
Warrants

Expiration Date

£ $20.00

1,600,216September 1, 2021 – July 25, 2022

> $20.00

1,433,694February 12, 2020 – January 5, 2022

3,033,910

11.2022:

Exercise Prices
  
Shares
Underlying
Outstanding
Warrants
   
Expiration Date
 
$10.32   678,294    August 14, 2023 
$10.32   1,356,589    February 14, 2028 
$392.00   116,568    May 27, 2023 
           
   
 
2,151,451    
           
12. Stock Option and Incentive Plans

Amended and Restated 2008 Equity Incentive Plan

In July 2008, the Company adopted the 2008 Equity Incentive Plan (the “Plan”). On February 26, 2013, the board of directors approved an amended and restated plan (the “Amended Plan”) under which the number of shares of common stock available for issuance was 157,143.1,964. For new awards, the period that vested awards would
F-24

remain exercisable upon termination of service was reduced from ten years to two years. The board of directors also increased the number of shares of common stock available under the Company’s Amended Plan on February 24, 2014 and April 29, 2014 to 185,7142,321 and 235,714,2,946, respectively. As of the closing of the Company’s IPO, there were no further grants made under the Amended Plan.

2014 Omnibus Incentive Plan

In April 2014, the Company’s board of directors adopted the 2014 Omnibus Incentive Plan (the “2014 Plan”). The 2014 Plan was approved by the Company’s shareholders on July 3, 2014. The 2014 Plan allows for the granting of incentive and
non-qualified
stock options, restricted stock and stock unit awards, stock

appreciation rights and other performance-based awards to the Company’s employees, members of the board of directors and consultants of the Company. On July 28, 2014, the effective date of the 2014 Plan, the number of shares of common stock reserved pursuant to the 2014 Plan was 57,143.715. The 2014 Plan provides for an annual increase, to be added on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2015 and ending on January 1, 2024, equal to the lesser of (i) 4% of the outstanding shares of common stock on December 31 immediately preceding such date or (ii) a lesser amount determined by the Company’s board of directors. Consistent with the provision for an annual increase, an additional 969,68553,358 shares of common stock have been reserved under the 2014 Plan as of December 31, 2019.

2022.

2021 Employment Inducement Omnibus Incentive Plan
In September 2021, the Company’s board of directors adopted the 2021 Employment Inducement Omnibus Incentive Plan (the “2021 Plan”), under which the number of shares of common stock reserved for issuance was 12,500.
The 2021 Plan allows for the granting of
non-qualified
stock options, restricted stock and stock unit awards, stock appreciation rights and other performance-based awards only to newly hired employees of the Company who have not previously been an employee or member of the board, or an employee who is being rehired following a bona fide period of non-employment by the Company.

2022 Employee Stock Purchase Plan
In March 2022, the Company’s board of directors adopted the 2022 Employee Stock Purchase Plan (the “2022 ESPP”). The 2022 ESPP was approved by the Company’s shareholders on May 17, 2022. The 2022 ESPP allows employees to buy Company stock through after-tax payroll deductions at a discount from market value. One component of the 2022 ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code, whereas the other component authorizes the grant of rights which need not qualify as rights granted pursuant to an “employee stock purchase plan” under Section 423. The number of shares of common stock initially available for issuance under the 2022 ESPP was
10,000
shares of common stock. As of December 31, 2022,
no
purchase rights were outstanding under the 2022 ESPP.
Under the 2022 ESPP, employees may purchase common stock through after-tax payroll deductions. In the absence of a contrary designation, the purchase price will be 85% of the lower of the fair market value of our common stock on the first trading day of an offering period or the last trading day of an offering period.
F-25

The Company recognizes compensation expense for share-basedstock-based compensation based on the fair value of the underlying instrument. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Stock option activity for the year ended December 31, 2019,2022, is summarized as follows:

   Number of
Options
 Weighted
Average
Exercise Price
  Weighted
Average Remaining
Contractual Life
(in years)
  Aggregate
Intrinsic Value

Options outstanding at December 31, 2018

    718,796  $31.70      

Granted

    565,550   4.30      

Exercised

    —     —        

Expired

    (53,258)   18.19      

Forfeited

    (14,750)   11.87      
   

 

 

         

Options outstanding at December 31, 2019

    1,216,338  $19.75    7.13   $1,098,143
   

 

 

         

 

 

 

Vested and exercisable at December 31, 2019

    597,665  $33.17    5.43   $100,390
   

 

 

         

 

 

 

Of the option grants outstanding to purchase 1,216,338 shares of common stock, grants to purchase 65,076 shares of common stock were issued and are outstanding outside the Company’s incentive plans.

   
Number of

Options
   
Weighted
Average
Exercise Price
   
Weighted
Average Remaining
Contractual Life

(in years)
   
Aggregate

Intrinsic Value
 
Options outstanding at
December 31, 2021
   36,246   $729.60           
Granted
   22,925   $245.14           
Exercised
   —      —             
Expired
   (848  $783.53           
Forfeited
   (2,758  $328.84           
   
 
 
   
 
 
           
Options outstanding at December 31, 2022
   55,565   $548.79    7.97   $—   
   
 
 
   
 
 
        
 
 
 
Vested and exercisable at December 31, 2022
   31,757   $729.10    6.87   $—   
   
 
 
   
 
 
        
 
 
 
The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. The weighted average grant date fair value of options granted during the years ended December 31, 2019, 20182022, 2021 and 20172020 was $4.30, $1.47$245.14, $344.80 and $1.62,$773.60, respectively. Total compensation expense recognized amounted to $1,446,549, $1,555,523$3.9 million, $3.2 million and $1,623,128$2.6 million for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively. As of December 31, 2019,2022, the total remaining unrecognized compensation cost related to unvested stock options was $2,547,923$4.6 million which will be recognized over a weighted average period of approximately 2.482.00 years.

The following weighted average assumptions were used to compute the fair value of stock option grants:

   Year Ended December 31, 
   2019  2018  2017 

Risk free interest rate

   2.35  2.58  2.07

Expected dividend yield

   —     —     —   

Expected term (in years)

   6.06   6.02   6.01 

Expected volatility

   89.7  82.3  79.6

   
Year Ended December 31,
 
   
2022
  
2021
  
2020
 
Risk free interest rate
   2.23  0.83  1.14
Expected dividend yield
   —     —     —   
Expected term (in years)
   5.91   5.99   6.03 
Expected volatility
   91.9  94.5  94.6
Expected volatility—
The Company estimated the expected volatility based on an average of the Company’s historical volatility of a representative peer group of publicly traded biopharmaceutical companies selected based on their stage of drug development, area of therapeutic focus, number of employees and market capitalization.

data.

Expected term—
The Company based expected term on the midpoint of the vesting period and the contractual term of each respective option grant.

Risk-free interest rate—
The Company estimated the risk-free interest rate in reference to yield on U.S. Treasury securities with a maturity date commensurate with the expected term of the associated award.

Expected dividend yield—
The Company estimated the expected dividend yield based on consideration of its historical dividend experience and future dividend expectations. The Company has not historically declared or paid dividends to common stockholders. Moreover, it does not intend to pay dividends in the future, but instead expects to retain any earnings to invest in its continued growth.

12.

F-26

13. 401k Savings Plan

In 2010, the Company established a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code (the 401(k) Plan). The 401(k) Plan covers all employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual compensation on a
pre-tax
basis. During 2015, the Company established an employer matching program for participants in the 401(k) Plan. The Company incurred approximately $117,000, $104,000$0.2 million, $0.2 million and $100,000$0.1 million of expense for matching contributions to the 401(k) Plan during the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively.

13.

14. Income Taxes

The Company has available approximately $201,264,000
$
283.7
million and $217,774,000$302.0 million of unused operating loss carryforwards for federal and state tax purposes, respectively, that may be applied against future taxable income. The NOL carryforwards will begin to expire in the year 2028
and research and development (R&D) credits will begin to expire in
2031 if not utilized prior to that date. The Company has evaluated the positive and negative evidence bearing upon the realizability of its net deferred tax assets. Based on the Company’s history of operating losses since inception, the Company has concluded that it is more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, no provision for a deferred tax asset has been made for the tax benefits of the net operating loss carryforwards as the entire amount is offset by a valuation allowance. The valuation allowance increased by approximately $7,984,000$20.8
million and $9,006,000$12.8 million during the years 20192022 and 2018,2021, respectively, and was approximately $62,137,000
$
106.4 million and $54,153,000$85.6 million at December 31, 20192022 and 2018,2021, respectively.


The Internal Revenue Code of 1986, as amended (the “Code”) provides for a limitation of the annual use of net operating losses and other tax attributes (such as research and development tax credit carryforwards) following certain ownership changes (as defined by the Code) that could limit the Company’s ability to utilize these carryforwards. At this time, the Company has not completed a study to assess whether an ownership change under Section 382 of the Code has occurred, or whether there have been multiple ownership changes since the Company’s formation, due to the costs and complexities associated with such a study. The Company may have experienced various ownership changes, as defined by the Code, as a result of past financing transactions. Accordingly, the Company’s ability to utilize the aforementioned carryforwards may be limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes. Therefore, the Company may not be able to take full advantage of these carryforwards for federal or state income tax purposes.

The Company’s reserves related to taxes are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit. For the three years ended December 31, 2019,2022, the Company had no unrecognized tax benefits or related interest and penalties accrued. The Company has not, as yet, conducted a study of R&D credit carryforwards. This study may result in an adjustment to the Company’s R&D credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s R&D credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the consolidated balance sheet or statement of operations if an adjustment were required. The Company would recognize both accrued interest and penalties related to unrecognized benefits in income tax expense. The Company’s uncertain tax positions are related to years that remain subject to examination by relevant tax authorities. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available.

On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted. The 2017 Tax Act lowered the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018. As a result, the change in the U.S. federal tax rate required the Company tore-measure its federal deferred tax assets and liabilities. Effective for tax years beginning on January 1, 2018, the 2017 Tax Act repealed the performance exception permitting certain executive officer compensation greater than $1 million to be deducted. During the fourth quarter


F-27

The principal components of the Company’s deferred tax assets and liabilities are as follows:

   December 31, 
   2019   2018 

Deferred tax assets:

    

Net operating loss carryovers

  $56,646,542   $49,294,211 

Share-based compensation

   1,770,295    1,754,362 

R&D tax credits

   3,149,249    2,545,920 

Accrued compensation and severance

   454,128    442,090 

Deferred rent

   —      198,278 

Lease liability

   1,101,248    —   

Intangible assets

   110,178    131,503 
  

 

 

   

 

 

 

Total deferred tax assets

  $63,231,640   $54,366,364 

Valuation allowance

   (62,136,614   (54,152,886
  

 

 

   

 

 

 

Total deferred tax assets net of valuation allowance

  $1,095,026   $213,478 

Deferred tax liabilities:

    

Right-of-use asset

   (909,271   —   

Depreciation

   (185,755   (213,478
  

 

 

   

 

 

 

Total deferred tax liabilities

  $(1,095,026  $(213,478
  

 

 

   

 

 

 

Net deferred tax asset (liability)

  $—    $—  
  

 

 

   

 

 

 

follows (in thousands):

   
December 31,
 
   
2022
  
2021
 
Deferred tax assets:
         
Net operating loss carryovers
  $79,694  $77,431 
Stock-based compensation
   3,295   2,457 
R&D capitalization
  
14,610
   
 
R&D tax credits
   8,196   5,031 
Accrued compensation and severance
   451   563 
Lease liability
   801   911 
Intangible assets
   77   88 
   
 
 
  
 
 
 
Total deferred tax assets
  $107,124  $86,481 
Valuation allowance
   (106,366  (85,613
   
 
 
  
 
 
 
Total deferred tax assets net of valuation allowance
  $758  $868 
Deferred tax liabilities:
         
Right-of-use
asset
   (654  (746
Depreciation
   (104  (122
   
 
 
  
 
 
 
Total deferred tax liabilities
  $(758)   $(868
   
 
 
  
 
 
 
Net deferred tax asset (liability)
  $—     $—    
 
 
 
 
 
 
 
 
 
A reconciliation of the statutory U.S. Federal rate to the company’s effective tax rate is as follows:

   Year Ended December 31, 
   2019  2018  2017 

Federal income tax benefit at statutory rate

   (21.00)%   (21.00)%   (34.00)% 

State income tax, net of federal benefit

   (15.09  (5.64  (9.95

Permanent items including change in fair value of warrants

   (21.87  4.80   (22.03

Change in valuation allowance

   62.56   23.95   (50.33

R&D tax credits

   (4.72  (2.11  (3.02

Deferredre-measurement

   —     —     118.03 

Other

   0.12   —     (1.30
  

 

 

  

 

 

  

 

 

 

Effective income tax (benefit) expense rate

   0  0  0
  

 

 

  

 

 

  

 

 

 

14. Selected Quarterly Financial Data (Unaudited)

The following tables show a summary of the Company’s unaudited quarterly financial data for each of the four quarters of 2019 and 2018:

   2019 
   1st Quarter  2nd Quarter  3rd Quarter  4th Quarter 

Loss from operations

  $(6,361,733 $(7,407,479 $(7,626,575 $(6,470,661

Net income (loss)

  $11,587,015  $(8,666,906 $(5,359,118 $(10,355,484

Net income (loss) per share of common stock, basic and diluted

  $1.46  $(1.09 $(0.67 $(1.11

   2018 
   1st Quarter  2nd Quarter  3rd Quarter  4th Quarter 

Loss from operations

  $(6,984,169 $(7,496,454 $(7,799,290 $(8,844,512

Net (loss) income

  $(19,106,481 $(20,135,892 $(4,377,747 $5,935,696 

Net (loss) income per share of common stock, basic and diluted

  $(2.59 $(2.73 $(0.57 $0.75 

   
Year Ended December 31,
 
   
2022
  
2021
  
2020
 
Federal income tax benefit at statutory rate
   (21.00)%   (21.00)%   (21.00)% 
State income tax, net of federal benefit
   (6.57  (14.41  (9.09
Permanent items including change in fair value of warrants
   0.55   (26.27  (5.35
Change in valuation allowance
   31.83   63.08   37.88 
R&D tax credits
   (4.86  (5.89  (2.43
Other
   (0.05)  4.49   (0.01
   
 
 
  
 
 
  
 
 
 
Effective income tax (benefit) expense rate
   0  0  0
   
 
 
  
 
 
  
 
 
 
15. Subsequent Event

InEvents

On February 2020,10, 2023, the Board of Directorsstockholders of the Company approved a1-for-10 reverse stock-split of the Company’s outstanding shares of common stock warrantsat a ratio ranging from any whole number between 1-for-10 and options outstanding and available for future issuance.
1-for-80
,
as determined by the Board of Directors in its discretion. The Board subsequently determined to implement a reverse stock split at a ratio of 1-for-80. The stock split became effective on February 3, 2020.14, 2023. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect this reverse stock split. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately decreased and the respective per share value and exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities. In addition, the Boardstockholders of Directorsthe Company approved a decrease in the numberissuance of authorizedall shares of common stock from 200,000,000issued in, or issuable pursuant to the exercise of the Pre-Funded Warrant or 2022 Warrants issued in, the 2022 Offering as may be required by the applicable rules and regulations of the Nasdaq Stock Market, the approval of which, together with the approval and effectiveness of the
1-for-80
reverse stock-split effected on February 14, 2023, commenced the exercisability of the 2022 Warrants as of February 14, 2023. The resulting expiration dates of the 2022 Warrants have been reflected, where applicable, in the accompanying financial statements and notes thereto.
F-28

On March 2, 2023, the Company completed 2023 Offering. All securities in the 2023 Offering were issued the same single accredited investor purchaser as in the 2022 Offering for consideration equating to $4.00 per share of common stock (or
pre-funded
warrant to purchase one share of common stock, less a nominal exercise price), together with a warrant to purchase two shares of common stock for no additional consideration but with an exercise price per share of $4.00, for aggregate estimated net proceeds to 125,000,000 shares.the Company of $9.2 million after placement agent fees and offering expenses payable by the Company.
F-2
9


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.

 

  

CONTRAFECT CORPORATION

Date: March 18, 202031, 2023  

By:

 

/s/ Roger J. Pomerantz, M.D., F.A.C.P.

   

Roger J. Pomerantz, M.D., F.A.C.P..F.A.C.P.

President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature

  

Title

 

Date

/s/ Roger J. Pomerantz, M.D., F.A.C.P.

Roger J. Pomerantz, M.D., F.A.C.P.

  

President and Chief Executive Officer,

Chairman of the Board

(Principal Executive Officer)

 March 18, 202031, 2023

/s/ Michael Messinger

Michael Messinger

  

Chief Financial Officer

(Principal Financial Officer and

Principal Accounting Officer)

 March 18, 202031, 2023

/s/ Sol J. Barer, Ph.D.

Sol J. Barer, Ph.D.

  

Lead Independent Director

 March 18, 202031, 2023

/s/ Steven C. Gilman, Ph.D.

Steven C. Gilman, Ph.D.

  

Vice Chairman of the Board

 March 18, 202031, 2023

/s/ Lishan Aklog, M.D.

Lishan Aklog, M.D.

Director

March 31, 2023

/s/ Jane F. Barlow, M.D., M.P.H., M.B.A.

Jane F. Barlow, M.D., M.P.H., M.B.A.

Director

March 31, 2023

/s/ David N. Low, Jr.

David N. Low, Jr.

  

Director

 March 18, 202031, 2023

/s/ Michael J. Otto, Ph.D.

Michael J. Otto, Ph.D.

  

Director

 March 18, 202031, 2023

/s/ Cary W. Sucoff

Cary W. Sucoff

  

Director

 March 18, 202031, 2023